FBL Financial 10Q 2005 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)


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

		For the quarterly period ended September 30, 2005


o		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 of incorporation)		(I.R.S. Employer Identification No.)


5400 University Avenue, West Des Moines, Iowa		50266-5997

(Address of principal executive offices)		(Zip Code)

(515) 225-5400

(Registrant’s telephone number, including area code)

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

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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 27,924,510 shares of Class A common stock and 1,192,990 shares of Class B common stock as of November 3, 2005.

FBL FINANCIAL GROUP, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005
TABLE OF CONTENTS


PART I.	FINANCIAL INFORMATION

Item 1.		Financial Statements (Unaudited)
		Consolidated Balance Sheets	2
		Consolidated Statements of Income	4
		Consolidated Statements of Changes in Stockholders’ Equity	5
		Consolidated Statements of Cash Flows	6
		Notes to Consolidated Financial Statements	8

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.		Quantitative and Qualitative Disclosures About Market Risk	42

Item 4.		Controls and Procedures	42

PART II.	OTHER INFORMATION

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	43

Item 6.		Exhibits	44

SIGNATURES			46

Exhibit 31.1

Exhibit 31.2

Exhibit 32
Section 302 Certification
Section 302 Certification
Section 906 Certification

ITEM 1. FINANCIAL STATEMENTS

FBL FINANCIAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands)


	September 30,		December 31,
	2005		2004
Assets
Investments:
Fixed maturities – available for sale, at market (amortized cost: 2005 - $6,823,799; 2004 - $6,209,593)	$	6,990,787	$	6,459,208
Fixed maturities – trading, at market (cost: 2005 - $15,005)		14,878		–
Equity securities – available for sale, at market (cost: 2005 - $55,001; 2004 - $55,359)		73,573		71,163
Mortgage loans on real estate		804,270		740,874
Derivative instruments		32,924		15,536
Investment real estate, less allowances for depreciation of $2,180 in 2005 and $2,016 in 2004		9,556		9,441
Policy loans		176,453		176,613
Other long-term investments		1,300		1,300
Short-term investments		43,441		27,545

Total investments		8,147,182		7,501,680

Cash and cash equivalents		10,711		27,957
Securities and indebtedness of related parties		22,551		22,727
Accrued investment income		85,791		68,314
Amounts receivable from affiliates		4,644		8,176
Reinsurance recoverable		112,829		119,631
Deferred policy acquisition costs		660,283		587,391
Deferred sales inducements		128,830		78,443
Value of insurance in force acquired		45,697		45,839
Property and equipment, less allowances for depreciation of $64,931 in 2005 and $62,456 in 2004		46,680		43,409
Current income taxes recoverable		737		–
Goodwill		11,170		11,170
Other assets		35,336		33,970
Assets held in separate accounts		614,514		552,029






Total assets	$	9,926,955	$	9,100,736

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


	September 30,		December 31,
	2005		2004
Liabilities and stockholders’ equity
Liabilities:
Policy liabilities and accruals:
Future policy benefits:
Interest sensitive and index products	$	6,137,569	$	5,432,828
Traditional life insurance and accident and health products		1,196,671		1,167,432
Unearned revenue reserve		29,342		29,319
Other policy claims and benefits		24,765		21,394

		7,388,347		6,650,973

Other policyholders’ funds:
Supplementary contracts without life contingencies		383,279		370,341
Advance premiums and other deposits		167,823		166,988
Accrued dividends		11,241		12,639

		562,343		549,968

Amounts payable to affiliates		2,293		7,981
Short-term debt		45,872		46,000
Long-term debt		218,456		217,183
Current income taxes		—		3,803
Deferred income taxes		100,097		118,965
Other liabilities		147,853		121,032
Liabilities related to separate accounts		614,514		552,029

Total liabilities		9,079,775		8,267,934

Minority interest in subsidiaries		160		191

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 27,919,483 shares in 2005 and 27,541,867 shares in 2004		71,040		62,234
Class B common stock, without par value – authorized 1,500,000 shares, issued and outstanding 1,192,990 shares		7,524		7,524
Accumulated other comprehensive income		103,540		141,240
Retained earnings		661,916		618,613

Total stockholders’ equity		847,020		832,611


Total liabilities and stockholders’ equity	$	9,926,955	$	9,100,736

See accompanying notes.

FBL FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share data)


	Three months ended September 30,						Nine months ended September 30,
	2005			2004			2005			2004
Revenues:
Interest sensitive and index product charges	$	23,834		$	22,437		$	71,895		$	66,757
Traditional life insurance premiums		31,649			31,337			101,897			99,809
Accident and health premiums		31			27			237			285
Net investment income		120,336			106,807			352,373			305,735
Derivative income (loss)		5,900			(8,463	)		(6,380	)		(6,310	)
Realized/unrealized gains on investments		37			601			3,325			1,294
Other income		5,436			5,531			15,828			15,614

Total revenues		187,223			158,277			539,175			483,184
Benefits and expenses:
Interest sensitive and index product benefits		79,639			57,789			210,549			184,010
Traditional life insurance and accident and health benefits		20,714			20,519			64,651			63,401
Increase in traditional life and accident and health future policy benefits		8,244			8,567			26,902			26,118
Distributions to participating policyholders		5,393			5,845			17,235			18,676
Underwriting, acquisition and insurance expenses		40,040			36,434			115,546			110,972
Interest expense		3,427			3,171			10,097			8,169
Other expenses		5,466			4,548			15,016			13,778

Total benefits and expenses		162,923			136,873			459,996			425,124

		24,300			21,404			79,179			58,060
Income taxes		(7,901	)		(7,414	)		(27,104	)		(18,321	)

Minority interest in earnings of subsidiaries		(24	)		(26	)		(131	)		(68	)
Equity income, net of related income taxes		644			487			575			975

Net income		17,019			14,451			52,519			40,646
Dividends on Series B preferred stock		(37	)		(37	)		(112	)		(112	)

Net income applicable to common stock	$	16,982		$	14,414		$	52,407		$	40,534


Earnings per common share	$	0.59		$	0.50		$	1.82		$	1.42

Earnings per common share – assuming dilution	$	0.58		$	0.49		$	1.79		$	1.39


Cash dividends per common share	$	0.105		$	0.100		$	0.315		$	0.300

See accompanying notes.

FBL FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
(Dollars in thousands)


							Accumulated
	Series B		Class A		Class B		Other						Total
	Preferred		Common		Common		Comprehensive			Retained			Stockholders’
	Stock		Stock		Stock		Income			Earnings			Equity

Balance at January 1, 2004	$	3,000	$	51,609	$	7,522	$	121,552		$	564,144		$	747,827
Comprehensive income:
Net income for nine months ended September 30, 2004		–		–		–		–			40,646			40,646
Change in net unrealized investment gains/losses		–		–		–		15,761			–			15,761

Total comprehensive income														56,407
Net issuance of 497,930 shares of common stock under compensation and stock option plans, including related income tax benefit		–		9,623		–		–			–			9,623
Adjustment resulting from capital transactions of equity investee		–		13		2		–			–			15
Dividends on preferred stock		–		–		–		–			(112	)		(112	)
Dividends on common stock		–		–		–		–			(8,586	)		(8,586	)

Balance at September 30, 2004	$	3,000	$	61,245	$	7,524	$	137,313		$	596,092		$	805,174


Balance at January 1, 2005	$	3,000	$	62,234	$	7,524	$	141,240		$	618,613		$	832,611
Comprehensive income:
Net income for nine months ended September 30, 2005		–		–		–		–			52,519			52,519
Change in net unrealized investment gains/losses		–		–		–		(37,700	)		–			(37,700	)

Total comprehensive income														14,819
Net issuance of 377,616 shares of common stock under compensation and stock option plans, including related income tax benefit		–		8,806		–		–			–			8,806
Dividends on preferred stock		–		–		–		–			(112	)		(112	)
Dividends on common stock		–		–		–		–			(9,104	)		(9,104	)

Balance at September 30, 2005	$	3,000	$	71,040	$	7,524	$	103,540		$	661,916		$	847,020

Comprehensive income (loss) totaled ($56.7) million in the third quarter of 2005 and $80.0 million in the third quarter of 2004.

See accompanying notes.

FBL FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)


	Nine months ended September 30,
	2005			2004
Operating activities
Net income	$	52,519		$	40,646
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		176,868			166,702
Change in fair value of embedded derivatives		(2,025	)		(14,435	)
Charges for mortality and administration		(67,033	)		(62,530	)
Deferral of unearned revenues		780			698
Amortization of unearned revenue reserve		(963	)		(1,247	)
Provision for depreciation and amortization		7,513			565
Equity income, net of related taxes		(575	)		(975	)
Realized/unrealized gains on investments		(3,325	)		(1,294	)
Increase in traditional life and accident and health benefit accruals, net of reinsurance		26,902			26,118
Policy acquisition costs deferred		(104,981	)		(88,085	)
Amortization of deferred policy acquisition costs		42,542			37,041
Amortization of deferred sales inducements		7,073			4,460
Net acquisition of fixed maturities – trading		(15,006	)		–
Change in accrued investment income		(17,477	)		(16,881	)
Change in amounts receivable from/payable to affiliates		(2,156	)		(310	)
Change in reinsurance recoverable		9,072			13,605
Change in current income taxes		(4,849	)		15,134
Provision for deferred income taxes		1,433			1,099
Other		(3,812	)		5,232

Net cash provided by operating activities		102,500			125,543

Investing activities
Sale, maturity or repayment of investments:
Fixed maturities – available for sale		707,082			1,066,430
Equity securities – available for sale		1,261			471
Mortgage loans on real estate		33,571			31,682
Derivative instruments		8,864			–
Investment real estate		–			3,939
Policy loans		27,713			28,169

		778,491			1,130,691

Acquisition of investments:
Fixed maturities – available for sale		(1,280,320	)		(1,865,115	)
Equity securities – available for sale		(429	)		(464	)
Mortgage loans on real estate		(96,922	)		(116,106	)
Derivative instruments		(22,986	)		(5,602	)
Investment real estate		(40	)		(1,016	)
Policy loans		(27,553	)		(27,634	)
Short-term investments – net		(15,896	)		(25,313	)

		(1,444,146	)		(2,041,250	)

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


	Nine months ended September 30,
	2005			2004
Investing activities – continued
Proceeds from disposal, repayments of advances and other distributions from equity investees	$	1,867		$	1,941
Purchases of property and equipment		(14,595	)		(19,722	)
Disposal of property and equipment		1,612			5,754

Net cash used in investing activities		(676,771	)		(922,586	)

Financing activities
Receipts from interest sensitive and index products credited to policyholder account balances		1,023,244			843,814
Return of policyholder account balances on interest sensitive and index products		(464,226	)		(333,978	)
Proceeds from long-term debt		–			121,504
Repayment of short-term debt		–			(45,280	)
Distributions related to minority interests – net		(162	)		(43	)
Issuance of common stock		7,385			7,997
Dividends paid		(9,216	)		(8,698	)

Net cash provided by financing activities		557,025			585,316

Decrease in cash and cash equivalents		(17,246	)		(211,727	)
Cash and cash equivalents at beginning of period		27,957			233,858

Cash and cash equivalents at end of period	$	10,711		$	22,131


Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest	$	7,655		$	4,679
Income taxes		29,101			464
Non-cash operating activity:
Deferral of sales inducements		54,371			35,703
Non-cash financing activity:
Reclassification of short-term debt to long-term debt upon refinancing		46,000			–

See accompanying notes



FBL Financial Group, Inc.		September 30, 2005

FBL FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2005

Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements of FBL Financial Group, Inc. (we or the Company) have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. Our financial statements include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of our financial position and results of operations. Operating results for the three- and nine-month periods ended September 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. We encourage you to refer to our consolidated financial statements and notes for the year ended December 31, 2004 included in our annual report on Form 10-K for a complete description of our material accounting policies. Also included in the Form 10-K is a description of areas of judgements and estimates and other information necessary to understand our financial position and results of operations.

Investments

Fixed maturity securities that are purchased with the intent to sell within a short period of time are reported as held for trading. These securities are carried at fair value and unrealized gains and losses are reflected in the consolidated statements of income as a component of realized/unrealized gains on investments.

Pending Accounting Changes and Stock-Based Compensation

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

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (Statement) No. 123(R), “Share-Based Payment,” which is a revision of Statement No. 123, “Accounting for Stock-Based Compensation.” 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. The stock option expense is recognized over the shorter of our five-year vesting schedule or the period ending when the employee becomes eligible for retirement. In addition, the impact of forfeitures is estimated and compensation expense is recognized only for those options expected to vest. 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.



FBL Financial Group, Inc.		September 30, 2005

employee becomes eligible for retirement and immediate vesting. In addition, the impact of forfeitures is recognized when they occur and benefits of tax deductions in excess of recognized compensation cost are reported as an operating cash flow.

We expect to use the modified-prospective-transition method upon the adoption of Statement No. 123(R) effective January 1, 2006. 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 are not able to estimate the impact of adopting Statement No. 123(R) for the future as it is dependent on unknown factors such as the amount of future stock option grants and forfeitures and the timing of employee stock option exercises. However, we estimate that if Statement No. 123(R) would have been adopted as of January 1, 2005, net income would have been decreased by $0.5 million ($0.02 per basic and diluted share) for the nine-month period ended September 30, 2005. This includes a cumulative effect adjustment of $0.1 million (less than $0.01 per basic and diluted share) relating to the change in accounting for forfeitures. The impact of adopting Statement No. 123(R) on operating and financing cash flows is not expected to be material since the cash flow from excess tax deductions for the nine months ended September 30 totaled $1.4 million for 2005 and $1.6 million for 2004.

While the paragraph above explains the impact of adopting Statement No. 123(R), the following table illustrates the effect on net income and earnings per share if the fair value based method under Statement No. 123 had been applied to all outstanding and unvested awards in each period.


	Three months ended September 30,						Nine months ended September 30,
	2005			2004			2005			2004
	(Dollars in thousands, except per share data)
Net income, as reported	$	17,019		$	14,451		$	52,519		$	40,646
Add: Stock-based employee and director compensation expense included in reported net income, net of related tax effects		471			415			1,343			952
Less: Total stock-based employee and director compensation expense determined under fair value based methods for all awards, net of related tax effects		(564	)		(621	)		(1,624	)		(1,430	)

Net income, pro forma	$	16,926		$	14,245		$	52,238		$	40,168


Earnings per common share, as reported	$	0.59		$	0.50		$	1.82		$	1.42


Earnings per common share, pro forma	$	0.58		$	0.50		$	1.81		$	1.40


Earnings per common share – assuming dilution, as reported	$	0.58		$	0.49		$	1.79		$	1.39

Earnings per common share – assuming dilution, pro forma	$	0.57		$	0.49		$	1.78		$	1.38

Impact of Unlocking

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



FBL Financial Group, Inc.		September 30, 2005

The impact of unlocking on pre-tax income is as follows:


	Three months ended September 30,						Nine months ended September 30,
	2005			2004			2005			2004
				(Dollars in thousands)
Amortization of deferred policy acquisition costs	$	2,582		$	902		$	1,732		$	1,327
Amortization of deferred sales inducements		29			–			108			–
Amortization of unearned revenues		(408	)		(33	)		(397	)		(33	)

Increase to pre-tax income	$	2,203		$	869		$	1,443		$	1,294

Impact per common share (basic and diluted), net of tax	$	0.05		$	0.02		$	0.03		$	0.03

Comparison of underwriting, acquisition and insurance expenses is impacted by the unlocking effect on the amortization of deferred policy acquisition costs and comparison of interest sensitive and index product charges are impacted by the unlocking effect on the amortization of unearned revenues. The impact of unlocking on deferred policy acquisition costs in the third quarter of 2005 is due primarily to the impact of a change in the estimate of projected investment income on traditional participating life business and a general improvement in lapse and mortality assumptions on various lines of business. These items are partially offset by the impact of a change in our premium persistency assumption on our flexible premium deferred annuity business. The impact of unlocking on unearned revenues in the third quarter of 2005 is due primarily to improved mortality assumptions on universal life insurance business.

Income Taxes

The effective tax rate for the third quarter was 32.5% in 2005 compared to 34.6% in 2004 and for the nine-month period was 34.2% in 2005 compared to 31.6% in 2004. The decrease in the effective tax rate in the third quarter of 2005 is attributable to the reversal of a tax accrual totaling $0.5 million during the third quarter of 2005. The increase in the effective tax rate in the nine-month period of 2005 is primarily attributable to the reversal of a tax accrual totaling $1.6 million during the second quarter of 2004. Based on events and analysis performed during the respective quarters, we determined that these tax accruals were no longer necessary and related benefits totaling $0.5 million in 2005 and $1.6 million in 2004 were recorded.

Reclassifications

Certain amounts in the 2004 consolidated statement of cash flows have been reclassified to conform to the 2005 financial statement presentation.

Defined Benefit Plans

We participate with several affiliates in various multiemployer defined benefit plans. Our share of net periodic pension cost for the plans recorded in our consolidated income statements for the third quarter totaled $1.5 million for 2005 and $1.6 million for 2004 and for the nine months ended September 30 totaled $4.6 million for 2005 and $4.8 million for 2004. Components of net periodic pension cost for all employers in the multiemployer plans are as follows:


	Three months ended September 30,						Nine months ended September 30,
	2005			2004			2005			2004
				(Dollars in thousands)
Service cost	$	2,162		$	1,942		$	6,485		$	5,827
Interest cost		3,408			3,342			10,226			10,026
Expected return on assets		(2,712	)		(2,501	)		(8,136	)		(7,503	)
Amortization of prior service cost		396			823			1,187			2,470
Amortization of actuarial loss		1,046			705			3,139			2,113

Net periodic pension cost – all employers	$	4,300		$	4,311		$	12,901		$	12,933



FBL Financial Group, Inc.		September 30, 2005

Credit Arrangements

We had a $60.0 million revolving line of credit agreement with LaSalle Bank National Association and Bankers Trust Company, N.A. that was scheduled to mature on October 31, 2005. Debt outstanding on this line of credit totaled $46.0 million at September 30, 2005 and December 31, 2004. Interest on any borrowings accrued at a variable rate (4.57% at September 30, 2005 and 3.07% at December 31, 2004). In October 2005, we amended and restated this agreement to make it effective through October 2010. Under this new agreement, which has terms similar to the previous agreement, we are required to meet certain financial covenants. In addition, we are prohibited from incurring additional indebtedness in excess of $25.0 million while this line of credit is in effect.

Commitments and Contingencies

In the normal course of business, we may be involved in litigation where amounts are alleged that are substantially more than contractual policy benefits or those contained in certain other agreements. At September 30, 2005, management is not aware of any claims for which a material loss is reasonably possible.

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

We participate in a reinsurance pool with various unaffiliated life insurance companies to mitigate the impact of a catastrophic event on our financial position and results of operations. Members of the pool share in the eligible catastrophic losses based on their size and contribution to the pool. Under the pool arrangement, we will be able to cede approximately 60% of catastrophic losses after other reinsurance and a deductible of $0.7 million. Pool losses are capped at $7.6 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.

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

Consolidation of Life Operations

In July 2005, we announced the closing of our life insurance processing unit in Manhattan, Kansas. As a result of the closure and some unrelated terminations, we accrued a pre-tax charge of $0.8 million as of September 30, 2005, relating primarily to severance benefits. These expenses are recorded in the underwriting, acquisition and insurance expense line of the consolidated statements of income. We also expect to record an additional pre-tax charge of $1.6 million in the fourth quarter of 2005 for early retirement benefits relating to the terminations. As a result of efficiencies gained with these activities, we expect to achieve pre-tax annual savings of approximately $4.0 million. These savings will begin to emerge during the fourth quarter of 2005.



FBL Financial Group, Inc.		September 30, 2005

Earnings Per Share

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


	Three months ended September 30,						Nine months ended September 30,
	2005			2004			2005			2004
	(Dollars in thousands, except per share data)
Numerator:
Net income	$	17,019		$	14,451		$	52,519		$	40,646
Dividends on Series B preferred stock		(37	)		(37	)		(112	)		(112	)

Numerator for earnings per common share-income available to common stockholders	$	16,982		$	14,414		$	52,407		$	40,534


Denominator:
Weighted average shares		28,923,152			28,634,083			28,826,035			28,528,899
Deferred common stock units relating to deferred compensation plans		31,486			23,620			29,124			22,769

Denominator for earnings per common share – weighted-average shares		28,954,638			28,657,703			28,855,159			28,551,668
Effect of dilutive securities -stock based compensation		514,135			494,531			501,919			561,854

Denominator for diluted earnings per common share – adjusted weighted-average shares		29,468,773			29,152,234			29,357,078			29,113,522


Earnings per common share	$	0.59		$	0.50		$	1.82		$	1.42

Earnings per common share – assuming dilution	$	0.58		$	0.49		$	1.79		$	1.39

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 Series C preferred stock since the Series C preferred stockholder’s participation in dividends with the common stockholders is limited to the amount of the quarterly regular dividend.

Segment Information

We analyze operations by reviewing financial information regarding products that are aggregated into four product segments. The product segments are: (1) Traditional Annuity – Exclusive Distribution (“Exclusive Annuity”), (2) Traditional Annuity – Independent Distribution (“Independent Annuity”), (3) Traditional and Universal Life Insurance and (4) Variable. We also have various support operations and corporate capital that are aggregated into a Corporate and Other segment. Our segment results for 2004 have been refined to reflect a change in the composition of our reportable segments. Prior to the fourth quarter of 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.



FBL Financial Group, Inc.		September 30, 2005

income included the changes in net unrealized gains and losses on derivatives that were not designated as hedges. The operating results for 2004 have been modified to conform to the 2005 presentation.

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

Financial information concerning our operating segments is as follows:


	Three months ended September 30,						Nine months ended September 30,
	2005			2004			2005			2004
				(Dollars in thousands)
Operating revenues:
Traditional Annuity – Exclusive Distribution	$	37,510		$	34,573		$	110,797		$	99,514
Traditional Annuity – Independent Distribution		54,119			38,268			126,606			102,573
Traditional and Universal Life		77,587			76,771			240,908			235,044
Variable		14,187			13,378			42,124			39,152
Corporate and Other		8,084			6,975			23,316			19,254

		191,487			169,965			543,751			495,537
Realized/unrealized gains on investments (A)		37			598			3,324			1,247
Change in net unrealized gains/losses on derivatives (A)		(4,301	)		(12,286	)		(7,900	)		(13,600	)

Consolidated revenues	$	187,223		$	158,277		$	539,175		$	483,184


Pre-tax operating income (loss):
Traditional Annuity – Exclusive Distribution	$	6,938		$	6,888		$	25,248		$	18,110
Traditional Annuity – Independent Distribution		5,634			2,887			16,623			9,449
Traditional and Universal Life		13,884			12,333			41,535			36,741
Variable		573			1,630			290			1,549
Corporate and Other		(521	)		(1,357	)		(3,000	)		(6,070	)

		26,508			22,381			80,696			59,779
Income taxes on operating income		(8,683	)		(7,766	)		(27,681	)		(18,948	)
Realized/unrealized gains (losses) on investments, net (A)		(6	)		241			1,795			337
Change in net unrealized gains/losses on derivatives (A)		(800	)		(405	)		(2,291	)		(522	)

Consolidated net income	$	17,019		$	14,451		$	52,519		$	40,646

(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 and derivatives.

For the third quarter of 2005, pre-tax income decreased $2.4 million in the Exclusive Annuity segment and increased $3.0 million in the Traditional and Universal Life segment and $1.6 million in the Variable segment due to the impact of unlocking discussed in Note 1 above. For the third quarter of 2004, pre-tax income decreased $0.6 million in the



FBL Financial Group, Inc.		September 30, 2005

Variable segment and increased $0.3 million in the Exclusive Annuity segment and $1.2 million in the Traditional and Universal Life segment due to the impact of unlocking.

Beginning in 2005, we changed the allocation of capital among our segments to be consistent with a change in how we manage capital at the segment level. This change, coupled with a refinement in the allocation of accrued investment income and certain other assets and liabilities among the segments, resulted in an increase (decrease) in investments in our segments as of January 1, 2005 as follows: Exclusive Annuity – $41.9 million; Independent Annuity – $19.8 million; Traditional and Universal Life Insurance – ($69.4) million; Variable – ($12.5) million and Corporate and Other – $20.2 million. Accordingly, operating revenues and pre-tax operating income (loss) by segment for the 2005 periods are impacted by the income on the investments transferred. An estimate of the impact of this asset transfer on operating revenues and pre-tax operating income (loss) for the third quarter is as follows: Exclusive Annuity – $0.7 million; Independent Annuity – $0.3 million; Traditional and Universal Life Insurance – ($1.1) million; Variable – ($0.2) million and Corporate and Other – $0.3 million. An estimate of the impact of this asset transfer on operating revenues and pre-tax operating income (loss) for the nine-month period is as follows: Exclusive Annuity – $2.0 million; Independent Annuity – $0.9 million; Traditional and Universal Life Insurance – ($3.3) million; Variable – ($0.5) million and Corporate and Other – $0.9 million.

Also beginning in 2005, we changed the method in which indirect expenses (those expenses for which we do not have a reliable basis such as time studies for allocating the costs) are allocated among the segments from a pro rata method based on allocated capital to a pro rata method based on direct expenses. The change in allocating indirect expenses was made in conjunction with our change in allocating capital to better reflect the effort and resources required to operate the separate segments. The exact impact of this change is not determinable as it was not practicable to calculate required capital under both the new and old capital allocation methodologies during 2005. The most significant impact of this change was to shift approximately $1.0 million in the third quarter and $3.0 million in the nine months ended September 30, 2005 of other underwriting expenses from the Corporate and Other segment to the Traditional and Universal Life Insurance and Variable segments. The impact on the Exclusive Annuity and Independent Annuity segments is not believed to be significant with slight reductions in other underwriting expenses resulting from this change.

Our investment in equity method investees and the related equity income are attributable to the Corporate and Other segment. Goodwill at September 30, 2005 and December 31, 2004 is allocated among the segments as follows: Exclusive Annuity ($3.9 million), Traditional and Universal Life Insurance ($6.1 million) and Variable ($1.2 million).



FBL Financial Group, Inc.		September 30, 2005


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

This section includes a summary of FBL Financial Group, Inc.’s consolidated results of operations, financial condition and where appropriate, factors that management believes may affect future performance. Unless noted otherwise, all references to FBL Financial Group, Inc. (we or the Company) include all of its direct and indirect subsidiaries, including its primary life insurance subsidiaries, Farm Bureau Life Insurance Company (Farm Bureau Life) and EquiTrust Life Insurance Company (EquiTrust Life) (collectively, the Life Companies). Please read this discussion in conjunction with the accompanying consolidated financial statements and related notes. In addition, we encourage you to refer to our 2004 Form 10-K for a complete description of our significant accounting policies and estimates. Familiarity with this information is important in understanding our financial position and results of operations.

Cautionary Statement Regarding Forward Looking Information

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

	•		Changes to interest rate levels and stock market performance may impact our lapse rates, market value of our investment portfolio and our ability to sell life insurance products, notwithstanding product features designed to mitigate the financial impact of such changes.

	•		Little or no gains in the entire series of call options purchased over the life of index annuities could cause us to incur expenses for credited interest over and above our option costs. This would cause our spreads to tighten and reduce our profits, or potentially result in losses on these products.

	•		Changes in federal and state income tax laws and regulations may affect the relative tax advantage of our products.

	•		Breach of royalty agreements with state Farm Bureau federations could cause us to lose our rights to use the Farm Bureau and FB trade name and trademark in Farm Bureau Life’s trade area.

	•		Impaired relations with Farm Bureau affiliated property-casualty companies in our trade area could cause us to lose the use of their agents for sale of Farm Bureau Life insurance products.

	•		Competition from companies that may have greater financial resources, broader arrays of products and higher ratings may impair our ability to retain existing customers, attract new customers and maintain our profitability.

	•		A downgrade in the financial strength ratings of our life insurance subsidiaries may increase policy surrenders and withdrawals, reduce new sales and terminate relationships with distributors and cause some of our existing liabilities to be subject to acceleration, additional collateral support, changes in terms, or creation of additional financial obligations.

	•		If we are unable to attract and retain agents and develop new distribution sources, sales of our products and services may be reduced.

	•		Our ability to pay stockholder dividends and meet our obligations may be adversely affected by the limitations on dividends Iowa insurance laws impose on our life insurance subsidiaries.



FBL Financial Group, Inc.		September 30, 2005

Results of Operations for the Three and Nine Months Ended September 30, 2005 Compared to Three and Nine Months Ended September 30, 2004


	Three months ended September 30,						Nine months ended September 30,
	2005			2004			2005			2004
				(Dollars in thousands, except per share data)
Revenues	$	187,223		$	158,277		$	539,175		$	483,184
Benefits and expenses		162,923			136,873			459,996			425,124

		24,300			21,404			79,179			58,060
Income taxes		(7,901	)		(7,414	)		(27,104	)		(18,321	)
Minority interest and equity income		620			461			444			907

Net income		17,019			14,451			52,519			40,646
Less dividends on Series B preferred stock		(37	)		(37	)		(112	)		(112	)

Net income applicable to common stock	$	16,982		$	14,414		$	52,407		$	40,534


Earnings per common share	$	0.59		$	0.50		$	1.82		$	1.42


Earnings per common share – assuming dilution	$	0.58		$	0.49		$	1.79		$	1.39


Other data
Direct premiums collected, net of reinsurance ceded:
Traditional Annuity – Exclusive Distribution (1)	$	41,004		$	59,795		$	140,830		$	176,775
Traditional Annuity – Independent Distribution (1)		243,191			172,998			661,656			312,634
Traditional and Universal Life Insurance		39,893			38,476			129,278			126,522
Variable Annuity and Variable Universal Life (2)		40,002			31,316			125,261			103,197
Reinsurance assumed and other		4,213			34,429			15,637			214,034

Total	$	368,303		$	337,014		$	1,072,662		$	933,162


Direct life insurance in force, end of quarter (in millions)							$	35,367		$	33,434
Life insurance lapse rates								7.1	%		7.6	%
Withdrawal rates – individual traditional annuity:
Exclusive Distribution (1)								3.2	%		3.1	%
Independent Distribution (1)								5.1	%		4.5	%

(1)		The 2004 amounts reflect changes in the composition of our reportable product segments. See the “Segment Information” section that follows for additional discussion of these changes.

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

Premiums collected is not a measure used in financial statements prepared according to U.S. generally accepted accounting principles (GAAP). There is no comparable GAAP financial measure. We use premiums collected to measure the productivity of our exclusive and independent agents. Total premiums collected increased 9.3% to $368.3 million in the third quarter of 2005 and 14.9% to $1,072.7 million in the nine months ended September 30, 2005 due primarily to the continued growth of our EquiTrust Life independent distribution channel. Reinsurance assumed and other premiums collected decreased during 2005 due to the suspension of our coinsurance agreement with American Equity Investment Life Insurance Company (American Equity) effective August 1, 2004.



FBL Financial Group, Inc.		September 30, 2005

Net income applicable to common stockincreased 17.8% in the third quarter of 2005 to $17.0 million and 29.3% in the nine months ended September 30, 2005 to $52.4 million. Net income applicable to common stock for the 2005 periods was positively impacted by growth in the volume of business in force, increased spreads earned on our universal life and individual traditional annuity products and the impact of changing assumptions used in the amortization of deferred policy acquisition costs as discussed below. These items are partially offset by an increase in death benefits and a net decrease in the value of derivatives relating to our index annuities. The third quarter of 2005 benefited from an increase in equity income and a lower effective tax rate. Results for the nine-month periods are also impacted by an increase in realized/unrealized gains on investments to $3.3 million in 2005 from $1.3 million in 2004.

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


	Nine months ended September 30,
	2005			2004
Weighted average yield on cash and invested assets		6.22	%		6.18	%
Weighted average interest crediting rate/index cost		3.88			4.08

Spread		2.34	%		2.10	%

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

The impact of unlocking is as follows:


	Three months ended September 30,						Nine months ended September 30,
	2005			2004			2005			2004
				(Dollars in thousands)
Amortization of deferred policy acquisition costs	$	2,582		$	902		$	1,732		$	1,327
Amortization of deferred sales inducements		29			–			108			–
Amortization of unearned revenues		(408	)		(33	)		(397	)		(33	)

Increase to pre-tax income	$	2,203		$	869		$	1,443		$	1,294

Impact per common share (basic and diluted), net of tax	$	0.05		$	0.02		$	0.03		$	0.03

The impact of unlocking on deferred policy acquisition costs in the third quarter of 2005 is due primarily to the impact of a change in the estimate of projected investment income on traditional participating life business and a general improvement in lapse and mortality assumptions on various lines of business. These items are partially offset by the impact of a change in our premium persistency assumption on our flexible premium deferred annuity business. The impact of unlocking on unearned revenues in the third quarter of 2005 is due primarily to improved mortality assumptions on universal life insurance business.



FBL Financial Group, Inc.		September 30, 2005

Premiums and product chargesare as follows:


	Three months ended September 30,				Nine months ended September 30,
	2005		2004		2005		2004
			(Dollars in thousands)
Premiums and product charges:
Interest sensitive and index product charges	$	23,834	$	22,437	$	71,895	$	66,757
Traditional life insurance premiums		31,649		31,337		101,897		99,809
Accident and health premiums		31		27		237		285

Total	$	55,514	$	53,801	$	174,029	$	166,851

Premiums and product charges increased 3.2% in the third quarter of 2005 to $55.5 million and 4.3% in the nine months ended September 30, 2005 to $174.0 million. The increases in interest sensitive and index product charges are driven by surrender charges on annuity and universal life products, cost of insurance charges on variable universal life and universal life products and mortality and expense fees on variable products. Surrender charges increased due to an increase in surrenders relating to growth in the volume and aging of business in force. Cost of insurance charges increased due to aging of the business in force. Mortality and expense fees increased due to an increase in the separate account balances on which fees are based. These increases were offset by a decrease in amortization of unearned revenue reserve, a component of interest sensitive and index product charges, totaling $0.4 million in the third quarter of 2005 compared to a decrease of less than $0.1 million in the 2004 period due to changes in assumptions used to calculate unearned revenue reserves. See “Net income applicable to common stock” for a discussion of these changes. Traditional life insurance premiums increased due primarily to increases in sales of term and whole life products by our exclusive agency force.

Net investment income,which excludes investment income on separate account assets relating to variable products, increased 12.7% in the third quarter of 2005 to $120.3 million and 15.3% in the nine months ended September 30, 2005 to $352.4 million due primarily to an increase in average invested assets. Average invested assets in the nine-month period of 2005 increased 13.8% to $7,529.0 million (based on securities at amortized cost) due principally to net premium inflows from the Life Companies. The annualized yield earned on average invested assets increased to 6.29% in the nine months ended September 30, 2005 from 6.21% in the respective 2004 period due primarily to an increase in fee income. Fee income from bond calls, tender offers and mortgage loan prepayments totaled $6.2 million in the nine months ended September 30, 2005 compared to $1.9 million in the respective 2004 period. In addition, we recorded $0.9 million in net investment income during the first nine months of 2005, representing past due interest that had not been accrued, relating to the redemption of a fixed maturity security that had been impaired in a prior period. For the nine months ended September 30, net investment income includes ($0.5) million in 2005 and 2004, representing a reversal of net discount accretion on mortgage and asset-backed securities resulting from changing prepayment speed assumptions as of the end of each respective period. See the “Financial Condition – Investments” section that follows for a description of how changes in prepayment speeds impact net investment income. Market conditions in the first nine months of 2005 and the full year of 2004 impacted our investment portfolio yield as market investment rates were, in general, lower than our portfolio yield or yield on investments maturing or being paid down.



FBL Financial Group, Inc.		September 30, 2005

Derivative income (loss)is as follows:


	Three months ended September 30,						Nine months ended September 30,
	2005			2004			2005			2004
				(Dollars in thousands)
Derivative income (loss):
Components of derivative income (loss) from call options:
Gains received at expiration	$	21,693		$	10,517		$	32,294		$	24,505
Change in the difference between fair value and remaining option cost at beginning and end of period		(3,971	)		(11,813	)		(7,413	)		(13,469	)
Cost of money for call options		(11,628	)		(7,397	)		(31,040	)		(17,815	)

		6,094			(8,693	)		(6,159	)		(6,779	)
Other		(194	)		230			(221	)		469

Total	$	5,900		$	(8,463	)	$	(6,380	)	$	(6,310	)

The increase in gains received at expiration in the 2005 periods is primarily attributable to the impact of growth in the volume of index annuities in force and appreciation in the market indices on which our options are based. The changes in the difference between the fair value of the call options and the remaining option costs for 2005 are caused primarily by the general change in the S&P 500 Index (upon which the majority of our options are based). For the third quarter of 2005, the S&P 500 Index increased on a point-to-point basis by 3.1%, compared to a point-to-point decrease of 2.3% for the 2004 period. For the nine months ended September 30, 2005, the S&P 500 Index increased on a point to point basis by 1.4%, compared to a point-to-point increase of 0.2% for the 2004 period. While the difference between the fair value of the call options and the remaining option costs generally corresponds to the point-to-point change in the S&P 500 Index, the change in fair value is also impacted by options based on daily or monthly S&P 500 averages and options which are based on other underlying indices. Furthermore, the timing of option settlements also impacts the change in fair value. The cost of money for call options increased due primarily to the impact of growth in the volume of index annuities in force. Other derivative income (loss) is comprised of changes in the value of (i) the conversion feature embedded in convertible fixed maturity securities, (ii) the embedded derivative included in our modified coinsurance contracts and (iii) the forward commitments for the purchase of certain when-issued securities. Derivative income (loss) will fluctuate based on market conditions.

Realized/unrealized gains (losses) on investmentsare as follows:


	Three months ended September 30,						Nine months ended September 30,
	2005			2004			2005			2004
				(Dollars in thousands)
Realized/unrealized gains (losses) on investments:
Realized gains on sales	$	683		$	1,855		$	7,604		$	8,651
Realized losses on sales		(6	)		(26	)		(1,903	)		(840	)
Realized losses due to impairments		(517	)		(1,228	)		(2,249	)		(6,517	)
Unrealized losses on trading securities		(123	)		–			(127	)		–

Total	$	37		$	601		$	3,325		$	1,294

The level of realized/unrealized gains (losses) is subject to fluctuation from period to period depending on the prevailing interest rate and economic environment and the timing of the sale of investments. See “Financial Condition – Investments” for details regarding our unrealized gains and losses on available-for-sale securities at September 30, 2005 and December 31, 2004.

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 on an available-for-sale security is other than temporary, we review factors such as:



FBL Financial Group, Inc.		September 30, 2005

	•		historical operating trends;

	•		business prospects;

	•		status of the industry in which the company operates;

	•		analyst ratings on the issuer and sector;

	•		quality of management;

	•		size of the unrealized loss;

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

	•		our intent and ability to hold the security.

If we determine that an unrealized loss on an available-for-sale security is other than temporary, the security is written down to its fair value at the time of impairment, with the difference between amortized cost and fair value recognized as a realized loss. Details regarding our significant investment impairments for the nine months ended September 30, 2005 and 2004, including the circumstances requiring the write downs, are summarized in the following table:


	Impairment			Impact on Other
General Description	Loss		Circumstance	Material Investments
	(Dollars in
	thousands)
Nine months ended September 30, 2005:

Major United States airline	$	435	During the third quarter, additional adverse financial details regarding the company became available and the company filed for bankruptcy protection. We wrote this previously impaired issue down to the current market value on the bankruptcy date.	Negative trends in this segment of the industry were considered in our analysis, which is done on an issue-by-issue basis. We concluded that there is no impact on other material investments in addition to amounts already written down.

Major United States automaker	$	1,295	During the second quarter, adverse details regarding the financial status of the company became available.	Negative trends in this segment of the industry were considered in our analysis, which is done on an issue-by-issue basis. We concluded that there is no impact on other material investments in addition to amounts already written down.



FBL Financial Group, Inc.		September 30, 2005


	Impairment			Impact on Other
General Description	Loss		Circumstance	Material Investments
	(Dollars in
	thousands)
Nine months ended September 30, 2004:

Major United States airline	$	1,228	In September, the company was restructuring its lease obligations with lenders and negotiating labor costs. The company stated that if labor costs are not reduced, bankruptcy is probable.	Negative industry trends were considered in our analysis, which is done on an issue-by-issue basis. We concluded that there is no impact on other material investments in addition to amounts already written down.

Major United States airline	$	3,430	In June, the company was negotiating labor costs and we determined there was a high probability of restructuring and possible bankruptcy filing.	Negative industry trends were considered in our analysis, which is done on an issue-by-issue basis. We concluded that there is no impact on other material investments in addition to amounts already written down.

Textile manufacturer	$	1,632	In March, we noted disappointing fiscal second quarter 2004 results and a 9% decrease in sales.	Credit specific issues with no impact on other material investments.

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

Interest sensitive and index product benefitsare as follows:


	Three months ended September 30,						Nine months ended September 30,
	2005			2004			2005			2004
				(Dollars in thousands)
Interest sensitive and index product benefits:
Interest credited	$	48,261		$	44,972		$	143,307		$	130,041
Index credits		21,436			16,388			33,494			38,097
Change in value of embedded derivative		(5,037	)		(13,217	)		(2,025	)		(14,435	)
Amortization of deferred sales inducements		4,088			1,632			6,935			4,460
Interest sensitive death benefits		10,891			8,014			28,838			25,847

Total	$	79,639		$	57,789		$	210,549		$	184,010

Interest sensitive and index product benefits increased 37.8% in the third quarter of 2005 to $79.6 million and 14.4% in the nine months ended September 30, 2005 to $210.5 million due to increases in the volume of annuity business in force and death benefits. In addition, index product benefits, including the change in value of embedded derivative, increased due to appreciation in the market indices supporting the products. Interest credited increased due primarily to growth in the volume of annuity business in force, partially offset by decreases in interest crediting rates on many of our products during 2004 and 2005. The weighted average interest crediting rate/index cost for universal life and individual traditional annuity products, excluding the impact of the amortization of deferred sales



FBL Financial Group, Inc.		September 30, 2005

inducements, was 3.69% for the nine-month period of 2005 and 4.01% for the respective 2004 period. The decreases in interest crediting rates were made in response to declining yields on the investment portfolios backing these products. The change in the value of the embedded derivative is impacted by the change in expected index credits on the next policy anniversary dates, which are related to the change in the fair value of the options acquired to fund these index credits as discussed above under “Derivative income (loss).” The value of the embedded derivative is also impacted by the timing of the posting of index credits and changes in reserve discount rates and assumptions used in estimating future call option costs. The decrease in the value of the embedded derivatives in the third quarter of 2005 is due primarily to the impact of an increase in the reserve discount rates, which are based on market interest rates. Amortization of deferred sales inducements increased due primarily to an increase in the volume and profitability of the index annuity business in force. Interest sensitive death benefits increased 35.9% to $10.9 million for the three months ended September 30, 2005 and 11.6% to $28.8 million for the nine months ended September 30, 2005. Interest sensitive and index product benefits can tend to fluctuate from period to period primarily as a result of changes in mortality experience and the impact of changes in the equity markets on index credits and the value of the embedded derivatives in our index annuities.

Traditional life insurance and accident and health policy benefitsare as follows:


	Three months ended September 30,				Nine months ended September 30,
	2005		2004		2005		2004
			(Dollars in thousands)
Traditional life insurance and accident and health policy benefits:
Traditional life insurance and accident and health benefits	$	20,714	$	20,519	$	64,651	$	63,401
Increase in traditional life and accident and health future policy benefits		8,244		8,567		26,902		26,118
Distributions to participating policyholders		5,393		5,845		17,235		18,676

Total	$	34,351	$	34,931	$	108,788	$	108,195

Traditional life insurance and accident and health policy benefits decreased 1.7% in the third quarter of 2005 to $34.4 million and increased 0.5% in the nine months ended September 30, 2005 to $108.8 million. Traditional life insurance death benefits increased 5.5% to $12.3 million in the third quarter of 2005 and increased 6.0% to $37.8 million in the nine months ended September 30, 2005. Distributions to participating policyholders decreased due to reductions in our dividend crediting rates in response to a declining investment portfolio yield on the investments backing these products. Traditional life insurance and accident and health policy benefits can fluctuate from period to period primarily as a result of changes in mortality experience.

Underwriting, acquisition and insurance expensesare as follows:


	Three months ended September 30,				Nine months ended September 30,
	2005		2004		2005		2004
			(Dollars in thousands)
Underwriting, acquisition and insurance expenses:
Commission expense, net of deferrals	$	3,296	$	3,455	$	10,425	$	10,941
Amortization of deferred policy acquisition costs		14,839		11,994		42,542		37,041
Amortization of value of insurance in force acquired		991		652		2,630		2,568
Other underwriting, acquisition and insurance expenses, net of deferrals		20,914		20,333		59,949		60,422

Total	$	40,040	$	36,434	$	115,546	$	110,972

Underwriting, acquisition and insurance expenses increased 9.9% in the third quarter of 2005 to $40.0 million and 4.1% in the nine months ended September 30, 2005 to $115.5 million. Commission expense decreased in the 2005 periods primarily due to an increase in commission allowances on reinsurance ceded. Amortization of deferred policy acquisition costs increased due primarily to an increase in the volume and profitability of business in force.



FBL Financial Group, Inc.		September 30, 2005

In addition, amortization of deferred policy acquisition costs in the third quarter of 2005 increased $0.9 million in connection with the recapture by a former variable alliance partner of a previously coinsured block of variable annuity contracts. The impacts of these items were partially offset by the impact of unlocking as discussed above in the “Net income applicable to common stock” section. Other underwriting expenses in the third quarter of 2005 include $0.8 million in severance benefits relating to the closing of a life insurance processing unit. See “Consolidation of Life Operations” following for additional information regarding this closure and the related impact on future expenses. Increases in salaries and employee benefits and other expenses associated with our growing business have generally been offset by decreases in information technology, depreciation and amortization expenses and, for the nine-month period, decreases in losses on fixed asset sales.

Interest expenseincreased 8.1% in the third quarter of 2005 to $3.4 million and 23.6% in the nine-month period of 2005 to $10.1 million due to an increase in the variable rate on our line of credit and, for the nine-month period, due to the issuance of $75.0 million of 5.85% Senior Notes in April 2004.

Income taxesincreased 6.6% in the third quarter of 2005 to $7.9 million and 47.9% in the nine-month period of 2005 to $27.1 million. The effective tax rate for the third quarter was 32.5% in 2005 compared to 34.6% in 2004 and for the nine-month period was 34.2% in 2005 compared to 31.6% in 2004. The decrease in the effective tax rate in the third quarter of 2005 is attributable to the reversal of a tax accrual totaling $0.5 million during the third quarter of 2005. The increase in the effective tax rate in the nine-month period of 2005 is primarily attributable to the reversal of a tax accrual totaling $1.6 million during the second quarter of 2004. Based on events and analysis performed during the respective quarters, we determined that these tax accruals were no longer necessary and related benefits totaling $0.5 million in 2005 and $1.6 million in 2004 were recorded.

Equity income, net of related income taxes,totaled $0.6 million for the third quarter of 2005 compared to $0.5 million in the 2004 period and $0.6 million for the nine-month period of 2005 compared to $1.0 million in the 2004 period. Equity income includes our proportionate share of gains and losses attributable to our ownership interest in partnerships, joint ventures and certain companies where we exhibit some control but have a minority ownership interest. Given the timing of availability of financial information from our equity investees, we will consistently use information that is as much as three months in arrears for certain of these entities. Several of these entities are investment companies whose operating results are derived primarily from unrealized and realized gains and losses generated by their investment portfolios. As is normal with these types of entities, the level of these gains and losses is subject to fluctuation from period to period depending on the prevailing economic environment, changes in prices of equity securities held by the investment partnerships, timing and success of initial public offerings and other exit strategies, and the timing of the sale of investments held by the partnerships and joint ventures.

Segment Information

We analyze our segment results based on pre-tax operating income (loss). Accordingly, income taxes are not allocated to the segments. In addition, operating results are generally reported net of any transactions between the segments. Operating income (loss) represents net income excluding the impact of realized and unrealized gains and losses on investments and changes in net unrealized gains and losses on derivatives. Prior to 2005, operating income included the changes in net unrealized gains and losses on derivatives that were not designated as hedges. The operating results for 2004 have been modified to conform to the 2005 presentation. The impact of realized and unrealized gains and losses on investments and unrealized gains and losses on derivatives includes adjustments for



FBL Financial Group, Inc.		September 30, 2005

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.

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



FBL Financial Group, Inc.		September 30, 2005

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


	Three months ended September 30,						Nine months ended September 30,
	2005			2004			2005			2004
				(Dollars in thousands)
Net income	$	17,019		$	14,451		$	52,519		$	40,646

Realized/unrealized gains on investments		(37	)		(601	)		(3,325	)		(1,294	)
Change in net unrealized gains/losses on derivatives		(737	)		819			6,726			1,294
Change in amortization of:
Deferred policy acquisition costs		860			(17	)		(1,755	)		73
Deferred sales inducements		1,145			39			(881	)		32
Value of insurance in force acquired		10			11			(3	)		136
Unearned revenue reserve		–			3			1			47
Income tax offset		(435	)		(90	)		(267	)		(103	)

Realized/unrealized gains, net of offsets		806			164			496			185

Income taxes on operating income		8,683			7,766			27,681			18,948


Pre-tax operating income	$	26,508		$	22,381		$	80,696		$	59,779


Pre-tax operating income (loss) by segment:
Traditional Annuity – Exclusive Distribution	$	6,938		$	6,888		$	25,248		$	18,110
Traditional Annuity – Independent Distribution		5,634			2,887			16,623			9,449
Traditional and Universal Life		13,884			12,333			41,535			36,741
Variable		573			1,630			290			1,549
Corporate and Other		(521	)		(1,357	)		(3,000	)		(6,070	)

	$	26,508		$	22,381		$	80,696		$	59,779



FBL Financial Group, Inc.		September 30, 2005

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

Traditional Annuity – Exclusive Distribution Segment


	Three months ended September 30,				Nine months ended September 30,
	2005		2004		2005			2004
			(Dollars in thousands)
Pre-tax operating income
Operating revenues:
Interest sensitive product charges	$	225	$	162	$	657		$	591
Net investment income		37,285		34,411		110,140			98,923

		37,510		34,573		110,797			99,514
Benefits and expenses		30,572		27,685		85,549			81,404

Pre-tax operating income	$	6,938	$	6,888	$	25,248		$	18,110


Other data
Annuity premiums collected, direct	$	41,004	$	59,795	$	140,830		$	176,775	��
Policy liabilities and accruals, end of period						2,204,827			2,073,778

Individual deferred annuity spread:
Weighted average yield on cash and invested assets						6.50	%		6.24	%
Weighted average interest crediting rate						4.19	%		4.58	%

Spread						2.31	%		1.66	%


Individual traditional annuity withdrawal rate						3.2	%		3.1	%

Pre-tax operating income for the Exclusive Annuity segment increased 0.7% in the third quarter of 2005 to $6.9 million and 39.4% in the nine-month period of 2005 to $25.2 million due primarily to an increase in spreads earned, partially offset by the impact of unlocking deferred policy acquisition costs. Revenues, benefits and expenses increased in the 2005 periods primarily due to growth in the volume of business in force. Net investment income was positively impacted for the nine months ended September 30, 2005 by an increase in investments due to the change in allocation of capital discussed above and a decrease in our cash position and increased investment in corporate bonds. In addition, net investment income includes $2.8 million in the nine months ended September 30, 2005 and $0.5 million in the respective 2004 period in fee income from bond calls, tender offers and mortgage loan prepayments and the acceleration (reversal) of net discount accretion on mortgage and asset-backed securities as noted in the investment income discussion above. These factors are partially offset by the impact of a decline in overall market interest rates during 2004 and 2005. The increase in benefits and expenses in the 2005 periods is due to growth in the volume of business in force partially offset by the impact of reductions in interest crediting rates. Benefits and expenses increased $2.4 million in the third quarter of 2005 and decreased $0.3 million in the third quarter of 2004 due to the unlocking of deferred policy acquisition costs. The 2005 unlocking adjustment is primarily due to a change in the premium persistency assumption on our flexible premium deferred annuity business. Premiums collected decreased 20.3% in the nine-month period of 2005 to $140.8 million due primarily to the impact of the interest rate environment and increased popularity of variable annuities and other competing financial instruments.

The increase in the weighted average yield on cash and invested assets is primarily attributable to the items affecting net investment income noted above. We reduced the crediting rates on most of our annuity products in 2004 in response to declines in the yield on investments backing these products. Interest crediting rates were 4.10% on our primary annuity contracts as of September 30, 2005 and 4.35% as of September 30, 2004. The decrease in the weighted average crediting rate for 2005, which is an effective rate net of hedging gains and losses, is also partially attributable to income from the interest rate swaps backing a portion of our flexible premium deferred annuity contracts.



FBL Financial Group, Inc.		September 30, 2005

Traditional Annuity – Independent Distribution Segment


	Three months ended September 30,				Nine months ended September 30,
	2005		2004		2005			2004
			(Dollars in thousands)
Pre-tax operating income
Operating revenues:
Interest sensitive and index product charges	$	2,655	$	1,967	$	7,951		$	5,259
Net investment income		41,263		32,478		117,135			90,024
Derivative income		10,201		3,823		1,520			7,290

		54,119		38,268		126,606			102,573
Benefits and expenses		48,485		35,381		109,983			93,124

Pre-tax operating income	$	5,634	$	2,887	$	16,623		$	9,449


Other data
Annuity premiums collected, independent channel	$	243,191	$	172,998	$	661,656		$	312,634
Annuity premiums collected, assumed		814		30,846		5,265			202,918
Policy liabilities and accruals, end of period						3,343,335			2,540,702

Individual deferred annuity spread:
Weighted average yield on cash and invested assets						5.91	%		5.93	%
Weighted average interest crediting rate/index cost						3.56	%		3.79	%

Spread						2.35	%		2.14	%


Individual traditional annuity withdrawal rate						5.1	%		4.5	%

Pre-tax operating income for the Independent Annuity segment increased 95.2% in the third quarter of 2005 to $5.6 million and 75.9% in the nine months ended September 30, 2005 to $16.6 million. The increases in the 2005 periods are due principally to growth in the volume of business in force. The increase in interest sensitive and index product charges is due to an increase in surrender charges. Surrender charges increased due to an increase in surrenders relating to growth in the volume and aging of business in force. The increase in net investment income is attributable to growth in invested assets due principally to net premium inflows. Net investment income is also positively impacted by the change in allocation of capital discussed above. Net investment income includes $0.1 million in the nine months ended September 30, 2005 compared to ($0.2) million in the respective 2004 period in fee income from bond calls, tender offers and mortgage loan prepayments and the acceleration (reversal) of net discount accretion on mortgage and asset-backed securities. The increase in derivative income for the third quarter of 2005 is attributable to an increase in proceeds from option settlements arising from appreciation in the indices supporting the index annuity business and growth in the volume of business in force. The decrease in derivative income for the nine months ended September 30, 2005 is due to a $13.2 million increase in the cost of money for call options due primarily to the impact of growth in the volume of index annuities in force, partially offset by a $7.8 million increase in proceeds from option settlements due to appreciation in the indices supporting the index annuity business. Benefits and expenses for the nine-month period increased due to growth in the volume of business in force, partially offset by a $9.7 million decrease in index credits. Direct premiums collected increased to $661.7 million in the nine months ended September 30, 2005 compared to $312.6 million in the 2004 period due to the continued growth of our EquiTrust Life independent distribution channel. Reinsurance assumed premiums collected decreased during 2005 due to the suspension of our coinsurance agreement with American Equity effective August 1, 2004.

Our spread earned for the 2005 period was primarily impacted by changes in spreads for index annuities assumed under a coinsurance agreement, which is driven by option costs, the extent to which the business is over hedged and fluctuations in the minimum guarantees credited to the contracts.



FBL Financial Group, Inc.		September 30, 2005

Traditional and Universal Life Insurance Segment


	Three months ended September 30,				Nine months ended September 30,
	2005		2004		2005			2004
			(Dollars in thousands)
Pre-tax operating income
Operating revenues:
Interest sensitive product charges	$	10,652	$	10,746	$	32,852		$	32,865
Traditional life insurance premiums		31,649		31,337		101,897			99,809
Net investment income		35,286		34,688		106,159			102,370

		77,587		76,771		240,908			235,044
Benefits and expenses		63,703		64,438		199,373			198,303

Pre-tax operating income	$	13,884	$	12,333	$	41,535		$	36,741


Other data
Life premiums collected, net of reinsurance	$	43,264	$	42,035	$	139,511		$	137,437
Policy liabilities and accruals, end of period						2,087,180			2,062,613
Direct life insurance in force, end of period (in millions)						27,933			26,188

Interest sensitive life insurance spread:
Weighted average yield on cash and invested assets						6.75	%		6.64	%
Weighted average interest crediting rate						4.56	%		4.54	%

Spread						2.19	%		2.10	%

Pre-tax operating income for the Traditional and Universal Life Insurance segment increased 12.6% in the third quarter of 2005 to $13.9 million and 13.0% in the nine-month period of 2005 to $41.5 million due primarily to the impact of unlocking in the third quarter and an increase in spreads earned. These items were partially offset by an increase in death benefits and other underwriting expenses. In total, unlocking adjustments during the third quarter resulted in a $3.0 million increase to pre-tax income in 2005, compared to a $1.2 million increase to pre-tax income in 2004. These adjustments primarily impact the amortization of deferred policy acquisition costs and, for 2005, are primarily due to a change in the estimate of projected investment income on traditional participating life business. Traditional life insurance premiums increased due primarily to an increase in sales of term and whole life products by our exclusive agency force. Net investment income was positively impacted by a decrease in our cash position and increased investment in corporate bonds. Net investment income also includes $1.5 million in the nine-month period of 2005 compared to $0.7 million in the 2004 period in fee income from bond calls, tender offers and mortgage loan prepayments and the acceleration (reversal) of net discount accretion on mortgage and asset-backed securities. These items are offset by the impact of a decline in market interest rates and a decrease in investments due to the change in allocation of capital discussed above. For the nine-month period of 2005, interest sensitive death benefits increased 9.1% to $18.2 million and traditional death benefits increased 6.0% to $37.8 million. Other underwriting expenses increased 5.3% to $26.8 million for the nine-month period of 2005, the cause of which is estimated to be attributable to the change in allocation of indirect expenses discussed above and severance costs relating to the closing of our life operations center. These items are partially offset by a reduction in information technology expenses.

The increase in the weighted average yield on cash and invested assets is the result of the decrease in our cash position and the increase in fee income noted above.



FBL Financial Group, Inc.		September 30, 2005

Variable Segment


	Three months ended September 30,				Nine months ended September 30,
	2005		2004		2005		2004
			(Dollars in thousands)
Pre-tax operating income
Operating revenues:
Interest sensitive product charges	$	10,302	$	9,565	$	30,436	$	28,089
Net investment income		3,633		3,576		10,972		10,310
Other income		252		237		716		753

		14,187		13,378		42,124		39,152
Benefits and expenses		13,614		11,748		41,834		37,603

Pre-tax operating income	$	573	$	1,630	$	290	$	1,549


Other data
Variable premiums collected, net of reinsurance and internal rollovers	$	40,002	$	31,316	$	125,261	$	103,197
Policy liabilities and accruals, end of period						246,687		228,333
Separate account assets, end of period						614,514		505,637
Direct life insurance in force, end of period (in millions)						7,434		7,246

Pre-tax operating income for the Variable segment decreased 64.8% in the third quarter of 2005 to $0.6 million and 81.3% in the nine-month period of 2005 to $0.3 million due primarily to an increase in death benefits and expenses and a loss on the recapture by a former variable alliance partner of a previously coinsured block of variable annuity contracts. These items were partially offset by the impact of an increase in the volume of business in force and unlocking in the third quarter of 2005. Mortality and expense fee income increased 26.4% to $1.8 million in the third quarter of 2005 and 22.0% to $5.1 million in the nine months ended September 30, 2005 due to growth in separate account assets. Net investment income includes $0.1 million in the nine-month period of 2005 compared to $0.2 million in the 2004 period in fee income from bond calls and mortgage loan prepayments and the acceleration (reversal) of net discount accretion on mortgage and asset-backed securities. Benefits and expenses increased 15.9% to $13.6 million in the third quarter of 2005 and 11.3% to $41.8 million for the nine-month period due primarily to an increase in death benefits and expenses, partially offset by the impact of unlocking. Death benefits in excess of related account values on variable universal life policies increased 247.3% in the third quarter of 2005 to $4.0 million and 24.9% in the nine-month period of 2005 to $9.8 million. Operating expenses increased $0.8 million in the 2005 quarter and $1.6 million for the nine-month period, the primary cause of which is estimated to be attributable to the change in allocation of indirect expenses during 2005 as discussed above. In total, unlocking adjustments during the third quarter caused a $1.6 million increase to pre-tax income in 2005, compared to a $0.7 million decrease to pre-tax income in 2004. These adjustments primarily impact the amortization of deferred policy acquisition costs and, for 2005, are principally due to a general improvement in lapse and mortality assumptions. Premiums collected increased 21.4% to $125.3 million in the nine months ended September 30, 2005 due to positive market conditions for our variable annuity products.

During the third quarter of 2005, a former variable alliance partner recaptured a block of variable annuity contracts previously assumed by us with an account value totaling $45.5 million at September 30, 2005. The block was assumed through a modified coinsurance agreement. Accordingly, the related insurance reserves and supporting investments were not recorded on our financial statements. A pre-tax loss of $0.9 million, representing the excess of the related deferred policy acquisition costs ($3.9 million) over the consideration received ($3.0 million), was recorded as a component of amortization of deferred policy acquisition costs.



FBL Financial Group, Inc.		September 30, 2005

Corporate and Other Segment


	Three months ended September 30,						Nine months ended September 30,
	2005			2004			2005			2004
				(Dollars in thousands)
Pre-tax operating loss:
Operating revenues:
Accident and health insurance premiums	$	31		$	27		$	237		$	285
Net investment income		2,869			1,654			7,967			4,108
Other income		5,184			5,294			15,112			14,861

		8,084			6,975			23,316			19,254
Interest expense		3,427			3,171			10,097			8,169
Benefits and other expenses		6,145			5,884			16,973			18,586

		(1,488	)		(2,080	)		(3,754	)		(7,501	)
Minority interest		(24	)		(26	)		(131	)		(68	)
Equity income, before tax		991			749			885			1,499

Pre-tax operating loss	$	(521	)	$	(1,357	)	$	(3,000	)	$	(6,070	)

Pre-tax operating loss decreased 61.6% in the third quarter of 2005 to $0.5 million and 50.6% in the nine months ended September 30, 2005 to $3.0 million, primarily due to an increase in net investment income. Net investment income was positively impacted by an increase in investments due to our Senior Note offering in April 2004 and the change in allocation of capital discussed above. Net investment income also includes $1.2 million in the nine-month period of 2005 compared to $0.2 million in the 2004 period in fee income from bond calls and mortgage loan prepayments and the acceleration (reversal) of net discount accretion on mortgage and asset-backed securities. In addition, we recorded $0.9 million in net investment income during the first quarter of 2005, representing past due interest that had not been accrued, relating to the redemption of a fixed maturity security that had been impaired in a prior period. Interest expense increased in the 2005 periods due to an increase in the variable rate on our line of credit and, for the nine-month period, due to the issuance of our Senior Notes in April 2004. The change in method of allocating indirect expenses among the segments as discussed above caused a reduction in insurance-related expenses totaling approximately $1.0 million in the third quarter of 2005 and $3.0 million in the nine months ended September 30, 2005. For the third quarter of 2005, the impact of this allocation change was offset by an increase in non-insurance expenses relating primarily to the cost of being a public company.

Consolidation of Life Operations

Pending Accounting Changes



FBL Financial Group, Inc.		September 30, 2005

effective for internal replacements occurring in fiscal years beginning after December 15, 2006, with earlier application encouraged. The impact of adoption is not expected to be material as our current accounting policy for internal replacements substantially conforms to the guidance outlined in the SOP.

We currently follow the prospective method under Statement No. 123, which we adopted effective January 1, 2003. Under the prospective method, expense is recognized for those options granted, modified or settled after the date of adoption. The expense is generally recognized ratably over our five-year vesting period without regard to when an employee becomes eligible for retirement and immediate vesting. In addition, the impact of forfeitures is recognized when they occur and benefits of tax deductions in excess of recognized compensation cost are reported as an operating cash flow.

Financial Condition

Investments

Our total investment portfolio increased 8.6% to $8,147.2 million at September 30, 2005 compared to $7,501.7 million at December 31, 2004. This increase is primarily the result of net cash received from interest sensitive and index products and positive cash flow provided by operating activities.

Internal investment professionals manage our investment portfolio. The investment strategy is designed to achieve superior risk-adjusted returns consistent with the investment philosophy of maintaining a largely investment grade portfolio and providing adequate liquidity for obligations to policyholders and other requirements. We continually review the returns on invested assets and change the mix of invested assets as deemed prudent under the current market environment to help maximize current income.



FBL Financial Group, Inc.		September 30, 2005

Our investment portfolio is summarized in the table below:


	September 30, 2005					December 31, 2004
	Carrying Value		Percent			Carrying Value		Percent
	(Dollars in thousands)
Fixed maturities – available for sale:
Public	$	5,676,157		69.7	%	$	5,304,217		70.7	%
144A private placement		1,011,162		12.4			859,022		11.5
Private placement		303,468		3.7			295,969		3.9

Total fixed maturities – available for sale		6,990,787		85.8			6,459,208		86.1
Fixed maturities – trading		14,878		0.2			–		–
Equity securities		73,573		0.9			71,163		0.9
Mortgage loans on real estate		804,270		9.9			740,874		9.9
Derivative instruments		32,924		0.4			15,536		0.2
Investment real estate:
Acquired for debt		573		–			655		–
Investment		8,983		0.1			8,786		0.1
Policy loans		176,453		2.2			176,613		2.4
Other long-term investments		1,300		–			1,300		–
Short-term investments		43,441		0.5			27,545		0.4

Total investments	$	8,147,182		100.0	%	$	7,501,680		100.0	%

As of September 30, 2005, 95.1% (based on carrying value) of the fixed maturity securities were investment grade debt securities, defined as being in the highest two National Association of Insurance Commissioners (NAIC) designations. Non-investment grade debt securities generally provide higher yields and involve greater risks than investment grade debt securities because their issuers typically are more highly leveraged and more vulnerable to adverse economic conditions than investment grade issuers. In addition, the trading market for these securities is usually more limited than for investment grade debt securities. We regularly review the percentage of our portfolio that is invested in non-investment grade debt securities (NAIC designations 3 through 6). As of September 30, 2005, the investment in non-investment grade debt was 4.9% of fixed maturity securities. At that time, no single non-investment grade holding exceeded 0.2% of total investments. A summary of the gross unrealized gains and gross unrealized losses on our available-for-sale fixed maturity securities, by internal industry classification, as of September 30, 2005 and December 31, 2004 is as follows:



FBL Financial Group, Inc.		September 30, 2005


	September 30, 2005
							Carrying
			Carrying Value				Value of
			of Securities				Securities
	Total		with Gross		Gross		with Gross		Gross
	Carrying		Unrealized		Unrealized		Unrealized		Unrealized
	Value		Gains		Gains		Losses		Losses
	(Dollars in thousands)
Corporate securities:
Financial services	$	1,322,703	$	802,931	$	55,504	$	519,772	$	(7,509	)
Manufacturing		709,919		401,434		23,888	��	308,485		(8,739	)
Mining		340,835		242,308		16,693		98,527		(1,778	)
Retail trade		98,218		77,535		5,767		20,683		(617	)
Services		92,652		57,034		3,690		35,618		(1,232	)
Transportation		144,419		107,884		6,408		36,535		(978	)
Public utilities		279,608		150,671		9,569		128,937		(3,460	)
Private utilities and related sectors		405,162		276,853		22,544		128,309		(1,924	)
Other		143,366		99,356		6,104		44,010		(948	)

Total corporate securities		3,536,882		2,216,006		150,167		1,320,876		(27,185	)
Mortgage and asset-backed securities		2,308,320		1,754,622		38,139		553,698		(7,215	)
United States Government and agencies		606,292		183,534		5,062		422,758		(6,901	)
State, municipal and other governments		539,293		410,387		16,388		128,906		(1,467	)

Total	$	6,990,787	$	4,564,549	$	209,756	$	2,426,238	$	(42,768	)


	December 31, 2004
							Carrying
			Carrying Value				Value of
			of Securities				Securities
	Total		with Gross		Gross		with Gross		Gross
	Carrying		Unrealized		Unrealized		Unrealized		Unrealized
	Value		Gains		Gains		Losses		Losses
			(Dollars in thousands)
Corporate securities:
Financial services	$	961,532	$	792,754	$	62,415	$	168,778	$	(2,606	)
Manufacturing		579,558		510,767		36,695		68,791		(823	)
Mining		272,779		249,969		17,197		22,810		(500	)
Retail trade		102,115		84,636		7,013		17,479		(496	)
Services		92,296		79,265		5,037		13,031		(277	)
Transportation		154,905		126,495		11,262		28,410		(521	)
Public utilities		180,654		151,237		11,583		29,417		(688	)
Private utilities and related sectors		374,394		341,478		27,266		32,916		(446	)
Other		149,327		146,366		8,825		2,961		(22	)

Total corporate securities		2,867,560		2,482,967		187,293		384,593		(6,379	)
Mortgage and asset-backed securities		2,622,616		2,283,916		65,839		338,700		(7,488	)
United States Government and agencies		636,254		363,924		6,983		272,330		(7,714	)
State, municipal and other governments		332,778		256,435		11,954		76,343		(873	)

Total	$	6,459,208	$	5,387,242	$	272,069	$	1,071,966	$	(22,454	)



FBL Financial Group, Inc.		September 30, 2005

The following table sets forth the credit quality, by NAIC designation and Standard and Poor’s (S&P) rating equivalents, of available-for-sale fixed maturity securities.


NAIC		September 30, 2005					December 31, 2004
Designation	Equivalent S&P Ratings (1)	Carrying Value		Percent			Carrying Value		Percent
				(Dollars in thousands)
1	AAA, AA, A	$	4,611,736		66.0	%	$	4,525,974		70.1	%
2	BBB		2,033,316		29.1			1,646,518		25.5

	Total investment grade		6,645,052		95.1			6,172,492		95.6
3	BB		283,769		4.0			233,318		3.6
4	B		55,682		0.8			45,873		0.7
5	CCC, CC, C		5,444		0.1			7,506		0.1
6	In or near default		840		–			19		–

	Total below investment grade		345,735		4.9			286,716		4.4

	Total fixed maturities – available for sale	$	6,990,787		100.0	%	$	6,459,208		100.0	%

(1)

The Securities Valuation Office of the NAIC generally rates private placement securities. Comparisons between NAIC designations and S&P ratings are published by the NAIC. S&P has not rated some of the fixed maturity securities in our portfolio.

The following tables set forth the composition by credit quality of the available-for-sale fixed maturity securities with gross unrealized losses.


		September 30, 2005
		Carrying Value
		of Securities with					Gross
NAIC		Gross Unrealized		Percent of			Unrealized			Percent of
Designation	Equivalent S&P Ratings	Losses		Total			Losses			Total
				(Dollars in thousands)
1	AAA, AA, A	$	1,450,302		59.8	%	$	(20,915	)		48.9	%
2	BBB		876,156		36.1			(18,531	)		43.3

	Total investment grade		2,326,458		95.9			(39,446	)		92.2
3	BB		83,801		3.5			(2,261	)		5.3
4	B		15,462		0.6			(1,061	)		2.5
5	CCC, CC, C		517		–			–			–
6	In or near default		–		–			–			–

	Total below investment grade		99,780		4.1			(3,322	)		7.8

	Total	$	2,426,238		100.0	%	$	(42,768	)		100.0	%


		December 31, 2004
		Carrying Value
		of Securities with					Gross
NAIC		Gross Unrealized		Percent of			Unrealized			Percent of
Designation	Equivalent S&P Ratings	Losses		Total			Losses			Total
				(Dollars in thousands)
1	AAA, AA, A	$	786,630		73.4	%	$	(17,714	)		78.9	%
2	BBB		232,750		21.7			(3,596	)		16.0

	Total investment grade		1,019,380		95.1			(21,310	)		94.9
3	BB		37,000		3.5			(601	)		2.7
4	B		15,586		1.4			(503	)		2.2
5	CCC, CC, C		–		–			–			–
6	In or near default		–		–			(40	)		0.2

	Total below investment grade		52,586		4.9			(1,144	)		5.1

	Total	$	1,071,966		100.0	%	$	(22,454	)		100.0	%



FBL Financial Group, Inc.		September 30, 2005

The following tables set forth the number of issuers, amortized cost, unrealized losses and market value of available-for-sale fixed maturity securities in an unrealized loss position listed by the length of time the securities have been in an unrealized loss position.


	September 30, 2005
						Gross
	Number of		Amortized			Unrealized			Estimated
	Issuers		Cost			Losses			Market Value
			(Dollars in thousands)
Three months or less		156	$	896,136		$	(11,478	)	$	884,658
Greater than three months to six months		18		69,994			(2,337	)		67,657
Greater than six months to nine months		88		626,300			(9,197	)		617,103
Greater than nine months to twelve months		74		432,386			(9,974	)		422,412
Greater than twelve months		55		444,190			(9,782	)		434,408

Total			$	2,469,006		$	(42,768	)	$	2,426,238


	December 31, 2004
						Gross
	Number of		Amortized			Unrealized			Estimated
	Issuers		Cost			Losses			Market Value
			(Dollars in thousands)
Three months or less		104	$	612,150		$	(8,449	)	$	603,701
Greater than three months to six months		18		83,877			(851	)		83,026
Greater than six months to nine months		16		73,817			(843	)		72,974
Greater than nine months to twelve months		12		59,419			(846	)		58,573
Greater than twelve months		20		265,157			(11,465	)		253,692

Total			$	1,094,420		$	(22,454	)	$	1,071,966


The scheduled maturity dates for available-for-sale fixed maturity securities in an unrealized loss position are as follows:

	September 30, 2005					December 31, 2004
	Carrying Value					Carrying Value
	of Securities with		Gross			of Securities with			Gross
	Gross Unrealized		Unrealized			Gross Unrealized			Unrealized
	Losses		Losses			Losses			Losses
	(Dollars in thousands)
Due in one year or less	$	13,786	$	(88	)	$	10,184		$	(53	)
Due after one year through five years		179,231		(3,098	)		111,883			(815	)
Due after five years through ten years		718,671		(13,024	)		167,370			(2,091	)
Due after ten years		950,853		(19,296	)		443,829			(12,007	)

		1,862,541		(35,506	)		733,266			(14,966	)
Mortgage and asset-backed securities		553,698		(7,215	)		338,700			(7,488	)
Redeemable preferred stock		9,999		(47	)

Total	$	2,426,238		(42,768	)	$	1,071,966		$	(22,454	)

Included in the above table are 443 securities from 306 issuers at September 30, 2005 and 169 securities from 130 issuers at December 31, 2004. These increases are primarily due to the impact of increases in market interest rates between December 31, 2004 and September 30, 2005. Approximately 92.2% at September 30, 2005 and 94.9% at December 31, 2004 of the unrealized losses on fixed maturity securities are on securities that are rated investment grade. 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 7.8% at September 30, 2005 and 5.1% at December 31, 2004 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



FBL Financial Group, Inc.		September 30, 2005

quality. In determining whether or not an unrealized loss on an available-for-sale security 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.

Excluding United States government and mortgage and asset-backed securities, no securities from the same issuer had an aggregate unrealized loss in excess of $0.9 million at September 30, 2005. With respect to mortgage and asset-backed securities not backed by the United States government, no securities from the same issuer had an aggregate unrealized loss in excess of $1.7 million at September 30, 2005. The $1.7 million unrealized loss from one issuer relates to two different securities that are backed by different pools of residential mortgage loans. Both securities are rated investment grade and the largest unrealized loss on any one security totaled $1.0 million at September 30, 2005.

Excluding United States government and mortgage and asset-backed securities, no securities from the same issuer had an aggregate unrealized loss in excess of $0.5 million at December 31, 2004. With respect to mortgage and asset-backed securities not backed by the United States government, no securities from the same issuer had an aggregate unrealized loss in excess of $2.2 million at December 31, 2004. The $2.2 million unrealized loss from one issuer relates to four different securities that are backed by different pools of residential mortgage loans. All four securities are rated investment grade and the largest unrealized loss on any one security totaled $1.5 million at December 31, 2004.

The carrying value and estimated market value of our portfolio of available-for-sale fixed maturity securities, 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.


	September 30, 2005				December 31, 2004
			Estimated				Estimated
	Amortized Cost		Market Value		Amortized Cost		Market Value
			(Dollars in thousands)
Due in one year or less	$	72,270	$	72,763	$	76,875	$	78,273
Due after one year through five years		473,771		486,813		460,638		484,626
Due after five years through ten years		1,290,540		1,309,635		909,744		956,174
Due after ten years		2,627,450		2,724,072		2,127,608		2,238,332

		4,464,031		4,593,283		3,574,865		3,757,405
Mortgage and asset-backed securities		2,277,396		2,308,320		2,564,265		2,622,616
Redeemable preferred stocks		82,372		89,184		70,463		79,187

Total	$	6,823,799	$	6,990,787	$	6,209,593	$	6,459,208

Mortgage and other asset-backed securities comprised 33.0% at September 30, 2005 and 40.6% at December 31, 2004 of our total available-for-sale fixed maturity securities. These securities are purchased when we believe these types of investments provide superior risk-adjusted returns compared to returns of more conventional investments such as corporate bonds and mortgage loans. These securities are diversified as to collateral types, cash flow characteristics and maturity. During 2005, we reduced our allocation of assets to mortgage and other asset-backed securities to reduce our exposure to unwanted changes in the duration of our investment portfolio with changes in market interest rates.



FBL Financial Group, Inc.		September 30, 2005

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

At each balance sheet date, we review and update our expectation of future prepayment speeds and the book value of the mortgage and other asset-backed securities purchased at a premium or discount is reset, if needed, to result in a constant effective yield over the life of the security. This effective yield is computed using historical principal payments and expected future principal payment patterns. Any adjustments to book value to derive the constant effective yield, which may include the reversal of premium or discount amounts previously amortized or accrued, are recorded in the current period as a component of net investment income. Accordingly, deviations in actual prepayment speeds from that originally expected or changes in expected prepayment speeds can cause a change in the yield earned on mortgage and asset-backed securities purchased at a premium or discount and may result in adjustments that have a material positive or negative impact on quarterly reported results. Increases in prepayment speeds, which typically occur in a decreasing interest rate environment, generally increase the rate at which discount is accrued and premium is amortized into income. Decreases in prepayment speeds, which typically occur in an increasing interest rate environment, generally slow down the rate these amounts are recorded into income.

The mortgage-backed portfolio includes pass-through and collateralized mortgage obligation (CMO) securities. With a pass-through security, we receive a pro rata share of principal payments as payments are made on the underlying mortgage loans. CMOs consist of pools of mortgages divided into sections or “tranches” which provide sequential retirement of the bonds. We invest in sequential tranches which provide cash flow stability in that principal payments do not occur until the previous tranches are paid off. In addition, to provide call protection and more stable average lives, we invest in CMOs such as planned amortization class (PAC) and targeted amortization class (TAC) securities. CMOs of these types provide more predictable cash flows within a range of prepayment speeds by shifting the prepayment risks to support tranches. We generally do not purchase certain types of CMOs that we believe would subject the investment portfolio to greater than average risk. These include, but are not limited to, principal only, floater, inverse floater, PAC II and support tranches.

The following tables set forth the amortized cost, par value and carrying value of our mortgage and asset-backed securities summarized by type of security.


	September 30, 2005
							Percent of
							Fixed
	Amortized Cost		Par Value		Carrying Value		Maturities
			(Dollars in thousands)
Residential mortgage-backed securities:
Sequential	$	1,320,529	$	1,346,644	$	1,341,210		19.2	%
Pass through		146,436		145,774		147,111		2.1
Planned and targeted amortization class		308,094		311,853		309,745		4.4
Other		109,643		110,776		110,801		1.6

Total residential mortgage-backed securities		1,884,702		1,915,047		1,908,867		27.3
Commercial mortgage-backed securities		267,769		263,991		274,480		3.9
Other asset-backed securities		124,925		124,876		124,973		1.8

Total mortgage and asset-backed securities	$	2,277,396	$	2,303,914	$	2,308,320		33.0	%



FBL Financial Group, Inc.		September 30, 2005


	December 31, 2004
							Percent of
							Fixed
	Amortized Cost		Par Value		Carrying Value		Maturities
			(Dollars in thousands)
Residential mortgage-backed securities:
Sequential	$	1,571,151	$	1,598,937	$	1,606,055		24.9	%
Pass through		311,556		315,371		315,516		4.9
Planned and targeted amortization class		180,900		180,095		184,206		2.8
Other		145,362		146,732		145,617		2.3

Total residential mortgage-backed securities		2,208,969		2,241,135		2,251,394		34.9
Commercial mortgage-backed securities		261,153		256,877		274,180		4.2
Other asset-backed securities		94,143		93,917		97,042		1.5

Total mortgage and asset-backed securities	$	2,564,265	$	2,591,929	$	2,622,616		40.6	%

The commercial and other asset-backed securities are primarily sequential securities. Commercial mortgage-backed securities typically have cash flows that are less sensitive to interest rate changes than residential securities of similar types due principally to prepayment restrictions on many of the underlying commercial mortgage loans. Other asset-backed securities are principally mortgage related (manufactured housing and home equity loans) which historically have also demonstrated relatively less cash flow volatility than residential securities of similar types.

Fixed maturity securities held for trading consist of $14.9 million of U.S. Treasury securities. These securities had an unrealized loss $0.1 million at September 30, 2005.

Equity securities totaled $73.6 million at September 30, 2005 and $71.2 million at December 31, 2004. Gross unrealized gains totaled $18.8 million and gross unrealized losses totaled $0.2 million at September 30, 2005. At December 31, 2004, gross unrealized gains totaled $15.9 million and gross unrealized losses totaled $0.1 million on these securities. Included in equity securities is our investment in American Equity Investment Life Holding Company which totaled $62.7 million at September 30, 2005 and $59.5 million at December 31, 2004.

Mortgage loans totaled $804.3 million at September 30, 2005 and $740.9 million at December 31, 2004. These mortgage loans are diversified as to property type, location and loan size, and are collateralized by the related properties. Mortgages more than 60 days delinquent accounted for less than 0.3% of the carrying value of the mortgage portfolio at September 30, 2005. There were no mortgages more than 60 days delinquent at December 31, 2004. Our mortgage lending policies establish limits on the amount that can be loaned to one borrower and require diversification by geographic location and collateral type. Information regarding the collateral type and related geographic location within the United States follows:



FBL Financial Group, Inc.		September 30, 2005


	September 30, 2005					December 31, 2004
	Mortgage Loan		Percent of			Mortgage Loan		Percent of
Collateral Type	Carrying Value		Total			Carrying Value		Total
	(Dollars in thousands)
Office	$	322,773		40.1	%	$	314,985		42.5	%
Retail		281,545		35.0			233,785		31.6
Industrial		188,231		23.5			181,395		24.5
Other		11,721		1.4			10,709		1.4

Total	$	804,270		100.0	%	$	740,874		100.0	%


	September 30, 2005					December 31, 2004
	Mortgage Loan		Percent of			Mortgage Loan		Percent of
Region of the United States	Carrying Value		Total			Carrying Value		Total
			(Dollars in thousands)
Pacific	$	163,680		20.4	%	$	154,704		20.9	%
East North Central		176,768		21.9			156,417		21.1
South Atlantic		136,626		17.0			125,304		16.9
West North Central		118,542		14.7			94,305		12.7
Mountain		75,370		9.4			85,247		11.5
West South Central		69,041		8.6			65,635		8.9
Other		64,243		8.0			59,262		8.0

Total	$	804,270		100.0	%	$	740,874		100.0	%

Our asset-liability management program includes (i) designing and developing products that encourage persistency and, as a result, create a stable liability structure, and (ii) structuring the investment portfolio with duration and cash flow characteristics consistent with the duration and cash flow characteristics of our insurance liabilities. The weighted average life of the fixed maturity and mortgage loan portfolio, based on market values and excluding convertible bonds, was approximately 8.8 years at September 30, 2005 and 7.8 years at December 31, 2004. Based on calculations utilizing our fixed income analytical system, including our mortgage backed prepayment assumptions, the effective duration of our fixed maturity and mortgage loan portfolios was 5.7 at September 30, 2005 and 5.8 at December 31, 2004.

Other Assets

Deferred policy acquisition costs increased 12.4% to $660.3 million and deferred sales inducements increased 64.2% to $128.8 million at September 30, 2005 due primarily to capitalization of costs incurred with new sales. Assets held in separate accounts increased 11.3% to $614.5 million at September 30, 2005 due primarily to the transfer of net premiums to the separate accounts.

Liabilities

Policy liabilities and accruals and other policyholders’ funds increased 10.4% to $7,950.7 million at September 30, 2005 primarily due to increases in the volume of business in force. Other liabilities increased 22.2% to $147.9 million due primarily to an increase in payables for securities purchases.

Stockholders’ Equity

Stockholders’ equity increased 1.7%, to $847.0 million at September 30, 2005, compared to $832.6 million at December 31, 2004. This increase is principally attributable to net income and proceeds from stock option exercises, partially offset by the change in unrealized appreciation/depreciation on fixed maturity and equity securities and dividends paid.

At September 30, 2005, common stockholders’ equity was $844.0 million, or $28.99 per share, compared to $829.6 million, or $28.87 per share at December 31, 2004. Included in stockholders’ equity per common share is $3.55 at September 30, 2005 and $4.91 at December 31, 2004 attributable to net unrealized investment gains resulting from



FBL Financial Group, Inc.		September 30, 2005

marking to market value our fixed maturity and equity securities classified as available for sale and interest rate swaps. The change in net unrealized appreciation of these securities and derivatives decreased stockholders’ equity $37.7 million during the nine months ended September 30, 2005, after related adjustments to deferred policy acquisition costs, deferred sales inducements, value of insurance in force acquired, unearned revenue reserve and deferred income taxes.

Liquidity and Capital Resources

FBL Financial Group, Inc.

Parent company cash inflows from operations consist primarily of (i) dividends from subsidiaries, if declared and paid, (ii) fees that it charges the various subsidiaries and affiliates for management of their operations, (iii) expense reimbursements from subsidiaries and affiliates, (iv) proceeds from the exercise of employee stock options, (v) proceeds from borrowings and (vi) tax settlements between the parent company and its subsidiaries. Cash outflows are principally for salaries, taxes and other expenses related to providing these management services, dividends on outstanding stock and interest on our parent company debt.

We paid cash dividends on our common and preferred stock during the nine-month period totaling $9.2 million in 2005 and $8.7 million in 2004. Interest payments on our debt totaled $7.7 million for the nine months ended September 30, 2005 and $4.7 million for the 2004 period. It is anticipated quarterly cash dividend requirements for the remainder of 2005 will be $0.105 per common and $0.0075 per Series B redeemable preferred share or approximately $3.1 million. In addition, interest payments on our debt, assuming no changes to the variable rate charged on our line of credit borrowings, are estimated to be $4.1 million for the remainder of 2005.

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. We have also agreed that we will not pay dividends if we are in default of the revolving line of credit, Subordinated Deferrable Interest Note or Senior Notes agreements.

The ability of the Life Companies to pay dividends to FBL Financial Group, Inc. is limited by law to earned profits (statutory unassigned surplus) as of the date the dividend is paid, as determined in accordance with accounting practices prescribed by insurance regulatory authorities of the State of Iowa. 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 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 the remainder of 2005, the maximum amount legally available for distribution to FBL Financial Group, Inc., without further regulatory approval, from Farm Bureau Life is $39.3 million and from EquiTrust Life is $23.8 million.

FBL Financial Group, Inc. expects to rely on available cash resources and dividends from the Life Companies to make any dividend payments to its stockholders and interest payments on its debt for the remainder of 2005. In addition, it is anticipated that a combination of available cash and investments and dividends from the Life



FBL Financial Group, Inc.		September 30, 2005

Companies will be used to fund the scheduled final redemption of the Series C preferred stock ($46.3 million) due on January 3, 2006.

We may from time to time review potential acquisition opportunities. It is anticipated that funding for any such acquisition would be provided from available cash resources, debt or equity financing. As of September 30, 2005, we had no material commitments for capital expenditures. The parent company had available cash and investments totaling $49.8 million at September 30, 2005.

Insurance Operations

The Life Companies’ cash inflows consist primarily of premium income, deposits to policyholder account balances, income from investments, sales, maturities and calls of investments, repayments of investment principal and proceeds from call option exercises. The Life Companies’ cash outflows are primarily related to withdrawals of policyholder account balances, investment purchases, payment of policy acquisition costs, policyholder benefits, income taxes, dividends and current operating expenses. Life insurance companies generally produce a positive cash flow which may be measured by the degree to which cash inflows are adequate to meet benefit obligations to policyholders and normal operating expenses as they are incurred. The remaining cash flow is generally used to increase the asset base to provide funds to meet the need for future policy benefit payments and for writing new business. The Life Companies’ liquidity positions continued to be favorable in the three- and nine-month periods ended September 30, 2005, with cash inflows at levels sufficient to provide the funds necessary to meet their obligations.

For the life insurance operations, cash outflow requirements for operations are typically met from normal premium and deposit cash inflows. This has been the case for all reported periods as the Life Companies’ continuing operations and financing activities relating to interest sensitive and index products provided funds totaling $649.0 million in the nine months ended September 30, 2005 and $625.4 million in the nine months ended September 30, 2004. Positive cash flow from operations is generally used to increase the insurance companies’ fixed maturity securities and other investment portfolios. In developing their investment strategy, the Life Companies establish a level of cash and securities which, combined with expected net cash inflows from operations, maturities of fixed maturity investments and principal payments on mortgage and asset-backed securities and mortgage loans, are believed adequate to meet anticipated short-term and long-term benefit and expense payment obligations.

We anticipate that funds to meet our short-term and long-term capital expenditures, cash dividends to stockholders and operating cash needs will come from existing capital and internally generated funds. We believe that the current level of cash, available-for-sale, trading and short-term securities, combined with expected net cash inflows from operations, maturities of fixed maturity investments, principal payments on mortgage and asset-backed securities, mortgage loans and our insurance products, are adequate to meet our anticipated cash obligations for the foreseeable future. Our investment portfolio at September 30, 2005, included $43.4 million of short-term investments, $10.7 million of cash and $1,099.2 million in carrying value of U.S. Government and U.S. Government agency backed securities that could be readily converted to cash at or near carrying value.

Contractual Obligations

In the normal course of business, we enter into insurance contracts, financing transactions, lease agreements, or other commitments which are necessary or beneficial to our operations. These commitments may obligate us to certain cash flows during future periods. As of December 31, 2004, we had contractual obligations totaling $10,444.2 million with payments due as follows: less than one year – $682.2 million, one-to-three years – $1,255.6 million, four-to-five years – $1,228.4 million and after five years – $7,278.0 million. There have been no material changes to our total contractual obligations since December 31, 2004, other than the extension of our $60.0 million line of credit agreement and related borrowing of $46.0 million, which is now due October 7, 2010.



FBL Financial Group, Inc.		September 30, 2005

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the market risks of our financial instruments since December 31, 2004.

ITEM 4. CONTROLS AND PROCEDURES

At the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Our internal control over financial reporting change from time-to-time as we modify and enhance our systems and processes to meet our dynamic needs. Changes are also made as we strive to be more efficient in how we conduct our business. Any significant changes in controls are evaluated prior to implementation to help ensure the continued effectiveness of our internal controls and internal control environment. While changes have taken place in our internal controls during the quarter and nine months ended September 30, 2005, there have been no changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



FBL Financial Group, Inc.		September 30, 2005

PART II. OTHER INFORMATION

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

(c)

The following table sets forth issuer purchases of equity securities for the quarter ended September 30, 2005.

(d) Maximum

(c) Total

Number (or

Number of

Approximate

Shares (or

Dollar Value)

Units)

of Shares (or

Purchased as

Units) that

Part of

May Yet Be

(a) Total

(b) Average

Publicly

Purchased

Number of

Price Paid

Announced

Under the

Shares (or Units)

per Share (or

Plans or

Period

Purchased (1)

Unit) (1)

Programs

July 1, 2005 through July 31, 2005

–

Not applicable

August 1, 2005 through August 31, 2005

2,182

29.59

Not applicable

September 1, 2005 through September 30, 2005

10,075

30.04

Not applicable

Total

12,257

29.96

(1)

Our 1996 Class A Common Stock Compensation Plan (the Plan) provides for the grant of incentive stock options, nonqualified stock options, bonus stock, restricted stock and stock appreciation rights to directors, officers and employees. Under the Plan, the purchase price for any shares purchased pursuant to the exercise of an option shall be paid in full upon such exercise in cash, by check or by transferring shares of Class A common stock to the Company. Activity in this table represents Class A common shares returned to the Company in connection with the exercise of employee stock options.



FBL Financial Group, Inc.		September 30, 2005

ITEM 6. EXHIBITS

(a) Exhibits:


3(i	)(a)	Restated Articles of Incorporation, filed with Iowa Secretary of State March 19, 1996 (H)

3(i	)(b)	Articles of Amendment, Designation of Series A Preferred Stock, filed with Iowa Secretary of State April 30, 1996 (H)

3(i	)(c)	Articles of Amendment, Designation of Series B Preferred Stock, filed with Iowa Secretary of State May 30, 1997 (H)

3(i	)(d)	Articles of Correction, filed with Iowa Secretary of State October 27, 2000 (H)

3(i	)(e)	Articles of Amendment, Designation of Series C Preferred Stock, filed with Iowa Secretary of State December 29, 2000 (H)

3(i	)(f)	Articles of Amendment, filed with Iowa Secretary of State May 15, 2003 (H)

3(i	)(g)	Articles of Amendment, filed with Iowa Secretary of State May 14, 2004 (H)

3(i	)(h)	Letter Agreement dated as of January 31, 2005 between FBL Financial Group, Inc. and Kansas Farm Bureau waiving certain terms of Series C Preferred Stock (J)

3(i	i)	Second Restated Bylaws, adopted May 14, 2004 (H)

4.1		Form of Class A Common Stock Certificate of the Registrant (A)

4.2		Restated Stockholders’ Agreement Regarding Management and Transfer of Shares of Class B Common Stock of FBL Financial Group, Inc. dated as of March 31, 2004 (H)

4.3		Certificate of Trust; Declaration of Trust of FBL Financial Group Capital Trust dated May 30, 1997, including in Annex I thereto the form of Trust Preferred Security and the form of Trust Common Security; Subordinated Deferrable Interest Note Agreement dated May 30, 1997 between FBL Financial Group, Inc. and FBL Financial Group Capital Trust, including therein the form of Subordinated Deferrable Interest Note; Preferred Securities Guarantee Agreement of FBL Financial Group, Inc., dated May 30, 1997 (B)

4.4	(a)	Master Transaction Agreement between Federal Home Loan Bank of Des Moines and Farm Bureau Life Insurance Company dated July 9, 2003 (E)

4.4	(b)	Advance Agreement between Federal Home Loan Bank of Des Moines and Farm Bureau Life Insurance Company dated September 17, 2003 (E)

4.5		Amended and Restated Credit Agreement and related Schedules and Exhibits dated as of October 7, 2005 between FBL Financial Group, Inc. and LaSalle Bank National Association. These documents are not filed pursuant to the exception of Regulation S-K, Item 601(b)(4)(iii)(A); FBL Financial Group, Inc. agrees to furnish these documents to the Commission upon request.

4.6		Indenture, dated as of April 12, 2004, between FBL Financial Group, Inc. and Deutsche Bank Trust Company Americas as Trustee (G)

4.7		Form of 5.85% Senior Note Due 2014 (G)

4.8		Revolving Demand Note, dated as of September 20, 2004, between Farm Bureau Life Insurance Company and Farm Bureau Mutual Insurance Company (I)

4.9		Revolving Demand Note, dated as of September 20, 2004, between EquiTrust Life Insurance Company and Farm Bureau Mutual Insurance Company (I)

10.1		Form of Amended and Restated 1996 Class A Common Stock Compensation Plan containing all amendments adopted through May 20, 2005 (L) *

10.1	(a)	Form of Stock Option Agreement, pursuant to the Amended and Restated FBL Financial Group, Inc. 1996 Class A Common Stock Compensation Plan (I) *

10.2		Trademark License from the American Farm Bureau Federation to Farm Bureau Life Insurance Company dated May 20, 1987 (A)

10.3		Membership Agreement between American Farm Bureau Federation and the Iowa Farm Bureau Federation dated February 13, 1987 (A)

10.4		Form of Royalty Agreement with Farm Bureau organizations (K)

10.5		Executive Salary and Bonus Deferred Compensation Plan, effective June 1, 2005 (L) *

10.7		Form of Services Agreement between FBL Financial Group, Inc. and Farm Bureau Management Corporation, dated as of January 1, 1996 (A)



FBL Financial Group, Inc.		September 30, 2005


	10.8			Management Services Agreement between FBL Financial Group, Inc. and Farm Bureau Mutual effective as of January 1, 2003 (F)

	10.10			Management Performance Plan (2005) sponsored by FBL Financial Group, Inc. (K) *

	10.14			Lease Agreement dated as of March 31, 1998 between IFBF Property Management, Inc., FBL Financial Group, Inc. and Farm Bureau Mutual Insurance Company (C)

	10.15			Building Management Services Agreement dated as of March 31, 1998 between IFBF Property Management, Inc. and FBL Financial Group, Inc. (C)

	10.16			Coinsurance Agreement between EquiTrust Life Insurance Company and American Equity Investment Life Insurance Company, dated December 29, 2003 (F)

	10.17			First Amendment to the Coinsurance Agreement by and between EquiTrust Life Insurance Company and American Equity Investment Life Insurance Company, effective August 1, 2004 (I)

	10.18			Form of Change In Control Agreement Form A, dated as of April 22, 2002 between the Company and each of William J. Oddy, James W. Noyce, Stephen M. Morain, John M. Paule and JoAnn Rumelhart, and dated as of November 24, 2004 between the Company and Bruce A. Trost (D) *

	10.19			Form of Change In Control Agreement Form B, dated as of April 22, 2002 between the Company and each of James P. Brannen, Douglas W. Gumm, Barbara J. Moore and Lou Ann Sandburg and dated as of November 24, 2004 between the Company and David T. Sebastian (D) *

	10.20			Form of Restricted Stock Agreement, dated as of January 15, 2004 between the Company and each of William J. Oddy, James W. Noyce, Stephen M. Morain, John M. Paule and JoAnn Rumelhart, John E. Tatum, James P. Brannen, Douglas W. Gumm, Barbara J. Moore and Lou Ann Sandburg (I) *

	10.21			Form of Restricted Stock Agreement, dated as of January 17, 2005 between the Company and each of William J. Oddy, James W. Noyce, Stephen M. Morain, John M. Paule and JoAnn Rumelhart, Bruce A. Trost, James P. Brannen, Douglas W. Gumm, Barbara J. Moore, Lou Ann Sandburg and David T. Sebastian (K) *

	31.1			Certification Pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	31.2			Certification Pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	32			Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


* exhibit relates to a compensatory plan for management or directors

Incorporated by reference to:
(A) Form S-1 filed on July 11, 1996, File No. 333-04332
(B) Form 8-K filed on June 6, 1997, File No. 001-11917
(C) Form 10-Q for the period ended March 31, 1998, File No. 001-11917
(D) Form 10-Q for the period ended June 30, 2002, File No. 001-11917
(E) Form 10-Q for the period ended September 30, 2003, File No. 001-11917
(F) Form 10-K for the period ended December 31, 2003, File No. 001-11917
(G) Form S-4 filed on May 5, 2004, File No. 333-115197
(H) Form 10-Q for the period ended June 30, 2004, File No. 001-11917
(I) Form 10-Q for the period ended September 30, 2004, File No. 001-11917
(J) Form 10-K for the period ended December 31, 2004, File No. 001-11917
(K) Form 10-Q for the period ended March 31, 2005, File No. 001-11917
(L) Form 10-Q for the period ended June 30, 2005, File No. 001-11917



FBL Financial Group, Inc.		September 30, 2005

SIGNATURES

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

Date: November 4, 2005


		FBL FINANCIAL GROUP, INC.

		By		/s/ William J. Oddy

				William J. Oddy
				Chief Executive Officer (Principal Executive Officer)

		By		/s/ James W. Noyce

				James W. Noyce
				Chief Financial Officer (Principal Financial and Accounting Officer)

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FBL Financial (FFG) 10-Q2005 Q3 Quarterly report

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