FBL Financial (FFG) 10-Q 2019 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended September 30, 2019.

or

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

For the transition period from ____________________ to _______________________

Commission File Number: 1-11917

FBL FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Iowa			42-1411715
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
5400 University Avenue,	West Des Moines,	Iowa	50266-5997
(State or other jurisdiction of incorporation or organization)			(Zip Code)
		(515)	225-5400
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, without par value	FFG	New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

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

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Title of each class	Outstanding at October 29, 2019
Class A Common Stock, without par value	24,650,895
Class B Common Stock, without par value	11,413

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FBL FINANCIAL GROUP, INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets	2
	Consolidated Statements of Operations	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Changes in Stockholders’ Equity	5
	Consolidated Statements of Cash Flows	7
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	57
Item 4.	Controls and Procedures	57
PART II.	OTHER INFORMATION	57
Item 1A.	Risk Factors	57
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 6.	Exhibits	58
SIGNATURES		59

1

ITEM 1. FINANCIAL STATEMENTS

FBL FINANCIAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands)

	September 30, 2019		December 31, 2018
Assets
Investments:
Fixed maturities - available for sale, at fair value (amortized cost: 2019 - $6,956,353; 2018 - $6,856,277)	$	7,729,814	$	7,033,045
Equity securities at fair value (cost: 2019 - $93,365; 2018 - $93,564)	97,705		92,857
Mortgage loans	1,002,839		1,039,829
Real estate	1,543		1,543
Policy loans	200,354		197,366
Short-term investments	22,743		15,713
Other investments	54,127		33,765
Total investments	9,109,125		8,414,118
Cash and cash equivalents	13,007		19,035
Securities and indebtedness of related parties	71,278		60,962
Accrued investment income	78,962		74,524
Amounts receivable from affiliates	3,334		3,812
Reinsurance recoverable	105,493		102,386
Deferred acquisition costs	253,112		418,802
Value of insurance in force acquired	2,694		10,385
Current income taxes recoverable	6,448		4,807
Other assets	172,930		163,518
Assets held in separate accounts	612,338		561,281
Total assets	$	10,428,721	$	9,833,630

2

FBL FINANCIAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS (Continued)

(Dollars in thousands)

	September 30, 2019		December 31, 2018
Liabilities and stockholders’ equity
Liabilities:
Future policy benefits:
Interest sensitive products	$	5,491,250	$	5,403,125
Traditional life insurance and accident and health products	1,834,544		1,802,346
Other policy claims and benefits	39,846		51,298
Supplementary contracts without life contingencies	298,499		303,627
Advance premiums and other deposits	257,108		260,252
Amounts payable to affiliates	1,422		1,461
Short-term debt payable to non-affiliates	16,000		—
Long-term debt payable to non-affiliates	97,000		97,000
Deferred income taxes	165,215		75,449
Other liabilities	101,162		93,532
Liabilities related to separate accounts	612,338		561,281
Total liabilities	8,914,384		8,649,371
Stockholders’ equity:
FBL Financial Group, Inc. stockholders’ equity:
Preferred stock, without par value, at liquidation value - authorized 10,000,000 shares, issued and outstanding 5,000,000 Series B shares	3,000		3,000
Class A common stock, without par value - authorized 88,500,000 shares, issued and outstanding 24,650,895 shares in 2019 and 24,707,402 shares in 2018	152,566		152,652
Class B common stock, without par value - authorized 1,500,000 shares, issued and outstanding 11,413 shares in 2019 and 2018	72		72
Accumulated other comprehensive income	406,175		91,318
Retained earnings	952,397		937,097
Total FBL Financial Group, Inc. stockholders’ equity	1,514,210		1,184,139
Noncontrolling interest	127		120
Total stockholders’ equity	1,514,337		1,184,259
Total liabilities and stockholders’ equity	$	10,428,721	$	9,833,630

See accompanying notes.

3

FBL FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(Dollars in thousands, except per share data)

	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
Revenues:
Interest sensitive product charges	$	31,135		$	31,161		$	94,935		$	92,165
Traditional life insurance premiums	46,982			48,124			147,361			148,712
Net investment income	101,478			105,757			316,012			310,753
Net realized capital gains (losses)	696			(709		)	11,230			(1,615		)
Net other-than-temporary impairment losses recognized in earnings	(50		)	(50		)	(919		)	(1,090		)
Other income	4,417			3,828			12,501			12,065
Total revenues	184,658			188,111			581,120			560,990
Benefits and expenses:
Interest sensitive product benefits	67,147			70,145			202,966			194,127
Traditional life insurance benefits	42,877			44,168			131,512			133,349
Policyholder dividends	2,441			2,480			7,539			7,591
Underwriting, acquisition and insurance expenses	39,197			30,834			114,334			107,621
Interest expense	1,213			1,212			3,637			3,638
Other expenses	5,764			5,061			18,649			16,281
Total benefits and expenses	158,639			153,900			478,637			462,607
	26,019			34,211			102,483			98,383
Income taxes	(1,642		)	(4,818		)	(13,429		)	(14,462		)
Equity income, net of related income taxes	799			1,642			2,423			3,441
Net income	25,176			31,035			91,477			87,362
Net (income) loss attributable to noncontrolling interest	(47		)	(25		)	(7		)	16
Net income attributable to FBL Financial Group, Inc.	$	25,129		$	31,010		$	91,470		$	87,378
Earnings per common share	$	1.01		$	1.24		$	3.69		$	3.50
Earnings per common share - assuming dilution	$	1.01		$	1.24		$	3.69		$	3.50

See accompanying notes.

4

FBL FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

(Dollars in thousands)

	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
Net income	$	25,176		$	31,035		$	91,477		$	87,362
Other comprehensive income (loss) (1)
Change in net unrealized investment gains/losses	103,172			(42,388		)	314,228			(191,339		)
Change in underfunded status of postretirement benefit plans	210			268			629			797
Total other comprehensive income (loss), net of tax	103,382			(42,120		)	314,857			(190,542		)
Total comprehensive income (loss), net of tax	128,558			(11,085		)	406,334			(103,180		)
Comprehensive (income) loss attributable to noncontrolling interest	(47		)	(25		)	(7		)	16
Total comprehensive income (loss) applicable to FBL Financial Group, Inc.	$	128,511		$	(11,110	)	$	406,327		$	(103,164	)

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

FBL FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

(Dollars in thousands)

	FBL Financial Group, Inc. Stockholders’ Equity
	Series B Preferred Stock		Class A and Class B Common Stock		Accumulated Other Comprehensive Income			Retained Earnings			Non- controlling Interest		Total Stockholders’ Equity
Balance at July 1, 2018	$	3,000	$	153,186	$	131,081		$	928,973		$	32	$	1,216,272
Net income - three months ended September 30, 2018	—		—		—			31,010			25		31,035
Other comprehensive loss	—		—		(42,120		)	—			—		(42,120		)
Stock-based compensation	—		46		—			—			—		46
Dividends on preferred stock	—		—		—			(37		)	—		(37		)
Dividends on common stock	—		—		—			(11,416		)	—		(11,416		)
Receipts related to noncontrolling interest	—		—		—			—			18		18
Balance at September 30, 2018	$	3,000	$	153,232	$	88,961		$	948,530		$	75	$	1,193,798
Balance at July 1, 2019	$	3,000	$	152,526	$	302,793		$	939,143		$	80	$	1,397,542
Net income - three months ended September 30, 2019	—		—		—			25,129			47		25,176
Other comprehensive income	—		—		103,382			—			—		103,382
Stock-based compensation	—		112		—			—			—		112
Dividends on preferred stock	—		—		—			(37		)	—		(37		)
Dividends on common stock	—		—		—			(11,838		)	—		(11,838		)
Balance at September 30, 2019	$	3,000	$	152,638	$	406,175		$	952,397		$	127	$	1,514,337

5

FBL FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Continued)

(Dollars in thousands)

	FBL Financial Group, Inc. Stockholders’ Equity
	Series B Preferred Stock		Class A and Class B Common Stock			Accumulated Other Comprehensive Income			Retained Earnings			Non- controlling Interest			Total Stockholders’ Equity
Balance at January 1, 2018	$	3,000	$	153,661		$	284,983		$	935,423		$	58		$	1,377,125
Cumulative effect of change in accounting principle related to net unrealized gains on equity securities	—		—			(5,480		)	5,480			—			—
Net income - nine months ended September 30, 2018	—		—			—			87,378			(16		)	87,362
Other comprehensive loss	—		—			(190,542		)	—			—			(190,542		)
Stock-based compensation	—		366			—			—			—			366
Purchase of common stock	—		(795		)	—			(8,054		)	—			(8,849		)
Dividends on preferred stock	—		—			—			(112		)	—			(112		)
Dividends on common stock	—		—			—			(71,585		)	—			(71,585		)
Receipts related to noncontrolling interest	—		—			—			—			33			33
Balance at September 30, 2018	$	3,000	$	153,232		$	88,961		$	948,530		$	75		$	1,193,798
Balance at January 1, 2019	$	3,000	$	152,724		$	91,318		$	937,097		$	120		$	1,184,259
Cumulative effect of change in accounting principle related to leases	—		—			—			595			—			595
Net income - nine months ended September 30, 2019	—		—			—			91,470			7			91,477
Other comprehensive income	—		—			314,857			—			—			314,857
Stock-based compensation	—		324			—			—			—			324
Purchase of common stock	—		(410		)	—			(4,167		)	—			(4,577		)
Dividends on preferred stock	—		—			—			(112		)	—			(112		)
Dividends on common stock	—		—			—			(72,486		)	—			(72,486		)
Balance at September 30, 2019	$	3,000	$	152,638		$	406,175		$	952,397		$	127		$	1,514,337

See accompanying notes.

6

FBL FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)

	Nine months ended September 30,
	2019			2018
Operating activities
Net income	$	91,477		$	87,362
Adjustments to reconcile net income to net cash provided by operating activities:
Interest credited to account balances	119,250			123,425
Charges for mortality, surrenders and administration	(94,277		)	(89,958		)
Net realized (gains) losses on investments	(10,311		)	2,705
Change in fair value of derivatives	2,239			(2,370		)
Increase in liabilities for life insurance and other future policy benefits	49,307			61,112
Deferral of acquisition costs	(31,908		)	(31,276		)
Amortization of deferred acquisition costs and value of insurance in force	27,589			24,199
Change in reinsurance recoverable	(994		)	2,370
Provision for deferred income taxes	6,051			(1,816		)
Other	(7,130		)	1,050
Net cash provided by operating activities	151,293			176,803
Investing activities
Sales, maturities or repayments:
Fixed maturities - available for sale	489,597			455,104
Equity securities - available for sale	15,109			—
Mortgage loans	74,970			51,680
Derivative instruments	9,201			13,203
Policy loans	27,436			28,416
Securities and indebtedness of related parties	6,941			4,945
Other long-term investments	3,686			4,948
Acquisitions:
Fixed maturities - available for sale	(577,634		)	(613,278		)
Equity securities - available for sale	(14,545		)	(2,799		)
Mortgage loans	(35,202		)	(95,336		)
Derivative instruments	(14,325		)	(10,480		)
Policy loans	(30,424		)	(32,741		)
Securities and indebtedness of related parties	(16,189		)	(15,922		)
Other long-term investments	(4,397		)	(6,611		)
Short-term investments, net change	(7,030		)	(8,562		)
Purchases and disposals of property and equipment, net	(11,886		)	(8,483		)
Net cash used in investing activities	(84,692		)	(235,916		)

7

FBL FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Dollars in thousands)

	Nine months ended September 30,
	2019			2018
Financing activities
Contract holder account deposits	$	438,573		$	525,245
Contract holder account withdrawals	(449,211		)	(423,714		)
Dividends paid	(72,598		)	(71,697		)
Proceeds from issuance of short-term debt	20,000			27,000
Repayments of short-term debt	(4,000		)	(27,000		)
Issuance or repurchase of common stock, net	(5,393		)	(9,025		)
Other financing activities	—			33
Net cash provided by (used in) financing activities	(72,629		)	20,842
Decrease in cash and cash equivalents	(6,028		)	(38,271		)
Cash and cash equivalents at beginning of period	19,035			52,696
Cash and cash equivalents at end of period	$	13,007		$	14,425
Supplemental disclosures of cash flow information
Cash (paid) received during the period for:
Interest	$	(3,641	)	$	(3,656	)
Income taxes	(30		)	(2,027		)

See accompanying notes.

8

FBL FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

September 30, 2019

1. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements of FBL Financial Group, Inc. (we or the Company) have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. Our financial statements include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of our financial position and results of operations.

Operating results for the three- and nine-months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. We encourage you to refer to the notes to our consolidated financial statements included in Item 8 of our Form 10-K for the year ended December 31, 2018 for a complete description of our material accounting policies. Also included in the Form 10-K is a description of areas of judgments and estimates and other information necessary to understand our financial position and results of operations.

New Accounting Pronouncements

Description	Date of adoption	Effect on our consolidated financial statements or other significant matters
Standards adopted:
Leases In February 2016, the FASB issued a new lease accounting standard, which, for most lessees, results in a gross-up of the balance sheet. Under the new standard, lessees recognize the leased assets on the balance sheet and recognize a corresponding liability for the present value of lease payments over the lease term. The new standard requires the application of judgment and estimates. Also, there are accounting policy elections that may be taken both at transition and for the accounting post-transition, including whether to adopt a short-term lease recognition exemption.	January 1, 2019	Upon adoption using the modified retrospective approach, a cumulative effect adjustment of $0.6 million was recorded to retained earnings, representing the elimination of a deferred gain on a sale-leaseback transaction, and both other assets and other liabilities increased by $7.2 million. We elected the practical expedients provided for under the guidance but did not use hindsight in determining lease term. We have no finance leases and have elected to treat leases with terms of twelve months or less as short-term leases. The impact to earnings per share due to adopting this guidance was less than ($0.01) per share for the three months ended September 30, 2019 and was ($0.01) per share for the nine months ended September 30, 2019. See Note 6 for additional discussion.
Financial instruments - recognition and measurement In January 2016, the FASB issued guidance that amended certain aspects of the recognition and measurement of financial instruments. The new guidance primarily affected the accounting for equity securities, which are now carried at fair value with valuation changes recognized in the statement of operations rather than as other comprehensive income. The presentation and disclosure requirements for financial instruments and the methodology for assessing the need for a valuation allowance on deferred tax assets resulting from unrealized losses on available-for-sale fixed maturity securities were also revised under the new guidance. The new standard required the use of a modified retrospective method at adoption.	January 1, 2018	Upon adoption, we reclassified $5.5 million of net unrealized investment gains, net of adjustments to deferred acquisition costs, interest sensitive policy reserves and income taxes, on our equity securities from accumulated other comprehensive income to retained earnings as a cumulative effect adjustment.

9

Description	Date of adoption	Effect on our consolidated financial statements or other significant matters
Standards not yet adopted:
Financial instruments - credit impairment In June 2016, the FASB issued guidance amending the accounting for the credit impairment of financial instruments. Under the new guidance, impairment losses are required to be estimated using an expected loss model under which a valuation allowance is established and adjusted over time. The valuation allowance will be based on the probability of loss over the life of the instrument, considering historical, current and forecasted information. The new guidance differs significantly from the incurred loss model used today, and will result in the earlier recognition of impairment losses. The new guidance may also increase the volatility of earnings to the extent actual results differ from the assumptions used in the establishment of the valuation allowance. The financial instruments for which we will be required to use the new model include but are not limited to, mortgage loans, lease receivables and reinsurance recoverables. Our available-for-sale fixed maturities will continue to apply the incurred loss model; however, such losses will be in the form of a valuation allowance, which can be increased in the case of future credit losses or decreased should conditions improve.	January 1, 2020	We are currently evaluating the impact of this new guidance on our consolidated financial statements. We believe the most significant impact upon adoption will be the establishment of an additional valuation allowance for our mortgage loan investments, which historically have not experienced significant credit impairment losses. We will apply this guidance using a modified retrospective approach by recording a cumulative effect adjustment to retained earnings as of the beginning of the year of adoption.
Targeted improvements: long-duration contracts In August 2018, the FASB issued guidance that will change the accounting for long-duration insurance contracts. The new guidance impacts several facets of the accounting for such contracts including the accounting for future policy benefits associated with traditional non-participating and limited payment insurance contracts as well as for guaranteed minimum benefits and the amortization model used for deferred acquisition costs. Disclosures as well as presentation of financial results will also change under the new guidance.	January 1, 2021	We are currently evaluating the impact of this guidance on our consolidated financial statements, but expect the impact to the timing of profit emergence for the impacted insurance contracts to be significant. Adoption of certain portions of the guidance may be applied on a modified retrospective basis and others on a full retrospective basis.

10

2. Investment Operations

Fixed Maturity Securities

Available-For-Sale Fixed Maturity Securities by Investment Category
	September 30, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Non-credit losses on other-than-temporary impairments (1)
	(Dollars in thousands)
Fixed maturities:
Corporate	$	3,358,339	$	435,001	$	(20,576	)	$	3,772,764	$	—
Residential mortgage-backed	616,674		60,052		(727		)	675,999		2,120
Commercial mortgage-backed	947,232		112,337		(115		)	1,059,454		—
Other asset-backed	669,925		23,291		(2,031		)	691,185		616
United States Government and agencies	12,929		2,228		(10		)	15,147		—
States and political subdivisions	1,351,254		164,548		(537		)	1,515,265		—
Total fixed maturities	$	6,956,353	$	797,457	$	(23,996	)	$	7,729,814	$	2,736

	December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Non-credit losses on other-than-temporary impairments (1)
	(Dollars in thousands)
Fixed maturities:
Corporate	$	3,231,846	$	138,972	$	(90,933	)	$	3,279,885	$	—
Residential mortgage-backed	584,133		29,969		(7,242		)	606,860		2,823
Commercial mortgage-backed	873,672		24,284		(19,390		)	878,566		—
Other asset-backed	697,332		15,567		(5,329		)	707,570		1,143
United States Government and agencies	19,673		996		(134		)	20,535		—
States and political subdivisions	1,449,621		95,921		(5,913		)	1,539,629		—
Total fixed maturities	$	6,856,277	$	305,709	$	(128,941	)	$	7,033,045	$	3,966

(1) Non-credit losses subsequent to the initial impairment measurement date on other-than-temporary impairment (OTTI) losses are included in the gross unrealized gains and gross unrealized losses columns above. The non-credit loss component of OTTI losses for residential mortgage-backed and other asset-backed securities at September 30, 2019 and December 31, 2018 were in an unrealized gain position due to increases in estimated fair value subsequent to initial recognition of non-credit losses on such securities.

Available-For-Sale Fixed Maturities by Maturity Date
	September 30, 2019
	Amortized Cost		Fair Value
	(Dollars in thousands)
Due in one year or less	$	74,240	$	75,286
Due after one year through five years	518,575		546,970
Due after five years through ten years	740,854		809,562
Due after ten years	3,388,853		3,871,358
	4,722,522		5,303,176
Mortgage-backed and other asset-backed	2,233,831		2,426,638
Total fixed maturities	$	6,956,353	$	7,729,814

11

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

Net Unrealized Gains on Investments in Accumulated Other Comprehensive Income
	September 30, 2019			December 31, 2018
	(Dollars in thousands)
Net unrealized appreciation on:
Fixed maturities - available for sale	$	773,461		$	176,768
Adjustments for assumed changes in amortization pattern of:
Deferred acquisition costs	(219,109		)	(46,732		)
Value of insurance in force acquired	(12,963		)	(6,878		)
Unearned revenue reserve	19,697			5,134
Adjustments for assumed changes in policyholder liabilities	(36,679		)	(1,642		)
Provision for deferred income taxes	(110,125		)	(26,596		)
Net unrealized investment gains	$	414,282		$	100,054

Net unrealized investment gains and losses are recorded net of deferred income taxes and other adjustments for assumed changes in deferred acquisition costs, value of insurance in force acquired, unearned revenue reserve and policyholder liabilities.

Fixed Maturity Securities with Unrealized Losses by Length of Time
	September 30, 2019
	Less than one year					One year or more					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Percent of Total
	(Dollars in thousands)
Fixed maturities:
Corporate	$	74,584	$	(4,647	)	$	97,588	$	(15,929	)	$	172,172	$	(20,576	)	85.8	%
Residential mortgage-backed	32,074		(536		)	3,731		(191		)	35,805		(727		)	3.0
Commercial mortgage-backed	10,320		(61		)	2,786		(54		)	13,106		(115		)	0.5
Other asset-backed	95,730		(671		)	68,909		(1,360		)	164,639		(2,031		)	8.5
United States Government and agencies	—		—			2,988		(10		)	2,988		(10		)	—
States and political subdivisions	3,937		(60		)	5,944		(477		)	9,881		(537		)	2.2
Total fixed maturities	$	216,645	$	(5,975	)	$	181,946	$	(18,021	)	$	398,591	$	(23,996	)	100.0	%

	December 31, 2018
	Less than one year					One year or more					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Percent of Total
	(Dollars in thousands)
Fixed maturities:
Corporate	$	1,035,176	$	(60,299	)	$	207,381	$	(30,634	)	$	1,242,557	$	(90,933	)	70.5	%
Residential mortgage-backed	191,365		(4,482		)	74,113		(2,760		)	265,478		(7,242		)	5.6
Commercial mortgage-backed	302,159		(9,947		)	148,855		(9,443		)	451,014		(19,390		)	15.0
Other asset-backed	250,119		(3,397		)	149,997		(1,932		)	400,116		(5,329		)	4.1
United States Government and agencies	—		—			6,474		(134		)	6,474		(134		)	0.1
States and political subdivisions	144,681		(3,885		)	16,943		(2,028		)	161,624		(5,913		)	4.7
Total fixed maturities	$	1,923,500	$	(82,010	)	$	603,763	$	(46,931	)	$	2,527,263	$	(128,941	)	100.0	%

Fixed maturities in the above tables include 142 securities from 112 issuers at September 30, 2019 and 709 securities from 465 issuers at December 31, 2018.

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Unrealized losses decreased during the nine months ended September 30, 2019 primarily due to lower market interest rates and tightening credit spreads. We do not consider securities to be OTTI when the market decline is attributable to factors such as interest rate movements, market volatility, liquidity, spread widening and credit quality when recovery of all amounts due under the contractual terms of the security is anticipated. Based on our intent not to sell or our belief that we will not be required to sell these securities before recovery of their amortized cost basis, we do not consider these investments to be OTTI at September 30, 2019. We will continue to monitor the investment portfolio for future changes in issuer facts and circumstances that could result in future impairments beyond those currently identified.

As described more fully in Note 1 to our consolidated financial statements included in Item 8 of our Form 10-K for the year ended December 31, 2018, we perform a regular evaluation of all investment classes for impairment in order to evaluate whether such investments are OTTI.

Credit Loss Component of Other-Than-Temporary Impairments on Fixed Maturities
	Nine months ended September 30,
	2019			2018
	(Dollars in thousands)
Balance at beginning of period	$	(5,963	)	$	(12,392	)
Reductions due to investments sold or paid down	939			3,648
Reduction for credit loss that no longer has a portion of the OTTI loss recognized in other comprehensive income	—			2,529
Balance at end of period	$	(5,024	)	$	(6,215	)

The table above sets forth the amount of credit loss impairments on fixed maturities held by the Company as of the dates indicated for which the non-credit portion of the OTTI was recognized in other comprehensive income and corresponding changes in such amounts. Credit loss impairments with no portion of the loss recognized in other comprehensive income, such as securities for which OTTI was measured at fair value, are excluded from the table.

Realized Gains (Losses) - Recorded in Income
	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
	(Dollars in thousands)
Realized gains (losses) on investments
Fixed maturities:
Gross gains	$	534		$	25		$	3,671		$	1,821
Gross losses	—			(1		)	(304		)	(2		)
Mortgage loans	—			—			2,778			—
Other	—			(1		)	(4		)	(19		)
	534			23			6,141			1,800
Net gains (losses) recognized during the period on equity securities held at the end of the period	165			(732		)	5,047			(3,415		)
Net gains recognized during the period on equity securities sold during the period	(3		)	—			42			—
Net gains (losses) recognized during the period on equity securities	162			(732		)	5,089			(3,415		)
Net realized gains (losses)	696			(709		)	11,230			(1,615		)
Impairment losses recognized in earnings:
Other credit-related	(50		)	(50		)	(919		)	(1,090		)
Net realized gains (losses) on investments recorded in income	$	646		$	(759	)	$	10,311		$	(2,705	)

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Proceeds from sales of fixed maturities totaled $27.7 million during the nine months ended September 30, 2019 and $59.3 million during the nine months ended September 30, 2018.

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

Mortgage Loans

Our mortgage loan portfolio consists of commercial mortgage loans that we have originated. Our lending policies require that the loans be collateralized by the value of the related property, establish limits on the amount that can be loaned to one borrower and require diversification by geographic location and collateral type. We originate loans with an initial loan-to-value ratio that provides sufficient collateral to absorb losses should we be required to foreclose and take possession of the collateral. In order to identify impairment losses, management maintains and regularly reviews a watch list of mortgage loans that have heightened risk. These loans may include those with borrowers delinquent on contractual payments, borrowers experiencing financial difficulty, increases in rental real estate vacancies and significant declines in collateral value. We evaluate each of our mortgage loans individually and establish an estimated loss, if needed, for each impaired loan identified. An estimated loss is needed for loans for which we do not believe we will collect all amounts due according to the contractual terms of the respective loan agreements.

Any loan delinquent on contractual payments is considered non-performing. Mortgage loans are placed on non-accrual status if we have concerns regarding the collectability of future payments. Interest income on non-performing loans is generally recognized on a cash basis. Once mortgage loans are classified as non-accrual loans, the resumption of the interest accrual would commence only after all past due interest has been collected or the mortgage loan has been restructured such that the collection of interest is considered likely. At September 30, 2019 and December 31, 2018, there were no non-performing loans over 90 days past due on contractual payments. At September 30, 2019, we had not committed to provide any additional funding for mortgage loans.

Mortgage Loans by Collateral Type
	September 30, 2019				December 31, 2018
Collateral Type	Carrying Value		Percent of Total		Carrying Value		Percent of Total
	(Dollars in thousands)
Office	$	429,094	42.8	%	$	454,694	43.7	%
Retail	334,693		33.4		332,579		32.0
Industrial	226,164		22.5		234,453		22.5
Other	12,888		1.3		18,103		1.7
Total	$	1,002,839	100.0	%	$	1,039,829	100.0	%

Mortgage Loans by Geographic Location within the United States
	September 30, 2019				December 31, 2018
Region of the United States	Carrying Value		Percent of Total		Carrying Value		Percent of Total
	(Dollars in thousands)
South Atlantic	$	291,569	29.1	%	$	301,206	29.0	%
Pacific	154,689		15.4		162,824		15.7
East North Central	118,723		11.8		117,768		11.3
West North Central	110,554		11.0		126,320		12.1
Mountain	97,875		9.8		101,335		9.7
West South Central	84,714		8.5		85,919		8.3
East South Central	78,408		7.8		76,098		7.3
Middle Atlantic	33,981		3.4		34,843		3.4
New England	32,326		3.2		33,516		3.2
Total	$	1,002,839	100.0	%	$	1,039,829	100.0	%

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Mortgage Loans by Loan-to-Value Ratio
	September 30, 2019				December 31, 2018
Loan-to-Value Ratio	Carrying Value		Percent of Total		Carrying Value		Percent of Total
	(Dollars in thousands)
0% - 50%	$	409,414	40.8	%	$	409,089	39.3	%
51% - 60%	296,641		29.6		314,038		30.2
61% - 70%	265,037		26.4		264,973		25.5
71% - 80%	31,747		3.2		37,418		3.6
81% - 90%	—		—		14,311		1.4
Total	$	1,002,839	100.0	%	$	1,039,829	100.0	%

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

Mortgage Loans by Year of Origination
	September 30, 2019				December 31, 2018
Year of Origination	Carrying Value		Percent of Total		Carrying Value		Percent of Total
	(Dollars in thousands)
2019	$	35,060	3.5	%	$	—	—	%
2018	134,876		13.5		137,519		13.2
2017	202,126		20.2		207,540		20.0
2016	145,612		14.5		149,437		14.4
2015	120,799		12.0		128,877		12.4
2014 & prior	364,366		36.3		416,456		40.0
Total	$	1,002,839	100.0	%	$	1,039,829	100.0	%

Impaired Mortgage Loans
	September 30, 2019			December 31, 2018
	(Dollars in thousands)
Unpaid principal balance	$	4,656		$	18,622
Less:
Related allowance	(329		)	(3,107		)
Carrying value of impaired mortgage loans	$	4,327		$	15,515

Allowance on Mortgage Loans
	Nine months ended September 30,
	2019			2018
	(Dollars in thousands)
Balance at beginning of period	$	3,107		$	497
Recoveries	(2,778		)	(151		)
Balance at end of period	$	329		$	346

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Mortgage Loan Modifications

Our commercial mortgage loan portfolio can include loans that have been modified. We assess loan modifications on a loan-by-loan basis to evaluate whether a troubled debt restructuring has occurred. Generally, the types of concessions include reduction of the contractual interest rate to a below-market rate, extension of the maturity date and/or a reduction of accrued interest. The amount, timing and extent of the concession granted is considered in determining if an impairment loss is needed for the restructuring. There were no loan modifications during the nine months ended September 30, 2019 or September 30, 2018.

Variable Interest Entities

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

We have reviewed the circumstances surrounding our investments in VIEs, which consist of (i) limited partnerships or limited liability companies accounted for under the equity method included in securities and indebtedness of related parties and (ii) non-guaranteed federal low income housing tax credit (LIHTC) investments included in other assets. In addition, we have reviewed the ownership interest in our VIEs and determined that we do not hold direct majority ownership or have other contractual rights (such as kick out rights) that give us effective control over these entities resulting in us having both the power to direct activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE. The maximum loss exposure relative to our VIEs is limited to the carrying value and any unfunded commitments that exist for each particular VIE. We also have not provided additional support or other guarantees that were not previously contractually required (financial or otherwise) to any of the VIEs as of September 30, 2019 or December 31, 2018. Based on our analysis, none of our VIEs were required to be consolidated at September 30, 2019 or December 31, 2018.

LIHTC investments take the form of limited partnerships or limited liability companies, which in turn invest in a number of low income housing projects. We use the proportional amortization method of accounting for these investments. The proportional amortization method amortizes the cost of the investment over the period in which the investor expects to receive tax credits and other tax benefits, and the resulting amortization is recognized along with the tax benefits as a component of federal income tax expense on our consolidated statements of operations. The net benefits reflected in federal income tax expense related to LIHTC investments were $0.9 million for the third quarters of 2019 and 2018 and $2.7 million for the nine-month periods ended September 30, 2019 and September 30, 2018.

VIE Investments by Category
	September 30, 2019				December 31, 2018
	Carrying Value		Maximum Exposure to Loss		Carrying Value		Maximum Exposure to Loss
	(Dollars in thousands)
LIHTC investments	$	45,715	$	46,779	$	54,037	$	55,597
Investment companies	50,611		103,705		40,236		79,578
Real estate limited partnerships	9,208		15,688		8,945		15,673
Other	492		492		483		493
Total	$	106,026	$	166,664	$	103,701	$	151,341

In addition, we make passive investments in the normal course of business in structured securities issued by VIEs for which we are not the investment manager. These structured securities include all of the residential mortgage-backed securities, commercial mortgage-backed securities and other asset-backed securities included in our fixed maturities. Our maximum exposure to loss on these securities is limited to our carrying value of the investment. We have determined that we are not the

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primary beneficiary of these structured securities because we do not have the power to direct the activities that most significantly impact the entities’ economic performance.

Derivative Instruments

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

Derivatives Instruments by Type
	September 30, 2019		December 31, 2018
	(Dollars in thousands)
Assets
Freestanding derivatives:
Call options (reported in other investments)	$	23,960	$	4,745
Embedded derivatives:
Modified coinsurance (reported in reinsurance recoverable)	1,774		157
Interest-only security (reported in fixed maturities)	422		855
Total assets	$	26,156	$	5,757
Liabilities
Embedded derivatives:
Indexed products (reported in liability for future policy benefits)	$	66,846	$	40,028
Modified coinsurance (reported in other liabilities)	284		780
Total liabilities	$	67,130	$	40,808

Derivative Income (Loss)
	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
	(Dollars in thousands)
Change in fair value of free-standing derivatives:
Call options	$	1,590		$	6,000		$	14,092		$	7,039
Change in fair value of embedded derivatives:
Modified coinsurance	859			(1,210		)	2,112			(2,027		)
Interest-only security	(99		)	(1		)	17			(79		)
Indexed products	(5,831		)	(5,509		)	(18,460		)	(2,563		)
Total income from derivatives	$	(3,481	)	$	(720	)	$	(2,239	)	$	2,370

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

We are exposed to credit losses in the event of nonperformance of the derivative counterparties. This credit risk is minimized by purchasing such agreements from financial institutions with high credit ratings (currently rated A or better by nationally recognized statistical rating organizations). We have also entered into credit support agreements with the counterparties requiring them to post collateral when net exposures exceed pre-determined thresholds that vary by counterparty. The net amount of such exposure is essentially the market value less collateral held for such agreements with each counterparty. The call options are supported by securities collateral received of $20.2 million at September 30, 2019, which is held in a separate custodial account. Subject to certain constraints, we are permitted to sell or re-pledge this collateral, but do not have legal rights to the collateral; accordingly, it has not been recorded on our balance sheet. At September 30, 2019, none of the collateral had been sold or re-pledged. As of September 30, 2019, our net derivative exposure was $4.1 million.

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3. Fair Values

Fair value is based on an exit price, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As not all financial instruments are actively traded, various valuation methods may be used to estimate fair value. These methods rely on observable market data, or, if observable market data is not available, the best information available. Significant judgment may be required to interpret the data and select the assumptions used in the valuation estimates, particularly when observable market data is not available.

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

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

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

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

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, a financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument. From time to time there may be movements between levels as inputs become more or less observable, which may depend on several factors including the activity of the market for the specific security, the activity of the market for similar securities, the level of risk spreads and the source from which we obtain the information. Transfers into or out of any level are measured as of the beginning of the period.

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

Fixed maturities:

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

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

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

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

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significant judgment. Increases in spreads used in our matrix models, or those used to value comparable companies, will result in a decrease in discounted cash flows used, and accordingly in the estimated fair value of the security.

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

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

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

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

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

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

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

Equity securities:

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

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

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

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

Other investments:

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

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Cash, cash equivalents and short-term investments:

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

Reinsurance recoverable:

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

Assets held in separate accounts:

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

Future policy benefits - indexed product embedded derivatives:

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

Other liabilities:

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

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Valuation of our Financial Instruments Measured on a Recurring Basis by Hierarchy Levels
	September 30, 2019
	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Fair Value
	(Dollars in thousands)
Assets
Fixed maturities:
Corporate securities	$	—	$	3,762,713	$	10,051	$	3,772,764
Residential mortgage-backed securities	—		659,745		16,254		675,999
Commercial mortgage-backed securities	—		1,048,157		11,297		1,059,454
Other asset-backed securities	—		685,430		5,755		691,185
United States Government and agencies	5,346		9,801		—		15,147
States and political subdivisions	—		1,515,265		—		1,515,265
Total fixed maturities	5,346		7,681,111		43,357		7,729,814
Non-redeemable preferred stocks	—		67,459		7,084		74,543
Common stocks (1)	16,461		—		—		16,461
Other investments	—		23,960		—		23,960
Cash, cash equivalents and short-term investments	35,750		—		—		35,750
Reinsurance recoverable	—		1,774		—		1,774
Assets held in separate accounts	612,338		—		—		612,338
Total assets	$	669,895	$	7,774,304	$	50,441	$	8,494,640
Liabilities
Future policy benefits - indexed product embedded derivatives	$	—	$	—	$	66,846	$	66,846
Other liabilities	—		284		—		284
Total liabilities	$	—	$	284	$	66,846	$	67,130

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Valuation of our Financial Instruments Measured on a Recurring Basis by Hierarchy Levels
	December 31, 2018
	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Fair Value
	(Dollars in thousands)
Assets
Fixed maturities:
Corporate securities	$	—	$	3,257,874	$	22,011	$	3,279,885
Residential mortgage-backed securities	—		606,860		—		606,860
Commercial mortgage-backed securities	—		810,626		67,940		878,566
Other asset-backed securities	—		703,969		3,601		707,570
United States Government and agencies	7,917		12,618		—		20,535
States and political subdivisions	—		1,539,629		—		1,539,629
Total fixed maturities	7,917		6,931,576		93,552		7,033,045
Non-redeemable preferred stocks	—		77,433		6,862		84,295
Common stocks (1)	5,261		—		—		5,261
Other investments	—		4,745		—		4,745
Cash, cash equivalents and short-term investments	34,748		—		—		34,748
Reinsurance recoverable	—		157		—		157
Assets held in separate accounts	561,281		—		—		561,281
Total assets	$	609,207	$	7,013,911	$	100,414	$	7,723,532
Liabilities
Future policy benefits - indexed product embedded derivatives	$	—	$	—	$	40,028	$	40,028
Other liabilities	—		780		—		780
Total liabilities	$	—	$	780	$	40,028	$	40,808

(1) A private equity fund with a fair value estimate of $6.7 million at September 30, 2019 and $3.3 million at December 31, 2018 using net asset value per share as a practical expedient, has not been classified in the fair value hierarchy above in accordance with fair value reporting guidance. This fund invests in senior secured middle market loans and had unfunded commitments totaling $3.4 million at September 30, 2019 and $6.8 million at December 31, 2018. The investment is not currently eligible for redemption.

Level 3 Assets by Valuation Source - Recurring Basis
	September 30, 2019
	Third-party vendors			Priced internally			Fair Value
	(Dollars in thousands)
Corporate securities	$	1,429		$	8,622		$	10,051
Residential mortgage-backed securities	16,254			—			16,254
Commercial mortgage-backed securities	11,297			—			11,297
Other asset-backed securities	4,000			1,755			5,755
Non-redeemable preferred stocks	—			7,084			7,084
Total assets	$	32,980		$	17,461		$	50,441
Percent of total	65.4		%	34.6		%	100.0		%

22

Level 3 Assets by Valuation Source - Recurring Basis
	December 31, 2018
	Third-party vendors			Priced internally			Fair Value
	(Dollars in thousands)
Corporate securities	$	1,940		$	20,071		$	22,011
Commercial mortgage-backed securities	67,940			—			67,940
Other asset-backed securities	—			3,601			3,601
Non-redeemable preferred stocks	—			6,862			6,862
Total assets	$	69,880		$	30,534		$	100,414
Percent of total	69.6		%	30.4		%	100.0		%

Quantitative Information about Level 3 Fair Value Measurements - Recurring Basis
	September 30, 2019
	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(Dollars in thousands)
Assets
Corporate securities	$	10,051	Discounted cash flow	Credit spread	0.51% - 5.50% (3.70%)
Other asset-backed securities	4,000		Discounted cash flow	Credit spread	1.10% - 2.28% (1.90%)
Commercial mortgage-backed securities	11,297		Discounted cash flow	Credit spread	1.30% - 2.45% (2.15%)
Residential mortgage-backed securities	16,254		Discounted cash flow	Credit spread	1.45% - 1.85% (1.62%)
Non-redeemable preferred stocks	7,084		Discounted cash flow	Credit spread	3.39% (3.39%)
Total assets	$	48,686
Liabilities
Future policy benefits - indexed product embedded derivatives	$	66,846	Discounted cash flow	Credit risk Risk margin	0.40% - 1.60% (1.00%) 0.15% - 0.40% (0.25%)

	December 31, 2018
	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(Dollars in thousands)
Assets
Corporate securities	$	19,178	Discounted cash flow	Credit spread	1.23% - 7.00% (4.01%)
Commercial mortgage-backed securities	55,866		Discounted cash flow	Credit spread	1.45% - 3.55% (2.58%)
Non-redeemable preferred stocks	6,862		Discounted cash flow	Credit spread	4.36% (4.36%)
Total assets	$	81,906
Liabilities
Future policy benefits - indexed product embedded derivatives	$	40,028	Discounted cash flow	Credit risk Risk margin	0.55% - 1.80% (1.05%) 0.15% - 0.40% (0.25%)

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

23

Level 3 Financial Instruments Changes in Fair Value - Recurring Basis
	September 30, 2019
								Realized and unrealized gains (losses), net
	Balance, December 31, 2018		Purchases		Disposals				Included in net income		Included in other compre-hensive income			Transfers into Level 3		Transfers out of Level 3 (1)			Amort-ization included in net income			Balance, September 30, 2019
	(Dollars in thousands)
Assets
Corporate securities	$	22,011	$	6,000	$	(3,172	)		$	—	$	465		$	—	$	(15,230	)	$	(23	)	$	10,051
Residential mortgage-backed securities	—		18,378		—				—		—			—		(2,124		)	—			16,254
Commercial mortgage-backed securities	67,940		2,984		(280		)		—		571			—		(59,918		)	—			11,297
Other asset-backed securities	3,601		20,710		(977		)		—		(869		)	—		(16,710		)	—			5,755
Non-redeemable preferred stocks	6,862		—		—				—		222			—		—			—			7,084
Total assets	$	100,414	$	48,072	$	(4,429	)		$	—	$	389		$	—	$	(93,982	)	$	(23	)	$	50,441
Liabilities
Future policy benefits - indexed product embedded derivatives	$	40,028	$	10,956	$	(4,848	)		$	20,710	$	—		$	—	$	—		$	—		$	66,846

	September 30, 2018
								Realized and unrealized gains (losses), net
	Balance, December 31, 2017		Purchases		Disposals				Included in net income		Included in other compre-hensive income			Transfers into Level 3		Transfers out of Level 3 (1)			Amort-ization included in net income			Balance, September 30, 2018
	(Dollars in thousands)
Assets
Corporate securities	$	33,600	$	—	$	(8,373	)		$	—	$	(878	)	$	7,082	$	(8,530	)	$	273		$	23,174
Residential mortgage-backed securities	9,124		27,818		—				—		—			—		(33,064		)	—			3,878
Commercial mortgage-backed securities	85,701		36,008		(659		)		—		(4,522		)	—		(39,990		)	(26		)	76,512
Other asset-backed securities	53,480		28,855		(2,622		)		—		(12		)	—		(67,347		)	—			12,354
Non-redeemable preferred stocks	7,407		—		—				—		(197		)	—		—			—			7,210
Total assets	$	189,312	$	92,681	$	(11,654	)		$	—	$	(5,609	)	$	7,082	$	(148,931	)	$	247		$	123,128
Liabilities
Future policy benefits - indexed product embedded derivatives	$	27,774	$	7,920	$	(3,919	)		$	10,242	$	—		$	—	$	—		$	—		$	42,017

(1) Transfers out of Level 3 include those assets that we are now able to obtain pricing from a third-party pricing vendor that uses observable inputs. The fair values of newly issued securities often require additional estimation until a market is created, which is generally within a few months after issuance. Once a market is created, as was the case for the majority of the security transfers out of the Level 3 category above, Level 2 valuation sources become available. There were no transfers between Level 1 and Level 2 during the periods presented above.

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

24

Valuation of our Financial Instruments Not Reported at Fair Value by Hierarchy Levels
	September 30, 2019
	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Fair Value		Carrying Value
	(Dollars in thousands)
Assets
Mortgage loans	$	—	$	—	$	1,054,511	$	1,054,511	$	1,002,839
Policy loans	—		—		261,036		261,036		200,354
Other investments	—		—		30,883		30,883		30,166
Total assets	$	—	$	—	$	1,346,430	$	1,346,430	$	1,233,359
Liabilities
Future policy benefits	$	—	$	—	$	4,376,693	$	4,376,693	$	4,235,037
Supplementary contracts without life contingencies	—		—		311,505		311,505		298,499
Advance premiums and other deposits	—		—		248,999		248,999		248,999
Short-term debt	—		—		16,000		16,000		16,000
Long-term debt	—		—		83,672		83,672		97,000
Liabilities related to separate accounts	—		—		611,085		611,085		612,338
Total liabilities	$	—	$	—	$	5,647,954	$	5,647,954	$	5,507,873

	December 31, 2018
	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Fair Value		Carrying Value
	(Dollars in thousands)
Assets
Mortgage loans	$	—	$	—	$	1,045,497	$	1,045,497	$	1,039,829
Policy loans	—		—		237,496		237,496		197,366
Other investments	—		—		30,087		30,087		29,020
Total assets	$	—	$	—	$	1,313,080	$	1,313,080	$	1,266,215
Liabilities
Future policy benefits	$	—	$	—	$	3,981,947	$	3,981,947	$	4,217,904
Supplementary contracts without life contingencies	—		—		298,869		298,869		303,627
Advance premiums and other deposits	—		—		252,318		252,318		252,318
Long-term debt	—		—		65,999		65,999		97,000
Liabilities related to separate accounts	—		—		559,799		559,799		561,281
Total liabilities	$	—	$	—	$	5,158,932	$	5,158,932	$	5,432,130

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

Certain assets are measured at fair value on a nonrecurring basis, generally mortgage loans or real estate that have been deemed to be impaired during the reporting period. There were no mortgage loans or real estate impaired to fair value during the nine months ended September 30, 2019 or September 30, 2018.

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4. Defined Benefit Plan

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

Components of Net Periodic Pension Cost for FBL and Affiliates Combined - Multiemployer Plan
	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
	(Dollars in thousands)
Service cost	$	1,138		$	1,494		$	3,412		$	4,480
Interest cost	3,318			3,411			9,955			10,232
Expected return on assets	(4,707		)	(5,562		)	(14,121		)	(16,686		)
Amortization of prior service cost	—			11			—			34
Amortization of actuarial loss	2,228			3,126			6,685			9,380
Net periodic pension cost	$	1,977		$	2,480		$	5,931		$	7,440
FBL Financial Group, Inc. share of net periodic pension costs	$	634		$	760		$	1,900		$	2,280

Components of Net Periodic Pension Cost for FBL and Affiliates Combined - Other Plans
	Three months ended September 30,				Nine months ended September 30,
	2019		2018		2019		2018
	(Dollars in thousands)
Service cost	$	117	$	135	$	350	$	404
Interest cost	248		240		744		719
Amortization of actuarial loss	267		338		800		1,015
Net periodic pension cost	$	632	$	713	$	1,894	$	2,138
FBL Financial Group, Inc. share of net periodic pension costs	$	362	$	418	$	1,087	$	1,253

5. Credit Arrangements

Short-term debt totaling $16.0 million as of September 30, 2019 consists of two short-term advances, collateralized by fixed maturity securities, payable to Federal Home Loan Bank of Des Moines (FHLB). The advances included a $10.0 million advance on September 26, 2019 that was paid off on October 1, 2019 with a weighted average interest rate of 2.09%, and a $6.0 million advance on September 30, 2019 that was paid off on October 2, 2019 with a weighted average interest rate of 2.05%

6. Commitments and Contingencies

Legal Proceedings

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

26

Lease Commitments

As discussed in Note 1 to our consolidated financial statements, we adopted new accounting guidance for leases during 2019. Upon adoption, we elected to follow the following practical expedients as allowed under the new guidance:

• We did not reassess whether any expired or existing contracts are or contain leases.

• We did not reassess the lease classification (operating vs. finance) for any expired or existing leases.

• We did not reassess initial direct costs for any existing leases.

We consider leases with original terms of one year or less to be short-term. We have elected not to carry short-term leases on our consolidated balance sheet. We have no agreements with lease and non-lease components. None of our leases are considered finance leases.

On the date of adoption, January 1, 2019, we held four long-term leases and currently hold six long-term leases, all of which relate to real estate. The net present value of future cash flows for these leases is reported within our consolidated balance sheet in other assets and other liabilities. The carrying value of these leases total $14.4 million at September 30, 2019 and $7.2 million on the date of adoption. The most significant lease is for our home office facilities, which is owned by a subsidiary of our majority owner, the Iowa Farm Bureau Federation. The carrying value of this lease increased from $6.1 million on January 1, 2019 to $13.6 million on September 30, 2019 because we have reasonable assurance of exercising the five-year renewal of the lease term due to substantial leasehold improvements underway on this property. All of our leases are based on fixed terms which expire from 2021 through 2026, but allow renewal. Two of our leases, not including the home office property, contain provisions that allow the lease cost to increase based on a stated step-up schedule or changes in the consumer price index. Our estimated incremental borrowing rate of 4.5% was used in determining the net present value of the future leases commitments.

Total lease expense was $1.4 million for the quarter and $4.1 million for the nine months ended September 30, 2019.

Future remaining minimum lease payments for the long-term leases discussed above, as of September 30, 2019, are as follows:

Lease commitments by year
	September 30, 2019
	(Dollars in thousands)
2019	$	651
2020	2,626
2021	2,628
2022	2,462
2023	2,297
Thereafter	6,641
Total minimum lease payments	17,305
Less: Interest	(2,893		)
Present value of lease liabilities	$	14,412

Commitments for Partnership Investments and Private Corporate Bond Investments

At September 30, 2019, we have unfunded investment commitments to limited partnerships and limited liability companies of $60.6 million and privately placed corporate securities commitments of $11.0 million.

27

7. Stockholders’ Equity

Share Repurchases

We periodically repurchase our Class A common stock under programs approved by our Board of Directors. These repurchase programs authorize us to make repurchases in the open market or through privately negotiated transactions, with the timing and terms of the purchases to be determined by management based on market conditions. Under these programs, we repurchased 66,475 shares for $4.6 million during the nine months ended September 30, 2019 and 129,011 shares for $8.8 million during the nine months ended September 30, 2018. Completion of the current program is dependent on market conditions and other factors. There is no guarantee as to the exact timing of any repurchases or the number of shares that we will repurchase. The share repurchase program may be modified or terminated at any time without prior notice. At September 30, 2019, $36.3 million remains available for repurchase under the active repurchase program.

Dividends
	Three months ended September 30,				Nine months ended September 30,
	2019		2018		2019		2018
Class A and B common stock:
Cash dividends per common share	$	0.48	$	0.46	$	1.44	$	1.38
Special cash dividend per common share	—		—		1.50		1.50
Total common stock dividends per share	$	0.48	$	0.46	$	2.94	$	2.88
Series B preferred stock dividends per share	$	0.0075	$	0.0075	$	0.0225	$	0.0225

Special cash dividends paid to our Class A and Class B common shareholders totaled $37.0 million for the nine months ended September 30, 2019 and $37.3 million for the nine months ended September 30, 2018.

Reconciliation of Outstanding Common Stock
	Class A					Class B			Total
	Shares		Dollars			Shares	Dollars		Shares		Dollars
	(Dollars in thousands)
Outstanding at January 1, 2018	24,919,113		$	153,589		11,413	$	72	24,930,526		$	153,661
Stock-based compensation	16,694		366			—	—		16,694		366
Purchase of common stock	(129,011	)	(795		)	—	—		(129,011	)	(795		)
Outstanding at September 30, 2018	24,806,796		$	153,160		11,413	$	72	24,818,209		$	153,232
Outstanding at January 1, 2019	24,707,402		$	152,652		11,413	$	72	24,718,815		$	152,724
Stock-based compensation	9,968		324			—	—		9,968		324
Purchase of common stock	(66,475	)	(410		)	—	—		(66,475	)	(410		)
Outstanding at September 30, 2019	24,650,895		$	152,566		11,413	$	72	24,662,308		$	152,638

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Accumulated Other Comprehensive Income, Net of Tax and Other Offsets
	Unrealized Net Investment Gains (Losses) on Available-for-Sale Securities (1)			Accumulated Non-Credit Impairment Losses (1)			Underfunded Status of Postretirement Benefit Plans			Total
	(Dollars in thousands)
Balance at January 1, 2018	$	295,169		$	537		$	(10,723	)	$	284,983
Cumulative effect of change in accounting principle related to net unrealized gains on equity securities (2)	(5,480		)	—			—			(5,480		)
Other comprehensive income (loss) before reclassifications	(192,832		)	2,932			—			(189,900		)
Reclassification adjustments	(1,439		)	—			797			(642		)
Balance at September 30, 2018	$	95,418		$	3,469		$	(9,926	)	$	88,961
Balance at January 1, 2019	$	96,921		$	3,133		$	(8,736	)	$	91,318
Other comprehensive income (loss) before reclassifications	317,677			(972		)	—			316,705
Reclassification adjustments	(2,477		)	—			629			(1,848		)
Balance at September 30, 2019	$	412,121		$	2,161		$	(8,107	)	$	406,175

(1) Includes the impact of taxes, deferred acquisition costs, value of insurance in force acquired, unearned revenue reserves and policyholder liabilities. See Note 2 to our consolidated financial statements for further information.

(2) See Note 1 to our consolidated financial statements for further discussion on this one-time adjustment related to an accounting change.

Accumulated Other Comprehensive Income Reclassification Adjustments
	Nine months ended September 30, 2019
	Unrealized Net Investment Gains (Losses) on Available-for-Sale Securities (1)			Accumulated Non-Credit Impairment Losses (1)		Underfunded Status of Postretirement Benefit Plans			Total
	(Dollars in thousands)
Realized capital gains on sales of fixed maturities	$	(3,367	)	$	—	$	—		$	(3,367	)
Adjustments for assumed changes in deferred acquisition costs, value of insurance in force acquired, unearned revenue reserve and policyholder liabilities	232			—		—			232
Other expenses - change in unrecognized postretirement items:
Net actuarial loss	—			—		797			797
Reclassifications before income taxes	(3,135		)	—		797			(2,338		)
Income taxes	658			—		(168		)	490
Reclassification adjustments	$	(2,477	)	$	—	$	629		$	(1,848	)

29

Accumulated Other Comprehensive Income Reclassification Adjustments
	Nine months ended September 30, 2018
	Unrealized Net Investment Gains (Losses) on Available-for-Sale Securities (1)			Accumulated Non-Credit Impairment Losses (1)		Underfunded Status of Postretirement Benefit Plans			Total
	(Dollars in thousands)
Realized capital gains on sales of fixed maturities	$	(1,819	)	$	—	$	—		$	(1,819	)
Adjustments for assumed changes in deferred acquisition costs, value of insurance in force acquired, unearned revenue reserve and policyholder liabilities	(3		)	—		—			(3		)
Other expenses - change in unrecognized postretirement items:
Net actuarial loss	—			—		1,009			1,009
Reclassifications before income taxes	(1,822		)	—		1,009			(813		)
Income taxes	383			—		(212		)	171
Reclassification adjustments	$	(1,439	)	$	—	$	797		$	(642	)

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

8. Earnings per Share

Computation of Earnings per Common Share

	Three months ended September 30,				Nine months ended September 30,
	2019		2018		2019		2018
	(Dollars in thousands, except per share data)
Numerator:
Net income attributable to FBL Financial Group, Inc.	$	25,129	$	31,010	$	91,470	$	87,378
Less: Dividends on Series B preferred stock	37		37		112		112
Income available to common stockholders	$	25,092	$	30,973	$	91,358	$	87,266
Denominator:
Weighted average shares - basic	24,758,639		24,918,725		24,760,311		24,946,752
Effect of dilutive securities - stock-based compensation	10,035		11,076		10,773		13,317
Weighted average shares - diluted	24,768,674		24,929,801		24,771,084		24,960,069
Earnings per common share	$	1.01	$	1.24	$	3.69	$	3.50
Earnings per common share - assuming dilution	$	1.01	$	1.24	$	3.69	$	3.50

There were no antidilutive stock options outstanding in any of the periods presented.

30

9. Segment Information

We analyze operations by reviewing financial information regarding our primary products that are aggregated into the Annuity and Life Insurance product segments. In addition, our Corporate and Other segment includes various support operations, corporate capital and other product lines that are not currently underwritten by the Company.

Our chief operating decision makers use pre-tax adjusted operating income to evaluate segment performance and allocate resources. Pre-tax adjusted operating income is not a measure used in financial statements prepared in accordance with GAAP, but is a common life insurance industry measure of performance.

Pre-tax adjusted operating income consists of pre-tax net income adjusted to exclude realized gains and losses on investments and the change in fair value of derivatives and equity securities, which can fluctuate greatly from period to period. These fluctuations make it difficult to analyze core operating trends. In addition, for derivatives not designated as hedges, there is a mismatch between the valuation of the asset and liability when deriving net income (loss). Specifically, call options relating to our indexed annuity business are one-year assets while the embedded derivatives in the indexed contracts represent the rights of the contract holder to receive index credits over the entire period the indexed products are expected to be in force. Adjustments to pre-tax net income are net of amortization of unearned revenue reserves, deferred acquisition costs and value of insurance in force acquired, as well as changes in interest sensitive product reserves. While not applicable for the periods reported herein, in determining pre-tax adjusted operating income we will also remove the impact of: settlements or judgments arising from lawsuits, net of any recoveries from third parties; the cumulative effect of changes in accounting principles and discontinued operations.

Segment results are reported net of inter-segment transactions.

Financial Information Concerning our Operating Segments
	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
	(Dollars in thousands)
Pre-tax adjusted operating income:
Annuity	$	8,121		$	18,179		$	38,420		$	50,759
Life Insurance	14,032			11,958			42,363			39,236
Corporate and Other	4,939			7,999			13,853			16,966
Total pre-tax adjusted operating income	27,092			38,136			94,636			106,961
Adjustments to pre-tax adjusted operating income:
Net realized gains/losses on investments (1)	557			(764		)	10,075			(2,700		)
Change in fair value of derivatives (1)	(666		)	(1,109		)	832			(1,507		)
Pre-tax net income attributable to FBL Financial Group, Inc.	26,983			36,263			105,543			102,754
Income tax expense	(1,642		)	(4,818		)	(13,429		)	(14,462		)
Tax on equity income	(212		)	(435		)	(644		)	(914		)
Net income attributable to FBL Financial Group, Inc.	$	25,129		$	31,010		$	91,470		$	87,378
Adjusted operating revenues:
Annuity	$	51,241		$	55,424		$	158,186		$	169,274
Life Insurance	104,595			106,546			322,791			323,854
Corporate and Other	23,233			22,779			69,915			70,759
	179,069			184,749			550,892			563,887
Net realized gains/losses on investments (1)	647			(758		)	10,313			(2,885		)
Change in fair value of derivatives (1)	4,942			4,120			19,915			(12		)
Consolidated revenues	$	184,658		$	188,111		$	581,120		$	560,990

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

31

Interest expense is attributable to the Corporate and Other segment. Expenditures for long-lived assets were not significant during the periods presented above. Goodwill at September 30, 2019 and December 31, 2018 was allocated among the segments as follows: Annuity ($3.9 million) and Life Insurance ($6.1 million).

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

Equity Income by Operating Segment
	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
	(Dollars in thousands)
Pre-tax equity income:
Life Insurance	$	821		$	860		$	2,199		$	2,847
Corporate and Other	190			1,217			868			1,508
	1,011			2,077			3,067			4,355
Income taxes	(212		)	(435		)	(644		)	(914		)
Equity income, net of related income taxes	$	799		$	1,642		$	2,423		$	3,441

Premiums collected, which is not a measure used in financial statements prepared according to GAAP, includes premiums received on life insurance policies and deposits on annuities and universal life-type products. Premiums collected is a common life insurance industry measure of agent productivity. Net premiums collected totaled $142.1 million for the quarter ended September 30, 2019 and $141.7 million for the same period in 2018. Net premiums collected totaled $455.1 million for the nine months ended September 30, 2019 and $482.7 million for the same period in 2018.

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

Reconciliation of Traditional Life Insurance Premiums, Net of Reinsurance
	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
	(Dollars in thousands)
Traditional and universal life insurance premiums collected	$	75,043		$	73,867		$	232,442		$	228,030
Premiums collected on interest sensitive products	(27,488		)	(25,507		)	(85,384		)	(79,938		)
Traditional life insurance premiums collected	47,555			48,360			147,058			148,092
Change in due premiums and other	(573		)	(236		)	303			620
Traditional life insurance premiums as included in the Consolidated Statements of Operations	$	46,982		$	48,124		$	147,361		$	148,712

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

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Interest Sensitive Product Charges by Segment
	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019		2018
	(Dollars in thousands)
Annuity
Rider and other product charges	$	1,248		$	941		$	3,881	$	2,727
Surrender charges	360			339			1,066		972
Total	1,608			1,280			4,947		3,699
Life Insurance
Administration charges	4,570			4,100			14,163		12,340
Cost of insurance charges	13,415			13,160			38,861		38,378
Surrender charges	698			497			2,037		1,746
Amortization of policy initiation fees	480			1,119			2,725		3,550
Total	19,163			18,876			57,786		56,014
Corporate and Other
Administration charges	1,118			1,185			3,586		3,826
Cost of insurance charges	6,952			7,698			21,338		22,033
Surrender charges	17			15			78		58
Separate account charges	2,115			2,155			6,067		6,465
Amortization of policy initiation fees	206			(559		)	458		235
Total	10,408			10,494			31,527		32,617
Impact of net realized gains/losses on investments and change in fair value of derivatives on amortization of unearned revenue reserves	(44		)	511			675		(165		)
Interest sensitive product charges as included in the Consolidated Statements of Operations	$	31,135		$	31,161		$	94,935	$	92,165

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

This section includes a summary of FBL Financial Group, Inc.’s consolidated results of operations, financial condition and where appropriate, factors that management believes may affect future performance. Unless noted otherwise, all references to FBL Financial Group, Inc. (we or the Company) include all of its direct and indirect subsidiaries, including insurance subsidiaries Farm Bureau Life Insurance Company (Farm Bureau Life) and Greenfields Life Insurance Company (Greenfields Life). Please read this discussion in conjunction with the accompanying consolidated financial statements and related notes. In addition, we encourage you to refer to our Form 10-K for the year ended December 31, 2018 for a complete description of our significant accounting policies and estimates. Familiarity with this information is important in understanding our financial position and results of operations.

This Form 10-Q 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. See Part 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2018 for additional information on the risks and uncertainties that may affect the operations, performance, development and results of our business.

Overview

We operate predominantly in the life insurance industry through our principal subsidiary, Farm Bureau Life. Farm Bureau Life markets individual life insurance policies and annuity contracts to Farm Bureau members and other individuals and businesses in the Midwestern and Western sections of the United States through an exclusive agency force. Several subsidiaries support various functional areas of Farm Bureau Life and other affiliates by providing investment advisory, marketing and distribution, and leasing services. In addition, we manage two Farm Bureau-affiliated property-casualty companies.

We analyze operations by reviewing financial information regarding our primary products that are aggregated in Annuity and Life Insurance product segments. In addition, our Corporate and Other segment includes various support operations, corporate capital and other product lines that are not currently underwritten by the Company. We analyze our segment results based on pre-tax adjusted operating income, which excludes the impact of certain items that are included in pre-tax net income. Pre-tax adjusted operating income is a basis allowed for segment reporting under U.S. generally accounting principles (GAAP). We also analyze operations using adjusted operating income on a post-tax basis, which excludes the initial impact from changes in tax laws. Adjusted operating income on a post-tax basis is not a measure used in financial statements prepared in accordance with GAAP, but is a common life insurance industry measure of performance. We have included a reconciliation to the comparable GAAP measure herein. See Note 9 to our consolidated financial statements for further information regarding how we define our segments and pre-tax adjusted operating income.

We also include within our analysis “premiums collected,” which is not a measure used in financial statements prepared in accordance with GAAP, but is a common life insurance industry measure of agent productivity. See Note 9 to our consolidated financial statements for further information regarding this measure and its relationship to GAAP revenues.

Impact of Recent Business Environment

Our business generally benefits from moderate to strong economic expansion. Conversely, a lackluster economy characterized by higher unemployment, lower family income, lower consumer spending, muted corporate earnings growth and lower business investment could adversely impact the demand for our products in the future. We also may experience a higher incidence of claims, lapses or surrenders of policies during such times. We cannot predict whether or when such actions may occur, or what impact, if any, such actions could have on our business, results of operations, cash flows or financial condition.

Economic and other environmental factors that may impact our business include, but are not limited to, the following:

• The U.S. 10-year Treasury yield decreased during 2019 to 1.68% at September 30, 2019 from 2.69% at December 31, 2018.

• Gross Domestic Product increased at an annual rate of 1.9% during the third quarter of 2019 based on recent estimates.

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• U.S. unemployment was estimated to be 3.5% at the end of the third quarter of 2019.

• U.S. net farm income is forecast to increase 4.8% in 2019 and farm real estate value is estimated to increase 1.9% during 2019 according to recent U.S. Department of Agriculture estimates. It is uncertain how or if the new tariffs will impact these estimates.

• The long-term impact of the enactment of the Tax Cuts and Jobs Act of 2017 on the general U.S. economy, business initiatives and consumer demand for our insurance products.

• The Securities and Exchange Commission recently adopted regulations impacting certain securities products and services. See Part II, Item 1A for further information.

The interest rate environment continues to impact our investment yields as well as the interest we credit on our interest sensitive products. The 10-year U.S. Treasury yield trended lower in the third quarter and finished at 1.68%, 101 basis points lower than year-end 2018. We experienced an increase in the fair value of our fixed maturity security portfolio during the third quarter of 2019 primarily due to a decrease in market yields. Average corporate credit spreads tightened during the third quarter of 2019 by approximately 4 basis points as yields remain historically low. Low crediting rates pose challenges to maintaining attractive annuity and universal life products, although our rates are comparable to other insurance companies, allowing us to maintain our competitive position within the market. See the segment discussion and “Financial Condition” section that follows for additional information regarding the impact of low market interest rates on our business.

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Results of Operations for the Periods Ended September 30, 2019 and 2018

	Three months ended September 30,								Nine months ended September 30,
	2019			2018			Change		2019			2018			Change
	(Dollars in thousands, except per share data)
Net income attributable to FBL Financial Group, Inc.	$	25,129		$	31,010		(19	)%	$	91,470		$	87,378		5	%
Net income adjustments:
Initial impact of the Tax Act (1)	—			(617		)	N/A		—			(617		)	N/A
Net realized gains/losses on investments (2)	(440		)	603			(173	)%	(7,960		)	2,132			(473	)%
Change in fair value of derivatives (2)	526			876			(40	)%	(657		)	1,191			(155	)%
Adjusted operating income (3)	$	25,215		$	31,872		(21	)%	$	82,853		$	90,084		(8	)%
Pre-tax adjusted operating income:
Annuity segment	$	8,121		$	18,179		(55	)%	$	38,420		$	50,759		(24	)%
Life Insurance segment	14,032			11,958			17	%	42,363			39,236			8	%
Corporate and Other segment	4,939			7,999			(38	)%	13,853			16,966			(18	)%
Total pre-tax adjusted operating income	27,092			38,136			(29	)%	94,636			106,961			(12	)%
Income taxes on adjusted operating income	(1,877		)	(6,264		)	(70	)%	(11,783		)	(16,877		)	(30	)%
Adjusted operating income (3)	$	25,215		$	31,872		(21	)%	$	82,853		$	90,084		(8	)%
Earnings per common share - assuming dilution	$	1.01		$	1.24		(19	)%	$	3.69		$	3.50		5	%
Adjusted operating income per common share - assuming dilution (3)	1.02			1.28			(20	)%	3.34			3.60			(7	)%
Effective tax rate on adjusted operating income	7		%	16		%			12		%	16		%
Average invested assets, at amortized cost (4)									$	8,323,273		$	8,252,013		1	%
Annualized yield on average invested assets (4)									4.97		%	5.16		%
Impact on adjusted operating income of unlocking deferred acquisition costs, deferred sales inducements, unearned revenue reserve and interest sensitive product reserves, net of tax	$	(2,109	)	$	(227	)	829	%	$	(2,109	)	$	(227	)	829	%

(1) Amount represents a change in our deferred tax assets and liabilities due to the initial impact of the enactment of the Tax Cuts and Jobs Act of 2017 (Tax Act). See Note 5 to our consolidated financial statements in our Form 10-K for the year ended December 31, 2018 for additional information on the Tax Act.

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

(3) Adjusted operating income is a non-GAAP measure of earnings, see the Overview section above for additional information.

(4) Average invested assets and annualized yield, including investments held as securities and indebtedness of related parties.

Net income and adjusted operating income decreased in the third quarter of 2019, compared to the prior year period, primarily due to less spread income earned from lower yields on invested assets, the impact of unlocking actuarial assumptions and increased expenses, partially offset by lower income taxes due to the execution of a non-recurring tax planning strategy. Net income in the third quarter of 2019, compared to the prior year period, benefitted from an increase in net realized gains on investments. Net income and adjusted operating income for the nine month period, compared to the prior year period, were negatively impacted by less spread income earned from lower yields on invested assets, less other investment-related income,

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increased expenses and the impact of unlocking actuarial assumptions, partially offset by a decrease in the amortization of deferred acquisition costs from the impact of market performance variable business and less income taxes due to the execution of a non-recurring tax planning strategy. Net income increased in the nine months ended September 30, 2019, compared to the prior year period, primarily due to net realized gains from investments and changes in the fair value of derivatives. See the discussion that follows for details regarding pre-tax adjusted operating income by segment.

We periodically revise key assumptions used in the calculation of the amortization of deferred acquisition costs, value of insurance in force acquired, deferred sales inducements, unearned revenue reserve for participating life insurance and interest sensitive products, as well as certain reserves on interest sensitive products, as applicable, through an “unlocking” process. These assumptions typically consist of withdrawal and lapse rates, earned spreads and mortality with revisions based on historical results and our best estimate of future experience. The impact of unlocking is recorded in the current period as an increase or decrease to amortization of the respective balances. While the unlocking process can take place at any time, as needs dictate, the process typically takes place annually. See the discussion that follows for further details of the unlocking impact to our operating segments.

Annuity Segment
	Three months ended September 30,						Nine months ended September 30,
	2019		2018		Change		2019		2018		Change
	(Dollars in thousands)
Adjusted operating revenues:
Interest sensitive product charges	$	1,608	$	1,280	26	%	$	4,947	$	3,699	34	%
Net investment income	49,633		54,144		(8	)%	153,239		165,575		(7	)%
Total adjusted operating revenues	51,241		55,424		(8	)%	158,186		169,274		(7	)%
Adjusted operating benefits and expenses:
Interest sensitive product benefits	28,585		29,037		(2	)%	87,105		91,716		(5	)%
Underwriting, acquisition and insurance expenses:
Commissions net of deferrals	405		374		8	%	1,401		1,396		—	%
Amortization of deferred acquisition costs	8,015		2,319		246	%	13,611		8,454		61	%
Amortization of value of insurance in force	164		165		(1	)%	490		509		(4	)%
Other underwriting expenses	5,951		5,350		11	%	17,159		16,440		4	%
Total underwriting, acquisition and insurance expenses	14,535		8,208		77	%	32,661		26,799		22	%
Total adjusted operating benefits and expenses	43,120		37,245		16	%	119,766		118,515		1	%
Pre-tax adjusted operating income	$	8,121	$	18,179	(55	)%	$	38,420	$	50,759	(24	)%

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Annuity Segment - continued
	Three months ended September 30,						Nine months ended September 30,
	2019		2018		Change		2019			2018			Change
	(Dollars in thousands)						(Dollars in thousands)
Other data
Annuity premiums collected, direct (1)	$	56,076	$	56,333	—	%	$	185,234		$	214,981		(14	)%
Policy liabilities and accruals, end of period							4,392,884			4,441,277			(1	)%
Average invested assets, at amortized cost							4,489,981			4,533,009			(1	)%
Other investment-related income included in net investment income (2)	699		854		(18	)%	2,245			4,744			(53	)%
Average individual annuity account value							3,173,145			3,124,364			2	%
Earned spread on individual annuity products:
Weighted average yield on cash and invested assets							4.72		%	4.91		%
Weighted average crediting rate							2.57		%	2.50		%
Spread							2.15		%	2.41		%
Individual annuity withdrawal rate							5.7		%	5.3		%

(1) Premiums collected is a non-GAAP measure of sales production, see Note 9 to our consolidated financial statements for additional information.

(2) Includes prepayment fee income and adjustments to the amortization of premium or discounts from changes in our payment speed assumptions.

Pre-tax adjusted operating income for the Annuity segment decreased in the third quarter of 2019 and the nine months ended September 30, 2019, compared to the prior year periods, primarily due to the impact of unlocking actuarial assumptions and reduced spread income earned primarily from lower yields on invested assets. The nine-month period, compared to the prior year period, was also impacted by lower other investment-related income.

The average aggregate account value for individual annuity contracts in force increased in the nine months ended September 30, 2019, compared to the prior year period, due to continued sales and the crediting of interest. Premiums collected were lower in the third quarter of 2019 and the nine months ended September 30, 2019, compared to the prior year periods, due to decreased sales of fixed rate deferred annuity products. Premiums collected for the nine-month period were also lower, compared to the prior period, due to decreased sales of indexed annuity products. Individual fixed rate deferred annuity collected premiums were $25.0 million in the third quarter of 2019 and $94.7 million in the nine months ended September 30, 2019, compared to $26.0 million in the third quarter of 2018 and $103.4 million in the nine months ended September 30, 2018. Indexed annuity collected premiums were $30.3 million in the third quarter of 2019 and $87.0 million in the nine months ended September 30, 2019, compared to $29.2 million in the third quarter of 2018 and $104.3 million in the nine months ended September 30, 2018. Outstanding funding agreements with FHLB totaled $448.8 million at September 30, 2019 and $457.5 million at September 30, 2018.

Interest sensitive product charges increased for the quarter and nine-month periods ending September 30, 2019, compared to the prior year periods, primarily due to growth in our indexed annuity business in force resulting from the introduction of a flexible premium indexed annuity product in the third quarter of 2017.

Amortization of deferred acquisition costs increased during the third quarter of 2019 and nine months ended September 30, 2019, compared to the prior year periods, due to unlocking actuarial assumptions and changes in actual and expected spreads earned on the underlying business. Unlocking generally reflects changes in our projected earned spreads, policy lapses and mortality assumptions. The impact of unlocking on pre-tax operating income for the quarter and nine months ended September 30, 2019 and 2018 was as follows:

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Impact of Unlocking on Pre-tax Adjusted Operating Income
	Three months ended September 30,					Nine months ended September 30,
	2019			2018		2019			2018
	(Dollars in thousands)
Amortization of deferred sales inducements reported in interest sensitive product benefits	$	(195	)	$	13	$	(195	)	$	13
Amortization of deferred acquisition costs	(4,668		)	236		(4,668		)	236
Increase (decrease) to pre-tax adjusted operating income	$	(4,863	)	$	249	$	(4,863	)	$	249

Additional expenses associated with system enhancements contributed to increases in other underwriting expense in the quarter and nine months ended September 30, 2019, compared to the prior year periods

The weighted average yield on cash and invested assets for individual annuities decreased in the nine months ended September 30, 2019, compared to the prior year period, primarily due to less other investment-related income and lower yields on new investment acquisitions from premium receipts and reinvestment of the proceeds from maturing investments, compared with the average existing portfolio yield. See the “Financial Condition” section for additional information regarding the yields obtained on investment acquisitions. Weighted average crediting rates on our individual annuity products increased due to increased amortization on our call options supporting our indexed annuity products.

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Life Insurance Segment
	Three months ended September 30,							Nine months ended September 30,
	2019			2018		Change		2019		2018		Change
	(Dollars in thousands)
Adjusted operating revenues:
Interest sensitive product charges and other income	$	19,032		$	18,768	1	%	$	57,404	$	55,474	3	%
Traditional life insurance premiums	46,982			48,124		(2	)%	147,361		148,712		(1	)%
Net investment income	38,581			39,654		(3	)%	118,026		119,668		(1	)%
Total adjusted operating revenues	104,595			106,546		(2	)%	322,791		323,854		—	%
Adjusted operating benefits and expenses:
Interest sensitive product benefits:
Interest and index credits	8,326			8,697		(4	)%	25,395		26,183		(3	)%
Death benefits and other	17,198			18,475		(7	)%	45,556		48,425		(6	)%
Total interest sensitive product benefits	25,524			27,172		(6	)%	70,951		74,608		(5	)%
Traditional life insurance benefits:
Death benefits	25,233			21,888		15	%	70,226		64,920		8	%
Surrender and other benefits	9,435			8,110		16	%	29,250		28,646		2	%
Increase in traditional life future policy benefits	8,206			14,170		(42	)%	32,031		39,770		(19	)%
Total traditional life insurance benefits	42,874			44,168		(3	)%	131,507		133,336		(1	)%
Distributions to participating policyholders	2,441			2,480		(2	)%	7,539		7,591		(1	)%
Underwriting, acquisition and insurance expenses:
Commission expense, net of deferrals	4,487			4,200		7	%	14,305		13,838		3	%
Amortization of deferred acquisition costs	(592		)	2,148		(128	)%	8,551		11,082		(23	)%
Amortization of value of insurance in force	372			373		—	%	1,116		1,119		—	%
Other underwriting expenses	16,278			14,907		9	%	48,658		45,891		6	%
Total underwriting, acquisition and insurance expenses	20,545			21,628		(5	)%	72,630		71,930		1	%
Total adjusted operating benefits and expenses	91,384			95,448		(4	)%	282,627		287,465		(2	)%
	13,211			11,098		19	%	40,164		36,389		10	%
Equity income, before tax	821			860		(5	)%	2,199		2,847		(23	)%
Pre-tax adjusted operating income	$	14,032		$	11,958	17	%	$	42,363	$	39,236	8	%

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Life Insurance Segment - continued
	Three months ended September 30,						Nine months ended September 30,
	2019		2018		Change		2019			2018			Change
	(Dollars in thousands)
Other data
Life premiums collected, net of reinsurance (1)	$	75,043	$	73,867	2	%	$	232,442		$	228,030		2	%
Policy liabilities and accruals, end of period							3,057,183			2,975,533			3	%
Life insurance in force, end of period							61,025,460			59,373,168			3	%
Average invested assets, at amortized cost (2)							3,132,734			3,016,565			4	%
Other investment-related income included in net investment income (3)	70		353		(80	)%	1,353			2,225			(39	)%
Average interest sensitive life account value							874,574			850,390			3	%
Interest sensitive life insurance spread:
Weighted average yield on cash and invested assets (2)							5.25		%	5.36		%
Weighted average crediting rate							3.77		%	3.63		%
Spread							1.48		%	1.73		%
Life insurance lapse and surrender rates							4.6		%	4.5		%
Death benefits, net of reinsurance and reserves released	$25,846		$24,050		7	%	$	72,385		$	72,913		(1	)%

(1) Premiums collected is a non-GAAP measure of sales production, see Note 9 to our consolidated financial statements for additional information.

(2) Average invested assets and weighted average yield including investments held as securities and indebtedness of related parties.

(3) Includes prepayment fee income and adjustments to the amortization of premium or discounts from changes in our payment speed assumptions.

Pre-tax adjusted operating income for the Life Insurance segment increased in the third quarter of 2019 and the nine months ended September 30, 2019, compared to the prior year periods, primarily due to the impact of an increase in the volume of business in force and the impact of unlocking actuarial assumptions, partially offset by increases in expenses. The three-month period, compared to the prior year period, was also impacted by an increase in death benefits, net of reinsurance and reserves released.

Amortization of deferred acquisition costs decreased during the third quarter of 2019 and the nine months ended September 30, 2019, compared to the prior year periods, due to unlocking actuarial assumptions and changes in actual and expected profits on the underlying business. Reserves held on certain interest sensitive products were also impacted by unlocking. Unlocking generally reflects changes in our projected earned spreads, policy lapses, premium persistency and mortality assumptions. The impact of unlocking on pre-tax operating income for the quarter and nine months ended September 30, 2019 and 2018 was as follows:

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Impact of Unlocking on Pre-tax Adjusted Operating Income
	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
	(Dollars in thousands)
Amortization of unearned revenue reserve reported in interest sensitive product charges and other income	$	(386	)	$	420		$	(386	)	$	420
Amortization of deferred sales inducements reported in interest sensitive product benefits	45			(209		)	45			(209		)
Amortization of deferred sales inducements reported in traditional life insurance benefits	69			65			69			65
Amortization of deferred acquisition costs	3,728			2,152			3,728			2,152
Changes in reserves reported in interest sensitive product benefits	(1,062		)	(4,755		)	(1,062		)	(4,755		)
Increase (decrease) to pre-tax adjusted operating income	$	2,394		$	(2,327	)	$	2,394		$	(2,327	)

Death benefits, net of reinsurance and reserves released, increased in the third quarter of 2019, compared to the prior year period, primarily due to an increase in the number of claims. The decrease in death benefits, net of reinsurance and reserves released, in the nine-month period, compared to the prior year period, was due to a decrease in the number of claims.

Additional expenses associated with system enhancements contributed to increases in other underwriting expense in the quarter and nine months ended September 30, 2019, compared to the prior year periods.

We assign a portion of our investments held in securities and indebtedness of related parties to the Life Insurance segment. These investments include equity interests in limited liability partnerships and corporations, accounted for under the equity method of accounting. Equity income, before tax, consists of our proportionate share of gains and losses attributable to our relative ownership interest in these investments. See the Equity Income discussion that follows, and Note 9 to our consolidated financial statements, for additional information regarding these investments.

The weighted average yield on cash and invested assets for interest sensitive life insurance products decreased in the nine months ended September 30, 2019, compared to the prior year period, due to lower yields on new investment acquisitions from premium receipts and reinvestment of the proceeds from maturing investments, partially offset by an increase in other investment-related income. See the “Financial Condition” section for additional information regarding the yields obtained on investment acquisitions. Weighted average crediting rates on our interest sensitive life insurance products increased due to increased amortization on our call options supporting our indexed universal life product.

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Corporate and Other Segment
	Three months ended September 30,								Nine months ended September 30,
	2019			2018			Change		2019			2018		Change
	(Dollars in thousands)
Adjusted operating revenues:
Interest sensitive product charges	$	10,408		$	10,494		(1	)%	$	31,527		$	32,617	(3	)%
Net investment income	8,277			8,349			(1	)%	25,505			25,537		—	%
Other income	4,548			3,936			16	%	12,883			12,605		2	%
Total adjusted operating revenues	23,233			22,779			2	%	69,915			70,759		(1	)%
Adjusted operating benefits and expenses:
Interest sensitive product benefits	7,642			8,465			(10	)%	26,865			25,521		5	%
Underwriting, acquisition and insurance expenses:
Commission expense, net of deferrals	720			684			5	%	2,170			2,031		7	%
Amortization of deferred acquisition costs	1,854			(1,148		)	(261	)%	1,792			3,240		(45	)%
Other underwriting expenses	1,244			1,698			(27	)%	3,810			4,606		(17	)%
Total underwriting, acquisition and insurance expenses	3,818			1,234			209	%	7,772			9,877		(21	)%
Interest expense	1,213			1,212			—	%	3,637			3,638		—	%
Other expenses	5,764			5,061			14	%	18,649			16,281		15	%
Total adjusted operating benefits and expenses	18,437			15,972			15	%	56,923			55,317		3	%
	4,796			6,807			(30	)%	12,992			15,442		(16	)%
Net (income) loss attributable to noncontrolling interest	(47		)	(25		)	88	%	(7		)	16		(144	)%
Equity income, before tax	190			1,217			(84	)%	868			1,508		(42	)%
Pre-tax adjusted operating income	$	4,939		$	7,999		(38	)%	$	13,853		$	16,966	(18	)%

Other data
Average invested assets, at amortized cost (1)								$	700,558	$	702,439		—	%
Other investment-related income included in net investment income (2)	$	116		$	101	15	%	604		387			56	%
Average interest sensitive life account value								362,565		361,598			—	%
Death benefits, net of reinsurance and reserves released	4,261			5,290		(19	)%	16,783		15,550			8	%
Estimated impact on pre-tax adjusted operating income from separate account performance on amortization of deferred acquisition costs, deferred sales inducements and unearned revenue reserve	(200		)	300		(167	)%	2,600		(815		)	(419	)%

(1) Average invested assets including investments held as securities and indebtedness of related parties.

(2) Includes prepayment fee income and adjustments to the amortization of premium or discounts from changes in our payment speed assumptions.

Pre-tax adjusted operating income decreased for the Corporate and Other segment in the third quarter of 2019, compared to the prior year period, primarily due to the impact of unlocking actuarial assumptions and a decrease in equity income, partially offset by a decrease in death benefits. Pre-tax adjusted operating income decreased in the nine months ended September 30, 2019, compared to the prior year period, primarily due to the impact of unlocking actuarial assumptions, increases in expenses and death benefits and a decrease in interest sensitive product charges, partially offset by a decrease in amortization of deferred acquisition costs resulting from the impact of favorable market performance on our variable business.

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Death benefits, net of reinsurance and reserves released, decreased in the third quarter of 2019, compared to the prior year period, due to reduced average claim amounts, net of reinsurance and reserves released. For the nine months ended September 30, 2019, compared to the prior year period, death benefits, net of reinsurance and reserves released, increased primarily due to an increase in the number of claims.

Amortization of deferred acquisition costs changed during the third quarter of 2019 and the nine months ended September 30, 2019, compared to the prior year periods, due to the impact of unlocking actuarial assumptions and market performance on our variable business. Unlocking generally reflects changes in projected earned spreads, separate account performance, premium persistency and withdrawal and mortality assumptions. The impact of unlocking on pre-tax operating income for the quarter and nine months ended September 30, 2019 and 2018 was as follows:

Impact of Unlocking on Pre-tax Adjusted Operating Income
	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
	(Dollars in thousands)
Amortization of unearned revenue reserve reported in interest sensitive product charges	$	(94	)	$	(667	)	$	(94	)	$	(667	)
Amortization of deferred sales inducements reported in interest sensitive product benefits	26			76			26			76
Amortization of deferred acquisition costs	(135		)	2,382			(135		)	2,382
Changes in reserves reported in interest sensitive products benefits	2			—			2			—
Increase (decrease) to pre-tax adjusted operating income	$	(201	)	$	1,791		$	(201	)	$	1,791

Other income and other expenses include fees and expenses from sales of brokered products and operating results of our non-insurance subsidiaries, which include management, advisory, marketing and distribution services and leasing activities. Other income and other expenses increased in the third quarter of 2019 and nine months ended September 30, 2019, compared to the prior year periods, primarily due to expanding our wealth management business. The expansion of our wealth management business has increased administrative costs along with the costs of implementing a new delivery platform to allow for additional product offerings and an enhanced customer experience. Revenues associated with our wealth management expansion have increased modestly as we continue to be in the initial stages of developing this business, increasing $0.5 million during the quarter compared to the third quarter of 2018 and increasing $1.1 million year to date compared to the nine months ended September 30, 2018.  Expenses, including commissions, associated with our wealth management expansion have increased $0.9 million during the quarter compared to the third quarter of 2018 and $2.6 million year to date compared to the nine months ended September 30, 2018.

We assign a portion of our investments held in securities and indebtedness of related parties to the Corporate and Other segment. These investments include equity interests in limited liability partnerships and corporations, accounted for under the equity method of accounting. Equity income, before tax, consists of our proportionate share of gains and losses attributable to our relative ownership interest in these investments. See the Equity Income discussion that follows, and Note 9 to our consolidated financial statements, for additional information regarding these investments.

Equity Income

Equity income includes our proportionate share of gains and losses attributable to our ownership interest in partnerships, joint ventures and certain companies over which we exhibit some control but have a minority ownership interest. We consistently use the most recent financial information available, generally for periods not to exceed three months prior to the ending date of the period for which we are reporting, to account for equity income. Several of these entities are investment companies whose operating results are derived primarily from unrealized and realized gains and losses generated by their investment portfolios.

The level of gains and losses for these entities normally fluctuates from period to period depending on the prevailing economic environment, changes in prices of bond and equity securities held by the investment partnerships, the timing and success of initial public offerings or exit strategies, and the timing of the sale of investments held by the partnerships and joint ventures.

44

Equity income, net of related taxes, for the third quarter of 2019 was $0.8 million compared with $1.6 million for the third quarter of 2018, and $2.4 million for the nine months ended September 30, 2019 compared with $3.4 million for the nine months ended September 30, 2018. See Note 2 to our consolidated financial statements for further information.

Income Taxes on Adjusted Operating Income

The effective tax rate on adjusted operating income was 6.9% for the third quarter of 2019 and 12.5% for the nine months ended September 30, 2019, compared with 16.4% for the third quarter of 2018 and 15.8% for the nine months ended September 30, 2018. The effective tax rates differ from the federal statutory rate of 21% primarily due to the impact of LIHTC investments and tax-exempt investment income. In addition, the effective rates for 2019 decreased from 2018 due to non-recurring tax benefits of $2.5 million resulting from the execution of a tax planning strategy in the third quarter.

Components of income taxes
	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
	(Dollars in thousands)
Income tax expense	$	(1,642	)	$	(4,818	)	$	(13,429	)	$	(14,462	)
Tax on equity income	(212		)	(435		)	(644		)	(914		)
Impact of change in federal tax rate	—			(617		)	—			(617		)
Income tax offset on net income adjustments	(23		)	(394		)	2,290			(884		)
Income taxes on adjusted operating income	$	(1,877	)	$	(6,264	)	$	(11,783	)	$	(16,877	)
Income taxes on adjusted operating income before benefits of LIHTC investments	$	(2,727	)	$	(7,148	)	$	(14,437	)	$	(19,614	)
Amounts related to LIHTC investments	850			884			2,654			2,737
Income taxes on adjusted operating income	$	(1,877	)	$	(6,264	)	$	(11,783	)	$	(16,877	)

Impact of Adjustments to Net Income Attributable to FBL
	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
	(Dollars in thousands)
Initial impact of the Tax Act (1)	$	—		$	617		$	—		$	617
Realized gains (losses) on investments and change in fair value of equity securities and derivatives	(198		)	(2,658		)	11,092			(5,296		)
Offsets: (2)
Change in amortization	(343		)	725			(647		)	837
Reserve change on interest sensitive products	432			60			462			252
Income tax	23			394			(2,290		)	884
Net impact of adjustments to net income	$	(86	)	$	(862	)	$	8,617		$	(2,706	)
Net impact per common share - basic and assuming dilution	$	(0.01	)	$	(0.04	)	$	0.35		$	(0.10	)

(1) Amount represents a change in our deferred tax assets and liabilities due to the initial impact of the enactment of the Tax Act. See Note 5 to our consolidated financial statements in our Form 10-K for the year ended December 31, 2018 for additional information on the Tax Act.

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

45

Realized Gains (Losses) on Investments
	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
	(Dollars in thousands)
Realized gains (losses) on investments:
Realized gains	$	534		$	25		$	6,524		$	1,821
Realized losses	(3		)	(2		)	(341		)	(21		)
Change in unrealized gains/losses on equity securities	165			(732		)	5,047			(3,415		)
Total other-than-temporary impairment charges	(50		)	(50		)	(919		)	(1,040		)
Net realized investment gains (losses)	$	646		$	(759	)	$	10,311		$	(2,705	)

The level of realized gains (losses) is subject to fluctuation from period to period due to movements in credit spreads and prevailing interest rates, changes in the economic environment, the timing of the sales of the investments generating the realized gains and losses, as well as the timing of other than temporary impairment charges, recovery of allowances and unrealized gains and losses on equity securities. See “Financial Condition - Investments” and Note 2 to our consolidated financial statements for details regarding our unrealized gains and losses on available-for-sale securities at September 30, 2019 and December 31, 2018.

Investment Credit Impairment Losses Recognized in Net Income
	Three months ended September 30,				Nine months ended September 30,
	2019		2018		2019		2018
	(Dollars in thousands)
Corporate securities:
Financial	$	—	$	—	$	—	$	26
Energy	—		—		—		1,014
Other asset-backed	—		—		869		—
Securities and indebtedness of related parties	50		50		50		50
Total other-than-temporary impairment losses reported in net income	$	50	$	50	$	919	$	1,090

Other-than-temporary credit impairment losses for the nine months ended September 30, 2019 include an asset-backed bond due to a decline in expected cash flows. Other-than-temporary credit impairment losses for the nine months ended September 30, 2018 included a previously impaired energy sector bond due to the commencement of bankruptcy proceedings.

Financial Condition

Investments

Our investment portfolio increased 8.3% to $9,109.1 million at September 30, 2019 compared to $8,414.1 million at December 31, 2018. The portfolio increase is primarily due to $596.7 million of net unrealized appreciation of fixed maturities. Additional details regarding securities in an unrealized gain or loss position at September 30, 2019 are included in the discussion that follows and in Note 2 to our consolidated financial statements. Details regarding investment impairments are discussed above in the “Realized Gains (Losses) on Investments” section under “Results of Operations.”

We manage the investment portfolio to optimize risk-adjusted yield within the context of prudent asset-liability management. We evaluate multiple cash flow testing scenarios as part of this process. The Company’s investment policy calls for investing primarily in high quality fixed maturities and commercial mortgage loans.

46

Fixed Maturity Acquisitions Selected Information
	Nine months ended September 30,
	2019			2018
	(Dollars in thousands)
Cost of acquisitions:
Corporate	$	301,717		$	102,235
Mortgage- and asset-backed	248,185			424,531
Tax-exempt municipals	27,715			91,741
Taxable municipals	5,000			—
Total	$	582,617		$	618,507
Effective annual yield	3.90		%	4.06		%
Credit quality
NAIC 1 designation	68.9		%	84.7		%
NAIC 2 designation	31.1		%	15.3		%
Weighted-average life in years	16.0			14.0

The table above summarizes selected information for fixed maturity purchases. The effective annual yield shown is the yield calculated to the “worst-call date.” For non-callable bonds, the worst-call date is always the maturity date. For callable bonds, the worst-call date is the call or maturity date that produces the lowest yield. The weighted-average life is calculated using scheduled pay-downs and expected prepayments for amortizing securities. For non-amortizing securities, the weighted-average life is equal to the stated maturity date.

A portion of the securities acquired during the nine months ended September 30, 2019 and September 30, 2018 were acquired with the proceeds from advances on our funding agreements with the FHLB. The securities acquired to support these funding agreements often carry a lower average yield than securities acquired to support our other insurance products, due to the shorter maturity and relatively low interest rate paid on those advances. In addition, certain municipal securities acquired are exempt from federal income taxes, and accordingly have a higher actual return than reflected in the yields stated above. The average yield of the securities acquired, excluding the securities supporting the funding agreements and using a tax-adjusted yield for the municipal securities, was 3.95% during the nine months ended September 30, 2019 and was 4.16% during the nine months ended September 30, 2018.

Investment Portfolio Summary
	September 30, 2019				December 31, 2018
	Carrying Value		Percent		Carrying Value		Percent
	(Dollars in thousands)
Fixed maturities - available for sale:
Public	$	5,860,128	64.3	%	$	5,367,590	63.8	%
144A private placement	1,658,404		18.2		1,477,550		17.6
Private placement	211,282		2.3		187,905		2.2
Total fixed maturities - available for sale	7,729,814		84.8		7,033,045		83.6
Equity securities	97,705		1.1		92,857		1.1
Mortgage loans	1,002,839		11.1		1,039,829		12.4
Real estate	1,543		—		1,543		—
Policy loans	200,354		2.2		197,366		2.3
Short-term investments	22,743		0.2		15,713		0.2
Other investments	54,127		0.6		33,765		0.4
Total investments	$	9,109,125	100.0	%	$	8,414,118	100.0	%

As of September 30, 2019, 97.8% (based on carrying value) of the available-for-sale fixed maturities were investment grade debt securities, defined as being in the highest two National Association of Insurance Commissioners (NAIC) designations. Non-investment grade debt securities generally provide higher yields and involve greater risks than investment grade debt securities because their issuers typically are more highly leveraged and more vulnerable to adverse economic conditions than investment grade issuers. In addition, the trading market for these securities is usually more limited than for investment grade debt securities. We regularly review the percentage of our portfolio that is invested in non-investment grade debt securities

47

(NAIC designations 3 through 6). As of September 30, 2019, no single non-investment grade holding exceeded 0.2% of total investments.

Credit Quality by NAIC Designation and Equivalent Rating
		September 30, 2019				December 31, 2018
NAIC Designation	Equivalent Rating (1)	Carrying Value		Percent		Carrying Value		Percent
		(Dollars in thousands)
1	AAA, AA, A	$	5,275,985	68.3	%	$	4,802,497	68.3	%
2	BBB	2,279,942		29.5		2,063,069		29.3
	Total investment grade	7,555,927		97.8		6,865,566		97.6
3	BB	116,220		1.5		105,544		1.5
4	B	46,918		0.6		48,051		0.7
5	CCC	10,743		0.1		9,640		0.1
6	In or near default	6		—		4,244		0.1
	Total below investment grade	173,887		2.2		167,479		2.4
	Total fixed maturities - available for sale	$	7,729,814	100.0	%	$	7,033,045	100.0	%

(1) Equivalent ratings are based on those provided by nationally recognized rating agencies with some exceptions for certain residential mortgage, commercial mortgage- and asset-backed securities that are based on the expected loss of the security rather than the probability of default. This may result in a final designation being higher or lower than the equivalent credit rating.

See Note 2 to our consolidated financial statements for a summary of fixed maturities by contractual maturity date.

Gross Unrealized Gains and Gross Unrealized Losses by Internal Industry Classification
	September 30, 2019
	Total Carrying Value		Carrying Value of Securities with Gross Unrealized Gains		Gross Unrealized Gains		Carrying Value of Securities with Gross Unrealized Losses		Gross Unrealized Losses
	(Dollars in thousands)
Corporate securities:
Basic industrial	$	351,309	$	335,918	$	32,093	$	15,391	$	(358	)
Capital goods	303,783		295,455		30,854		8,328		(105		)
Communications	141,155		137,022		17,827		4,133		(143		)
Consumer cyclical	142,285		132,784		11,854		9,501		(358		)
Consumer non-cyclical	609,514		562,795		69,773		46,719		(5,427		)
Energy	417,228		381,957		42,268		35,271		(11,216		)
Finance	685,874		665,758		65,037		20,116		(2,345		)
Transportation	122,782		111,909		12,007		10,873		(306		)
Utilities	818,764		796,924		135,702		21,840		(318		)
Technology	155,985		155,985		15,546		—		—
Other	24,085		24,085		2,040		—		—
Total corporate securities	3,772,764		3,600,592		435,001		172,172		(20,576		)
Mortgage- and asset-backed securities	2,426,638		2,213,088		195,680		213,550		(2,873		)
United States Government and agencies	15,147		12,159		2,228		2,988		(10		)
States and political subdivisions	1,515,265		1,505,384		164,548		9,881		(537		)
Total	$	7,729,814	$	7,331,223	$	797,457	$	398,591	$	(23,996	)

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Gross Unrealized Gains and Gross Unrealized Losses by Internal Industry Classification
	December 31, 2018
	Total Carrying Value		Carrying Value of Securities with Gross Unrealized Gains		Gross Unrealized Gains		Carrying Value of Securities with Gross Unrealized Losses		Gross Unrealized Losses
	(Dollars in thousands)
Corporate securities:
Basic industrial	$	321,192	$	194,019	$	9,990	$	127,173	$	(8,376	)
Capital goods	248,385		123,157		6,933		125,228		(7,208		)
Communications	131,364		75,687		5,098		55,677		(4,705		)
Consumer cyclical	105,882		74,866		3,627		31,016		(1,782		)
Consumer non-cyclical	497,789		224,674		12,441		273,115		(29,469		)
Energy	384,982		227,770		11,460		157,212		(17,063		)
Finance	602,159		392,188		22,124		209,971		(10,298		)
Transportation	96,579		61,034		3,049		35,545		(2,135		)
Utilities	733,604		565,250		60,399		168,354		(7,483		)
Technology	142,272		83,006		3,275		59,266		(2,414		)
Other	15,677		15,677		576		—		—
Total corporate securities	3,279,885		2,037,328		138,972		1,242,557		(90,933		)
Mortgage- and asset-backed securities	2,192,996		1,076,388		69,820		1,116,608		(31,961		)
United States Government and agencies	20,535		14,061		996		6,474		(134		)
States and political subdivisions	1,539,629		1,378,005		95,921		161,624		(5,913		)
Total	$	7,033,045	$	4,505,782	$	305,709	$	2,527,263	$	(128,941	)

Credit Quality of Available-for-Sale Fixed Maturities with Unrealized Losses
		September 30, 2019
NAIC Designation	Equivalent Rating	Carrying Value of Securities with Gross Unrealized Losses		Percent of Total		Gross Unrealized Losses			Percent of Total
		(Dollars in thousands)
1	AAA, AA, A	$	237,459	59.6	%	$	(3,128	)	13.0	%
2	BBB	85,759		21.5		(3,535		)	14.7
	Total investment grade	323,218		81.1		(6,663		)	27.7
3	BB	41,418		10.4		(5,535		)	23.1
4	B	27,402		6.9		(4,317		)	18.0
5	CCC	6,547		1.6		(7,481		)	31.2
6	In or near default	6		—		—			—
	Total below investment grade	75,373		18.9		(17,333		)	72.3
	Total	$	398,591	100.0	%	$	(23,996	)	100.0	%

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Credit Quality of Available-for-Sale Fixed Maturities with Unrealized Losses
		December 31, 2018
NAIC Designation	Equivalent Rating	Carrying Value of Securities with Gross Unrealized Losses		Percent of Total		Gross Unrealized Losses			Percent of Total
		(Dollars in thousands)
1	AAA, AA, A	$	1,500,626	59.4	%	$	(45,593	)	35.3	%
2	BBB	903,855		35.7		(61,615		)	47.8
	Total investment grade	2,404,481		95.1		(107,208		)	83.1
3	BB	90,883		3.6		(10,056		)	7.8
4	B	26,212		1.1		(10,887		)	8.5
5	CCC	5,679		0.2		(790		)	0.6
6	In or near default	8		—		—			—
	Total below investment grade	122,782		4.9		(21,733		)	16.9
	Total	$	2,527,263	100.0	%	$	(128,941	)	100.0	%

Available-For-Sale Fixed Maturities with Unrealized Losses by Length of Time
	September 30, 2019
	Amortized Cost				Gross Unrealized Losses
	Fair Value is Less than 75% of Cost		Fair Value is 75% or Greater than Cost		Fair Value is Less than 75% of Cost			Fair Value is 75% or Greater than Cost
	(Dollars in thousands)
Three months or less	$	—	$	148,701	$	—		$	(1,338	)
Greater than three months to six months	—		15,516		—			(411		)
Greater than six months to nine months	—		2,004		—			(5		)
Greater than nine months to twelve months	5,933		50,466		(3,383		)	(838		)
Greater than twelve months	21,758		178,209		(9,031		)	(8,990		)
Total	$	27,691	$	394,896	$	(12,414	)	$	(11,582	)

	December 31, 2018
	Amortized Cost				Gross Unrealized Losses
	Fair Value is Less than 75% of Cost		Fair Value is 75% or Greater than Cost		Fair Value is Less than 75% of Cost			Fair Value is 75% or Greater than Cost
	(Dollars in thousands)
Three months or less	$	—	$	329,067	$	—		$	(7,081	)
Greater than three months to six months	—		362,426		—			(10,386		)
Greater than six months to nine months	—		514,023		—			(21,352		)
Greater than nine months to twelve months	—		799,994		—			(43,191		)
Greater than twelve months	24,809		625,885		(9,547		)	(37,384		)
Total	$	24,809	$	2,631,395	$	(9,547	)	$	(119,394	)

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Available-For-Sale Fixed Maturities with Unrealized Losses by Maturity Date
	September 30, 2019					December 31, 2018
	Carrying Value of Securities with Gross Unrealized Losses		Gross Unrealized Losses			Carrying Value of Securities with Gross Unrealized Losses		Gross Unrealized Losses
	(Dollars in thousands)
Due in one year or less	$	1,498	$	(2	)	$	496	$	(4	)
Due after one year through five years	9,424		(1,770		)	86,795		(3,286		)
Due after five years through ten years	49,040		(2,536		)	299,532		(14,667		)
Due after ten years	125,079		(16,815		)	1,023,832		(79,023		)
	185,041		(21,123		)	1,410,655		(96,980		)
Mortgage- and asset-backed	213,550		(2,873		)	1,116,608		(31,961		)
Total	$	398,591	$	(23,996	)	$	2,527,263	$	(128,941	)

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

Mortgage- and Asset-Backed Securities

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

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

At each balance sheet date, we review and update our expectation of future prepayment speeds and the book value of the mortgage and other asset-backed securities purchased at a premium or discount is reset, if needed. See Note 1 to our consolidated financial statements included in Item 8 of our Form 10-K for the year ended December 31, 2018 for more detail on accounting for the amortization of premium and accrual of discount on mortgage-backed and asset-backed securities.

Our direct exposure to the Alt-A home equity and subprime first-lien sectors is limited to investments in structured securities collateralized by senior tranches of residential mortgage loans. We also have a partnership interest in one fund at September 30, 2019 and December 31, 2018, that owns securities backed by Alt-A home equity, subprime first-lien and adjustable rate mortgage collateral. The fund is reported as securities and indebtedness of related parties in our consolidated balance sheets with a fair value of $1.5 million at September 30, 2019 and $2.0 million at December 31, 2018. We do not own any direct investments in subprime lenders.

Mortgage- and Asset-Backed Securities by Collateral Type
	September 30, 2019						December 31, 2018
	Amortized Cost		Carrying Value		Percent of Fixed Maturities		Amortized Cost		Carrying Value		Percent of Fixed Maturities
	(Dollars in thousands)
Government agency	$	222,119	$	243,710	3.2	%	$	227,545	$	232,658	3.3	%
Prime	329,129		355,804		4.6		279,856		287,073		4.1
Alt-A	72,001		85,246		1.1		81,668		95,396		1.4
Subprime	137,354		149,158		1.9		143,441		152,907		2.1
Commercial mortgage	947,232		1,059,454		13.7		873,672		878,566		12.5
Non-mortgage	525,996		533,266		6.9		548,955		546,396		7.8
Total	$	2,233,831	$	2,426,638	31.4	%	$	2,155,137	$	2,192,996	31.2	%

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

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

Residential Mortgage-Backed Securities by NAIC Designation and Origination Year
	September 30, 2019
	2004 & Prior				2005 to 2008				2009 & After				Total
NAIC Designation	Amortized Cost		Carrying Value		Amortized Cost		Carrying Value		Amortized Cost		Carrying Value		Amortized Cost		Carrying Value
	(Dollars in thousands)
1	$	63,856	$	65,931	$	65,281	$	84,771	$	479,300	$	515,161	$	608,437	$	665,863
3	—		—		274		265		—		—		274		265
4	—		—		7,655		9,568		—		—		7,655		9,568
5	302		297		—		—		—		—		302		297
6	6		6		—		—		—		—		6		6
Total	$	64,164	$	66,234	$	73,210	$	94,604	$	479,300	$	515,161	$	616,674	$	675,999

	December 31, 2018
	2004 & Prior				2005 to 2008				2009 & After				Total
NAIC Designation	Amortized Cost		Carrying Value		Amortized Cost		Carrying Value		Amortized Cost		Carrying Value		Amortized Cost		Carrying Value
	(Dollars in thousands)
1	$	72,281	$	72,921	$	69,478	$	89,128	$	430,982	$	430,881	$	572,741	$	592,930
2	—		—		2,420		2,301		—		—		2,420		2,301
3	—		—		562		553		—		—		562		553
4	354		359		8,048		10,709		—		—		8,402		11,068
6	8		8		—		—		—		—		8		8
Total	$	72,643	$	73,288	$	80,508	$	102,691	$	430,982	$	430,881	$	584,133	$	606,860

The commercial mortgage-backed securities (CMBS) are primarily sequential securities. CMBS typically have cash flows that are less subject to refinance risk than residential mortgage-backed securities principally due to prepayment restrictions on many of the underlying commercial mortgage loans.

Commercial Mortgage-Backed Securities by NAIC Designation and Origination Year
	September 30, 2019
	2004 & Prior				2005 to 2008				2009 & After				Total
NAIC Designation	Amortized Cost		Carrying Value		Amortized Cost		Carrying Value		Amortized Cost		Carrying Value		Amortized Cost		Carrying Value
	(Dollars in thousands)
1	$	8,041	$	9,109	$	112,290	$	133,325	$	791,429	$	877,266	$	911,760	$	1,019,700
2	—		—		35,472		39,754		—		—		35,472		39,754
Total (1)	$	8,041	$	9,109	$	147,762	$	173,079	$	791,429	$	877,266	$	947,232	$	1,059,454

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Commercial Mortgage-Backed Securities by NAIC Designation and Origination Year
	December 31, 2018
	2004 & Prior				2005 to 2008				2009 & After				Total
NAIC Designation	Amortized Cost		Carrying Value		Amortized Cost		Carrying Value		Amortized Cost		Carrying Value		Amortized Cost		Carrying Value
	(Dollars in thousands)
1	$	8,415	$	9,029	$	113,526	$	124,885	$	715,899	$	708,447	$	837,840	$	842,361
2	—		—		35,832		36,205		—		—		35,832		36,205
Total (1)	$	8,415	$	9,029	$	149,358	$	161,090	$	715,899	$	708,447	$	873,672	$	878,566

(1) The CMBS portfolio included government agency-backed securities with a carrying value of $852.0 million at September 30, 2019 and $693.3 million at December 31, 2018. Also included in the CMBS are military housing bonds totaling $170.5 million at September 30, 2019 and $156.7 million at December 31, 2018. These bonds are used to fund the construction of multi-family homes on United States military bases. The bonds are backed by a first mortgage lien on residential military housing projects.

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

Other Asset-Backed Securities by NAIC Designation and Origination Year
	September 30, 2019
	2004 & Prior				2005 to 2008				2009 & After				Total
NAIC Designation	Amortized Cost		Carrying Value		Amortized Cost		Carrying Value		Amortized Cost		Carrying Value		Amortized Cost		Carrying Value
	(Dollars in thousands)
1	$	8,472	$	8,315	$	136,570	$	151,427	$	402,958	$	405,328	$	548,000	$	565,070
2	1,445		1,554		1,623		1,691		113,725		117,455		116,793		120,700
3	—		—		—		—		3,208		3,493		3,208		3,493
4	169		167		—		—		—		—		169		167
5	—		—		—		—		1,755		1,755		1,755		1,755
Total	$	10,086	$	10,036	$	138,193	$	153,118	$	521,646	$	528,031	$	669,925	$	691,185

	December 31, 2018
	2004 & Prior				2005 to 2008				2009 & After				Total
NAIC Designation	Amortized Cost		Carrying Value		Amortized Cost		Carrying Value		Amortized Cost		Carrying Value		Amortized Cost		Carrying Value
	(Dollars in thousands)
1	$	9,314	$	9,038	$	141,728	$	154,747	$	415,228	$	412,078	$	566,270	$	575,863
2	1,586		1,693		1,890		1,943		121,796		122,300		125,272		125,936
3	—		—		313		303		1,697		1,697		2,010		2,000
4	179		170		—		—		—		—		179		170
5	—		—		—		—		3,601		3,601		3,601		3,601
Total	$	11,079	$	10,901	$	143,931	$	156,993	$	542,322	$	539,676	$	697,332	$	707,570

State and Political Subdivision Securities

State and political subdivision securities totaled $1,515.3 million, or 19.6% of total fixed maturities, at September 30, 2019, and $1,539.6 million, or 21.9% of total fixed maturities at December 31, 2018 and include investments in general obligation, revenue and municipal housing bonds. Our investment strategy is to utilize municipal bonds in addition to corporate bonds, as we believe they provide additional diversification and have historically low default rates compared with similarly rated corporate bonds. We evaluate the credit strength of the underlying issues on both a quantitative and qualitative basis, excluding insurance, prior to acquisition. The majority of the municipal bonds we hold are investment grade credits without consideration of insurance. Our municipal bonds are well diversified by type and geography with the top exposure being water and sewer

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revenue bonds. Our municipal bond holdings were trading at 112.1% of amortized cost at September 30, 2019. We do not hold any Puerto Rico-related bonds. Exposure to the state of Illinois and municipalities within the state accounted for 1.3% of our total fixed maturities at September 30, 2019. As of September 30, 2019, our Illinois-related portfolio holdings were rated investment grade and were trading at 115.9% of amortized cost.

Mortgage Loans

Mortgage loans totaled $1,002.8 million at September 30, 2019 and $1,039.8 million at December 31, 2018. Our mortgage loans are diversified as to property type, location and loan size, and are collateralized by the related properties. The total number of commercial mortgage loans outstanding was 208 at September 30, 2019 and 208 at December 31, 2018. In the first nine months of 2019, new loans ranged from $1.6 million to $9.3 million in size, with an average loan size of $5.9 million, an average loan term of 17 years and an average net yield of 4.71%. Our mortgage lending policies establish limits on the amount that can be loaned to one borrower and require diversification by geographic location and collateral type. The majority of our mortgage loans amortize principal, with 0.8% that are interest-only loans as of September 30, 2019. At September 30, 2019, the average loan-to-value of the current outstanding principal balance using the most recent appraised value was 52.3% and the weighted average debt service coverage ratio was 1.6 based on the results of our 2018 annual study. See Note 2 to our consolidated financial statements for further discussion regarding our mortgage loans.

Other Assets and Liabilities

	September 30, 2019	December 31, 2018	Percentage change
Selected other assets:
Cash and cash equivalents	13,007	19,035	(31.7	)%
Reinsurance recoverable	105,493	102,386	3.0	%
Deferred acquisition costs	253,112	418,802	(39.6	)%
Other assets	172,930	163,518	5.8	%
Assets held in separate accounts	612,338	561,281	9.1	%
Selected other liabilities:
Future policy benefits	7,325,794	7,205,471	1.7	%
Other policyholder funds	595,453	615,177	(3.2	)%
Deferred income taxes	165,215	75,449	119.0	%
Other liabilities	101,162	93,532	8.2	%
Liabilities held in separate accounts	612,338	561,281	9.1	%

Cash and cash equivalents decreased primarily due to normal fluctuations in timing of payments made and received. Deferred acquisition costs decreased compared to the prior year primarily due to a $172.4 million increase in the impact of the change in net unrealized appreciation on fixed maturity securities during the period. Other assets increased primarily due to revaluation of our leased assets as discussed in Note 6 to our consolidated financial statements, partially offset by a decrease in LIHTC due to amortization. Assets and liabilities held in separate accounts increased due to market performance on the underlying investment portfolios.

Future policy benefits increased primarily due to an increase in the volume of life business in force. Deferred income taxes increased primarily due to the tax impact of the change in unrealized appreciation/depreciation on investments. Other liabilities increased due to lease obligations as discussed above.

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Stockholders’ Equity

As discussed in Note 7 to our consolidated financial statements, stockholders’ equity was impacted by capital deployment actions during the first quarter of 2019, which included a special cash dividend of $1.50 per share on Class A and Class B common stock and an increase in our regular quarterly dividend by 4.3% to $0.48 per share.

	September 30, 2019		December 31, 2018		Percentage change
	(dollars in thousands, except per share data)
Total FBL Financial Group, Inc. stockholders’ equity	$	1,514,210	$	1,184,139	27.9	%
Common stockholders’ equity	1,511,210		1,181,139		27.9	%
Book value per share	$	61.28	$	47.78	28.3	%
Less: Per share impact of accumulated other comprehensive income	16.47		3.69		346.3	%
Book value per share, excluding accumulated other comprehensive income (1)	$	44.81	$	44.09	1.6	%

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

Our stockholders’ equity increased compared to the prior year primarily due to the change in unrealized appreciation of fixed maturity securities during the period and net income, partially offset by dividends paid.

Liquidity and Capital Resources

Cash Flows

During the first nine months of 2019, our operating activities generated cash flows totaling $151.3 million, consisting of net income of $91.5 million adjusted for non-cash operating revenues and expenses netting to $59.8 million. We used cash of $84.7 million in our investing activities during the 2019 period. The primary uses were $692.7 million of investment acquisitions, mostly in fixed maturity securities, partially offset by $626.9 million in sales, maturities and repayments of investments. Our financing activities used cash of $72.6 million during the 2019 period. The primary financing source was $438.6 million in receipts from interest sensitive products credited to policyholder account balances, which was offset by $449.2 million for return of policyholder account balances on interest sensitive products and $72.6 million for dividends paid to stockholders.

Sources and Uses of Capital Resources

Parent company cash inflows from operations consist primarily of fees that it charges various subsidiaries and affiliates for management of their operations, expense reimbursements and tax settlements from subsidiaries and affiliates, proceeds from investment income and dividends from subsidiaries, if declared and paid. Revenue sources for the parent company during the nine months ended September 30, 2019 included management fees from subsidiaries and affiliates totaling $6.2 million and dividends of $76.0 million. Cash outflows are principally for salaries, taxes and other expenses related to providing management services, dividends on outstanding stock, stock repurchases and interest on our parent company debt.

We paid regular cash dividends on our common and preferred stock during the nine-month period ended September 30 totaling $35.6 million in 2019 and $34.4 million in 2018. In addition, we paid a special $1.50 per common share cash dividend in March 2019 and March 2018 totaling $37.0 million and $37.3 million, respectively. It is anticipated that quarterly cash dividend requirements for 2019 will be $0.0075 per Series B preferred share and $0.48 per common share. Common stock dividend rates are analyzed quarterly and are dependent upon our capital and liquidity positions. In addition, alternative uses of excess capital may impact future dividend levels. Assuming these quarterly dividend rates, the common and preferred dividends would total approximately $11.9 million for the remainder of 2019. The parent company expects to have sufficient resources and cash flows to meet its interest and dividend payments throughout 2019. The parent company had available cash and investments totaling

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$45.7 million at September 30, 2019. The parent company expects to rely on available cash resources, dividends from Farm Bureau Life and management fee income to make dividend payments to its stockholders, interest payments on its debt and to fund any capital initiatives such as stock repurchases. In addition, our parent company and Farm Bureau Life have entered into a reciprocal line of credit arrangement, which provides additional liquidity for either entity up to $20.0 million. We had no material commitments for capital expenditures as of September 30, 2019.

As discussed in Note 7 to our consolidated financial statements, we have periodically taken advantage of opportunities to repurchase our outstanding Class A common stock through Class A common stock repurchase programs approved by our Board of Directors. At September 30, 2019, $36.3 million remains available for repurchase under the current Class A common stock repurchase program. Under this program, we repurchased 66,475 shares for $4.6 million during the nine months ended September 30, 2019. Completion of this program is dependent on market conditions and other factors. There is no guarantee as to the exact timing of any repurchases or the number of shares that we will repurchase. The share repurchase program may be modified or terminated at any time without prior notice.

Interest payments on our debt totaled $3.6 million for the nine months ended September 30, 2019 and September 30, 2018. Interest payments on our debt outstanding at September 30, 2019 are estimated to be $1.2 million for the remainder of 2019.

Farm Bureau Life’s cash inflows primarily consist of premiums; deposits to policyholder account balances; income from investments; sales, maturities and calls of investments; and repayments of investment principal. Farm Bureau Life’s cash outflows are primarily related to withdrawals of policyholder account balances, investment purchases, payment of policy acquisition costs, policyholder benefits, income taxes, current operating expenses and dividends. Life insurance companies generally produce a positive cash flow that may be measured by the degree to which cash inflows are adequate to meet benefit obligations to policyholders and normal operating expenses as they are incurred. The remaining cash flow is generally used to increase the asset base to provide funds to meet the need for future policy benefit payments and for writing new business. Continuing operations and financing activities from Farm Bureau Life relating to interest sensitive products provided funds totaling $136.9 million for the nine months ended September 30, 2019 and $283.4 million for the prior year period.

Farm Bureau Life’s ability to pay dividends to the parent company is limited by law to earned profits (statutory unassigned surplus) as of the date the dividend is paid, as determined in accordance with accounting practices prescribed by insurance regulatory authorities of the State of Iowa. At December 31, 2018, Farm Bureau Life’s statutory unassigned surplus was $503.7 million. There are certain additional limits on the amount of dividends that may be paid within a year without approval of the Insurance Division, Department of Commerce of the State of Iowa as discussed in Note 7 to our consolidated financial statements included in Item 8 of our Form 10-K for the year ended December 31, 2018. During the remainder of 2019, the maximum amount legally available for distribution to the parent company without further regulatory approval is $25.8 million.

We manage the amount of capital held by our insurance subsidiaries to ensure they meet regulatory requirements. State laws specify regulatory actions if an insurer’s risk-based capital (RBC) ratio, a measure of solvency, falls below certain levels. The NAIC has a standard formula for annually assessing RBC based on the various risk factors related to an insurance company’s capital and surplus, including insurance, business, asset and interest rate risks. The insurance regulators monitor the level of RBC against a statutory “authorized control level” RBC at which point regulators have the option to assume control of the insurance company. The company action level RBC is 200% of the authorized control level and is the first point at which any action would be triggered. Our adjusted capital and RBC is reported to our insurance regulators annually based on formulas that may be revised throughout the year. We estimate our adjusted capital and RBC quarterly; however, these estimates may differ from actual results. As of September 30, 2019, Farm Bureau Life’s statutory total adjusted capital is estimated at $704.9 million, resulting in an RBC ratio of 555%, based on company action level capital of $127.1 million.

On a consolidated basis, we anticipate that funds to meet our short-term and long-term capital expenditures, cash dividends to stockholders and operating cash needs will come from existing capital and internally-generated funds. However, there can be no assurance that future experience regarding benefits and surrenders will be similar to historic experience since benefits and surrender levels are influenced by such factors as the interest rate environment, our financial strength ratings, the economy and other factors that impact policyholder behavior. Farm Bureau Life is a member of the FHLB, which provides a source for additional liquidity, if needed. This membership allows us to utilize fixed or floating rate advances offered by the FHLB and secured by qualifying collateral. Our total capacity to utilize such advances is impacted by multiple factors including the market value of eligible collateral, our level of statutory admitted assets and excess reserves and our willingness or capacity to hold activity-based FHLB common stock.

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Contractual Obligations

In the normal course of business, we enter into insurance contracts, financing transactions, lease agreements or other commitments that are necessary or beneficial to our operations. These commitments may obligate us to certain cash flows during future periods. There have been no material changes to our total contractual obligations since December 31, 2018.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risks of Financial Instruments

There have been no material changes in the market risks from the information provided in “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Form 10-K for the year ended December 31, 2018.

ITEM 4. CONTROLS AND PROCEDURES

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

Our internal control over financial reporting changes from time-to-time as we modify and enhance our systems and processes to meet our dynamic needs. Changes are also made as we strive to be more efficient in how we conduct our business. While changes have taken place in our internal controls during the quarter ended September 30, 2019, there have been no changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

In June 2019, the Securities and Exchange Commission adopted new regulations impacting securities products and services. These regulations, including Regulation Best Interest and the Customer Relationship Summary requirement, will require us to make additional disclosures to customers and may require us to make changes to certain products and services we offer.  We are currently evaluating the impact of the new regulations on our business, including the cost of compliance.

The performance of our company is subject to a variety of risks that you should review. Occurrence of these risks could materially affect our business, results of operations or financial condition, cause the trading price of our common stock to decline materially or cause our actual results to differ materially from those expected or those expressed in any forward looking statements made by or on behalf of the Company. Please refer to Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2018.

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

(c) Issuer Repurchases of Equity Securities

We had no issuer repurchases of equity securities for the quarter ended September 30, 2019. We have $36.3 million available under the repurchase program announced on March 1, 2018, which will expire March 31, 2022. The program authorizes us to make repurchases of Class A common stock in the open market or through privately negotiated transactions, with the timing and terms of the purchases to be determined by management based on market conditions. Completion of the program is dependent on market conditions and other factors. There is no guarantee as to the exact timing of any repurchases or the number of shares, if any, that we will repurchase. The share repurchase program may be modified or terminated at any time without prior notice.

ITEM 6. EXHIBITS

(a) Exhibits:

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
101+	Interactive Data Files formatted in iXBRL (Inline eXtensible Business Reporting Language) from FBL Financial Group, Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2019 as follows: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statement of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Financial Statements
104	Cover Page Interactive Data File formatted as iXBRL (Inline eXtensible Business Reporting Language) and contained in Exhibit 101.
+	Filed herewith

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SIGNATURES

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

Date: October 31, 2019                

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

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