FBL Financial (FFG) 10-K/A 2004 FY Annual report (amended)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K

Amendment No. 1

(Mark One)
[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2004

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 Financial Group, Inc.

(Exact name of registrant as specified in its charter)

Iowa	42-1411715
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
5400 University Avenue, West Des Moines, Iowa	50266
(Address of principal executive offices)	(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Class A common stock, without par value	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

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

Indicated by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
x Yeso No

Aggregate market value of Class A and B Common Stock held by non-affiliates of the registrant (computed as of June 30, 2004): $330,885,658

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 27,585,856 shares of Class A Common Stock and 1,192,990 shares of Class B Common Stock as of February 18, 2005.

DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant’s definitive proxy statement for the annual meeting of shareholders to be held May 20, 2005 are incorporated by reference into Part III of this Form 10-K.

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A to our Annual Report on Form 10-K for the fiscal year ended December 31, 2004 (the “Original Filing”), which was filed with the Securities and Exchange Commission on March 2, 2005, is being filed to correct certain language contained in the “Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements” to conform to the guidance contained in the Public Company Accounting Oversight Board’s Auditing Standard No. 1, “Reference in Auditors’ Reports to the Standards of the Public Company Accounting Oversight Board.”

Specifically, the first sentence of the second paragraph has been revised to refer to “the standards of the Public Company Accounting Oversight Board (United States)” rather than “auditing standards generally accepted in the United States.” Also, the third paragraph has been revised to indicate that the consolidated financial statements are in conformity with “U.S. generally accepted accounting principles” rather than “accounting principles generally accepted in the United States.”

As a result of this amendment, (1) the certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, filed and furnished, respectively, as exhibits to the Original Filing, have been re-executed and re-filed as of the date of this Form 10-K/A; and (2) a revised Consent of Independent Registered Public Accounting Firm dated March 18, 2005 to cover both the report relating to our consolidated financial statements and the report related to our internal control over financial reporting dated February 4, 2005 is being filed.

Except for the amendments described above, this Form 10-K/A does not modify or update our previously reported financial statements and other financial disclosures in, or exhibits to, the Original Filing. For convenience and ease of reference, we are filing the entire Item 8, “Consolidated Financial Statements and Supplementary Data.”

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a – 15(f). Under the supervision and the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework inInternal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework inInternal Control – Integrated Framework,our management concluded that our internal control over financial reporting was effective as of December 31, 2004.

Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2004 has been attested to by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report that follows.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Board of Directors and Stockholders
FBL Financial Group, Inc.

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that FBL Financial Group, Inc. maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). FBL Financial Group, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

52

In our opinion, management’s assessment that FBL Financial Group, Inc. maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, FBL Financial Group, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying consolidated balance sheets as of December 31, 2004 and 2003, and the related statements of income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004 of FBL Financial Group, Inc. and our report dated February 4, 2005 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Des Moines, Iowa
February 4, 2005

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON CONSOLIDATED FINANCIAL STATEMENTS

The Board of Directors and Stockholders
FBL Financial Group, Inc.

We have audited the accompanying consolidated balance sheets of FBL Financial Group, Inc. as of December 31, 2004 and 2003, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of FBL Financial Group, Inc. at December 31, 2004 and 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of FBL Financial Group, Inc.’s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 4, 2005 expressed an unqualified opinion thereon.

As discussed in Note 1 to the consolidated financial statements, in 2004 the Company changed its method of accounting for guaranteed minimum death benefits and incremental death benefits on its variable annuities and in 2003 the Company changed its method of accounting for its Series C redeemable preferred stock, the subsidiary trust that issued the company-obligated mandatorily redeemable preferred stock and stock options.

/s/ Ernst & Young LLP

Des Moines, Iowa
February 4, 2005

53

FBL FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)

	December 31,
	2004		2003
Assets
Investments:
Fixed maturities – available for sale, at market (amortized cost: 2004 - $6,209,593; 2003 - $5,181,704)	$	6,459,208	$	5,393,381
Equity securities – available for sale, at market (cost: 2004 - $55,359; 2003 - $55,264)		71,163		66,730
Mortgage loans on real estate		740,874		632,864
Derivative instruments		15,536		2,657
Investment real estate, less allowances for depreciation of $2,016 in 2004 and $5,529 in 2003		9,441		27,800
Policy loans		176,613		177,547
Other long-term investments		1,300		5,391
Short-term investments		27,545		35,331
Total investments		7,501,680		6,341,701
Cash and cash equivalents		27,957		233,858
Securities and indebtedness of related parties		22,727		21,846
Accrued investment income		68,314		52,925
Amounts receivable from affiliates		8,176		4,950
Reinsurance recoverable		119,631		116,991
Deferred policy acquisition costs		587,391		530,580
Deferred sales inducements		78,443		39,143
Value of insurance in force acquired		45,839		47,327
Property and equipment, less allowances for depreciation of $62,456 in 2004 and $57,090 in 2003		43,409		36,757
Current income taxes recoverable		–		16,761
Goodwill		11,170		11,170
Other assets		33,970		31,289
Assets held in separate accounts		552,029		463,772
Total assets	$	9,100,736	$	7,949,070

54

FBL FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in thousands, except per share data)

	December 31,
	2004		2003
Liabilities and stockholders’ equity
Liabilities:
Policy liabilities and accruals:
Future policy benefits:
Interest sensitive and index products	$	5,432,828	$	4,594,869
Traditional life insurance and accident and health products		1,167,432		1,132,084
Unearned revenue reserve		29,319		29,962
Other policy claims and benefits		21,394		23,336
		6,650,973		5,780,251
Other policyholders’ funds:
Supplementary contracts without life contingencies		370,341		353,422
Advance premiums and other deposits		166,988		154,736
Accrued dividends		12,639		13,658
		549,968		521,816
Amounts payable to affiliates		7,981		145
Short-term debt		46,000		45,280
Long-term debt		217,183		140,200
Current income taxes		3,803		–
Deferred income taxes		118,965		113,886
Other liabilities		121,032		135,732
Liabilities related to separate accounts		552,029		463,772
Total liabilities		8,267,934		7,201,082
Minority interest in subsidiaries		191		161
Stockholders’ equity:
Preferred stock, without par value, at liquidation value – authorized 10,000,000 shares, issued and outstanding 5,000,000 Series B shares		3,000		3,000
Class A common stock, without par value – authorized 88,500,000 shares, issued and outstanding 27,541,867 shares in 2004 and 26,997,928 shares in 2003		62,234		51,609
Class B common stock, without par value – authorized 1,500,000 shares, issued and outstanding 1,192,990 shares		7,524		7,522
Accumulated other comprehensive income		141,240		121,552
Retained earnings		618,613		564,144
Total stockholders’ equity		832,611		747,827
Total liabilities and stockholders’ equity	$	9,100,736	$	7,949,070

See accompanying notes.

55

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

	Year ended December 31,
	2004			2003			2002
Revenues:
Interest sensitive and index product charges	$	89,925		$	83,944		$	78,475
Traditional life insurance premiums		131,865			129,190			121,999
Accident and health premiums		480			566			493
Net investment income		416,081			395,881			348,359
Derivative income (loss)		15,607			17,078			(10,418	)
Realized gains (losses) on investments		8,175			(2,008	)		(14,879	)
Other income		20,469			16,894			17,086
Total revenues		682,602			641,545			541,115
Benefits and expenses:
Interest sensitive and index product benefits		268,083			260,470			209,626
Traditional life insurance and accident and health benefits		83,329			75,852			74,728
Increase in traditional life and accident and health future policy benefits		34,149			32,745			33,262
Distributions to participating policyholders		24,733			27,443			29,540
Underwriting, acquisition and insurance expenses		150,046			130,935			101,401
Interest expense		11,397			5,052			685
Other expenses		18,373			15,054			12,500
Total benefits and expenses		590,110			547,551			461,742
		92,492			93,994			79,373
Income taxes		(27,709	)		(31,417	)		(23,869	)
Minority interest in earnings of subsidiaries:
Dividends on company-obligated mandatorily redeemable preferred stock of subsidiary trust		–			(2,425	)		(4,850	)
Other		(105	)		(16	)		(200	)
Equity income, net of related income taxes		1,398			5,809			214
Net income		66,076			65,945			50,668
Dividends on Series B and C preferred stock		(150	)		(2,297	)		(4,337	)
Net income applicable to common stock	$	65,926		$	63,648		$	46,331
Earnings per common share	$	2.31		$	2.27		$	1.68
Earnings per common share – assuming dilution	$	2.26		$	2.23		$	1.64
Cash dividends per common share	$	0.40		$	0.40		$	0.40

See accompanying notes.

56

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

									Accumulated
	Series B		Class A			Class B			Other					Total
	Preferred		Common			Common			Comprehensive		Retained			Stockholders'
	Stock		Stock			Stock			Income		Earnings			Equity
Balance at January 1, 2002	$	3,000	$	39,446		$	7,563		$	39,364	$	476,420		$	565,793
Comprehensive income:
Net income for 2002		–		–			–			–		50,668			50,668
Change in net unrealized investment gains/losses		–		–			–			55,781		–			55,781
Total comprehensive income															106,449
Issuance of 362,594 shares of common stock under compensation and stock option plans, including related income tax benefit		–		4,726			–			–		–			4,726
Adjustment resulting from capital transactions of equity investee		–		(179	)		(30	)		–		–			(209	)
Dividends on preferred stock		–		–			–			–		(4,337	)		(4,337	)
Dividends on common stock		–		–			–			–		(11,059	)		(11,059	)
Balance at December 31, 2002		3,000		43,993			7,533			95,145		511,692			661,363
Comprehensive income:
Net income for 2003		–		–			–			–		65,945			65,945
Change in net unrealized investment gains/losses		–		–			–			26,407		–			26,407
Total comprehensive income															92,352
Issuance of 419,649 shares of common stock under compensation and stock option plans, including related income tax benefit		–		7,690			–			–		–			7,690
Adjustment resulting from capital transactions of equity investee		–		(74	)		(11	)		–		–			(85	)
Dividends on preferred stock		–		–			–			–		(2,297	)		(2,297	)
Dividends on common stock		–		–			–			–		(11,196	)		(11,196	)
Balance at December 31, 2003		3,000		51,609			7,522			121,552		564,144			747,827
Comprehensive income:
Net income for 2004		–		–			–			–		66,076			66,076
Change in net unrealized investment gains/losses		–		–			–			19,688		–			19,688
Total comprehensive income															85,764
Issuance of 543,939 shares of common stock under compensation and stock option plans, including related income tax benefit		–		10,612			–			–		–			10,612
Adjustment resulting from capital transactions of equity investee		–		13			2			–		–			15
Dividends on preferred stock		–		–			–			–		(150	)		(150	)
Dividends on common stock		–		–			–			–		(11,457	)		(11,457	)
Balance at December 31, 2004	$	3,000	$	62,234		$	7,524		$	141,240	$	618,613		$	832,611

See accompanying notes.

57

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

	Year ended December 31,
	2004			2003			2002
Operating activities
Net income	$	66,076		$	65,945		$	50,668
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments related to interest sensitive and index products:
Interest credited to account balances, excluding deferred sales inducements		223,543			202,599			174,687
Change in fair value of embedded derivatives		2,353			14,203			1,005
Charges for mortality and administration		(84,031	)		(79,989	)		(75,658	)
Deferral of unearned revenues		956			1,264			2,159
Amortization of unearned revenue reserve		(1,786	)		(1,763	)		(1,978	)
Provision for depreciation and amortization		1,165			(12,449	)		(626	)
Equity income		(1,398	)		(5,809	)		(214	)
Realized losses (gains) on investments		(8,175	)		2,008			14,879
Increase in traditional life and accident and health benefit accruals, net of reinsurance		34,149			32,973			33,262
Policy acquisition costs deferred		(119,377	)		(116,248	)		(151,157	)
Amortization of deferred policy acquisition costs		52,717			44,773			21,618
Amortization of deferred sales inducements		6,792			4,040			1,048
Provision for deferred income taxes		(5,369	)		(1,608	)		11,444
Other		16,917			(872	)		27,626
Net cash provided by operating activities		184,532			149,067			108,763
Investing activities
Sale, maturity or repayment of investments:
Fixed maturities – available for sale		1,410,112			1,704,603			925,000
Equity securities – available for sale		2,412			6,439			16,540
Mortgage loans on real estate		43,884			78,884			61,155
Investment real estate		23,958			632			500
Policy loans		36,739			37,621			42,352
Other long-term investments		1			1,002			715
Short-term investments – net		7,786			15,514			–
		1,524,892			1,844,695			1,046,262
Acquisition of investments:
Fixed maturities – available for sale		(2,437,298	)		(2,442,029	)		(1,896,056	)
Equity securities – available for sale		(466	)		(8,339	)		(4,069	)
Mortgage loans on real estate		(151,831	)		(231,472	)		(159,444	)
Derivative instruments		(8,110	)		–			–
Investment real estate		(1,286	)		(4,720	)		(3,104	)
Policy loans		(35,805	)		(36,171	)		(40,295	)
Other long-term investments		–			(525	)		(506	)
Short-term investments – net		–			–			(18,003	)
		(2,634,796	)		(2,723,256	)		(2,121,477	)
Proceeds from disposal, repayments of advances and other distributions from equity investees		2,035			13,071			6,618
Investments in and advances to equity investees		–			(13,137	)		(50	)
Net purchases of property and equipment and other		(18,984	)		(13,299	)		(5,834	)
Net cash used in investing activities		(1,126,853	)		(891,926	)		(1,074,481	)

58

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

	Year ended December 31,
	2004			2003			2002
Financing activities
Receipts from interest sensitive and index products credited to policyholder account balances	$	1,107,075		$	1,117,549		$	1,258,029
Return of policyholder account balances on interest sensitive and index products		(443,985	)		(395,993	)		(287,151	)
Proceeds from long-term debt		121,512			–			–
Repayments of short-term debt		(45,280	)		–			–
Distributions on company-obligated mandatorily redeemable preferred stock of subsidiary trust		–			(2,425	)		(4,850	)
Other distributions related to minority interests – net		(75	)		(51	)		(184	)
Issuance of common stock		8,780			6,654			3,999
Dividends paid		(11,607	)		(12,028	)		(12,573	)
Net cash provided by financing activities		736,420			713,706			957,270
Decrease in cash and cash equivalents		(205,901	)		(29,153	)		(8,448	)
Cash and cash equivalents at beginning of year		233,858			263,011			271,459
Cash and cash equivalents at end of year	$	27,957		$	233,858		$	263,011
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest	$	8,618		$	3,584		$	692
Income taxes		11,436			43,464			20,585
Non-cash operating activity:
Deferral of sales inducements		50,668			19,763			19,079
Non-cash investing activity:
Transfer of investments from securities and indebtedness of related parties to equity securities		–			38,312			–
Non-cash financing activity:
Refinancing of short-term debt		–			40,000			–

See accompanying notes.

59

FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Significant Accounting Policies

Nature of Business

FBL Financial Group, Inc. (we or the Company) operates predominantly in the life insurance industry through its principal subsidiaries, Farm Bureau Life Insurance Company (Farm Bureau Life) and EquiTrust Life Insurance Company (EquiTrust Life) (collectively, the Life Companies). 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. EquiTrust Life markets individual annuity products through independent agents and brokers and variable products through alliances with other insurance companies and a regional broker/dealer. These sales take place throughout the United States. In addition to writing direct insurance business, EquiTrust Life assumes, through a coinsurance agreement, a percentage of certain annuities written by American Equity Investment Life Insurance Company (American Equity) prior to August 1, 2004. Several subsidiaries support various functional areas of the Life Companies and other affiliates, by providing investment advisory, marketing and distribution, and leasing services. In addition, we manage three Farm Bureau affiliated property-casualty companies.

Consolidation

Our consolidated financial statements include the financial statements of FBL Financial Group, Inc. and its direct and indirect subsidiaries. All significant intercompany transactions have been eliminated.

Accounting Changes

Effective January 1, 2004, we adopted Statement of Position (SOP) 03-1, “Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts,” issued by the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants. The SOP provides guidance on separate account presentation and valuation, the accounting for sales inducements (including premium bonuses and bonus interest) and the classification and valuation of long-duration contract liabilities. To comply with this SOP, we changed our method of computing reserves for guaranteed minimum death benefits (GMDB) and incremental death benefits (IDB) associated with our variable annuities and changed our presentation of deferred expenses relating to sales inducements.

Variable annuity and variable universal life contracts are the only contracts reported in our separate accounts. These contracts generally do not have any minimum guarantees other than minimum interest guarantees on funds deposited in our general account and GMDBs on our variable annuities. In addition, certain variable annuity contracts have an IDB rider that pays the contract holder a percentage of the gain on the contract. Information regarding our GMDBs and IDBs by type of guarantee and related separate account balance and net amount at risk (amount by which GMDB or IDB exceeds account value) is as follows:

	December 31, 2004				December 31, 2003
	Separate				Separate
	Account		Net Amount at		Account		Net Amount at
Type of Guarantee	Balance		Risk		Balance		Risk
	(Dollars in thousands)
Guaranteed minimum death benefit:
Return of net deposits	$	206,054	$	6,099	$	190,172	$	10,068
Return the greater of highest anniversary value or net deposits.		158,170		1,081		85,666		2,745
Return the greater of last anniversary value or net deposits.		61,950		759		42,070		1,389
Incremental death benefit		424,764		17,732		234,799		10,500
Total			$	25,671			$	24,702

The separate account assets are principally comprised of stock and bond mutual funds. The reserve for GMDBs and IDBs, determined using scenario-based modeling techniques and industry mortality assumptions, totaled $0.5 million at December 31, 2004 and $0.8 million at December 31, 2003. The weighted average age of the contract holders with a GMDB or IDB rider was 57 years at December 31, 2004 and 55 years at December 31, 2003.

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FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Incurred benefits for GMDBs and IDBs totaled ($0.1) million for 2004, excluding the impact of the adoption of SOP 03-1 and $0.3 million for 2003 and 2002. Paid benefits for GMDBs and IDBs totaled $0.1 million for 2004 and 2003 and $0.2 million for 2002. The adoption of SOP 03-1 provisions relating to GMDBs and IDBs resulted in an increase to net income for 2004 totaling less than $0.1 million (less than $0.01 per common share – basic and diluted).

Certain annuity contracts contain either a premium bonus credited to the contract holder’s account balance or a bonus interest crediting rate which applies to the first contract year only. In addition, certain of our life policies have a premium bonus credited to the contracts. These sales inducements are deferred and amortized over the expected life of the contracts based primarily on the emergence of gross profits. Sales inducements deferred totaled $50.7 million in 2004, $19.8 million in 2003 and $19.1 million in 2002 and amounts amortized totaled $6.8 million in 2004, $4.0 million in 2003 and $1.0 million in 2002. The unamortized sales inducement balance totaled $78.4 million at December 31, 2004 and $39.1 million at December 31, 2003. Beginning January 1, 2004, the deferred sales inducements are reported separately on the balance sheet and the amortization of deferred sales inducements is reported in interest sensitive and index product benefits on the consolidated statement of income. Amounts related to sales inducements in the 2003 and 2002 consolidated financial statements, previously reported with deferred policy acquisition costs, have been reclassified to conform to the 2004 financial statement presentation. The adoption of SOP 03-1 provisions relating to sales inducements had no impact on net income for 2004.

As discussed in the “Stock-Based Compensation” section that follows, effective January 1, 2003, we changed our method of accounting for stock options. Details regarding additional changes in the accounting for stock-based compensation to be effective July 1, 2005 are also outlined in the “Stock-Based Compensation” section of this Note.

Effective July 1, 2003, we adopted Statement of Financial Accounting Standards (Statement) No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” Statement No. 149 codifies several Derivatives Implementation Group (DIG) issues, including DIG Issue C18, “Scope Exceptions: Shortest Period Criterion for Applying the Regular-Way Security Trades Exception to When-Issued Securities or Other Securities That Do Not Yet Exist.” DIG Issue C18 clarifies the applicability of Statement No. 133 to when-issued securities by holding that the regular-way security trade exception may not be applied to securities which are not settled within the shortest period possible for that security. If settlement does not occur within the shortest period possible, there is deemed to be a forward contract for the purchase of that security which is subject to fair value accounting under Statement No. 133. We occasionally purchase asset-backed securities and agree to settle at a future date, even though the same security or an essentially similar security could be settled at an earlier date. For these securities, any changes in the market value of the security from the trade date through the settlement date are recorded as derivative income (loss) rather than as a component of accumulated other comprehensive income (loss). The adoption of Statement No. 149 resulted in an increase to net income of less than $0.1 million for 2004 and a decrease to net income totaling $0.4 million for 2003.

Effective July 1, 2003, we also adopted Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. Upon adoption of this Statement, our company-obligated mandatorily redeemable preferred stock of subsidiary trust and Series C redeemable preferred stock were reclassified to debt on our consolidated balance sheet. There were no adjustments to the carrying values of these instruments upon reclassification. Also, in accordance with Statement No. 150, amounts previously classified as dividends on these financial instruments ($2.2 million for 2004 and $4.6 million for the six months ended December 31, 2003) are recorded as interest expense. All changes in classifications made due to the adoption of Statement No. 150 were made on a prospective basis only as reclassification of prior period amounts was not permitted. The adoption of Statement No. 150 resulted in a $2.2 million decrease to net income for 2004 and 2003. The adoption of Statement No. 150 did not impact net income applicable to common stock or earnings per common share. As discussed below, our company-obligated mandatorily redeemable preferred stock of subsidiary trust was removed from our consolidated financial statements in connection with the deconsolidation of the trust effective December 31, 2003.

Effective October 1, 2003, we adopted the DIG’s Statement 133 Implementation Issue No. B36, “Embedded Derivatives: Modified Coinsurance and Debt Instruments that Incorporate Credit Rate Risk Exposures that are Unrelated or Only Partially Related to the Creditworthiness of the Obligor under those Instruments” (DIG B36). DIG B36 addresses whether Statement No. 133 requires bifurcation of modified coinsurance arrangements and debt instruments into a debt host contract and an embedded derivative if the coinsurance agreement or debt instrument

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FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

incorporates credit risk exposures that are unrelated or only partially related to the creditworthiness of the obligor of that agreement or instrument. Under DIG B36, a modified coinsurance agreement where interest on funds withheld is determined by reference to a pool of fixed maturity assets is an example of an arrangement containing embedded derivatives requiring bifurcation. Embedded derivatives in these contracts are to be recorded at fair value at each balance sheet date and changes in the fair values of the derivatives are recorded as income or expense. This guidance applies to general account investments supporting our variable alliance business. The fair value of the embedded derivatives pertaining to funds withheld on variable business assumed by us totaled $0.7 million at December 31, 2004 and $0.5 million at December 31, 2003, and the fair value of the embedded derivatives pertaining to funds withheld on business ceded by us was less than $0.1 million at December 31, 2004 and December 31, 2003. The adoption of DIG B36 resulted in increases to net income of less than $0.1 million for 2004 and $0.2 million for 2003.

In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” Interpretation No. 46 establishes a variable interests model to follow when determining whether or not to consolidate an entity that is not evaluated for consolidation under the traditional voting interests model. This Interpretation generally requires that a company (investee) being evaluated under the variable interests model be consolidated if (a) the investor has decision making powers over the entity - that is, the ability to buy and sell assets or conduct operations or (b) the investor is exposed to the majority of the risks or rewards of the entity. In addition, the Interpretation requires that investments made by related parties be analyzed together in applying the variable interests model. The disclosure provisions of this Interpretation are effective for financial statements issued after January 31, 2003. The consolidation provisions are effective for new transactions entered into after January 31, 2003 and for pre-existing entities as of December 31, 2003.

Upon adoption of Interpretation No. 46, effective December 31, 2003, the subsidiary trust that issued the company-obligated mandatorily redeemable preferred stock was deconsolidated. The effect of this deconsolidation is to replace the obligations of the trust to the preferred security holders with our subordinated debt obligation to the trust and our equity investment in the trust. In addition, the dividends on the company-obligated mandatorily redeemable preferred stock of the trust are replaced in our consolidated statements of income with the interest expense on our subordinated debt obligation to the trust and the dividends we receive on our equity investment in the trust. We record our subordinated debt obligation to the trust and our equity investment in the trust, along with the related interest expense and dividend income, on a net basis due to the contractual right of setoff. The adoption of the Interpretation with respect to the subsidiary trust has no impact on net income or earnings per common share.

In March 2004, the FASB’s Emerging Issues Task Force (EITF) reached a consensus on EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (EITF 03-1). EITF 03-1 provides guidance regarding the meaning of other-than-temporary impairment and its application to investments classified as either available-for-sale or held-to-maturity under FASB Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and to equity securities accounted for under the cost method. Included in EITF 03-1 is guidance on how to account for impairments that are solely due to interest rate changes, including changes resulting from increases in sector credit spreads. This guidance was to become effective for reporting periods beginning after June 15, 2004. However, on September 30, 2004, the FASB issued a Staff Position that delays the effective date for the recognition and measurement guidance of EITF 03-1 until additional clarifying guidance is issued. The issuance of this guidance was delayed during the fourth quarter of 2004, with additional discussion of this issue by the FASB planned for 2005. We are not able to assess the impact of the adoption of EITF 03-1 until final guidance is issued.

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FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Investments

Fixed Maturities and Equity Securities

All of our fixed maturity securities, comprised of bonds and redeemable preferred stocks, are designated as “available for sale” and are reported at market value. Unrealized gains and losses on these securities, with the exception of unrealized gains and losses relating to the conversion feature embedded in convertible fixed maturity securities, are included directly in stockholders’ equity as a component of accumulated other comprehensive income or loss. Unrealized gains and losses relating to the conversion feature embedded in convertible fixed maturity securities are recorded as a component of derivative income (loss) in the consolidated statements of income. The unrealized gains and losses are reduced by a provision for deferred income taxes and adjustments to deferred policy acquisition costs, deferred sales inducements, value of insurance in force acquired and unearned revenue reserve that would have been required as a charge or credit to income had such amounts been realized. Premiums and discounts are amortized/accrued using methods which result in a constant yield over the securities’ expected lives. Amortization/accrual of premiums and discounts on mortgage and asset-backed securities incorporates prepayment assumptions to estimate the securities’ expected lives.

Equity securities, comprised of common and non-redeemable preferred stocks are designated as “available for sale” and are reported at market value. The change in unrealized appreciation and depreciation of equity securities is included directly in stockholders’ equity, net of any related deferred income taxes, as a component of accumulated other comprehensive income or loss.

Mortgage Loans on Real Estate

Mortgage loans on real estate are reported at cost adjusted for amortization of premiums and accrual of discounts. If we determine that the value of any mortgage loan is impaired (i.e., when it is probable we will be unable to collect all amounts due according to the contractual terms of the loan agreement), the carrying value of the mortgage loan is reduced to its fair value, which may be based upon the present value of expected future cash flows from the loan (discounted at the loan’s effective interest rate), or the fair value of the underlying collateral. The carrying value of impaired loans is reduced by the establishment of a valuation allowance, changes to which are recognized as realized gains or losses on investments. Interest income on impaired loans is recorded on a cash basis.

Derivative Instruments

Derivative instruments include interest rate swaps used to reduce our exposure to increases in market interest rates on a portion of our annuity product portfolio and call options used to fund index credits on index annuities sold through our EquiTrust Life distribution. In addition, during 2004 we had a treasury rate lock agreement (“rate lock”) in effect in connection with a debt offering. Furthermore, we have embedded derivatives associated with our index annuity business, certain modified coinsurance contracts and when-issued investment trading activity. All derivatives are recognized as either assets or liabilities in the consolidated balance sheets and measured at fair value.

Our interest rate swaps are accounted for as cash flow hedges. The swaps are carried on the consolidated balance sheet as either a derivative instrument or other liability. The effective portion of any unrealized gain or loss is recorded in accumulated other comprehensive income. If a portion of the hedges become ineffective, the ineffective portion of any unrealized gain or loss on the swap will be recorded in earnings as a component of derivative income (loss) as it occurs. The net periodic interest settlement between the interest paid and the interest received under these swaps is recorded as a component of interest sensitive product benefits.

During 2004, we entered into the rate lock to hedge the interest rate on a portion of a debt offering. The rate lock was accounted for as a cash flow hedge and proceeds from the rate lock were deferred and are being amortized over the term of the debt using the effective interest method.

For derivatives not designated as a hedging instrument, the change in fair value is recognized in earnings in the period of change. See Note 1, “Significant Accounting Policies – Accounting Changes,” Note 3, “Derivative Instruments,” and Note 7, “Credit Arrangements,” for more information regarding our derivative instruments and embedded derivatives.

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FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Investment Real Estate

Investment real estate is reported at cost less allowances for depreciation. Real estate acquired through foreclosure, which is included with investment real estate in our consolidated balance sheets, is recorded at the lower of cost (which includes the balance of the mortgage loan, any accrued interest and any costs incurred to obtain title to the property) or estimated fair value on the foreclosure date. The carrying value of these assets is subject to regular review. For properties not held for sale, if indicators of impairment are present and a property’s expected undiscounted cashflows are not sufficient to recover the property’s carrying value, an impairment loss is recognized and the property’s cost basis is reduced to fair value. If the fair value, less estimated sales costs, of real estate held for sale decreases to an amount lower than its carrying value, the carrying value of the real estate is reduced by the establishment of a valuation allowance, changes to which are recognized as realized gains or losses on investments.

Other Investments

Policy loans are reported at unpaid principal balance. Short-term investments are reported at cost adjusted for amortization of premiums and accrual of discounts.

Other long-term investments include an investment deposit which is reported at amortized cost and securities held by subsidiaries engaged in the broker/dealer industry. In accordance with accounting practices for the broker/dealer industry, marketable securities held by subsidiaries in this industry are valued at market value. The resulting difference between cost and market is included in the consolidated statements of income as net investment income. Realized gains and losses are also reported as a component of net investment income.

Securities and indebtedness of related parties include investments in corporations and partnerships over which we may exercise significant influence. These corporations and partnerships operate predominately in the insurance, broker/dealer, investment company and real estate industries. Such investments are generally accounted for using the equity method. In applying the equity method, we record our share of income or loss reported by the equity investees. For partnerships operating in the investment company industry, this income or loss includes changes in unrealized gains and losses in the partnerships’ investment portfolios. Changes in the value of our investment in equity investees attributable to capital transactions of the investee, such as an additional offering of stock, are recorded directly to stockholders’ equity.

Realized Gains and Losses on Investments

The carrying values of all our investments are reviewed on an ongoing basis for credit deterioration. If this review indicates a decline in market value that is other than temporary, the carrying value of the investment is reduced to its fair value and a specific writedown is taken. Such reductions in carrying value are recognized as realized losses on investments. Realized gains and losses on sales are determined on the basis of specific identification of investments. If we expect that an issuer of a security will modify its payment pattern from contractual terms but no writedown is required, future investment income is recognized at the rate implicit in the calculation of net realizable value under the expected payment pattern.

Market Values

Market values of fixed maturity securities are reported based on quoted market prices, where available. Market values of fixed maturity securities not actively traded in a liquid market are estimated using a matrix calculation assuming a spread (based on interest rates and a risk assessment of the bonds) over U. S. Treasury bond yields. Market values of the conversion features embedded in convertible fixed maturity securities are estimated using an option-pricing model. Market values of redeemable preferred stocks, equity securities, call options and interest rate swaps are based on the latest quoted market prices, or for those stocks not readily marketable, generally at values which are representative of the market values of comparable issues. Market values for the embedded derivatives in our modified coinsurance contracts and relating to our when-issued securities trading are based on the difference between the fair value and the cost basis of the underlying investments. Market values for the embedded derivatives in our reinsurance recoverable relating to call options are based on quoted market prices.

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FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Cash and Cash Equivalents

For purposes of our consolidated statements of cash flows, we consider all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

Reinsurance Recoverable

We use reinsurance to manage certain risks associated with our insurance operations. These reinsurance arrangements provide for greater diversification of business, allow management to control exposure to potential risks arising from large claims and provide additional capacity for growth. For business ceded to other companies, reinsurance recoverable generally consists of the reinsurers’ share of policyholder liabilities, claims and expenses, net of amounts due the reinsurers for premiums. For business assumed from other companies, reinsurance recoverable generally consists of premium receivable, net of our share of benefits and expenses we owe to the ceding company.

We assume, under a coinsurance agreement, certain fixed and index annuity contracts issued by American Equity (the coinsurance agreement). The call options used to fund the index credits on the index annuities are purchased by and maintained on the books of American Equity. We record our proportionate share of the option value supporting the business we reinsure as reinsurance recoverable on the consolidated balance sheets. See Note 3, “Derivative Instruments,” for more information regarding these call options and see Note 5, “Reinsurance and Policy Provisions,” for additional information regarding this reinsurance agreement.

Deferred Policy Acquisition Costs, Deferred Sales Inducements and Value of Insurance In Force Acquired

Deferred policy acquisition costs include certain costs of acquiring new insurance business, principally commissions and other expenses related to the production of new business, to the extent recoverable from future policy revenues and gross profits. Deferred sales inducements include premium bonuses and bonus interest credited to contracts during the first contract year only. The value of insurance in force acquired represents the cost assigned to insurance contracts when an insurance company is acquired. The initial value is determined by an actuarial study using expected future gross profits as a measurement of the net present value of the insurance acquired. Interest accrued on the unamortized balance at a weighted average rate of 5.02% in 2004, 5.28% in 2003 and 5.78% in 2002.

For participating traditional life insurance, interest sensitive and index products, these costs are being amortized generally in proportion to expected gross profits (after dividends to policyholders, if applicable) from surrender charges and investment, mortality, and expense margins. That amortization is adjusted retrospectively when estimates of current or future gross profits/margins (including the impact of investment gains and losses) to be realized from a group of products are revised. For nonparticipating traditional life and accident and health insurance products, these costs are amortized over the premium paying period of the related policies, in proportion to the ratio of annual premium revenues to total anticipated premium revenues. Such anticipated premium revenues are estimated using the same assumptions used for computing liabilities for future policy benefits.

Property and Equipment

Property and equipment, comprised primarily of furniture, equipment and capitalized software costs, are reported at cost less allowances for depreciation and amortization. Depreciation and amortization expense is computed primarily using the straight-line method over the estimated useful lives of the assets. Furniture and equipment had a carrying value of $35.7 million at December 31, 2004 and $29.7 million at December 31, 2003, and estimated useful lives that generally range from two to ten years. Capitalized software costs had a carrying value of $7.7 million at December 31, 2004 and $7.0 million at December 31, 2003, and estimated useful lives that range from two to five years. Depreciation expense was $8.2 million in 2004, $7.4 million in 2003 and $7.1 million in 2002. Amortization expense was $4.1 million in 2004, $4.7 million in 2003 and $4.0 million in 2002.

Goodwill

Goodwill represents the excess of amount paid to acquire a company over the fair value of its net assets acquired. Goodwill is not amortized but is subject to annual impairment testing. We have performed impairment testing and determined none of our goodwill was impaired as of December 31, 2004 or December 31, 2003.

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FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Future Policy Benefits

Future policy benefit reserves for interest sensitive products are computed under a retrospective deposit method and represent policy account balances before applicable surrender charges. Future policy benefit reserves for index annuities are equal to the sum of the fair value of the embedded index options, accumulated index credits and the host contract reserve computed using a method similar to that used for interest sensitive products. Policy benefits and claims that are charged to expense include benefit claims incurred in the period in excess of related policy account balances.

For our direct business, interest crediting rates for interest sensitive products ranged from 1.75% to 10.00% in 2004, from 2.55% to 5.55% in 2003 and from 3.00% to 6.25% in 2002. For interest sensitive products assumed through coinsurance agreements, interest crediting rates ranged from 3.00% to 11.50% in 2004, from 3.25% to 12.00% in 2003 and from 3.50% to 12.00% in 2002. A portion of the interest credited on our direct business and assumed through the coinsurance agreement ($48.9 million in 2004, $19.8 million in 2003 and $19.1 million in 2002) represents an additional interest credit on first-year premiums, payable at policy issue or until the first contract anniversary date (first-year bonus interest). These amounts are included as deferred sales inducements.

The liability for future policy benefits for direct participating traditional life insurance is based on net level premium reserves, including assumptions as to interest, mortality and other factors underlying the guaranteed policy cash values. Reserve interest assumptions are level and range from 2.00% to 6.00%. The average rate of assumed investment yields used in estimating gross margins was 6.51% in 2004, 6.87% in 2003 and 7.47% in 2002. Accrued dividends for participating business are established for anticipated amounts earned to date that have not been paid. The declaration of future dividends for participating business is at the discretion of the Board of Directors of Farm Bureau Life. Participating business accounted for 43% of direct receipts from policyholders during 2004 (2003 – 43%, 2002 – 41%) and represented 15% of life insurance in force at December 31, 2004 (2003 and 2002 – 15%). The liability for future policy benefits for non-participating traditional life insurance is computed using a net level method, including assumptions as to mortality, persistency and interest and includes provisions for possible unfavorable deviations.

The liabilities for future policy benefits for accident and health insurance are computed using a net level (or an equivalent) method, including assumptions as to morbidity, mortality and interest and include provisions for possible unfavorable deviations. Policy benefit claims are charged to expense in the period that the claims are incurred.

The unearned revenue reserve reflects the unamortized balance of charges assessed to interest sensitive contract holders to compensate us for services to be performed over future periods (policy initiation fees). These charges have been deferred and are being recognized in income over the period benefited using the same assumptions and factors used to amortize deferred policy acquisition costs.

Guaranty Fund Assessments

From time to time, assessments are levied on our insurance subsidiaries by guaranty associations in most states in which the subsidiaries are licensed. These assessments, which are accrued for, are to cover losses of policyholders of insolvent or rehabilitated companies. In some states, these assessments can be partially recovered through a reduction in future premium taxes.

We had undiscounted reserves of $0.1 million at December 31, 2004 and December 31, 2003 to cover estimated future assessments on known insolvencies. We had assets totaling $0.3 million at December 31, 2004 and $0.4 million at December 31, 2003 representing estimated premium tax offsets on paid and future assessments. Expenses (credits) incurred for guaranty fund assessments, net of related premium tax offsets, totaled less than $0.1 million in 2004 and 2003 and ($0.1) million in 2002. It is anticipated that estimated future guaranty fund assessments on known insolvencies will be paid during 2005 and substantially all the related future premium tax offsets will be realized during the five year period ending December 31, 2009. We believe the reserve for guaranty fund assessments is sufficient to provide for future assessments based upon known insolvencies and projected premium levels.

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FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Deferred Income Taxes

Deferred income tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. Deferred income tax expenses or credits are based on the changes in the asset or liability from period to period.

Separate Accounts

The separate account assets and liabilities reported in our accompanying consolidated balance sheets represent funds that are separately administered for the benefit of certain policyholders that bear the underlying investment risk. The separate account assets and liabilities are carried at fair value. Revenues and expenses related to the separate account assets and liabilities, to the extent of benefits paid or provided to the separate account policyholders, are excluded from the amounts reported in the accompanying consolidated statements of income.

Recognition of Premium Revenues and Costs

Revenues for interest sensitive, index and variable products consist of policy charges for the cost of insurance, asset charges, administration charges, amortization of policy initiation fees and surrender charges assessed against policyholder account balances. The timing of revenue recognition as it relates to these charges and fees is determined based on the nature of such charges and fees. Policy charges for the cost of insurance, asset charges and policy administration charges are assessed on a daily or monthly basis and are recognized as revenue when assessed and earned. Certain policy initiation fees that represent compensation for services to be provided in the future are reported as unearned revenue and recognized in income over the periods benefited. Surrender charges are determined based upon contractual terms and are recognized upon surrender of a contract. Policy benefits and claims charged to expense include interest or index amounts credited to policyholder account balances (excluding sales inducements) and benefit claims incurred in excess of policyholder account balances during the period. Changes in the reserves for the embedded derivatives in the index annuities and amortization of deferred acquisition costs and deferred sales inducements are recognized as expenses over the life of the policy.

Traditional life insurance premiums are recognized as revenues over the premium-paying period. Future policy benefits and policy acquisition costs are recognized as expenses over the life of the policy by means of the provision for future policy benefits and amortization of deferred policy acquisition costs and deferred sales inducements.

All insurance-related revenues, benefits and expenses are reported net of reinsurance ceded. The cost of reinsurance ceded is generally amortized over the contract periods of the reinsurance agreements. Policies and contracts assumed are accounted for in a manner similar to that followed for direct business.

Other Income and Other Expenses

Other income and other expenses consist primarily of revenue and expenses generated by our various non-insurance subsidiaries for investment advisory, marketing and distribution, and leasing services. They also include revenues and expenses generated by our parent company for management services. Certain of these activities are performed on behalf of affiliates of the Company. In addition, certain revenues generated by our insurance subsidiaries are classified as other income. Revenues of the insurance subsidiaries included as other income totaled $1.2 million in 2004, 2003 and 2002. Lease income from leases with affiliates totaled $8.2 million in 2004, $6.9 million in 2003 and $5.8 million in 2002. Investment advisory fee income from affiliates totaled $2.3 million in 2004, $2.0 million in 2003 and $1.5 million in 2002.

Stock-Based Compensation

Effective January 1, 2003, we adopted Statement No. 123, “Accounting for Stock-Based Compensation” and Statement No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” Under Statement No. 123, compensation expense is recognized as stock options vest in an amount equal to the estimated fair value of the options on the date of grant. Statement No. 148 amends Statement No. 123 by requiring more prominent and frequent disclosures regarding the effects of stock-based compensation and provides for alternative transition methods in the adoption of Statement No. 123. Prior to 2003, we applied Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees,” to stock option grants, which generally resulted in no compensation expense being recognized. We are currently using the prospective method in the adoption of

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FBL FINANCIAL GROUP, INC.
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Statement No. 123. Under the prospective method, expense is recognized for those options granted, modified or settled after the date of adoption. Net income was $1.2 million ($0.04 per common share – basic and assuming dilution) lower for 2004 and $0.6 million ($0.02 per common share – basic and assuming dilution) lower for 2003 as a result of expensing stock options.

In December 2004, the FASB issued Statement No. 123(R), “Share-Based Payment,” which is a revision of Statement No. 123. Statement No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. While we currently follow the prospective method under Statement No. 123, we expect we will adopt the modified-prospective-transition method upon the adoption of Statement No. 123(R). Under the modified-prospective-transition method, we will recognize compensation expense in financial statements issued subsequent to the adoption for all share-based payments granted, modified or settled after the date of adoption, as well as for any awards that were granted prior to the adoption date for which the requisite service has not been provided as of the adoption date. We currently use the Black-Scholes-Merton option pricing model to estimate the value of employee stock options and expect to continue to use this acceptable option pricing model upon adoption of Statement No. 123(R). Statement No. 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow rather than as an operating cash flow, as currently required. This requirement will reduce net operating cash flows and increase financing cash flows in periods after adoption. While we cannot estimate what these amounts will be in the future as they are dependent on unknown factors, such as the timing of employee stock option exercises, the amount of operating cash flows previously recognized for such excess tax deductions totaled $1.8 million in 2004, $1.0 million in 2003 and $0.7 million in 2002. We intend to adopt Statement No. 123(R) effective July 1, 2005. The adoption of Statement No. 123(R) is not expected to have a material impact on our consolidated financial statements.

The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each year. The pro forma amounts reflect what would have been reported had Statement No. 123(R) been applied in the respective periods.

	Year ended December 31,
	2004			2003			2002
	(Dollars in thousands, except per share data)
Net income, as reported	$	66,076		$	65,945		$	50,668
Add: Stock-based employee and director compensation expense included in reported net income, net of related tax effects		1,234			610			–
Less: Total stock-based employee and director compensation expense determined under fair value based methods for all awards, net of related tax effects		(1,854	)		(1,115	)		(611	)
Net income, pro forma	$	65,456		$	65,440		$	50,057
Earnings per common share, as reported	$	2.31		$	2.27		$	1.68
Earnings per common share, pro forma	$	2.28		$	2.26		$	1.66
Earnings per common share – assuming dilution, as reported	$	2.26		$	2.23		$	1.64
Earnings per common share – assuming dilution, pro forma	$	2.24		$	2.22		$	1.63

Restricted stock awards that vest based on meeting performance standards and the passage of time are charged to expense using the straight-line method over the required service period. The value of the awards is based on the grant date fair value of the restricted stock adjusted for expected forfeitures and an estimate of the number of shares expected to vest. The estimate for the number of shares to vest is challenged each period and the impact of any changes in the estimate on expense is recorded in the current period.

The non-employee directors on our Board may elect to receive a portion of their compensation in the form of cash, Class A common shares or deferred stock units pursuant to the Director Compensation Plan. The fair value of Class A common shares and deferred stock units, as measured by the fair value of the underlying Class A common stock, are charged to expense in the period they are earned by the directors.

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FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Comprehensive Income

Unrealized gains and losses on our available-for-sale securities and interest rate swaps are included in accumulated other comprehensive income in stockholders’ equity. Other comprehensive income excludes net investment gains (losses) included in net income which represent transfers from unrealized to realized gains and losses. These amounts totaled $1.4 million in 2004, $1.0 million in 2003 and ($7.0) million in 2002. These amounts, which have been measured through the date of sale, are net of income taxes and adjustments to deferred policy acquisition costs, deferred sales inducements, value of insurance in force acquired and unearned revenue reserve totaling ($1.7) million in 2004, ($0.4) million in 2003 and $5.9 million in 2002.

Dividend Restriction

We have agreed that we will not declare or pay dividends on any class or series of stock except for regular cash dividends as long as any Series C redeemable preferred stock is outstanding. Regular cash dividends are defined as regular, fixed, quarterly or other periodic cash dividends as declared by our Board of Directors as part of the stated cash dividend policy and do not include any other dividends or distributions, such as extraordinary, special or otherwise non-recurring dividends. Additionally, we have agreed that we will not pay dividends on the Class A or Class B Common Stock, nor on the Series B or Series C Preferred Stock, if we are in default of our line of credit agreement with LaSalle Bank National Association, or in default of the Subordinated Deferrable Interest Note Agreement Dated May 30, 1997 with FBL Financial Group Capital Trust. See Note 7, “Credit Arrangements,” for additional information regarding these agreements.

Reclassifications

Reclassifications relating to derivative instruments and deferred sales inducements have been made to the 2003 and 2002 consolidated financial statements to conform to the 2004 presentation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. For example, significant estimates and assumptions are utilized in the valuation of investments, determination of other-than-temporary impairments of investments, amortization of deferred policy acquisition costs and deferred sales inducements, calculation of policyholder liabilities and accruals and determination of pension expense. It is reasonably possible that actual experience could differ from the estimates and assumptions utilized which could have a material impact on the consolidated financial statements.

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FBL FINANCIAL GROUP, INC.
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2. Investment Operations

Fixed Maturities and Equity Securities

The following tables contain amortized cost and estimated market value information on fixed maturities and equity securities:

			Gross		Gross
			Unrealized		Unrealized			Estimated
	Amortized Cost		Gains		Losses			Market Value
	(Dollars in thousands)
December 31, 2004
Bonds:
United States Government and agencies	$	636,985	$	6,983	$	(7,714	)	$	636,254
State, municipal and other governments		321,697		11,954		(873	)		332,778
Public utilities		169,759		11,583		(688	)		180,654
Corporate securities		2,446,424		166,986		(5,691	)		2,607,719
Mortgage and asset-backed securities		2,564,265		65,839		(7,488	)		2,622,616
Redeemable preferred stocks		70,463		8,724		–			79,187
Total fixed maturities	$	6,209,593	$	272,069	$	(22,454	)	$	6,459,208
Equity securities	$	55,359	$	15,941	$	(137	)	$	71,163
December 31, 2003
Bonds:
United States Government and agencies	$	339,674	$	8,939	$	(8,495	)	$	340,118
State, municipal and other governments		156,394		6,635		(1,535	)		161,494
Public utilities		173,634		10,773		(2,201	)		182,206
Corporate securities		1,599,342		145,391		(7,553	)		1,737,180
Mortgage and asset-backed securities		2,855,245		67,632		(16,139	)		2,906,738
Redeemable preferred stocks		57,415		8,230		–			65,645
Total fixed maturities	$	5,181,704	$	247,600	$	(35,923	)	$	5,393,381
Equity securities	$	55,264	$	11,543	$	(77	)	$	66,730

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

The carrying value and estimated market value of our portfolio of fixed maturity securities at December 31, 2004, by contractual maturity, are shown below. 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.

			Estimated Market
	Amortized Cost		Value
	(Dollars in thousands)
Due in one year or less	$	76,875	$	78,273
Due after one year through five years		460,638		484,626
Due after five years through ten years		909,744		956,174
Due after ten years		2,127,608		2,238,332
		3,574,865		3,757,405
Mortgage and asset-backed securities		2,564,265		2,622,616
Redeemable preferred stocks		70,463		79,187
	$	6,209,593	$	6,459,208

Net unrealized investment gains on fixed maturity and equity securities classified as available for sale and interest rate swaps, recorded directly to stockholders’ equity, were comprised of the following:

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FBL FINANCIAL GROUP, INC.
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	December 31,
	2004			2003
	(Dollars in thousands)
Unrealized appreciation on:
Fixed maturities – available for sale	$	249,615		$	211,677
Equity securities – available for sale		15,804			11,466
Interest rate swaps		3,242			2,275
		268,661			225,418
Adjustments for assumed changes in amortization pattern of:
Deferred policy acquisition costs		(38,925	)		(29,076	)
Deferred sales inducements		(6,262	)		(1,686	)
Value of insurance in force acquired		(6,140	)		(6,973	)
Unearned revenue reserve		660			847
Provision for deferred income taxes		(76,298	)		(65,986	)
		141,696			122,544
Proportionate share of net unrealized investment losses of equity investees		(456	)		(992	)
Net unrealized investment gains	$	141,240		$	121,552

The changes in net unrealized investment gains and losses are recorded net of deferred income taxes and other adjustments for assumed changes in the amortization pattern of deferred policy acquisition costs, deferred sales inducements, value of insurance in force acquired and unearned revenue reserve totaling $24.4 million in 2004, ($1.6) million in 2003 and $68.4 million in 2002.

The following tables set forth the estimated market value and unrealized losses of securities in an unrealized loss position listed by the length of time the securities have been in an unrealized loss position:

December 31, 2004
	Less than one year					One year or more					Total
	Estimated					Estimated					Estimated
	Market		Unrealized			Market		Unrealized			Market		Unrealized
Description of Securities	Value		Losses			Value		Losses			Value		Losses
	(Dollars in thousands)
United States Government and agencies	$	174,124	$	(917	)	$	98,206	$	(6,797	)	$	272,330	$	(7,714	)
State, municipal and other governments		69,128		(812	)		7,215		(61	)		76,343		(873	)
Public utilities		24,931		(462	)		4,486		(226	)		29,417		(688	)
Corporate securities		341,064		(5,321	)		14,112		(370	)		355,176		(5,691	)
Mortgage and asset-backed securities		209,027		(3,477	)		129,673		(4,011	)		338,700		(7,488	)
Total fixed maturities	$	818,274	$	(10,989	)	$	253,692	$	(11,465	)	$	1,071,966	$	(22,454	)

December 31, 2003
	Less than one year					One year or more					Total
	Estimated					Estimated					Estimated
	Market		Unrealized			Market		Unrealized			Market		Unrealized
Description of Securities	Value		Losses			Value		Losses			Value		Losses
	(Dollars in thousands)
United States Government and agencies	$	107,640	$	(8,495	)	$	–	$	–		$	107,640	$	(8,495	)
State, municipal and other governments		38,096		(1,378	)		5,742		(157	)		43,838		(1,535	)
Public utilities		30,495		(1,796	)		6,347		(405	)		36,842		(2,201	)
Corporate securities		80,230		(2,316	)		75,287		(5,237	)		155,517		(7,553	)
Mortgage and asset-backed securities		639,623		(16,136	)		213		(3	)		639,836		(16,139	)
Total fixed maturities	$	896,084	$	(30,121	)	$	87,589	$	(5,802	)	$	983,673	$	(35,923	)

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FBL FINANCIAL GROUP, INC.
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Included in the above table are 169 securities from 130 issuers at December 31, 2004 and 136 securities from 80 issuers at December 31, 2003. Approximately 94.9% at December 31, 2004 and 86.2% at December 31, 2003 of the unrealized losses on fixed maturity securities are on securities that are rated investment grade. Investment grade securities are defined as those securities rated a “1” or “2” by the Securities Valuation Office of the National Association of Insurance Commissioners. Unrealized losses on investment grade securities principally relate to changes in market interest rates or changes in credit spreads since the securities were acquired. Approximately 5.1% at December 31, 2004 and 13.8% at December 31, 2003 of the unrealized losses on fixed maturity securities are on securities that are rated below investment grade. We monitor the financial condition and operations of the issuers of securities rated below investment grade and of the issuers of certain investment grade securities on which we have concerns regarding credit quality. In determining whether or not an unrealized loss is other than temporary, we review factors such as:

•   historical operating trends;

•   business prospects;

•   status of the industry in which the company operates;

•   analyst ratings on the issuer and sector;

•   quality of management;

•   size of the unrealized loss;

•   length of time the security has been in an unrealized loss position; and

•   our intent and ability to hold the security.

We believe the issuers of the securities in an unrealized loss position will continue to make payments as scheduled, and we have the ability and intent to hold these securities until they recover in value or mature.

We also have $0.1 million of gross unrealized losses on equity securities with an estimated market value of $0.7 million at December 31, 2004 and $0.1 million of gross unrealized losses on equity securities with an estimated market value of $0.9 million at December 31, 2003. These equity securities have been in an unrealized loss position for more than one year.

Mortgage Loans on Real Estate

Our mortgage loan portfolio consists principally of commercial mortgage loans. 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 have provided an allowance for possible losses against our mortgage loan portfolio. An analysis of this allowance, which consists of specific reserves, is as follows:

	Year ended December 31,
	2004		2003			2002
	(Dollars in thousands)
Balance at beginning of year	$	3,500	$	55		$	55
Realized losses		–		3,500			–
Sales		–		(55	)		–
Balance at end of year	$	3,500	$	3,500		$	55

The carrying value of impaired loans (those loans in which we do not believe we will collect all amounts due according to the contractual terms of the respective loan agreements) was $4.2 million at December 31, 2004 and $4.9 million at December 31, 2003.

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FBL FINANCIAL GROUP, INC.
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Investment Real Estate

We have provided an allowance for possible losses against our investment real estate. An analysis of this allowance, which consists of specific reserves, is as follows:

	Year ended December 31,
	2004			2003			2002
	(Dollars in thousands)
Balance at beginning of year	$	1,009		$	817		$	817
Realized losses		73			218			71
Sales		(464	)		(26	)		(71	)
Balance at end of year	$	618		$	1,009		$	817

Net Investment Income

Components of net investment income are as follows:

	Year ended December 31,
	2004			2003			2002
	(Dollars in thousands)
Fixed maturities – available for sale	$	358,976		$	340,619		$	302,649
Equity securities – available for sale		464			1,098			1,676
Mortgage loans on real estate		47,306			39,220			31,823
Investment real estate		2,510			2,187			2,235
Policy loans		10,665			11,274			11,658
Other long-term investments		–			152			433
Short-term investments, cash and cash equivalents		2,355			3,159			4,777
Prepayment fee income and other		2,497			7,218			2,720
		424,773			404,927			357,971
Less investment expenses		(8,692	)		(9,046	)		(9,612	)
Net investment income	$	416,081		$	395,881		$	348,359

Realized and Unrealized Gains and Losses

Realized gains (losses) and the change in unrealized appreciation/depreciation on investments and interest rate swaps, excluding amounts attributed to investments held by subsidiaries engaged in the broker/dealer industry, are summarized below:

	Year ended December 31,
	2004			2003			2002
	(Dollars in thousands)
Realized
Fixed maturities – available for sale	$	3,123		$	1,997		$	(12,455	)
Equity securities – available for sale		(18	)		(553	)		(377	)
Mortgage loans on real estate		–			(3,453	)		29
Investment real estate		5,181			(379	)		(71	)
Securities and indebtedness of related parties		(85	)		–			(2,202	)
Notes receivable and other		(26	)		380			197
Realized gains (losses) on investments	$	8,175		$	(2,008	)	$	(14,879	)
Unrealized
Fixed maturities – available for sale	$	37,938		$	7,913		$	128,602
Equity securities – available for sale		4,338			12,117			(1,365	)
Interest rate swaps		967			2,275			–
Change in unrealized appreciation/depreciation of investments	$	43,243		$	22,305		$	127,237

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FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

An analysis of sales, maturities and principal repayments of our fixed maturities portfolio is as follows:

			Gross Realized		Gross Realized
	Amortized Cost		Gains		Losses			Proceeds
	(Dollars in thousands)
Year ended December 31, 2004
Scheduled principal repayments and calls – available for sale	$	1,179,419	$	–	$	–		$	1,179,419
Sales – available for sale		221,750		9,396		(453	)		230,693
Total	$	1,401,169	$	9,396	$	(453	)	$	1,410,112
Year ended December 31, 2003
Scheduled principal repayments and calls – available for sale	$	1,515,298	$	–	$	–		$	1,515,298
Sales – available for sale		178,128		15,402		(4,225	)		189,305
Total	$	1,693,426	$	15,402	$	(4,225	)	$	1,704,603
Year ended December 31, 2002
Scheduled principal repayments and calls – available for sale	$	591,790	$	–	$	–		$	591,790
Sales – available for sale		318,726		33,131		(18,647	)		333,210
Total	$	910,516	$	33,131	$	(18,647	)	$	925,000

Realized losses on fixed maturities totaling $6.3 million in 2004, $9.2 million in 2003 and $26.9 million in 2002 were incurred as a result of writedowns for other than temporary impairment of fixed maturity securities.

Income taxes (credits) include a provision of $2.9 million in 2004, ($0.7) million in 2003 and ($5.2) million in 2002 for the tax effect of realized gains and losses.

Variable Interest Entities

We have investments in several variable interest entities for which we are not considered the primary beneficiary. These investments consist of common and preferred stock investments in a company that operates in the broker/dealer industry and mezzanine commercial real estate loans on four real estate properties. The broker/dealer had revenues totaling $43.9 million for 2004 and $30.3 million for 2003 and each real estate project has assets totaling less than $17.0 million at December 31, 2004 and less than $16.0 million at December 31, 2003. Our investments in these entities were made during the period from 1997 to 2004. Our maximum exposure to loss is the carrying value of our investments which totaled $4.6 million at December 31, 2004 and $4.1 million at December 31, 2003 for the broker/dealer and $6.2 million at December 31, 2004 and $4.6 million at December 31, 2003 for the mezzanine commercial real estate loans.

Other

We have a common stock investment in American Equity’s parent, American Equity Investment Life Holding Company (AEL), valued at $59.5 million at December 31, 2004 and $52.3 million at December 31, 2003. American Equity underwrites and markets life insurance and annuity products throughout the United States. In December 2003, AEL completed an initial public offering (IPO). Prior to the IPO, we accounted for AEL using the equity method and, due to the timing of the availability of financial information, we recorded our share of AEL’s results one quarter in arrears. As a result of the IPO, our percentage ownership interest in AEL decreased and we discontinued applying the equity method of accounting and began recording the investment at market value in the equity securities line on the consolidated balance sheet.

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FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Summarized financial information for AEL and our common stock ownership percentage is as follows:

	As of or for the twelve-month period ended
	September 30,
	2003			2002
	(Dollars in thousands)
Total cash and investments	$	5,816,845		$	4,763,445
Total assets		6,634,396			5,619,918
Long-term debt		132,963			69,876
Total liabilities		6,515,048			5,441,037
Minority interest		25,910			100,356
Total revenues		415,597			252,628
Income from continuing operations		21,025			6,483
Net income		21,025			6,483
Percentage ownership of common stock		32.1	%		32.4	%

At December 31, 2003, we also owned preferred stock issued by AEL with a carrying value totaling $2.3 million. During 2004, this investment was converted to common stock.

During 2004, we sold certain investment real estate properties to Farm Bureau Mutual Insurance Company (Farm Bureau Mutual), an affiliate, at their fair market value of $20.0 million. A realized gain of $5.3 million was recognized related to these transactions.

At December 31, 2004, affidavits of deposits covering investments with a carrying value totaling $6,940.3 million were on deposit with state agencies to meet regulatory requirements.

At December 31, 2004, we had committed to provide additional funding for mortgage loans on real estate aggregating $46.1 million. These commitments arose in the normal course of business at terms that are comparable to similar investments.

The carrying value of investments which have been non-income producing for the twelve months preceding December 31, 2004 include real estate, fixed maturities, equity securities and other long-term investments totaling $5.9 million.

No investment in any entity or its affiliates (other than bonds issued by agencies of the United States Government) exceeded ten percent of stockholders’ equity at December 31, 2004.

3. Derivative Instruments

During 2003, we entered into three interest rate swaps to manage interest rate risk associated with a portion of our flexible premium deferred annuity contracts. Under the interest rate swaps, we pay a fixed rate of interest and receive a floating rate of interest on a notional amount totaling $150.0 million. Details regarding the swaps are as follows:

						Carrying and Fair Value at December 31,
Maturity	Notional		Receive	Pay
Date	Amount		Rate	Rate		2004		2003
						(Dollars in thousands)
5/1/2006	$	50,000	1 month LIBOR*		2.545 %	$	313	$	(382	)
7/1/2008		50,000	1 month LIBOR*		2.579		1,359		1,187
7/1/2008		50,000	1 month LIBOR*		2.465		1,570		1,470
	$	150,000				$	3,242	$	2,275

* London Interbank Offered Rate

These interest rate swaps effectively fix the interest crediting rate on a portion of our flexible premium deferred annuity contract liabilities thereby hedging our exposure to increases in market interest rates. We formally document this hedging relationship, including identification of the interest rate swaps as the hedging instruments and interest credited to the related flexible premium deferred annuity contract liabilities as the hedged transactions. We

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FBL FINANCIAL GROUP, INC.
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also document our risk management objectives and strategies for undertaking these transactions. Interest sensitive product benefits increased by $1.6 million in 2004 and $1.2 million in 2003 as a result of the net interest paid on the interest rate swaps. There was no ineffectiveness recorded in the consolidated statements of income during 2004 or 2003.

We assume index annuity business under the coinsurance agreement and began writing index annuities directly during 2004. Index annuities guarantee the return of principal to the contract holder and credit amounts based on a percentage of the gain in a specified market index. A portion of the premium received is invested in investment grade fixed income securities and is intended to cover the minimum guaranteed value due to the contract holder at the end of the contract term. A portion of the premium received from the contract holder is used to purchase derivatives consisting of one-year call options on the applicable market indices to fund the index credits due to the index annuity contract holders. On the respective anniversary dates of the index annuity contracts, the market index used to compute the annual index credits is reset and new one-year call options are purchased to fund the next annual index credit. Although the call options are designed to be effective hedges from an economic standpoint, they do not meet the requirements for hedge accounting treatment under Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.” Therefore, the change in fair value of the options is recognized in earnings in the period of change. The cost of the options can be managed through the terms of the index annuities, which permit changes to participation rates, asset fees and/or caps, subject to guaranteed minimums.

At December 31, 2004, we held call options relating to our direct business with a fair value of $12.3 million. Our share of call options assumed under the coinsurance agreement, which is recorded as a component of reinsurance recoverable as embedded derivatives, totaled $35.8 million at December 31, 2004 and $30.6 million at December 31, 2003. Derivative income (loss) includes $15.2 million for 2004, $16.8 million for 2003 and ($9.8) million for 2002 relating to call option proceeds and changes in fair value.

The reserve for index annuity contracts includes a series of embedded derivatives that represent the contract holder’s right to participate in index returns over the expected lives of the applicable contracts. The reserve includes the value of the embedded forward options despite the fact that call options are not purchased for a period longer than the period of time to the next contract anniversary date. The change in the value of this embedded derivative is included in interest sensitive and index product benefits in the consolidated statements of income and totaled $2.4 million for 2004, $14.2 million for 2003 and $1.0 million for 2002.

4. Fair Values of Financial Instruments

Statement No. 107, “Disclosures About Fair Value of Financial Instruments,” requires disclosure of fair value information about financial instruments, whether or not recognized in the consolidated balance sheets, for which it is practicable to estimate value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Statement No. 107 also excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements and allows companies to forego the disclosures when those estimates can only be made at excessive cost. Accordingly, the aggregate fair value amounts presented herein are limited by each of these factors and do not purport to represent our underlying value.

We used the following methods and assumptions in estimating the fair value of our financial instruments.

Fixed maturity securities:Fair values for fixed maturity securities are based on quoted market prices, where available. For fixed maturity securities not actively traded, fair values are estimated using a matrix calculation assuming a spread (based on interest rates and a risk assessment of the bonds) over U. S. Treasury bonds. Fair values for fixed maturity securities include the embedded derivatives relating to our when-issued securities trading. Fair value for these embedded derivatives is equal to the difference between the fair value of the underlying fixed maturity securities and the original cost.

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

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FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Mortgage loans on real estate:Fair values are estimated by discounting expected cash flows using interest rates currently being offered for similar loans.

Derivative instruments:Fair values for call options and interest rate swaps are based on quoted market prices.

Policy loans: Fair values are estimated by discounting expected cash flows using a risk-free interest rate based on the U.S. Treasury curve.

Other long-term investments:The fair values for investment deposits are generally estimated by discounting expected cash flows using interest rates currently being offered for similar investments. The fair values for investments held by broker/dealer subsidiaries are based on quoted market prices.

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

Securities and indebtedness of related parties:For equity securities that are not actively traded, estimated fair values are based on values of comparable issues. As allowed by Statement No. 107, fair values are not assigned to investments accounted for using the equity method.

Reinsurance recoverable:Reinsurance recoverable relating to our portion of the call options used to fund index credits on the index annuities assumed from American Equity is reported at fair value. Fair value is determined using quoted market prices for the call options. Reinsurance recoverable also includes the embedded derivatives in our modified coinsurance contracts under which we assume business. Market values for these embedded derivatives are based on the difference between the fair value and the cost basis of the underlying investments. We are not required to estimate fair value for the remainder of the reinsurance recoverable balance.

Assets held in separate accounts:Separate account assets are reported at estimated fair value in our consolidated balance sheets.

Future policy benefits and other policyholders’ funds:Fair values of our liabilities under contracts not involving significant mortality or morbidity risks (principally deferred annuities, deposit administration funds, funding agreements and supplementary contracts) are estimated at cash surrender value, the cost we would incur to extinguish the liability. We are not required to estimate the fair value of our liabilities under other insurance contracts.

Short-term and long-term debt:The fair values for long-term debt are estimated using discounted cash flow analysis based on our current incremental borrowing rate for similar types of borrowing arrangements. For short-term debt, the carrying value approximates fair value.

Other liabilities:Fair values for interest rate swaps are based on quoted market prices. Other liabilities also include the embedded derivatives in our modified coinsurance contracts under which we cede business. Market values for these embedded derivatives are based on the difference between the fair value and the cost basis of the underlying investments. We are not required to estimate fair value for the remainder of the other liabilities balance.

Liabilities related to separate accounts:Separate account liabilities are estimated at cash surrender value, the cost we would incur to extinguish the liability.

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FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following sets forth a comparison of the fair values and carrying values of our financial instruments subject to the provisions of Statement No. 107:

	December 31,
	2004				2003
	Carrying Value		Fair Value		Carrying Value		Fair Value
			(Dollars in thousands)
Assets
Fixed maturities – available for sale	$	6,459,208	$	6,459,208	$	5,393,381	$	5,393,381
Equity securities – available for sale		71,163		71,163		66,730		66,730
Mortgage loans on real estate		740,874		764,250		632,864		665,226
Derivative instruments		15,536		15,536		2,657		2,657
Policy loans		176,613		202,810		177,547		203,899
Other long-term investments		1,300		1,300		5,391		5,391
Cash and short-term investments		55,502		55,502		269,189		269,189
Securities and indebtedness of related parties		5,184		5,184		4,514		4,514
Reinsurance recoverable		36,431		36,431		31,109		31,109
Assets held in separate accounts		552,029		552,029		463,772		463,772
Liabilities
Future policy benefits	$	4,550,179	$	4,113,040	$	3,723,312	$	3,387,495
Other policyholders’ funds		536,339		536,339		507,190		507,190
Short-term debt		46,000		46,000		45,280		45,280
Long-term debt		217,183		175,237		140,200		87,917
Other liabilities		81		81		412		412
Liabilities related to separate accounts		552,029		536,234		463,772		450,661

5. Reinsurance and Policy Provisions

Reinsurance

In the normal course of business, we seek to limit our exposure to loss on any single insured and to recover a portion of benefits paid by ceding reinsurance to other insurance enterprises or reinsurers. Our reinsurance coverage for life insurance varies according to the age and risk classification of the insured with retention limits ranging up to $1.1 million of coverage per individual life. New sales of term life products are reinsured on a first dollar quota share basis. We do not use financial or surplus relief reinsurance. Life insurance in force ceded on a consolidated basis totaled $6,419.4 million (18.9% of direct life insurance in force) at December 31, 2004 and $6,005.0 million (18.5% of direct life insurance in force) at December 31, 2003.

In addition to the cession of risks described above, we also have reinsurance agreements with variable alliance partners to cede a specified percentage of risks associated with variable universal life and variable annuity contracts. Under these agreements, we pay the alliance partners their reinsurance percentage of charges and deductions collected on the reinsured polices. The alliance partners in return pay us their reinsurance percentage of benefits in excess of related account balances. In addition, the alliance partners pay us an expense allowance for certain new business, development and maintenance costs on the reinsured contracts.

Effective July 1, 2003, we entered into a reinsurance pool with various unaffiliated life insurance companies to mitigate the impact of a catastrophic event on our financial position and results of operations. Members of the pool share in the eligible catastrophic losses based on their size and contribution to the pool. Under the pool arrangement, we will be able to cede approximately 60% of catastrophic losses after other reinsurance and a deductible of $0.7 million. Pool losses are capped at $7.2 million per event and the maximum loss we could incur as a result of losses assumed from other pool members is $2.7 million per event. In April 2004, we purchased additional catastrophic coverage which provides $10.0 million of coverage for losses in excess of $7.0 million per event.

78

FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In total, insurance premiums and product charges have been reduced by $29.6 million in 2004, $27.8 million in 2003 and $26.8 million in 2002 and insurance benefits have been reduced by $14.7 million in 2004, $15.4 million in 2003 and $12.9 million in 2002 as a result of cession agreements.

Reinsurance contracts do not relieve us of our obligations to policyholders. To the extent that reinsuring companies are later unable to meet obligations under reinsurance agreements, our insurance subsidiaries would be liable for these obligations, and payment of these obligations could result in losses. To limit the possibility of such losses, we evaluate the financial condition of our reinsurers and monitor concentrations of credit risk. No allowance for uncollectible amounts has been established against our asset for reinsurance recoverable since none of our receivables are deemed to be uncollectible.

We assume certain annuity business issued prior to August 1, 2004 through the coinsurance agreement with American Equity. Effective August 1, 2004, we announced the suspension of this agreement and, as a result of this suspension, no transfers of new business will occur unless we and American Equity agree to resume the coinsurance of new business. The business assumed by us prior to the suspension remains as part of our in force business. Premiums collected on this assumed business, not included in revenues in the consolidated statements of income, totaled $202.1 million in 2004, $649.5 million in 2003 and $837.9 million in 2002.

We assume certain traditional life, universal life and annuity business issued through October 1, 2003 from EMC National Life Company (EMCNL). In addition, we also assume variable annuity business from four alliance partners through modified coinsurance arrangements. Variable life business is also assumed from two of these partners through similar modified coinsurance arrangements.

Life insurance in force assumed on a consolidated basis totaled $1,843.5 million (6.3% of total life insurance in force) at December 31, 2004, $1,977.1 million (7.0% of total life insurance in force) at December 31, 2003 and $1,999.2 million (7.4% of total life insurance in force) at December 31, 2002. In total, premiums and product charges assumed totaled $23.0 million in 2004, $18.1 million in 2003 and $15.8 million in 2002. Insurance benefits assumed totaled $11.1 million in 2004, $10.4 million in 2003 and $10.3 million in 2002.

Policy Provisions

An analysis of the value of insurance in force acquired is as follows:

	Year ended December 31,
	2004			2003			2002
	(Dollars in thousands)
Excluding impact of net unrealized investment gains and losses:
Balance at beginning of year	$	54,300		$	57,440		$	59,083
Accretion of interest during the year		2,407			3,034			3,419
Amortization of asset		(4,728	)		(6,174	)		(5,062	)
Balance prior to impact of net unrealized investment gains and losses		51,979			54,300			57,440
Impact of net unrealized investment gains and losses		(6,140	)		(6,973	)		(8,914	)
Balance at end of year	$	45,839		$	47,327		$	48,526

Net amortization of the value of insurance in force acquired, based on expected future gross profits/margins, for the next five years and thereafter is expected to be as follows: 2005 – $2.7 million; 2006 – $2.4 million; 2007 – $2.4 million; 2008 – $2.2 million; 2009 – $2.2 million; and thereafter, through 2023 – $40.1 million.

6. Income Taxes

We file a consolidated federal income tax return with the Life Companies and FBL Financial Services, Inc. and certain of their subsidiaries. The companies included in the consolidated federal income tax return each report current income tax expense as allocated under a consolidated tax allocation agreement. Generally, this allocation results in profitable companies recognizing a tax provision as if the individual company filed a separate return and loss companies recognizing a benefit to the extent their losses contribute to reduce consolidated taxes.

79

FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Deferred income taxes have been established based upon the temporary differences between the financial statement and income tax bases of assets and liabilities. The reversal of the temporary differences will result in taxable or deductible amounts in future years when the related asset or liability is recovered or settled.

Income tax expenses (credits) are included in the consolidated financial statements as follows:

	Year ended December 31,
	2004			2003			2002
	(Dollars in thousands)
Taxes provided in consolidated statements of income on:
Income before minority interest in earnings of subsidiaries and equity income:
Current	$	33,078		$	33,025		$	12,425
Deferred		(5,369	)		(1,608	)		11,444
		27,709			31,417			23,869
Equity income – current		752			3,127			116
Taxes provided in consolidated statements of changes in stockholders’ equity:
Change in net unrealized investment gains/losses - deferred		10,602			14,151			30,052
Adjustment resulting from capital transaction of equity investee – deferred		8			(46	)		(113	)
Adjustment resulting from the issuance of shares under stock option plan – current		(1,832	)		(1,036	)		(727	)
		8,778			13,069			29,212
	$	37,239		$	47,613		$	53,197

The effective tax rate on income before income taxes, minority interest in earnings of subsidiaries and equity income is different from the prevailing federal income tax rate as follows:

	Year ended December 31,
	2004			2003			2002
	(Dollars in thousands)
Income before income taxes, minority interest in earnings of subsidiaries and equity income	$	92,492		$	93,994		$	79,373
Income tax at federal statutory rate (35%)	$	32,372		$	32,898		$	27,781
Tax effect (decrease) of:
Reversal of tax accruals no longer necessary based on events and analysis performed during the year		(4,502	)		–			–
Tax-exempt dividend and interest income		(1,147	)		(1,167	)		(1,192	)
Dividends on company-obligated mandatorily redeemable preferred stock of subsidiary trust		–			(849	)		(1,698	)
Interest on Series C mandatorily redeemable preferred stock		766			764			–
State income taxes		117			(30	)		(159	)
Other items		103			(199	)		(863	)
Income tax expense	$	27,709		$	31,417		$	23,869

80

FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The tax effect of temporary differences giving rise to our deferred income tax assets and liabilities is as follows:

	December 31,
	2004			2003
	(Dollars in thousands)
Deferred income tax liabilities:
Fixed maturity and equity securities	$	95,630		$	79,652
Deferred policy acquisition costs		197,245			166,414
Value of insurance in force acquired		16,044			16,564
Other		13,569			13,537
		322,488			276,167
Deferred income tax assets:
Future policy benefits		(187,037	)		(140,854	)
Accrued dividends		(4,404	)		(4,760	)
Accrued benefit and compensation costs		(9,169	)		(10,133	)
Other		(2,913	)		(6,534	)
		(203,523	)		(162,281	)
Deferred income tax liability	$	118,965		$	113,886

Prior to 1984, a portion of Farm Bureau Life’s current income was not subject to current income taxation, but was accumulated, for tax purposes, in a memorandum account designated as “policyholders’ surplus account.” The aggregate accumulation in this account at December 31, 2004 was $12.0 million. Due to a change in the tax law included in the American Jobs Creation Act of 2004, which was signed into law on October 22, 2004, this account can be reduced tax free by distributions to shareholders from January 1, 2005 through December 31, 2006. We expect that distributions during the prescribed period will be in excess of $12.0 million, thereby eliminating the accumulated balance in this account. Prior to the change in the tax law, distributions from this account would have been subject to federal income tax. Deferred income taxes of $4.2 million have not been provided on amounts included in this memorandum account.

7. Credit Arrangements

In January 2004, we borrowed $46.0 million on a $60.0 million revolving line of credit agreement with LaSalle Bank National Association and Bankers Trust Company, N.A. This agreement is effective through October 31, 2005 and interest on any borrowings accrues at a variable rate (3.07% at December 31, 2004). Under this agreement, we are required to maintain minimum capital and surplus levels at the Life Companies and meet certain other financial covenants. We are also prohibited from incurring additional indebtedness in excess of $10.0 million while this agreement is in effect. Due to the scheduled maturity at October 31, 2005, this $46.0 million obligation is classified as short-term debt at December 31, 2004 on our consolidated balance sheet.

On April 12, 2004, we issued $75.0 million of 5.85% Senior Notes (Senior Notes) due April 15, 2014. Interest on the Senior Notes is payable semi-annually on April 15 and October 15 each year. The Senior Notes are redeemable in whole or in part at any time at our option at a “make-whole” redemption price equal to the greater of 100% of their principal amount or the sum of the present values of the remaining scheduled payments of principal and interest on the Senior Notes, discounted to the redemption date on a semiannual basis at the treasury rate plus 25 basis points.

We entered into a rate lock on March 18, 2004 to hedge the interest rate on a portion of the Senior Notes. The rate lock had a $50.0 million notional amount and was based on the 10-year Treasury interest rate at the contract’s inception (3.797%). We formally documented this hedging relationship, including identification of the rate lock as the hedging instrument and the 20 semi-annual interest payments on $50.0 million of the Senior Notes as the hedged transactions. We also documented our risk management objectives and strategies for undertaking this transaction. The rate lock was settled on April 6, 2004 and proceeds totaling $1.5 million were deferred and are being amortized over the term of the Senior Notes, along with underwriting fees, offering expenses and original issue discount of the Senior Notes, using the effective interest method. We received net proceeds of approximately $75.5 million from the issuance of the Senior Notes after underwriting fees, offering expenses, original issue discount and the impact of the rate lock.

81

FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Senior Note offering would have caused us to violate the covenants of our revolving line of credit agreement with LaSalle Bank National Association and Bankers Trust Company, N.A. Therefore, on April 1, 2004, this agreement was amended to allow for the Senior Note offering without violating the financial covenants of that agreement.

In connection with the 2001 acquisition of Kansas Farm Bureau Life Insurance Company, we issued 3,411,000 shares of Series C cumulative voting mandatorily redeemable preferred stock with an estimated fair value of $80.0 million to the Kansas Farm Bureau. Each share of Series C preferred stock has a par value of $26.8404 and voting rights identical to that of Class A common stock. Dividends on the Series C preferred stock are payable quarterly at a rate equal to the regular cash dividends per share of common stock, as defined, then payable. We redeemed 1,687,000 shares, or $45.3 million, of the Series C preferred stock on January 2, 2004, in accordance with the scheduled redemption dates under the agreement. The remaining balance is scheduled to be redeemed for cash at par value, or $46.3 million, on January 3, 2006. The Series C preferred stock was initially issued with conversion rights based upon certain contingencies not involving market price triggers. Both parties have signed an agreement to waive these rights, so this instrument is no longer contingently convertible. The Series C preferred stock was issued at an $11.6 million discount to par. This discount accretes to interest expense (preferred stock dividends prior to adoption of Statement No. 150) during the life of the securities using the effective interest method.

As described in Note 1, “Significant Accounting Policies – Accounting Changes,” due to the adoption of Interpretation No. 46, long-term debt includes $97.0 million of our subordinated debt obligation to FBL Financial Group Capital Trust (the Trust). FBL Financial Group, Inc. (parent company) issued 5% Subordinated Deferrable Interest Notes, due June 30, 2047 (the Notes) with a principal amount of $100.0 million to support $97.0 million of 5% Preferred Securities issued by the Trust. FBL Financial Group, Inc. also has a $3.0 million equity investment in the Trust, which is netted against the Notes on the consolidated balance sheets due to a contractual right of setoff. The sole assets of the Trust are and will be the Notes and any interest accrued thereon. The interest payment dates on the Notes correspond to the distribution dates on the 5% Preferred Securities. The 5% Preferred Securities, which have a liquidation value of $1,000.00 per share plus accrued and unpaid distributions, mature simultaneously with the Notes and are owned by AEL. As of December 31, 2004 and 2003, 97,000 shares of 5% Preferred Securities were outstanding, all of which we unconditionally guarantee.

We have a $40.0 million funding agreement with the Federal Home Loan Bank (FHLB) classified in the interest sensitive and index products line on the consolidated balance sheets. The funding agreement is due September 12, 2006 and interest on the agreement is charged at a variable rate equal to the London Interbank Offered Rate plus 0.08% (2.47% at December 31, 2004 and 1.25% at December 31, 2003). At December 31, 2004, fixed maturity securities with a carrying value of $54.1 million are on deposit with the FHLB as collateral for the funding agreement.

8. Stockholders’ Equity

The Iowa Farm Bureau Federation (IFBF), our majority stockholder, owns our Series B preferred stock. Each share of Series B preferred stock has a liquidation preference of $0.60 and voting rights identical to that of Class A common stock with the exception that each Series B share is entitled to two votes while each Class A share is entitled to one vote. The Series B preferred stock pays cumulative annual cash dividends of $0.03 per share, payable quarterly, and is redeemable by us, at our option, at $0.60 per share plus unpaid dividends if the stock ceases to be beneficially owned by a Farm Bureau organization.

Holders of the Class A common stock, Series B preferred stock and Series C preferred stock vote together as a group. The Class B common stock votes as a separate class on all issues. The holders of the Class A common stock, Series B preferred stock and Series C preferred stock vote for the election of Class A Directors (eight to ten) and only holders of the Class B common stock vote for the election of Class B Directors (five to seven). Voting for the Directors is noncumulative. In addition, various ownership aspects of our Class B common stock are governed by a Class B Shareholder Agreement which results in the IFBF, which owns 62.9% of our voting stock as of December 31, 2004, maintaining control of the Company. Holders of Class A common stock and Class B common stock are entitled to share ratably on a share-for-share basis with respect to common stock dividends.

82

FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Retirement and Compensation Plans

Defined Benefit Plans

We participate with several affiliates in various multiemployer defined benefit plans. These plans cover substantially all our employees and the employees of the other participating companies who have attained age 21 and one year of service. Benefits are based on years of service and the employee’s compensation. One of these plans provides supplemental pension benefits to employees with salaries and/or pension benefits in excess of the qualified plan limits imposed by federal tax law. Net periodic pension cost of the plans is allocated between participants generally on a basis of time incurred by the respective employees for each employer. Such allocations are reviewed annually.

As multiemployer plans, the assets we contribute to the plans are commingled with the assets contributed by the other employers. Accordingly, unless noted otherwise, it is not practical to bifurcate the disclosure information below between amounts attributable to us and amounts attributable to the other employers. The measurement date for the plans is September 30. The plans’ funded status for all employers combined, compared to amounts recognized in our consolidated financial statements under rules for multiemployer plans follows:

	As of or for the year ended
	December 31,
	2004			2003
	(Dollars in thousands)
Change in benefit obligation – all employers
Net benefit obligation at beginning of the year	$	225,055		$	182,303
Service cost		7,769			6,616
Interest cost		13,368			14,595
Actuarial loss		14,543			8,907
Merger by affiliate		–			46,013
Settlements		–			(33,863	)
Special termination benefits		–			4,881
Benefits paid		(11,612	)		(4,397	)
Net benefit obligation at end of the year	$	249,123		$	225,055
Change in plan assets – all employers
Fair value of plan assets at beginning of the year	$	147,562		$	135,492
Actual return on plan assets		6,208			6,996
Employer contributions		16,092			12,300
Merger by affiliate		–			31,034
Settlements		–			(33,863	)
Benefits paid		(11,612	)		(4,397	)
Fair value of plan assets at end of the year	$	158,250		$	147,562
Reconciliation of funded status – all employers
Funded status at end of the year	$	(90,873	)	$	(77,493	)
Contributions made during fourth quarter		4,061			3,733
Unrecognized net actuarial loss		65,881			49,754
Unrecognized prior service cost		6,965			10,257
Net amount recognized at end of the year for all employers	$	(13,966	)	$	(13,749	)

83

FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	As of or for the year ended
	December 31,
	2004			2003
	(Dollars in thousands)
Net amounts recognized – all employers
Prepaid benefit cost	$	7,904		$	7,873
Accrued benefit cost		(21,870	)		(21,622	)
Additional minimum liability		(44,361	)		(33,341	)
Intangible asset		8,214			11,336
Accumulated other comprehensive income		36,147			22,005
Net amount recognized for all employers	$	(13,966	)	$	(13,749	)

During 2003, an affiliate participating in the plans merged with two other entities. As a result of this merger certain employees were added to the plans and related staffing reductions took place. The plans’ projected benefit obligation increased $46.0 million as a result of the merger, and $4.9 million in special termination benefits and $33.9 million in settlements were recorded.

For 2004, a charge of $14.1 million for all employers would have been recorded to other comprehensive income due to changes in interest rates and the plan assets earning less than that assumed.

The net amounts recognized for all employers noted above represent the amounts that would be recognized if the employers followed Statement No. 87, “Employers’ Accounting for Pensions,” as a single employer plan. We record our proportionate share of prepaid or accrued pension cost and net periodic pension cost as follows:

	December 31,
	2004			2003
	(Dollars in thousands)
Amounts recognized in our consolidated financial statements
Prepaid benefit cost	$	8,479		$	8,514
Accrued benefit cost		(9,794	)		(9,085	)
Net amount recognized in our consolidated financial statements	$	(1,315	)	$	(571	)

Net periodic pension cost recorded in our consolidated income statements totaled $6.4 million in 2004, $5.5 million in 2003 and $4.4 million in 2002. Components of net periodic pension cost for all employers are as follows:

	Year ended December 31,
	2004			2003
	(Dollars in thousands)
Service cost	$	7,769		$	6,616
Interest cost		13,368			14,595
Expected return on assets		(10,004	)		(10,892	)
Amortization of prior service cost		3,293			3,006
Amortization of actuarial loss		2,817			2,464
Settlement expense		–			10,897
Net periodic pension cost – all employers	$	17,243		$	26,686

Net periodic pension cost for all employers totaled $10.5 million for 2002. The pension plans’ prior service cost is amortized using a straight-line amortization method over the average remaining service period of the employees. For actuarial gains and losses, we use a corridor, as allowed under Statement No. 87, to determine the amounts to amortize.

Expected benefits to be paid for all employers are as follows: 2005 – $20.3 million, 2006 – $23.0 million, 2007 – $22.0 million, 2008 – $19.8 million, 2009 – $21.8 million and 2010 through 2014 – $109.6 million. We expect contributions to the plans for 2005 for all employers to be approximately $21.7 million, of which $6.9 million is expected to be contributed by us.

84

FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Information for pension plans with accumulated benefit obligations in excess of plan assets is as follows:

	December 31,
	2004		2003
	(Dollars in thousands)
Projected benefit obligation – all employers	$	249,123	$	225,055
Accumulated benefit obligation – all employers		216,577		194,651
Fair value of plan assets – all employers		158,250		147,562

Weighted average assumptions used to determine benefit obligations disclosed above are as follows:

	Year ended December 31,
	2004			2003
Discount rate		5.75	%		6.25	%
Annual salary increases		4.50	%		4.50	%

Weighted average assumptions used to determine net periodic pension cost are as follows:

	Year ended December 31,
	2004			2003
Discount rate		6.25	%		6.75	%
Expected long-term return on plan assets		7.00	%		7.00	%
Annual salary increases		4.50	%		4.50	%

Through December 31, 2004, all of the plans’ assets were invested in deposit administration fund contracts held by Farm Bureau Life. Our investment strategy is to (1) achieve a long-term return sufficient to satisfy all plan obligations, (2) assume a prudent level of risk and (3) to maintain adequate liquidity. The expected return on plan assets is set at the long-term rate expected to be earned based on the long-term investment strategy of the plans. The long-term strategy contemplates the diversification of the plan assets into equity securities with the long-term target allocation being approximately 60% deposit administration funds and 40% equity securities. In estimating the expected rate of return for each asset class, we take into account factors such as historical rates of return, expected future risk free rates of return and anticipated returns expected given the risk profile of each asset class.

Other Retirement Plans

We participate with several affiliates in a 401(k) defined contribution plan which covers substantially all employees. We contribute FBL Financial Group, Inc. stock in an amount equal to 100% of an employee’s contributions up to 2% of the annual salary contributed by the employee and an amount equal to 50% of an employee’s contributions between 2% and 4% of the annual salary contributed by the employee. Costs are allocated among the affiliates on a basis of time incurred by the respective employees for each company. Expense related to the plan totaled $0.9 million in 2004 and $0.8 million in 2003 and 2002.

We have established deferred compensation plans for certain key current and former employees and have certain other benefit plans which provide for retirement and other benefits. Liabilities for these plans are accrued as the related benefits are earned.

Certain of the assets related to these plans are on deposit with us and amounts relating to these plans are included in our financial statements. In addition, certain amounts included in the policy liabilities for interest sensitive products relate to deposit administration funds maintained by us on behalf of affiliates.

In addition to benefits offered under the aforementioned benefit plans, we and several other affiliates sponsor a plan that provides group term life insurance benefits to retired full-time employees who have worked ten years and attained age 55 while in service. Postretirement benefit expense is allocated in a manner consistent with pension expense discussed above. Postretirement benefit expense aggregated $0.1 million in 2004 and less than $0.1 million in 2003 and 2002.

85

FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock Compensation Plans

We have a Class A Common Stock Compensation Plan (the Plan) under which incentive stock options, nonqualified stock options, bonus stock, restricted stock and stock appreciation rights may be granted to directors, officers and employees. Options granted to directors are fully vested upon grant and have a contractual term that varies with the length of time the director remains on the Board, up to ten years. Options granted to officers and employees have a contractual term of 10 years and generally vest over a period up to five years, contingent upon continued employment with us.

Information relating to stock options is as follows:

			Weighted-
			Average
	Number of		Exercise		Total
	Shares		Price per Share		Exercise Price
	(Dollars in thousands, except per share data)
Shares under option at January 1, 2002		1,970,638	$	12.69	$	25,014
Granted		435,826		18.07		7,875
Exercised		362,494		10.96		3,973
Forfeited		29,282		21.44		628
Shares under option at December 31, 2002		2,014,688		14.04		28,288
Granted		540,594		19.60		10,596
Exercised		432,888		12.39		5,363
Forfeited		87,179		18.03		1,572
Shares under option at December 31, 2003		2,035,215		15.70		31,949
Granted		438,810		25.64		11,252
Exercised		511,688		13.30		6,807
Forfeited		4,549		19.79		90
Shares under option at December 31, 2004		1,957,788		18.55	$	36,304
Exercisable options:
December 31, 2002		1,113,006	$	11.84	$	13,178
December 31, 2003		1,035,541		13.56		14,042
December 31, 2004		895,767		16.08		14,406

The weighted average fair value of options granted per common share was $8.50 for 2004, $5.49 for 2003 and $3.82 for 2002. The fair value of our stock options was estimated at the date of grant using the Black-Scholes-Merton option pricing model with the following weighted-average assumptions:

	Year Ended December 31,
	2004			2003			2002
Risk-free interest rate		3.54	%		3.56	%		4.36	%
Dividend yield		1.60	%		1.90	%		1.90	%
Volatility factor of the expected market price		0.34			0.36			0.24
Weighted-average expected life	6.1 years			6.1 years			5.1 years

86

FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Information regarding stock options outstanding at December 31, 2004, is as follows:

	Currently Outstanding						Currently Exercisable
			Weighted-
			Average		Weighted-				Weighted-
			Remaining		Average				Average
			Contractual		Exercise Price				Exercise Price
	Number		Life (in Years)		per Share		Number		per Share
Range of exercise prices:
At $8.75		184,880		1.55	$	8.75		184,880	$	8.75
$8.76 – $14.00		43,446		2.32		12.13		43,289		12.12
$14.01 – $19.25		819,138		6.07		16.63		436,400		16.45
$19.26 – $28.25		910,324		8.44		22.56		231,198		21.99
$8.75 – $28.25		1,957,788		6.66		18.55		895,767		16.08

During 2004, we granted certain senior executives 38,966 restricted Class A common shares. The restricted stock vests by the company meeting or exceeding an earnings per share target for 2006. The market value of the restricted shares on the date of grant totaled $1.0 million and related expense for 2004 allocated to the company totaled $0.1 million.

At December 31, 2004, shares of Class A common stock available for grant as additional awards under the Plan totaled 4,474,721.

We have a Director Compensation Plan under which non-employee directors on our Board may elect to receive a portion of their compensation in the form of cash, Class A common shares or deferred stock units. Under this plan, we have deferred stock units outstanding totaling 26,912 at December 31, 2004 and 21,719 at December 31, 2003. At December 31, 2004, shares of Class A common stock available for future issuance under the Director Compensation Plan totaled 22,438.

Also see Note 1, “Significant Accounting Policies – Stock Based Compensation,” for further discussion of the accounting for our stock option plans and certain pro forma financial information due to the adoption of Statement No. 123 and Statement No. 148.

10. Management and Other Agreements

We share certain office facilities and services with the IFBF, Kansas Farm Bureau and their affiliated companies. These expenses are allocated on the basis of cost and time studies that are updated annually and consist primarily of rent, salaries and related expenses, travel and other operating costs.

We lease office space under an annually renewable lease from Farm Bureau Mutual. Related lease expense totaled $0.8 million in 2004, $0.6 million in 2003 and $0.3 million in 2002.

We have management agreements with Farm Bureau Mutual and other affiliates under which we provide general business, administrative and management services. We also had a management agreement with EMCNL that was terminated effective July 1, 2003. Fee income for these services totaled $2.8 million in 2004, $2.7 million in 2003 and $3.4 million in 2002. In addition, Farm Bureau Management Corporation, a wholly-owned subsidiary of the IFBF, provides certain management services to us under a separate arrangement. We incurred related expenses totaling $0.8 million in 2004, $0.6 million in 2003 and $0.8 million in 2002.

We have marketing agreements with the Farm Bureau property-casualty companies operating within our marketing territory, including Farm Bureau Mutual and another affiliate. Under the marketing agreements, the property-casualty companies are responsible for development and management of our agency force for a fee equal to a percentage of commissions on first year life insurance premiums and annuity deposits. We paid $7.3 million in 2004, $7.1 million in 2003 and $7.2 million in 2002 to the property-casualty companies under these arrangements.

We are licensed by the IFBF to use the “Farm Bureau” and “FB” designations in Iowa. In connection with this license, we incurred royalty expense totaling $0.4 million in 2004, 2003 and 2002. We have similar arrangements with the Kansas Farm Bureau and other state Farm Bureau organizations in our market territory. Total royalty expense to Farm Bureau organizations other than the IFBF totaled $1.1 million in 2004, $1.2 million in 2003 and $1.1 million in 2002.

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FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We have administrative services agreements with American Equity under which we provide investment accounting and claims processing, accounting, compliance and other administrative services primarily relating to certain variable annuities written by them. Fee income from performing these services totaled $0.4 million in 2004 and $0.3 million in 2003 and 2002.

11. Commitments and Contingencies

In the normal course of business, we may be involved in litigation where amounts are alleged that are substantially in excess of contractual policy benefits or certain other agreements. At December 31, 2004, management is not aware of any claims for which a material loss is reasonably possible.

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

We lease our home office properties under a 15-year operating lease from a wholly-owned subsidiary of the IFBF. Future remaining minimum lease payments under this lease, as of December 31, 2004, are as follows: 2005 - $2.4 million; 2006 - $2.4 million; 2007 - $2.4 million; 2008 - $2.6 million; 2009 - $2.7 million and thereafter, through 2013 - $8.7 million. Rent expense for the lease totaled $3.1 million in 2004 and $3.0 million in 2003 and 2002. These amounts are net of $1.4 million in 2004, 2003 and 2002 in amortization of a deferred gain on the exchange of our home office properties for common stock in 1998. The remaining unamortized deferred gain totaled $11.5 million at December 31, 2004 and $12.9 million at December 31, 2003.

12. Earnings per Share

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

	Year ended December 31,
	2004			2003			2002
	(Dollars in thousands, except per share data)
Numerator:
Net income	$	66,076		$	65,945		$	50,668
Dividends on Series B and C preferred stock		(150	)		(2,297	)		(4,337	)
Numerator for earnings per common share - income available to common stockholders	$	65,926		$	63,648		$	46,331
Denominator:
Weighted average shares		28,564,509			27,959,089			27,609,866
Deferred common stock units related to directors compensation plan		23,361			18,650			14,796
Denominator for earnings per common share – weighted-average shares		28,587,870			27,977,739			27,624,662
Effect of dilutive securities – employee stock options		553,020			571,143			543,846
Denominator for diluted earnings per common share – adjusted weighted-average shares		29,140,890			28,548,882			28,168,508
Earnings per common share	$	2.31		$	2.27		$	1.68
Earnings per common share – assuming dilution	$	2.26		$	2.23		$	1.64

88

FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Based upon the provisions of the underlying agreement and the application of the “two class” method to our capital structure, we have not allocated any undistributed net income to the Class C preferred stock since the Class C preferred stockholder’s participation in dividends with the common stockholders is limited to the amount of the annual regular dividend.

Options to purchase 6,832 shares of common stock in 2004 at $27.15 to $28.25 per share were granted during 2004 but were not included in the computation of 2004 diluted earnings per share because the options’ exercise price was greater than the average market price of common shares during 2004. The options, which expire in 2014, were still outstanding at December 31, 2004.

Options to purchase 25,947 shares of common stock in 2003 at $22.25 to $26.28 per share were granted during 1998, 1999, 2002 and 2003 but were not included in the computation of 2003 diluted earnings per share because the options’ exercise price was greater than the average market price of common shares during 2003. The options, which expire in 2008 through 2013, were still outstanding at December 31, 2003.

Options to purchase 50,345 shares of common stock in 2002 at $19.16 to $24.25 per share were granted during 1997, 1998, 1999, 2000, and 2002 but were not included in the computation of 2002 diluted earnings per share because the options’ exercise price was greater than the average market price of common shares during 2002. The options, which expire in 2007 through 2012, were still outstanding at December 31, 2002.

13. Statutory Information

The financial statements of the Life Companies included herein differ from related statutory-basis financial statements principally as follows: (a) the bond portfolio is classified as available-for-sale (carried at fair value) rather than generally being carried at amortized cost; (b) changes in the fair value of call options held directly by EquiTrust Life are recorded as a component of derivative income rather than directly to surplus; (c) acquisition costs of acquiring new business are deferred and amortized over the life of the policies rather than charged to operations as incurred; (d) future policy benefit reserves for participating traditional life insurance products are based on net level premium methods and guaranteed cash value assumptions which may differ from statutory reserves; (e) future policy benefit reserves on certain interest sensitive products are based on full account values, rather than discounting methodologies utilizing statutory interest rates; (f) net realized gains or losses attributed to changes in the level of market interest rates are recognized as gains or losses in the statements of income when the sale is completed rather than deferred and amortized over the remaining life of the fixed maturity security or mortgage loan; (g) the established formula-determined statutory investment reserve, changes in which are charged directly to surplus, is not recorded as a liability; (h) certain deferred income tax assets, agents’ balances and certain other assets designated as “non-admitted assets” for statutory purposes are reported as assets rather than being charged to surplus; (i) revenues for interest sensitive and variable products consist of policy charges for the cost of insurance, policy administration charges, amortization of policy initiation fees and surrender charges assessed rather than premiums received; (j) pension income or expense is recognized for all employees in accordance with Statement No. 87, “Employers’ Accounting for Pensions” rather than for vested employees only; (k) the financial statements of subsidiaries are consolidated with those of the insurance subsidiary rather than being accounted for under the equity method; and (l) assets and liabilities are restated to fair values when a change in ownership occurs that is accounted for as a purchase, with provisions for goodwill and other intangible assets, rather than continuing to be presented at historical cost.

Net income of the Life Companies, as determined in accordance with statutory accounting practices, was $61.1 million in 2004, $55.1 million in 2003 and $24.9 million in 2002. Statutory net gain from operations for the Life Companies, which excludes realized gains and losses, totaled $63.1 million in 2004, $71.4 million in 2003 and $48.4 million in 2002. Statutory capital and surplus totaled $542.0 million at December 31, 2004 and $465.2 million at December 31, 2003.

The ability of the Life Companies to pay dividends to the parent company is restricted because prior approval of the Iowa Insurance Commissioner is required for payment of dividends to the stockholder which exceed an annual limitation. In addition, under the Iowa Insurance Holding Company Act, the Life Companies may not pay an “extraordinary” dividend without prior notice to and approval by the Iowa Insurance Commissioner. An “extraordinary” dividend is defined under the Iowa Insurance Holding Company Act as any dividend or distribution of cash or other property whose fair market value, together with that of other dividends or distributions made within the preceding 12 months, exceeds the greater of (i) 10% of policyholders’ surplus (total statutory capital stock and

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FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

statutory surplus) as of December 31 of the preceding year, or (ii) the statutory net gain from operations of the insurer for the 12-month period ending December 31 of the preceding year. During 2005, the maximum amount legally available for distribution to FBL Financial Group, Inc. without further regulatory approval is $39.3 million for Farm Bureau Life and $23.8 million for EquiTrust Life.

14. Segment Information

Management analyzes operations by reviewing financial information regarding products that are aggregated into four product segments. The product segments are: (1) traditional annuity – exclusive distribution (“Exclusive Annuity Segment”), (2) traditional annuity – independent distribution (“Independent Annuity Segment”), (3) traditional and universal life insurance and (4) variable. We also have various support operations and corporate capital that are aggregated into a corporate and other segment. Our segment results for 2003 and 2002 have been restated to reflect a change in the composition of our reportable segments. Prior to 2004, amounts now reported in the Exclusive Annuity Segment and the Independent Annuity Segment were reported together in a single traditional annuity segment. This change was made to better reflect how the business is managed and has no impact on our consolidated financial statements for any period reported.

The Exclusive Annuity Segment consists of fixed annuities and supplementary contracts (some of which involve life contingencies) sold through our exclusive agency distribution. Fixed annuities provide for tax-deferred savings and supplementary contracts provide for the systematic repayment of funds that accumulate interest. Fixed annuities consist primarily of flexible premium deferred annuities, but also include single premium deferred and immediate contracts. With fixed annuities, we bear the underlying investment risk and credit interest to the contracts at rates we determine, subject to interest rate guarantees.

The Independent Annuity Segment consists of fixed annuities and supplementary contracts (some of which involve life contingencies) sold through our independent distribution or assumed through our coinsurance agreements with American Equity and EMCNL. In addition to the types of fixed annuities included in the Exclusive Annuity Segment, the Independent Annuity Segment also includes index annuities. With index annuity products, we bear the underlying investment risk and credit interest in an amount equal to the greater of a guaranteed interest rate or a percentage of the gain in a specified market index.

The traditional and universal life insurance segment consists of whole life, term life and universal life policies. These policies provide benefits upon the death of the insured and may also allow the customer to build cash value on a tax-deferred basis.

The variable segment consists of variable universal life insurance and variable annuity contracts. These products are similar to universal life insurance and traditional annuity contracts, except the contract holder has the option to direct the cash value of the contract to a wide range of investment sub-accounts, thereby passing the investment risk to the contract holder.

The corporate and other segment consists of the following corporate items and products/services that do not meet the quantitative threshold for separate segment reporting:

•   investments and related investment income not specifically allocated to our product segments;

•   interest expense and minority interest pertaining to distributions on trust preferred securities;

•   accident and health insurance products, primarily a closed block of group policies;

•   advisory services for the management of investments and other companies;

•   marketing and distribution services for the sale of mutual funds and insurance products not issued by us; and

•   leasing services, primarily with affiliates.

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FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Financial information concerning our operating segments is as follows.

	Year ended December 31,
	2004			2003			2002
	(Dollars in thousands)
Operating revenues:
Traditional annuity – exclusive distribution	$	134,768		$	131,106		$	123,807
Traditional annuity – independent distribution		147,466			126,498			53,040
Traditional and universal life		313,570			313,021			310,965
Variable		52,587			49,671			46,560
Corporate and other		26,081			23,252			21,540
		674,472			643,548			555,912
Realized gains (losses) on investments (A)		8,130			(2,003	)		(14,797	)
Consolidated revenues	$	682,602		$	641,545		$	541,115
Net investment income:
Traditional annuity – exclusive distribution	$	134,014		$	131,683		$	123,174
Traditional annuity – independent distribution		124,712			103,594			61,795
Traditional and universal life		137,667			141,034			146,589
Variable		13,814			13,483			11,909
Corporate and other		5,874			6,087			4,892
Consolidated net investment income	$	416,081		$	395,881		$	348,359
Depreciation and amortization, including amortization/accretion of premium/discount on investments:
Traditional annuity – exclusive distribution	$	1,829		$	8,435		$	726
Traditional annuity – independent distribution		(12,314	)		(19,717	)		(7,579	)
Traditional and universal life		2,109			(9,388	)		(1,971	)
Variable		768			(56	)		472
Corporate and other		8,773			8,277			7,726
Consolidated depreciation and amortization	$	1,165		$	(12,449	)	$	(626	)
Pre-tax operating income (loss):
Traditional annuity – exclusive distribution	$	26,285		$	24,318		$	22,267
Traditional annuity – independent distribution		14,870			18,424			7,165
Traditional and universal life		52,189			54,464			61,033
Variable		2,190			980			(838	)
Corporate and other		(8,277	)		4,216			(2,212	)
		87,257			102,402			87,415
Income taxes on operating income		(25,913	)		(35,214	)		(28,454	)
Realized gains (losses) on investments, net (A)		4,732			(1,243	)		(8,293	)
Consolidated net income	$	66,076		$	65,945		$	50,668
Assets:
Traditional annuity – exclusive distribution	$	2,315,568		$	2,118,067		$	1,862,430
Traditional annuity – independent distribution		2,795,815			2,121,944			1,453,311
Traditional and universal life		2,472,565			2,413,683			2,310,128
Variable		929,235			834,562			681,264
Corporate and other		393,928			289,097			355,871
		8,907,111			7,777,353			6,663,004
Unrealized gains on investments, net (A)		216,596			186,118			145,573
Other classification adjustments		(22,971	)		(14,401	)		(9,128	)
Consolidated assets	$	9,100,736		$	7,949,070		$	6,799,449

(A) Amounts are net of adjustments, as applicable, to amortization of unearned revenue reserves, deferred policy acquisition costs, deferred sales inducements, value of insurance in force acquired and income taxes attributable to gains and losses on investments.

91

FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We analyze our segment results based on pre-tax operating income (loss). Accordingly, income taxes are not allocated to the segments. In addition, operating results are analyzed net of any transactions between the segments. Operating income (loss) represents net income excluding the impact of realized gains and losses on investments. The impact of realized gains and losses on investments includes adjustments for income taxes and that portion of amortization of deferred policy acquisition costs, deferred sales inducements, unearned revenue reserve and value of insurance in force acquired attributable to such gains or losses.

Depreciation and amortization related to property, plant and equipment are allocated to the product segments while the related property, equipment and capitalized software are generally allocated to the corporate and other segment. Depreciation and amortization for the corporate and other segment include $5.8 million for 2004, $5.7 million for 2003 and $5.0 million for 2002 relating to leases with affiliates. In the consolidated statements of income, we record these depreciation amounts net of related lease income from affiliates.

Our investment in equity method investees and the related equity income and interest expense are attributable to the corporate and other segment. Expenditures for long-lived assets were not significant during the periods presented above.

Net statutory premiums collected, which include premiums collected from annuities and universal life-type products that are not included in revenues for GAAP reporting, totaled $1,223.7 million in 2004, $1,177.7 million in 2003 and $1,342.4 million in 2002. Excluding the Independent Annuity Segment, our total life and annuity collected premiums are concentrated in the following states: Iowa (2004 – 28%, 2003 – 29%, 2002 – 28%), Kansas (2004 – 20%, 2003 – 20%, 2002 – 24%) and Oklahoma (2004 – 8%, 2003 – 9%, 2002 – 8%). For the Independent Annuity Segment, excluding reinsurance assumed, our annuity collected premiums in 2004 are concentrated in the following states: Florida (13%), California (11%) and Michigan (11%).

15. Quarterly Financial Information (Unaudited)

Unaudited quarterly results of operations are as follows:

	2004
Quarter ended	March 31,		June 30,			September 30,			December 31,
	(Dollars in thousands, except per share data)
Premiums and product charges	$	55,827	$	57,223		$	53,801		$	55,419
Net investment income		98,546		100,382			106,807			110,346
Derivative income (loss)		4,212		(2,059	)		(8,463	)		21,917
Realized gains on investments		64		629			601			6,881
Total revenues		163,350		161,557			158,277			199,418
Net income		13,182		13,013			14,451			25,430
Net income applicable to common stock		13,144		12,976			14,414			25,392
Earnings per common share	$	0.46	$	0.45		$	0.50		$	0.88
Earnings per common share – assuming dilution	$	0.45	$	0.45		$	0.49		$	0.87

92

FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	2003
Quarter ended	March 31,			June 30,		September 30,			December 31,
	(Dollars in thousands, except per share data)
Premiums and product charges	$	52,082		$	56,148	$	52,324		$	53,146
Net investment income		97,947			99,970		98,541			99,423
Derivative income (loss)		(5,073	)		10,708		2,078			9,365
Realized gains (losses) on investments		(5,632	)		4,516		(318	)		(574	)
Total revenues		143,333			175,764		156,605			165,843
Net income		11,946			21,629		14,741			17,629
Net income applicable to common stock.		10,840			20,513		14,704			17,591
Earnings per common share	$	0.39		$	0.74	$	0.53		$	0.62
Earnings per common share – assuming dilution	$	0.38		$	0.72	$	0.51		$	0.61

The differences between the derivative income (loss) by quarter primarily correspond to the performance of the indices upon which our call options are based. Based on events and analysis performed during the respective periods, income taxes were reduced $1.6 million in the second quarter of 2004, $0.3 million in the third quarter of 2004 and $2.6 million in the fourth quarter of 2004, as we determined that certain tax accruals were no longer necessary. As discussed in Note 1 under “Accounting Changes,” amounts previously classified as dividends on our company-obligated mandatorily redeemable preferred stock of subsidiary trust and Series C redeemable preferred stock are recorded as interest expense beginning in the third quarter of 2003 in accordance with Statement No. 150. While the adoption of Statement No. 150 resulted in a $1.1 million decrease to net income for the third and fourth quarters of 2003, a $0.5 million decrease during each of the first three quarters of 2004, and a $0.6 million decrease in the fourth quarter of 2004, the adoption did not impact net income applicable to common stock or earnings per common share.

93

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, this 18th day of March, 2005.

FBL Financial Group, Inc.
By:	/s/ James W. Noyce
	James W. Noyce
	Chief Financial Officer