FBL FINANCIAL GROUP INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended March 31, 2005
		or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from ____________________ to ____________________

Commission File Number: 1-11917

FBL Financial Group, Inc.

(Exact name of registrant as specified in its charter)


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


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

(515) 225-5400

(Registrant’s telephone number, including area code)

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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 27,711,368 shares of Class A common stock and 1,192,990 shares of Class B common stock as of May 4, 2005.

ITEM 1. FINANCIAL STATEMENTS

FBL FINANCIAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands)


	March 31,		December 31,
	2005		2004
Assets
Investments:
Fixed maturities – available for sale, at market (amortized cost: 2005 - $6,302,151; 2004 - $6,209,593)	$	6,481,928	$	6,459,208
Equity securities – available for sale, at market (cost: 2005 and 2004 - $55,359)		82,301		71,163
Mortgage loans on real estate		785,725		740,874
Derivative instruments		20,033		15,536
Investment real estate, less allowances for depreciation of $2,070 in 2005 and $2,016 in 2004		9,748		9,441
Policy loans		176,883		176,613
Other long-term investments		1,300		1,300
Short-term investments		68,089		27,545

Total investments		7,626,007		7,501,680

Cash and cash equivalents		17,174		27,957
Securities and indebtedness of related parties		22,481		22,727
Accrued investment income		76,992		68,314
Amounts receivable from affiliates		12,268		8,176
Reinsurance recoverable		114,361		119,631
Deferred policy acquisition costs		614,977		587,391
Deferred sales inducements		93,936		78,443
Value of insurance in force acquired		46,668		45,839
Property and equipment, less allowances for depreciation of $63,847 in 2005 and $62,456 in 2004		43,763		43,409
Goodwill		11,170		11,170
Other assets		35,849		33,970
Assets held in separate accounts		554,398		552,029

Total assets	$	9,270,044	$	9,100,736

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


	March 31,		December 31,
	2005		2004
Liabilities and stockholders’ equity
Liabilities:
Policy liabilities and accruals:
Future policy benefits:
Interest sensitive and index products	$	5,626,698	$	5,432,828
Traditional life insurance and accident and health products		1,176,985		1,167,432
Unearned revenue reserve		29,291		29,319
Other policy claims and benefits		23,600		21,394

		6,856,574		6,650,973

Other policyholders’ funds:
Supplementary contracts without life contingencies		375,227		370,341
Advance premiums and other deposits		168,252		166,988
Accrued dividends		12,778		12,639

		556,257		549,968

Amounts payable to affiliates		510		7,981
Short-term debt		91,085		46,000
Long-term debt		172,475		217,183
Current income taxes		807		3,803
Deferred income taxes		105,923		118,965
Other liabilities		109,109		121,032
Liabilities related to separate accounts		554,398		552,029

Total liabilities		8,447,138		8,267,934

Minority interest in subsidiaries		200		191

Stockholders’ equity:
Preferred stock, without par value, at liquidation value – authorized 10,000,000 shares, issued and outstanding 5,000,000 Series B shares		3,000		3,000
Class A common stock, without par value – authorized 88,500,000 shares, issued and outstanding 27,688,469 shares in 2005 and 27,541,867 shares in 2004		64,980		62,234
Class B common stock, without par value – authorized 1,500,000 shares, issued and outstanding 1,192,990 shares		7,524		7,524
Accumulated other comprehensive income		114,446		141,240
Retained earnings		632,756		618,613

Total stockholders’ equity		822,706		832,611

Total liabilities and stockholders’ equity	$	9,270,044	$	9,100,736

See accompanying notes.

FBL FINANCIAL GROUP, INC.

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


	Three months ended March 31,
	2005			2004
Revenues:
Interest sensitive and index product charges	$	23,768		$	22,019
Traditional life insurance premiums		33,333			33,734
Accident and health premiums		20			74
Net investment income		114,106			98,546
Derivative income (loss)		(12,400	)		4,212
Realized gains on investments		412			64
Other income		4,969			4,701

Total revenues		164,208			163,350
Benefits and expenses:
Interest sensitive and index product benefits		55,558			63,270
Traditional life insurance and accident and health benefits		20,771			21,825
Increase in traditional life and accident and health future policy benefits		8,250			6,732
Distributions to participating policyholders		6,164			6,723
Underwriting, acquisition and insurance expenses		38,468			38,359
Interest expense		3,295			2,033
Other expenses		4,766			4,698

Total benefits and expenses		137,272			143,640

		26,936			19,710
Income taxes		(9,374	)		(6,720	)

Minority interest in loss of subsidiaries		(98	)		(63	)
Equity income (loss), net of related income taxes		(259	)		255

Net income		17,205			13,182
Dividends on Series B preferred stock		(38	)		(38	)

Net income applicable to common stock	$	17,167		$	13,144


Earnings per common share	$	0.60		$	0.46

Earnings per common share – assuming dilution	$	0.59		$	0.45


Cash dividends per common share	$	0.105		$	0.100

See accompanying notes.

FBL FINANCIAL GROUP, INC.

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


							Accumulated
	Series B		Class A		Class B		Other						Total
	Preferred		Common		Common		Comprehensive			Retained			Stockholders’
	Stock		Stock		Stock		Income			Earnings			Equity
Balance at January 1, 2004	$	3,000	$	51,609	$	7,522	$	121,552		$	564,144		$	747,827
Comprehensive income:
Net income for three months ended March 31, 2004		–		–		–		–			13,182			13,182
Change in net unrealized investment gains/losses		–		–		–		55,101			–			55,101

Total comprehensive income														68,283
Issuance of 393,585 shares of common stock under compensation and stock option plans, including related income tax benefit		–		7,385		–		–			–			7,385
Dividends on preferred stock		–		–		–		–			(38	)		(38	)
Dividends on common stock		–		–		–		–			(2,855	)		(2,855	)

Balance at March 31, 2004	$	3,000	$	58,994	$	7,522	$	176,653		$	574,433		$	820,602


Balance at January 1, 2005	$	3,000	$	62,234	$	7,524	$	141,240		$	618,613		$	832,611
Comprehensive loss:
Net income for three months ended March 31, 2005		–		–		–		–			17,205			17,205
Change in net unrealized investment gains/losses		–		–		–		(26,794	)		–			(26,794	)

Total comprehensive loss														(9,589	)
Net issuance of 146,602 shares of common stock under compensation and stock option plans, including related income tax benefit		–		2,746		–		–			–			2,746
Dividends on preferred stock		–		–		–		–			(38	)		(38	)
Dividends on common stock		–		–		–		–			(3,024	)		(3,024	)

Balance at March 31, 2005	$	3,000	$	64,980	$	7,524	$	114,446		$	632,756		$	822,706

See accompanying notes.

FBL FINANCIAL GROUP, INC.

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


	Three months ended March 31,
	2005			2004
Operating activities
Net income	$	17,205		$	13,182
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments related to interest sensitive and index products:
Interest credited to account balances, excluding deferred sales inducements		50,541			52,734
Change in fair value of embedded derivatives		(6,700	)		(1,042	)
Charges for mortality and administration		(22,140	)		(20,544	)
Deferral of unearned revenues		264			239
Amortization of unearned revenue reserve		(490	)		(461	)
Provision for depreciation and amortization		1,877			416
Equity loss (income)		259			(255	)
Realized gains on investments		(412	)		(64	)
Increase in traditional life and accident and health benefit accruals, net of reinsurance		8,250			6,732
Policy acquisition costs deferred		(31,111	)		(21,213	)
Amortization of deferred policy acquisition costs		14,131			13,696
Amortization of deferred sales inducements		2,421			1,533
Provision for deferred income taxes		1,385			2,868
Other		(19,209	)		(7,693	)

Net cash provided by operating activities		16,271			40,128

Investing activities
Sale, maturity or repayment of investments:
Fixed maturities – available for sale		328,099			255,982
Equity securities – available for sale		1			–
Mortgage loans on real estate		11,214			10,037
Derivative instruments		198			–
Investment real estate		–			3,319
Policy loans		9,102			10,066
Short-term investments – net		–			3,820

		348,614			283,224
Acquisition of investments:
Fixed maturities – available for sale		(423,244	)		(368,918	)
Equity securities – available for sale		–			(464	)
Mortgage loans on real estate		(56,054	)		(37,553	)
Derivative instruments		(3,378	)		(599	)
Investment real estate		(40	)		(9,273	)
Policy loans		(9,372	)		(161	)
Short-term investments – net		(40,544	)		–

		(532,632	)		(416,968	)
Proceeds from disposal, repayments of advances and other distributions from equity investees		120			302
Net purchases of property and equipment and other		(3,408	)		(4,591	)

Net cash used in investing activities		(187,306	)		(138,033	)

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


	Three months ended March 31,
	2005			2004
Financing activities
Receipts from interest sensitive and index products credited to policyholder account balances	$	293,007		$	195,388
Return of policyholder account balances on interest sensitive and index products		(132,037	)		(113,829	)
Proceeds from long-term debt		–			46,000
Repayment of short-term debt		–			(45,280	)
Distributions related to minority interests – net		(89	)		(43	)
Issuance of common stock		2,433			6,106
Dividends paid		(3,062	)		(2,893	)

Net cash provided by financing activities		160,252			85,449

Decrease in cash and cash equivalents		(10,783	)		(12,456	)
Cash and cash equivalents at beginning of period		27,957			233,858

Cash and cash equivalents at end of period	$	17,174		$	221,402


Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest	$	1,760		$	1,391
Income taxes		10,532			(3,284	)
Non-cash operating activity:
Deferral of sales inducements		15,716			3,929

See accompanying notes.


FBL Financial Group, Inc.		March 31, 2005

FBL FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2005

1. Significant Accounting Policies

Basis of Presentation

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

Pending Accounting Changes and Stock-Based Compensation

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

In December 2004, the FASB issued Statement No. 123(R), “Share-Based Payment,” which is a revision of Statement No. 123, “Accounting for Stock-Based Compensation.” Statement No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. We currently follow the prospective method under Statement No. 123, which we adopted effective January 1, 2003. Under the prospective method, expense is recognized for those options granted, modified or settled after the date of adoption. The expense is generally recognized ratably over the five-year vesting period without regard to when an employee becomes eligible for retirement and immediate vesting. We expect we will adopt the modified-prospective-transition method upon the adoption of Statement No. 123(R). Under the modified-prospective-transition method, we will recognize compensation expense in financial statements issued subsequent to the adoption for all share-based payments granted, modified or settled after the date of adoption, as well as for any awards that were granted prior to the adoption date for which the requisite service has not been provided as of the adoption date. Under Statement No. 123(R), expense is recognized over the shorter of the five-year vesting schedule or the period ending when the employee becomes eligible for retirement.

We currently use the Black-Scholes-Merton option pricing model to estimate the value of employee stock options and expect to continue to use this acceptable option pricing model upon adoption of Statement No. 123(R). Statement No. 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow rather than as an operating cash flow, as currently required. This requirement will reduce net operating cash flows and increase financing cash flows in periods after adoption. While we cannot estimate what these amounts will be in the future as they are dependent on unknown factors, such as the timing of employee stock option exercises, the amount of operating cash flows previously recognized for such excess tax


FBL Financial Group, Inc.		March 31, 2005

deductions for the first quarter totaled $0.3 million for 2005 and $1.3 million for 2004. We intend to adopt Statement No. 123(R) effective January 1, 2006. While we have not calculated the impact of adopting Statement No. 123(R), the adoption is not expected to have a material impact on our consolidated financial statements.

The following table illustrates the effect on net income and earnings per share if the fair value based method under Statement No. 123 had been applied to all outstanding and unvested awards in each year.


	Three months ended March 31,
	2005			2004
	(Dollars in thousands, except per share data)
Net income, as reported:	$	17,205		$	13,182
Add: Stock-based employee and director compensation expense included in reported net income, net of related tax effects		432			268
Less: Total stock-based employee and director compensation expense determined under fair value based methods for all awards, net of related tax effects		(528	)		(405	)

Net income, pro forma	$	17,109		$	13,045


Earnings per common share, as reported	$	0.60		$	0.46

Earnings per common share, pro forma	$	0.59		$	0.46


Earnings per common share – assuming dilution, as reported	$	0.59		$	0.45

Earnings per common share – assuming dilution, pro forma	$	0.58		$	0.45

2. Defined Benefit Plans

We participate with several affiliates in various multiemployer defined benefit plans. Our share of net periodic pension cost for the plans recorded in our consolidated income statements totaled $1.5 million for the three months ended March 31, 2005 and $1.6 million for the three months ended March 31, 2004. Components of net periodic pension cost for all employers in the multiemployer plans are as follows:


	Three months ended March 31,
	2005			2004
	(Dollars in thousands)
Service cost	$	2,162		$	1,943
Interest cost		3,409			3,342
Expected return on assets		(2,712	)		(2,501	)
Amortization of prior service cost		396			823
Amortization of actuarial loss		1,046			704

Net periodic pension cost – all employers	$	4,301		$	4,311

3. Commitments and Contingencies

In the normal course of business, we may be involved in litigation where amounts are alleged that are substantially more than contractual policy benefits or those contained in certain other agreements. At March 31, 2005, management is not aware of any claims for which a material loss is reasonably possible.

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


FBL Financial Group, Inc.		March 31, 2005

We participate in a reinsurance pool with various unaffiliated life insurance companies to mitigate the impact of a catastrophic event on our financial position and results of operations. Members of the pool share in the eligible catastrophic losses based on their size and contribution to the pool. Under the pool arrangement, we will be able to cede approximately 60% of catastrophic losses after other reinsurance and a deductible of $0.7 million. Pool losses are capped at $7.2 million per event and the maximum loss we could incur as a result of losses assumed from other pool members is $2.7 million per event.

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

4. Earnings Per Share

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


	Three months ended March 31,
	2005			2004
	(Dollars in thousands, except per share data)
Numerator:
Net income	$	17,205		$	13,182
Dividends on Series B preferred stock		(38	)		(38	)

Numerator for earnings per common share – income available to common stockholders	$	17,167		$	13,144


Denominator:
Weighted average shares		28,732,266			28,369,331
Deferred common stock units related to directors compensation plan		26,934			21,719

Denominator for earnings per common share – weighted-average shares		28,759,200			28,391,050
Effect of dilutive securities – employee stock options		514,208			641,285

Denominator for diluted earnings per common share – adjusted weighted-average shares		29,273,408			29,032,335


Earnings per common share	$	0.60		$	0.46

Earnings per common share – assuming dilution	$	0.59		$	0.45

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

5. Segment Information

We analyze operations by reviewing financial information regarding products that are aggregated into four product segments. The product segments are: (1) Traditional Annuity – Exclusive Distribution (“Exclusive Annuity”), (2) Traditional Annuity – Independent Distribution (“Independent Annuity”), (3) Traditional and Universal Life Insurance and (4) Variable. We also have various support operations and corporate capital that are aggregated into a Corporate and Other segment. Our segment results for 2004 have been refined to reflect a change in the composition of our reportable segments. Prior to the fourth quarter of 2004, amounts now reported in the Exclusive Annuity segment and the Independent Annuity segment were reported together in a single Traditional Annuity segment. This change was made to better reflect how the business is managed and has no impact on our consolidated financial statements for any period reported.


FBL Financial Group, Inc.		March 31, 2005

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

Financial information concerning our operating segments is as follows:


	Three months ended March 31,
	2005			2004
Operating revenues:
Traditional Annuity – Exclusive Distribution	$	35,891		$	32,570
Traditional Annuity – Independent Distribution		33,033			33,336
Traditional and Universal Life Insurance		79,470			78,450
Variable		13,795			12,852
Corporate and Other		7,661			5,453

		169,850			162,661
Change in net unrealized gains/losses on derivatives (A)		(6,053	)		623
Realized gains (losses) on investments (A)		411			66

Consolidated revenues	$	164,208		$	163,350


Pre-tax operating income (loss):
Traditional Annuity – Exclusive Distribution	$	8,774		$	6,248
Traditional Annuity – Independent Distribution		5,141			4,212
Traditional and Universal Life Insurance		12,813			12,403
Variable		535			(765	)
Corporate and Other		(1,377	)		(2,813	)

		25,886			19,285
Income taxes on operating income		(9,041	)		(6,593	)
Change in net unrealized gains/losses on derivatives (A)		(167	)		700
Realized gains (losses) on investments (A)		527			(210	)

Consolidated net income	$	17,205		$	13,182


FBL Financial Group, Inc.		March 31, 2005


	Year ended December 31,
	2004			2003
Operating revenues:
Traditional Annuity – Exclusive Distribution	$	134,768		$	132,216
Traditional Annuity – Independent Distribution		139,264			110,837
Traditional and Universal Life Insurance		313,425			313,087
Variable		52,443			49,222
Corporate and Other		25,924			22,760

		665,824			628,122
Change in net unrealized gains/losses on derivatives (A)		8,648			15,426
Realized gains (losses) on investments (A)		8,130			(2,003	)

Consolidated revenues	$	682,602		$	641,545


Pre-tax operating income (loss):
Traditional Annuity – Exclusive Distribution	$	26,285		$	25,167
Traditional Annuity – Independent Distribution		13,701			17,945
Traditional and Universal Life Insurance		52,052			54,516
Variable		2,151			638
Corporate and Other		(8,434	)		3,724

		85,755			101,990
Income taxes on operating income		(25,390	)		(35,070	)
Change in net unrealized gains/losses on derivatives (A)		979			268
Realized gains (losses) on investments (A)		4,732			(1,243	)

Consolidated net income	$	66,076		$	65,945

(A)

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

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

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

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


FBL Financial Group, Inc.		March 31, 2005

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

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

Results of Operations for the Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004


	Three months ended March 31,
	2005			2004
	(Dollars in thousands, except per share data)
Revenues	$	164,208		$	163,350
Benefits and expenses		137,272			143,640

		26,936			19,710
Income taxes		(9,374	)		(6,720	)
Minority interest and equity income (loss)		(357	)		192

Net income		17,205			13,182
Less dividends on Series B preferred stock		(38	)		(38	)

Net income applicable to common stock	$	17,167		$	13,144


Earnings per common share	$	0.60		$	0.46

Earnings per common share – assuming dilution	$	0.59		$	0.45


Other data
Direct premiums collected, net of reinsurance ceded:
Traditional Annuity – Exclusive Distribution (1)	$	48,323		$	57,787
Traditional Annuity – Independent Distribution (1)		185,339			15,233
Traditional and Universal Life Insurance		43,435			43,552
Variable Annuity and Variable Universal Life (2)		39,650			33,531
Reinsurance assumed and other		5,887			76,273

Total	$	322,634		$	226,376


Direct life insurance in force, end of quarter (in millions)	$	34,285		$	32,658
Life insurance lapse rates		7.6	%		8.2	%
Withdrawal rates:
Individual Traditional Annuity – Exclusive Distribution (1)		3.2	%		3.8	%
Individual Traditional Annuity – Independent Distribution (1)		5.2	%		4.1	%

(1)		The 2004 amounts reflect changes in the composition of our reportable product segments. See the “Segment Information” section that follows for additional discussion of these changes.
(2)		Amounts are net of portion ceded to and include amounts assumed from alliance partners.

Premiums collected is not a measure used in financial statements prepared according to U.S. generally accepted accounting principles (GAAP). There is no comparable GAAP financial measure. We use premiums collected to measure the productivity of our exclusive and independent agents. Total premiums collected increased 42.5% to $322.6 million for the first quarter of 2005 due primarily to the continued growth of our EquiTrust Life


FBL Financial Group, Inc.		March 31, 2005

independent distribution channel. Reinsurance assumed and other premiums collected decreased during 2005 due to the suspension of our coinsurance agreement (the coinsurance agreement) with American Equity Investment Life Insurance Company (American Equity) effective August 1, 2004.

Net income applicable to common stock increased 30.6% in the first quarter of 2005 to $17.2 million. Net income applicable to common stock for the 2005 period was positively impacted by growth in the volume of business in force, increased spreads earned on our universal life and individual traditional annuity products and an increase in realized gains on investments. These items are partially offset by a decrease in equity income and an increase in our effective tax rate.

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


	Three months ended March 31,
	2005			2004
Weighted average yield on cash and invested assets		6.34	%		6.34	%
Weighted average interest crediting rate/index cost		3.98			4.02

Spread		2.36	%		2.32	%

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

Premiums and product charges are as follows:


	Three months ended March 31,
	2005		2004
	(Dollars in thousands)
Premiums and product charges:
Interest sensitive and index product charges	$	23,768	$	22,019
Traditional life insurance premiums		33,333		33,734
Accident and health premiums		20		74

Total	$	57,121	$	55,827

Premiums and product charges increased 2.3% in the 2005 period to $57.1 million. The increase in interest sensitive and index product charges is driven principally by surrender charges on annuity and universal life products, cost of insurance charges on variable universal life and universal life products and mortality and expense fees on variable products. Surrender charges increased due to an increase in surrenders relating to growth in the volume and aging of business in force. Cost of insurance charges increased due to aging of the business in force. Mortality and expense fees increased due to an increase in the separate account balances on which fees are based. Traditional life insurance premiums decreased due primarily to an increase in traditional life insurance premiums ceded partially offset by an increase in sales of term and whole life products by our exclusive agency force.

Net investment income, which excludes investment income on separate account assets relating to variable products, increased 15.8% in the 2005 period to $114.1 million due primarily to an increase in average invested assets. Average invested assets in the 2005 period increased 14.8% to $7,304.0 million (based on securities at amortized cost) due principally to net premium inflows from Farm Bureau Life and EquiTrust Life. The annualized yield earned on average invested assets increased to 6.40% in the first quarter of 2005 from 6.34% in the respective 2004 period. Market conditions in the first quarter of 2005 and the full year 2004 impacted our investment portfolio yield as market investment rates were, in general, lower than our portfolio yield or yield on investments maturing or being paid down. We recorded $0.9 million in net investment income during the first quarter of 2005, representing past due interest that had not been accrued, relating to the redemption of a fixed maturity security that had been impaired in a prior period. Fee income from bond calls and mortgage loan prepayments totaled $0.6 million in the first quarter of 2005 compared to less than $0.1 million in the respective 2004 period. For the first quarter, net investment income includes ($0.3) million in 2005 and ($0.1) million in 2004, representing a reversal of net discount


FBL Financial Group, Inc.		March 31, 2005

accretion on mortgage and asset-backed securities resulting from changing prepayment speed assumptions as of the end of each respective period. See the “Financial Condition – Investments” section that follows for a description of how changes in prepayment speeds impact net investment income.

Derivative income (loss) is as follows:


	Three months ended March 31,
	2005			2004
	(Dollars in thousands)
Derivative income (loss):
Components of derivative income (loss) from call options:
Gains received at expiration	$	2,875		$	8,351
Change in the difference between fair value and remaining option cost at beginning and end of period		(5,911	)		(775	)
Cost of money for call options		(9,237	)		(4,628	)

		(12,273	)		2,948
Other		(127	)		1,264

Total	$	(12,400	)	$	4,212

The decrease in gains received at expiration is attributable to less appreciation in the underlying equity market indices on which our options are based partially offset by the impact of growth in the volume of index annuities in force. The changes in the difference between the fair value of the call options and the remaining option costs for 2005 are caused primarily by the general change in the S&P 500 Index (upon which the majority of our options are based). For the first quarter of 2005, the S&P 500 Index decreased on a point-to-point basis by 2.6%, compared to a point-to-point increase of 1.3% for the 2004 period. While the difference between the fair value of the call options and the remaining option costs generally corresponds to the point-to-point change in the S&P 500 Index, the change in fair value is also impacted by options based on daily or monthly S&P 500 averages and options which are based on other underlying indices. Furthermore, the timing of option settlements also impacts the change in fair value. The cost of money for call options increased due primarily to the impact of growth in the volume of index annuities in force. Other derivative income (loss) is comprised of changes in the value of (i) the conversion feature embedded in convertible fixed maturity securities, (ii) the embedded derivative included in our modified coinsurance contracts and (iii) the forward commitments for the purchase of certain when-issued securities. Approximately $1.0 million of other derivative income for the 2004 period is attributable to appreciation in the conversion feature of one convertible fixed maturity security. Derivative income (loss) will fluctuate based on market conditions.

Realized gains (losses) on investments are as follows:


	Three months ended March 31,
	2005			2004
	(Dollars in thousands)
Realized gains (losses) on investments:
Gains on sales	$	2,275		$	2,333
Losses on sales		(1,863	)		(410	)
Losses due to impairments		–			(1,859	)

Total	$	412		$	64

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

We monitor the financial condition and operations of the issuers of securities rated below investment grade and of the issuers of certain investment grade securities on which we have concerns regarding credit quality. In determining whether or not an unrealized loss is other than temporary, we review factors such as:

• historical operating trends;

• business prospects;


FBL Financial Group, Inc.		March 31, 2005

•   status of the industry in which the company operates;

•   analyst ratings on the issuer and sector;

•   quality of management;

•   size of the unrealized loss;

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

•   our intent and ability to hold the security.

If we determine that an unrealized loss is other than temporary, the security is written down to its fair value at the time of impairment, with the difference between amortized cost and fair value recognized as a realized loss. We did not have any investment impairments during the first quarter of 2005. Details regarding our significant investment impairment for the three months ended March 31, 2004, including the circumstances requiring the write down, are summarized in the following table:


				Impact on Other
General Description	Impairment Loss		Circumstance	Material Investments
	(Dollars in
	thousands)
Textile manufacturer	$	1,632	In March, we noted disappointing fiscal second quarter 2004 results and a 9% decrease in sales.	Credit specific issues with no impact on other material investments.

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

Interest sensitive and index product benefits are as follows:


	Three months ended March 31,
	2005			2004
	(Dollars in thousands)
Interest sensitive and index product benefits:
Interest credited	$	47,463		$	43,137
Index credits		3,144			10,128
Change in value of embedded derivative		(6,700	)		(1,042	)
Amortization of deferred sales inducements		2,356			1,533
Interest sensitive death benefits		9,295			9,514

Total	$	55,558		$	63,270

Interest sensitive and index product benefits decreased 12.2% in the first quarter of 2005 to $55.6 million primarily due to decreases in index product benefits and interest sensitive death benefits partially offset by the impact of an increase in the volume of annuity business in force. Interest credited increased due primarily to growth in the volume of annuity business in force, partially offset by decreases in interest crediting rates on many of our products during 2004 and 2005. The weighted average interest crediting rate/index cost for universal life and individual traditional annuity products, excluding the impact of the amortization of deferred sales inducements, was 3.79% for the 2005 period and 3.87% for the 2004 period. The decreases in interest crediting rates were made in response to declining yields on the investment portfolios backing these products. The decreases in index credits are due primarily to less appreciation in the underlying equity market indices on which our options are based, partially offset by the impact of an increase in the volume of index annuities in force. The change in the value of the embedded derivative is impacted by the change in expected index credits on the next policy anniversary dates, which are related to the change in the fair value of the options acquired to fund these index credits as discussed above under “Derivative income (loss).” The value of the embedded derivative is also impacted by the timing of the posting of index credits and changes in reserve discount rates and assumptions used in estimating future call option costs. Interest sensitive death benefits decreased 2.3% to $9.3 million for the first quarter of 2005. Interest sensitive and index product benefits can tend to fluctuate from period to period primarily as a result of changes in mortality


FBL Financial Group, Inc.		March 31, 2005

experience and the impact of changes in the equity markets on index credits and the value of the embedded derivatives in our index annuities.

Traditional life insurance and accident and health policy benefits are as follows:


	Three months ended March 31,
	2005		2004
	(Dollars in thousands)
Traditional life insurance and accident and health policy benefits:
Traditional life insurance and accident and health benefits	$	20,771	$	21,825
Increase in traditional life and accident and health future policy benefits		8,250		6,732
Distributions to participating policyholders		6,164		6,723

Total	$	35,185	$	35,280

Traditional life insurance and accident and health policy benefits decreased 0.3% in the 2005 period to $35.2 million. In the first quarter of 2005, traditional life insurance surrenders decreased 7.1% to $7.4 million and traditional life insurance death benefits decreased 3.2% to $12.1 million. Distributions to participating policyholders decreased due to reductions in our dividend crediting rates in response to a declining investment portfolio yield on the investments backing these products. Traditional life insurance and accident and health policy benefits can fluctuate from period to period primarily as a result of changes in mortality experience.

Underwriting, acquisition and insurance expenses are as follows:


	Three months ended March 31,
	2005		2004
	(Dollars in thousands)
Underwriting, acquisition and insurance expenses:
Commission expense, net of deferrals	$	3,663	$	3,653
Amortization of deferred policy acquisition costs		14,131		13,697
Amortization of value of insurance in force acquired		753		811
Other underwriting, acquisition and insurance expenses, net of deferrals		19,921		20,198

Total	$	38,468	$	38,359

Underwriting, acquisition and insurance expenses increased 0.3% in the first quarter of 2005 to $38.5 million. Amortization of deferred policy acquisition costs increased due primarily to an increase in the volume of business in force. Other underwriting, acquisition and insurance expenses decreased in the 2005 period partially due to a $0.7 million decrease in losses on sales of fixed assets, a $0.4 million decrease in advertising expense, a $0.3 million decrease in depreciation and service contracts and a $0.3 million decrease in consulting expenses. These decreases were partially offset by a $1.1 million increase in salaries and employee benefits and other expense increases associated with our growing business.

Interest expense totaled $3.3 million in the first quarter of 2005 compared to $2.0 million in the 2004 period. This increase is due principally to the issuance of $75.0 million of 5.85% Senior Notes in April 2004.

Income taxes increased 39.5% in the 2005 period to $9.4 million. The effective tax rate for the first quarter of 2005 was 34.8% compared to 34.1% for 2004 period. The increase in the effective tax rate for the quarter is primarily due to an increase in state income taxes.

Equity income (loss), net of related income taxes, totaled ($0.3) million for the first quarter of 2005 and $0.3 million for the first quarter of 2004. Equity income (loss) includes our proportionate share of gains and losses attributable to our ownership interest in partnerships, joint ventures and certain companies where we exhibit some control but have a minority ownership interest. Given the timing of availability of financial information from our equity investees, we will consistently use information that is as much as three months in arrears for certain of these entities. Several of these entities are investment companies whose operating results are derived primarily from unrealized and realized gains and losses generated by their investment portfolios. As is normal with these types of entities, the level of these gains and losses is subject to fluctuation from period to period depending on the prevailing economic environment, changes in prices of equity securities held by the investment partnerships, timing and


FBL Financial Group, Inc.		March 31, 2005

success of initial public offerings and other exit strategies, and the timing of the sale of investments held by the partnerships and joint ventures. See the “Other Assets” section following for additional information regarding the composition of our equity investees.

Segment Information

We analyze our segment results based on pre-tax operating income (loss). Accordingly, income taxes are not allocated to the segments. In addition, operating results are generally reported net of any transactions between the segments. Operating income (loss) represents net income excluding the impact of realized gains and losses on investments and changes in net unrealized gains and losses on derivatives. Prior to 2005, operating income included the changes in net unrealized gains and losses on derivatives that were not designated as hedges. The operating results for 2004 and 2003 have been modified to conform to the 2005 presentation. See Note 5 to the consolidated financial statements for a summary of the impact of these changes for 2004 and 2003. The impact of realized gains and losses on investments and unrealized gains and losses on derivatives includes adjustments for income taxes and that portion of amortization of deferred policy acquisition costs, deferred sales inducements, unearned revenue reserve and value of insurance in force acquired attributable to such gains or losses.

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


FBL Financial Group, Inc.		March 31, 2005

Independent Annuity segments is not believed to be significant with slight reductions in other underwriting expenses resulting from this change.

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


	Three months ended March 31,
	2005			2004
	(Dollars in thousands)
Net income	$	17,205		$	13,182

Realized losses (gains) on investments		(412	)		(64	)
Change in net unrealized gains/losses on derivatives		204			(1,090	)
Change in amortization of:
Deferred policy acquisition costs		(326	)		333
Deferred sales inducements		(6	)		22
Value of insurance in force acquired		(15	)		47
Unearned revenue reserve		1			(2	)
Income tax offset		194			264

Realized and unrealized losses (gains), net of offsets		(360	)		(490	)

Income taxes on operating income		9,041			6,593


Pre-tax operating income	$	25,886		$	19,285


Pre-tax operating income (loss) by segment:
Traditional Annuity – Exclusive Distribution	$	8,774		$	6,248
Traditional Annuity – Independent Distribution		5,141			4,212
Traditional and Universal Life Insurance		12,813			12,403
Variable		535			(765	)
Corporate and Other		(1,377	)		(2,813	)

	$	25,886		$	19,285

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

Traditional Annuity – Exclusive Distribution Segment


	Three months ended March 31,
	2005			2004
	(Dollars in thousands)
Pre-tax operating income
Operating revenues:
Interest sensitive product charges	$	184		$	231
Net investment income		35,707			32,339

		35,891			32,570
Benefits and expenses		27,117			26,322

Pre-tax operating income	$	8,774		$	6,248


Other data
Annuity premiums collected, direct	$	48,323		$	57,787
Policy liabilities and accruals, end of period		2,159,656			1,976,750

Individual deferred annuity spread:
Weighted average yield on cash and invested assets		6.53	%		6.36	%
Weighted average interest crediting rate		4.21	%		4.64	%

Spread		2.32	%		1.72	%


Individual traditional annuity withdrawal rate		3.2	%		3.8	%


FBL Financial Group, Inc.		March 31, 2005

Pre-tax operating income for the Exclusive Annuity segment increased 40.4% in the 2005 period to $8.8 million. Revenues, benefits and expenses increased in 2005 primarily due to growth in the volume of business in force. Net investment income was positively impacted by an increase in investments due to the change in allocation of capital discussed above and a decrease in our cash position and increased investment in corporate bonds. These factors are partially offset by the impact of a decline in overall market interest rates during 2004. Net investment income includes less than $0.1 million in the 2005 period and ($0.2) million in the 2004 period in fee income from bond calls and mortgage loan prepayments and the acceleration (reversal) of net discount accretion on mortgage and asset-backed securities as noted in the investment income discussion above. The increase in benefits and expenses is due to growth in the volume of business in force partially offset by the impact of reductions in interest crediting rates. Premiums collected decreased 16.4% in the first quarter of 2005 to $48.3 million due primarily to the impact of a rising interest rate environment and increased popularity of variable annuities.

The increase in the weighted average yield on cash and invested assets is primarily attributable to the items affecting investment income noted above. We reduced the crediting rates on most of our annuity products in 2004 in response to declines in the yield on investments backing these products. Interest crediting rates were 4.10% on our primary annuity contracts as of March 31, 2005 and 4.35% as of March 31, 2004. The decrease in the weighted average crediting rate for 2005 is also partially attributable to a decrease in the cost of the interest rate swaps backing a portion of our flexible premium deferred annuity contracts.

Traditional Annuity – Independent Distribution Segment


	Three months ended March 31,
	2005			2004
	(Dollars in thousands)
Pre-tax operating income
Operating revenues:
Interest sensitive and index product charges	$	2,668		$	1,474
Net investment income		36,712			28,273
Derivative income (loss)		(6,347	)		3,589

		33,033			33,336
Benefits and expenses		27,892			29,124

Pre-tax operating income	$	5,141		$	4,212


Other data
Annuity premiums collected, independent channel	$	185,339		$	15,233
Annuity premiums collected, assumed		2,358			72,435
Policy liabilities and accruals, end of period		2,875,353			2,126,041

Individual deferred annuity spread:
Weighted average yield on cash and invested assets		6.07	%		6.16	%
Weighted average interest crediting rate/index cost		3.72	%		3.44	%

Spread		2.35	%		2.72	%


Individual traditional annuity withdrawal rate		5.2	%		4.1	%

Pre-tax operating income for the Independent Annuity segment increased 22.1% in the 2005 period to $5.1 million. This increase is due to growth in the volume of business in force partially offset by decreases in individual deferred annuity spreads. The increase in interest sensitive and index product charges is due to an increase in surrender charges. Surrender charges increased due to an increase in surrenders relating to growth in the volume and aging of business in force. The increase in net investment income is attributable to growth in invested assets due principally to net premium inflows partially offset by the decline in our investment yield. Net investment income is also positively impacted by the change in allocation of equity discussed above. Net investment income includes ($0.2) million in the first quarter of 2005, and $0.1 million in the first quarter of 2004 in fee income from bond calls and mortgage loan prepayments and the acceleration (reversal) of net discount accretion on mortgage and asset-backed securities. The decrease in derivative income is due to a $5.5 million decrease in gains received at expiration attributable to less appreciation in the underlying equity market indices on which our options are based and a $4.6 million increase in the cost of money for call options due primarily to the impact of growth in the volume of index annuities in force. Benefits and expenses decreased due to a $7.0 million decrease in index credits partially offset by increases in other benefits and expenses due to growth in the volume of business in force. Direct premiums


FBL Financial Group, Inc.		March 31, 2005

collected increased to $185.3 million in the 2005 period compared to $15.2 million in the 2004 period due to the continued growth of our EquiTrust Life independent distribution. Reinsurance assumed premiums collected decreased during 2005 due to the suspension of our coinsurance agreement with American Equity effective August 1, 2004.

The decrease in the weighted average yield on cash and invested assets is primarily the result of the impact of the decline in market interest rates during 2004. Our spread earned for the 2005 period was primarily impacted by changes in spreads for index annuities assumed under the coinsurance agreement, which is driven by option costs and fluctuations in the minimum guarantees credited to the contracts.

Traditional and Universal Life Insurance Segment


	Three months ended March 31,
	2005			2004
	(Dollars in thousands)
Pre-tax operating income
Operating revenues:
Interest sensitive product charges	$	10,965		$	11,094
Traditional life insurance premiums		33,333			33,734
Net investment income		35,172			33,622

		79,470			78,450
Benefits and expenses		66,657			66,047

Pre-tax operating income	$	12,813		$	12,403


Other data
Life premiums collected, net of reinsurance	$	46,893		$	47,246
Policy liabilities and accruals, end of period		2,070,242			2,038,653
Direct life insurance in force, end of period (in millions)		26,944			25,450

Interest sensitive life insurance spread:
Weighted average yield on cash and invested assets		6.87	%		6.74	%
Weighted average interest crediting rate		4.52	%		4.64	%

Spread		2.35	%		2.10	%

Pre-tax operating income for the Traditional and Universal Life Insurance segment increased 3.3% in the 2005 period to $12.8 million. This increase is primarily due to an increase in spreads earned on interest sensitive products. Net investment income was positively impacted by a decrease in our cash position and increased investment in corporate bonds. Net investment income also includes $0.6 million in the first quarter of 2005 compared to ($0.1) million in the first quarter of 2004 in fee income from bond calls and mortgage loan prepayments and the acceleration (reversal) of net discount accretion on mortgage and asset-backed securities. These factors are partially offset by a decrease in investments due to the change in allocation of equity discussed above. Benefits and expenses for the 2005 period increased 0.9% to $66.7 million due primarily to an increase in interest sensitive death benefits. In addition, operating expenses increased $0.7 million for the 2005 period, the cause of which is estimated to be attributable to the change in allocation of indirect expenses discussed above. These increases were offset by decreases in traditional life insurance benefits and amortization of deferred policy acquisition costs. In the first quarter of 2005, interest sensitive death benefits increased 16.6% to $6.4 million and traditional death benefits decreased 3.2% to $12.1 million.

The increase in the weighted average yield on invested assets is the result of the decrease in our cash position and the increase in fee income from bond calls and mortgage loan prepayments and discount accretion on mortgage and asset-backed securities for the 2005 period. The decrease in the average crediting rate is due to a 20 point basis point decrease in the crediting rate on our primary universal life product in September 2004.


FBL Financial Group, Inc.		March 31, 2005

Variable Segment


	Three months ended March 31,
	2005		2004
	(Dollars in thousands)
Pre-tax operating income (loss)
Operating revenues:
Interest sensitive product charges	$	9,952	$	9,218
Net investment income		3,607		3,354
Other income		236		280

		13,795		12,852
Benefits and expenses		13,260		13,617

Pre-tax operating income (loss)	$	535	$	(765	)


Other data
Variable premiums collected, net of reinsurance and internal rollovers	$	39,650	$	33,531
Policy liabilities and accruals, end of period		240,020		224,341
Separate account assets, end of period		554,398		481,950
Direct life insurance in force, end of period (in millions)		7,341		7,208

Revenues increased 7.3% in the 2005 period to $13.8 million. Mortality and expense fee income increased 18.8% to $1.6 million in the first quarter of 2005 due to growth in separate account assets. Benefits and expenses decreased 2.6% to $13.3 million in the first quarter of 2005 due primarily to a decrease in death benefits partially offset by a $0.4 million increase in operating expenses for the 2005 period, the cause of which is estimated to be attributable to the change in allocation of indirect expenses during 2005 as discussed above. Death benefits in excess of related account values on variable universal life policies decreased to $2.6 million in the 2005 period from $3.7 million in the 2004 period.

The Variable segment does not currently contribute significantly to our net income due to the fee income structure of these products and the significant administrative costs associated with the sale and processing of this business. Profitability of this line of business is expected to increase as the volume of business grows and the significant fixed costs of administering the business are spread over a larger block of policies.

Corporate and Other Segment


	Three months ended March 31,
	2005			2004
	(Dollars in thousands)
Pre-tax operating loss
Operating revenues:
Accident and health insurance premiums	$	20		$	74
Net investment income		2,908			958
Other income		4,733			4,421

		7,661			5,453
Interest expense		3,295			2,033
Benefits and other expenses		5,247			6,562

		(881	)		(3,142	)
Minority interest		(98	)		(63	)
Equity income (loss), before tax		(398	)		392

Pre-tax operating loss	$	(1,377	)	$	(2,813	)

Pre-tax operating loss decreased 51.0% to ($1.4) million, primarily due to an increase in net investment income. We recorded $0.9 million in net investment income during the first quarter of 2005, representing past due interest that had not been accrued, relating to the redemption of a fixed maturity security that had been impaired in a prior period. Net investment income was also positively impacted by an increase in investments due to our Senior Note offering in April 2004 and the change in allocation of capital discussed above. In the first quarter of 2005, interest expense increased due primarily to $1.1 million of interest expense on our Senior Notes. Benefits and other expenses were impacted by a $1.2 million decrease in operating expenses for the 2005 period, the cause of which is estimated to be attributable to the change in method of allocating indirect expenses among the segments.


FBL Financial Group, Inc.		March 31, 2005

Pending Accounting Changes

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

Financial Condition

Investments

Our total investment portfolio increased 1.7% to $7,626.0 million at March 31, 2004 compared to $7,501.7 million at December 31, 2004. This increase is primarily the result of net cash received from interest sensitive and index products and positive cash flow provided by operating activities. This increase was partially offset by a $69.8 million decrease in net unrealized appreciation of fixed maturity securities classified as available for sale due principally to the impact of an increase in market interest rates during the first quarter of 2005.

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


FBL Financial Group, Inc.		March 31, 2005

Our investment portfolio is summarized in the table below:


	March 31, 2005					December 31, 2004
	Carrying Value		Percent			Carrying Value		Percent
	(Dollars in thousands)
Fixed maturities:
Public	$	5,302,897		69.5	%	$	5,304,217		70.7	%
144A private placement		876,300		11.5			859,022		11.5
Private placement		302,731		4.0			295,969		3.9

Total fixed maturities		6,481,928		85.0			6,459,208		86.1
Equity securities		82,301		1.1			71,163		0.9
Mortgage loans on real estate		785,725		10.3			740,874		9.9
Derivative instruments		20,033		0.3			15,536		0.2
Investment real estate:
Acquired for debt		655		–			655		–
Investment		9,093		0.1			8,786		0.1
Policy loans		176,883		2.3			176,613		2.4
Other long-term investments		1,300		–			1,300		–
Short-term investments		68,089		0.9			27,545		0.4

Total investments	$	7,626,007		100.0	%	$	7,501,680		100.0	%

As of March 31, 2005, 95.5% (based on carrying value) of the fixed maturity securities were investment grade debt securities, defined as being in the highest two National Association of Insurance Commissioners (NAIC) designations. Non-investment grade debt securities generally provide higher yields and involve greater risks than investment grade debt securities because their issuers typically are more highly leveraged and more vulnerable to adverse economic conditions than investment grade issuers. In addition, the trading market for these securities is usually more limited than for investment grade debt securities. We regularly review the percentage of our portfolio that is invested in non-investment grade debt securities (NAIC designations 3 through 6). As of March 31, 2005, the investment in non-investment grade debt was 4.5% of fixed maturity securities. At that time, no single non-investment grade holding exceeded 0.2% of total investments. A summary of the gross unrealized gains and gross unrealized losses on our fixed maturity securities, by internal industry classification, as of March 31, 2005 and December 31, 2004 is as follows:


FBL Financial Group, Inc.		March 31, 2005


	March 31, 2005
			Carrying Value				Carrying Value
			of Securities				of Securities
	Total		with Gross		Gross		with Gross		Gross
	Carrying		Unrealized		Unrealized		Unrealized		Unrealized
	Value		Gains		Gains		Losses		Losses
	(Dollars in thousands)
Corporate securities:
Banking	$	1,063,094	$	757,354	$	54,993	$	305,740	$	(5,946	)
Manufacturing		598,073		435,427		29,683		162,646		(5,220	)
Mining		284,302		242,100		15,979		42,202		(1,068	)
Retail trade		102,912		72,245		5,863		30,667		(676	)
Services		90,164		66,725		3,999		23,439		(790	)
Transportation		144,588		111,863		8,128		32,725		(986	)
Public utilities		213,562		144,732		9,645		68,830		(1,295	)
Private utilities and related sectors		364,084		294,395		22,110		69,689		(1,144	)
Other		134,991		113,313		6,465		21,678		(373	)

Total corporate securities		2,995,770		2,238,154		156,865		757,616		(17,498	)
Mortgage and asset-backed securities		2,493,765		1,739,209		42,704		754,556		(12,541	)
United States Government and agencies		591,978		241,174		7,291		350,804		(6,950	)
State, municipal and other governments		400,415		298,376		11,624		102,039		(1,718	)

Total	$	6,481,928	$	4,516,913	$	218,484	$	1,965,015	$	(38,707	)


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

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

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


FBL Financial Group, Inc.		March 31, 2005

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


NAIC		March 31, 2005					December 31, 2004
Designation	Equivalent S&P Ratings (1)	Carrying Value		Percent			Carrying Value		Percent
		(Dollars in thousands)
1	AAA, AA, A	$	4,452,443		68.7	%	$	4,525,974		70.1	%
2	BBB		1,734,794		26.8			1,646,518		25.5

	Total investment grade		6,187,237		95.5			6,172,492		95.6
3	BB		242,401		3.7			233,318		3.6
4	B		45,928		0.7			45,873		0.7
5	CCC, CC, C		6,342		0.1			7,506		0.1
6	In or near default		20		–			19		–

	Total below investment grade		294,691		4.5			286,716		4.4

	Total fixed maturities	$	6,481,928		100.0	%	$	6,459,208		100.0	%

(1)

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

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


		March 31, 2005
		Carrying Value
		of Securities with					Gross
NAIC		Gross Unrealized		Percent of			Unrealized			Percent of
Designation	Equivalent S&P Ratings	Losses		Total			Losses			Total
		(Dollars in thousands)
1	AAA, AA, A	$	1,385,450		70.5	%	$	(24,989	)		64.6	%
2	BBB		496,788		25.3			(11,724	)		30.2

	Total investment grade		1,882,238		95.8			(36,713	)		94.8
3	BB		66,851		3.4			(1,700	)		4.4
4	B		15,215		0.8			(254	)		0.7
5	CCC, CC, C		711		–			–			–
6	In or near default		–		–			(40	)		0.1

	Total below investment grade		82,777		4.2			(1,994	)		5.2

	Total	$	1,965,015		100.0	%	$	(38,707	)		100.0	%


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

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

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

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


FBL Financial Group, Inc.		March 31, 2005

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


	March 31, 2005
					Gross
	Number of		Amortized		Unrealized			Estimated
	Issuers		Cost		Losses			Market Value
	(Dollars in thousands)
Three months or less		118	$	809,667	$	(11,619	)	$	798,048
Greater than three months to six months		86		506,184		(12,463	)		493,721
Greater than six months to nine months		19		77,323		(1,625	)		75,698
Greater than nine months to twelve months		29		377,752		(4,009	)		373,743
Greater than twelve months		21		232,796		(8,991	)		223,805

Total			$	2,003,722	$	(38,707	)	$	1,965,015


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

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

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


	March 31, 2005					December 31, 2004
	Carrying Value					Carrying Value
	of Securities with		Gross			of Securities with		Gross
	Gross Unrealized		Unrealized			Gross Unrealized		Unrealized
	Losses		Losses			Losses		Losses
	(Dollars in thousands)
Due in one year or less	$	9,896	$	(78	)	$	10,184	$	(53	)
Due after one year through five years		142,016		(2,145	)		111,883		(815	)
Due after five years through ten years		438,858		(8,837	)		167,370		(2,091	)
Due after ten years		619,689		(15,106	)		443,829		(12,007	)

		1,210,459		(26,166	)		733,266		(14,966	)
Mortgage and asset-backed securities		754,556		(12,541	)		338,700		(7,488	)

Total	$	1,965,015		(38,707	)	$	1,071,966	$	(22,454	)

Included in the above table are 320 securities from 204 issuers at March 31, 2005 and 169 securities from 130 issuers at December 31, 2004. These increases are primarily due to increases in market interest rates between December 31, 2004 and March 31, 2005. Approximately 94.8% at March 31, 2005 and 94.9% at December 31, 2004 of the unrealized losses on fixed maturity securities are on securities that are rated investment grade. Unrealized losses on investment grade securities principally relate to changes in market interest rates or changes in credit spreads since the securities were acquired. Approximately 5.2% at March 31, 2005 and 5.1% at December 31, 2004 of the unrealized losses on fixed maturity securities are on securities that are rated below investment grade. We monitor the financial condition and operations of the issuers of securities rated below investment grade and of the issuers of certain investment grade securities on which we have concerns regarding credit quality. In determining whether or not an unrealized loss is other than temporary, we review factors such as:

•   historical operating trends;

•   business prospects;

•   status of the industry in which the company operates;


FBL Financial Group, Inc.		March 31, 2005

•   analyst ratings on the issuer and sector;

•   quality of management;

•   size of the unrealized loss;

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

•   our intent and ability to hold the security.

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

Excluding mortgage and asset-backed securities, no securities from the same issuer had an aggregate unrealized loss in excess of $1.0 million at March 31, 2005. With respect to mortgage and asset-backed securities not backed by the United States government, no securities from the same issuer had an aggregate unrealized loss in excess of $2.4 million at March 31, 2005. The $2.4 million unrealized loss from one issuer relates to four different securities that are backed by different pools of residential mortgage loans. All four securities are rated investment grade and the largest unrealized loss on any one security totaled $1.2 million at March 31, 2005.

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

The carrying value and estimated market value of our portfolio of fixed maturity securities, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	March 31, 2005				December 31, 2004
			Estimated				Estimated
	Amortized Cost		Market Value		Amortized Cost		Market Value
	(Dollars in thousands)
Due in one year or less	$	79,012	$	79,903	$	76,875	$	78,273
Due after one year through five years		422,819		439,302		460,638		484,626
Due after five years through ten years		984,505		1,012,485		909,744		956,174
Due after ten years		2,281,749		2,378,460		2,127,608		2,238,332

		3,768,085		3,910,150		3,574,865		3,757,405
Mortgage and asset-backed securities		2,463,602		2,493,765		2,564,265		2,622,616
Redeemable preferred stocks		70,464		78,013		70,463		79,187

Total	$	6,302,151	$	6,481,928	$	6,209,593	$	6,459,208

Mortgage and other asset-backed securities comprised 38.5% at March 31, 2005 and 40.6% at December 31, 2004 of our total fixed maturity securities. These securities are purchased when we believe these types of investments provide superior risk-adjusted returns compared to returns of more conventional investments such as corporate bonds and mortgage loans. These securities are diversified as to collateral types, cash flow characteristics and maturity. During the first quarter of 2005, we reduced our allocation of assets to mortgage and other asset-backed securities to reduce our exposure to unwanted changes in the duration of our investment portfolio with changes in market interest rates.

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

At each balance sheet date, we review and update our expectation of future prepayment speeds and the book value of the mortgage and other asset-backed securities purchased at a premium or discount is reset, if needed, to result in a constant effective yield over the life of the security. This effective yield is computed using historical principal


FBL Financial Group, Inc.		March 31, 2005

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

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

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


	March 31, 2005
							Percent of
							Fixed
	Amortized Cost		Par Value		Carrying Value		Maturities
	(Dollars in thousands)
Residential mortgage-backed securities:
Sequential	$	1,470,688	$	1,497,974	$	1,490,908		23.0	%
Pass through		167,842		167,098		168,805		2.6
Planned and targeted amortization class		310,338		314,147		311,075		4.8
Other		124,329		125,657		124,079		1.9

Total residential mortgage-backed securities		2,073,197		2,104,876		2,094,867		32.3
Commercial mortgage-backed securities		274,599		270,416		282,058		4.4
Other asset-backed securities		115,806		115,633		116,840		1.8

Total mortgage and asset-backed securities	$	2,463,602	$	2,490,925	$	2,493,765		38.5	%


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

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

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

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


FBL Financial Group, Inc.		March 31, 2005

Equity securities totaled $82.3 million at March 31, 2005 and $71.2 million at December 31, 2004. Gross unrealized gains totaled $27.1 million and gross unrealized losses totaled $0.1 million at March 31, 2005. At December 31, 2004, gross unrealized gains totaled $15.9 million and gross unrealized losses totaled $0.1 million on these securities. Included in equity securities is our investment in American Equity Investment Life Holding Company which totaled $70.6 million at March 31, 2005 and $59.5 million at December 31, 2004.

Mortgage loans totaled $785.7 million at March 31, 2005 and $740.9 million at December 31, 2004. These mortgage loans are diversified as to property type, location and loan size, and are collateralized by the related properties. There were no mortgages more than 60 days delinquent at March 31, 2005 and December 31, 2004. Our mortgage lending policies establish limits on the amount that can be loaned to one borrower and require diversification by geographic location and collateral type. Information regarding the collateral type and related geographic location within the United States follows:


	March 31, 2005					December 31, 2004
	Mortgage Loan		Percent of			Mortgage Loan		Percent of
Collateral Type	Carrying Value		Total			Carrying Value		Total
	(Dollars in thousands)
Office	$	309,786		39.4	%	$	314,985		42.5	%
Retail		272,746		34.7			233,785		31.6
Industrial		192,697		24.5			181,395		24.5
Other		10,496		1.4			10,709		1.4

Total	$	785,725		100.0	%	$	740,874		100.0	%


	March 31, 2005					December 31, 2004
	Mortgage Loan		Percent of			Mortgage Loan		Percent of
Region of the United States	Carrying Value		Total			Carrying Value		Total
	(Dollars in thousands)
Pacific	$	164,522		20.9	%	$	154,704		20.9	%
East North Central		155,014		19.7			156,417		21.1
South Atlantic		129,983		16.5			125,304		16.9
West North Central		119,217		15.2			94,305		12.7
Mountain		80,695		10.3			85,247		11.5
West South Central		70,359		9.0			65,635		8.9
Other		65,935		8.4			59,262		8.0

Total	$	785,725		100.0	%	$	740,874		100.0	%

Our asset-liability management program includes (i) designing and developing products that encourage persistency and, as a result, create a stable liability structure, and (ii) structuring the investment portfolio with duration and cash flow characteristics consistent with the duration and cash flow characteristics of our insurance liabilities. The weighted average life of the fixed maturity and mortgage loan portfolio, based on market values and excluding convertible bonds, was approximately 8.3 years at March 31, 2005 and 7.8 years at December 31, 2004. Based on calculations utilizing our fixed income analytical system, including our mortgage backed prepayment assumptions, the effective duration of our fixed maturity and mortgage loan portfolios was 5.7 at March 31, 2005 and 5.8 at December 31, 2004.

Other Assets

Deferred policy acquisition costs increased 4.7% to $615.0 million and deferred sales inducements increased 19.8% to $93.9 million at March 31, 2005 due primarily to capitalization of costs incurred with new sales and the impact of the change in unrealized appreciation on fixed maturity securities. Assets held in separate accounts increased 0.4% to $554.4 million at March 31, 2005 due primarily to the transfer of net premiums to the separate accounts partially offset by depreciation in the value of investments.


FBL Financial Group, Inc.		March 31, 2005

The securities and indebtedness of related parties line on the consolidated balance sheet, which includes the investments that generate our equity income, is comprised of the following:


	March 31,			December 31,
	2005			2004
	(Dollars in thousands)
Real estate investment partnerships (3 in 2005 and 2004)	$	11,041		$	11,680
Berthel Fisher and Company and affiliates		4,652			4,597
Investment partnerships (5 in 2005 and 2004)		1,287			1,197
Other		5,960			5,984

		22,940			23,458
Proportionate share of net unrealized investment losses of equity investees		(459	)		(731	)

Securities and indebtedness of related parties	$	22,481		$	22,727

At March 31, 2005, we had total assets of $9,270.0 million, a 1.9% increase from total assets at December 31, 2004.

Liabilities

Policy liabilities and accruals and other policyholders’ funds increased 2.9% to $7,412.8 million at March 31, 2005 primarily due to increases in the volume of business in force. Short-term debt increased due to the reclassification from long-term debt of the final redemption of our Series C preferred stock due January 3, 2006 ($46.3 million). Other liabilities decreased 9.9% to $109.1 million at March 31, 2005 due primarily to a decrease in payables for security purchases. At March 31, 2005, we had total liabilities of $8,447.1 million, a 2.2% increase from total liabilities at December 31, 2004.

Stockholders’ Equity

Stockholders’ equity decreased 1.2%, to $822.7 million at March 31, 2005, compared to $832.6 million at December 31, 2004. This decrease is principally attributable to the change in unrealized appreciation/depreciation on fixed maturity and equity securities, partially offset by net income.

At March 31, 2005, common stockholders’ equity was $819.7 million, or $28.38 per share, compared to $829.6 million, or $28.87 per share at December 31, 2004. Included in stockholders’ equity per common share is $3.96 at March 31, 2005 and $4.91 at December 31, 2004 attributable to net unrealized investment gains resulting from marking to market value our fixed maturity and equity securities classified as available for sale and interest rate swaps. The change in net unrealized appreciation of these securities and derivatives decreased stockholders’ equity $26.8 million during the first quarter of 2005, after related adjustments to deferred policy acquisition costs, deferred sales inducements, value of insurance in force acquired, unearned revenue reserve and deferred income taxes.

Liquidity and Capital Resources

FBL Financial Group, Inc.

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

During the first quarter, we paid cash dividends on our common and preferred stock totaling $3.1 million in 2005 and $2.9 million in 2004. Interest payments on our debt totaled $1.8 million for the 2005 period and $1.4 million for the 2004 period. It is anticipated quarterly cash dividend requirements for the remainder of 2005 will be $0.105 per common and $0.0075 per Series B redeemable preferred share or approximately $9.3 million. In addition, interest payments on our debt, assuming no changes to the variable rate charged on our line of credit borrowings, are estimated to be $9.7 million for the remainder of 2005.


FBL Financial Group, Inc.		March 31, 2005

We have agreed that we will not declare or pay dividends on any class or series of stock except for regular cash dividends as long as any Series C redeemable preferred stock is outstanding. Regular cash dividends are defined as regular, fixed, quarterly or other periodic cash dividends as declared by our Board of Directors as part of the stated cash dividend policy and do not include any other dividends or distributions, such as extraordinary, special or otherwise non-recurring dividends. We have also agreed that we will not pay dividends if we are in default of the revolving line of credit, Subordinated Deferrable Interest Note or Senior Notes agreements.

The ability of the Life Companies to pay dividends to FBL Financial Group, Inc. is limited by law to earned profits (statutory unassigned surplus) as of the date the dividend is paid, as determined in accordance with accounting practices prescribed by insurance regulatory authorities of the State of Iowa. In addition, under the Iowa Insurance Holding Company Act, the Life Companies may not pay an “extraordinary” dividend without prior notice to and approval by the Iowa Insurance Commissioner. An “extraordinary” dividend is defined under the Iowa Insurance Holding Company Act as any dividend or distribution of cash or other property whose fair market value, together with that of other dividends or distributions made within the preceding 12 months, exceeds the greater of (i) 10% of policyholders’ surplus (total statutory capital stock and statutory surplus) as of December 31 of the preceding year, or (ii) the statutory net gain from operations of the insurer for the 12-month period ending December 31 of the preceding year. During the remainder of 2005, the maximum amount legally available for distribution to FBL Financial Group, Inc., without further regulatory approval, from Farm Bureau Life is $39.3 million and from EquiTrust Life is $23.8 million.

FBL Financial Group, Inc. expects to rely on available cash resources and dividends from the Life Companies to make any dividend payments to its stockholders and interest payments on its debt for the remainder of 2005. In addition, it is anticipated that a combination of available cash and investments, additional borrowing and dividends from the Life Companies will be used to fund the repayment of borrowings on the line of credit which are due October 31, 2005 ($46.0 million) and the scheduled final redemption of the Series C preferred stock ($46.3 million) due on January 3, 2006.

We may from time to time review potential acquisition opportunities. It is anticipated that funding for any such acquisition would be provided from available cash resources, debt or equity financing. As of March 31, 2005, we had no material commitments for capital expenditures. The parent company had available cash and investments totaling $66.7 million at March 31, 2005.

Insurance Operations

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

For the life insurance operations, cash outflow requirements for operations are typically met from normal premium and deposit cash inflows. This has been the case for all reported periods as the Life Companies’ continuing operations and financing activities relating to interest sensitive and index products provided funds totaling $192.1 million in the three months ended March 31, 2005 and $131.0 million in the three months ended March 31, 2004. Positive cash flow from operations is generally used to increase the insurance companies’ fixed maturity securities and other investment portfolios. In developing their investment strategy, the Life Companies establish a level of cash and securities which, combined with expected net cash inflows from operations, maturities of fixed maturity investments and principal payments on mortgage and asset-backed securities and mortgage loans, are believed adequate to meet anticipated short-term and long-term benefit and expense payment obligations.

We anticipate that funds to meet our short-term and long-term capital expenditures, cash dividends to stockholders and operating cash needs will come from existing capital and internally generated funds. We believe that the current


FBL Financial Group, Inc.		March 31, 2005

level of cash and available-for-sale and short-term securities, combined with expected net cash inflows from operations, maturities of fixed maturity investments, principal payments on mortgage and asset-backed securities, mortgage loans and our insurance products, are adequate to meet our anticipated cash obligations for the foreseeable future. Our investment portfolio at March 31, 2005, included $68.1 million of short-term investments, $17.2 million of cash (consisting primarily of securities purchased with a maturity of three months or less) and $1,108.6 million in carrying value of U.S. Government and U.S. Government agency backed securities that could be readily converted to cash at or near carrying value.

Contractual Obligations

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

Cautionary Statement Regarding Forward Looking Information

From time to time, we may publish 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. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for these types of statements. In order to comply with the terms of the safe harbor, please note that a variety of factors could cause our actual results and experiences to differ materially from the anticipated results or other expectations expressed in our forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of our business include but are not limited to the following:

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

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

•   The degree to which customers and agents (including the agents of our alliance partners) accept our products will influence our future growth rate.

•   Extraordinary acts of nature or man may result in higher than expected claim activity.

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

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

Our internal controls over financial reporting change from time-to-time as we modify and enhance our systems and processes to meet our dynamic needs. Changes are also made as we strive to be more efficient in how we conduct our business. Any significant changes in controls are evaluated prior to implementation to help ensure the continued


FBL Financial Group, Inc.		March 31, 2005

effectiveness of our internal controls and internal control environment. While changes have taken place in our internal controls during the quarter ended March 31, 2005, 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 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(d) Maximum Number

(c) Total Number of

(or Approximate

Shares (or Units)

Dollar Value) of

Purchased as Part

Shares (or Units)

(a) Total Number of

(b) Average Price

of Publicly

that May Yet Be

Shares (or Units)

Paid per Share (or

Announced Plans or

Purchased Under the

Period

Purchased (1)

Unit) (1)

Programs

Plans or Programs

January 1, 2005 through January 31, 2005

–

Not applicable

February 1, 2005 through February 28, 2005

700

28.27

Not applicable

March 1, 2005 through March 31, 2005

–

Not applicable

Total

700

28.27

Not applicable

(1)

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


FBL Financial Group, Inc.		March 31, 2005

ITEM 6. EXHIBITS

(a) Exhibits:


3(i)(a)		Restated Articles of Incorporation, filed with Iowa Secretary of State March 19, 1996 (H)
3(i)(b)		Articles of Amendment, Designation of Series A Preferred Stock, filed with Iowa Secretary of State April 30, 1996 (H)
3(i)(c)		Articles of Amendment, Designation of Series B Preferred Stock, filed with Iowa Secretary of State May 30, 1997 (H)
3(i)(d)		Articles of Correction, filed with Iowa Secretary of State October 27, 2000 (H)
3(i)(e)		Articles of Amendment, Designation of Series C Preferred Stock, filed with Iowa Secretary of State December 29, 2000 (H)
3(i)(f)		Articles of Amendment, filed with Iowa Secretary of State May 15, 2003 (H)
3(i)(g)		Articles of Amendment, filed with Iowa Secretary of State May 14, 2004 (H)
3(i)(h)		Letter Agreement dated as of January 31, 2005 between FBL Financial Group, Inc. and Kansas Farm Bureau waiving certain terms of Series C Preferred Stock (J)
3(ii)		Second Restated Bylaws, adopted May 14, 2004 (H)
4.1		Form of Class A Common Stock Certificate of the Registrant (A)
4.2		Restated Stockholders’ Agreement Regarding Management and Transfer of Shares of Class B Common Stock of FBL Financial Group, Inc. dated as of March 31, 2004 (H)
4.3		Certificate of Trust; Declaration of Trust of FBL Financial Group Capital Trust dated May 30, 1997, including in Annex I thereto the form of Trust Preferred Security and the form of Trust Common Security; Subordinated Deferrable Interest Note Agreement dated May 30, 1997 between FBL Financial Group, Inc. and FBL Financial Group Capital Trust, including therein the form of Subordinated Deferrable Interest Note; Preferred Securities Guarantee Agreement of FBL Financial Group, Inc., dated May 30, 1997 (B)
4.4(a)		Master Transaction Agreement between Federal Home Loan Bank of Des Moines and Farm Bureau Life Insurance Company dated July 9, 2003 (E)
4.4(b)		Advance Agreement between Federal Home Loan Bank of Des Moines and Farm Bureau Life Insurance Company dated September 17, 2003 (E)
4.5		Credit Agreement and related Schedules and Exhibits dated as of December 18, 2003 between FBL Financial Group, Inc. and LaSalle Bank National Association (F)
4.5(a)		Amendment No. 1 to Credit Agreement dated as of April 1, 2004 between FBL Financial Group, Inc. and LaSalle Bank National Association and Bankers Trust Company, N.A. (G)
4.6		Indenture, dated as of April 12, 2004, between FBL Financial Group, Inc. and Deutsche Bank Trust Company Americas as Trustee (G)
4.7		Form of 5.85% Senior Note Due 2014 (G)
4.8		Revolving Demand Note, dated as of September 20, 2004, between Farm Bureau Life Insurance Company and Farm Bureau Mutual Insurance Company (I)
4.9		Revolving Demand Note, dated as of September 20, 2004, between EquiTrust Life Insurance Company and Farm Bureau Mutual Insurance Company (I)
10.1		Form of Amended and Restated 1996 Class A Common Stock Compensation Plan containing all amendments adopted through May 14, 2003 (F) *
10.1(a)		Form of Stock Option Agreement, pursuant to the Amended and Restated FBL Financial Group, Inc. 1996 Class A Common Stock Compensation Plan (I) *
10.2		Trademark License from the American Farm Bureau Federation to Farm Bureau Life Insurance Company dated May 20, 1987 (A)
10.3		Membership Agreement between American Farm Bureau Federation to the Iowa Farm Bureau Federation dated February 13, 1987 (A)
10.4		Form of Royalty Agreement with Farm Bureau organizations
10.7		Form of Services Agreement between FBL Financial Group, Inc. and Farm Bureau Management Corporation, dated as of January 1, 1996 (A)
10.8		Management Services Agreement between FBL Financial Group, Inc. and Farm Bureau Mutual effective as of January 1, 2003 (F)
10.10		Management Performance Plan (2005) sponsored by FBL Financial Group, Inc. *
10.14		Lease Agreement dated as of March 31, 1998 between IFBF Property Management, Inc., FBL Financial Group, Inc. and Farm Bureau Mutual Insurance Company (C)


FBL Financial Group, Inc.		March 31, 2005


10.15		Building Management Services Agreement dated as of March 31, 1998 between IFBF Property Management, Inc. and FBL Financial Group, Inc. (C)
10.16		Coinsurance Agreement between EquiTrust Life Insurance Company and American Equity Investment Life Insurance Company, dated December 29, 2003 (F)
10.17		First Amendment to the Coinsurance Agreement by and between EquiTrust Life Insurance Company and American Equity Investment Life Insurance Company, effective August 1, 2004 (I)
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
99.3		Form of Change In Control Agreement Form A, dated as of April 22, 2002 between the Company and each of William J. Oddy, James W. Noyce, Stephen M. Morain, John M. Paule and JoAnn Rumelhart, and dated as of November 24, 2004 between the Company and Bruce A. Trost (D) *
99.4		Form of Change In Control Agreement Form B, dated as of April 22, 2002 between the Company and each of James P. Brannen, Douglas W. Gumm, Barbara J. Moore and Lou Ann Sandburg and dated as of November 24, 2004 between the Company and David T. Sebastian (D) *
99.5		Form of Restricted Stock Agreement, dated as of January 15, 2004 between the Company and each of William J. Oddy, James W. Noyce, Stephen M. Morain, John M. Paule and JoAnn Rumelhart, John E. Tatum, James P. Brannen, Douglas W. Gumm, Barbara J. Moore and Lou Ann Sandburg (I) *
99.6		Form of Restricted Stock Agreement, dated as of January 17, 2005 between the Company and each of William J. Oddy, James W. Noyce, Stephen M. Morain, John M. Paule and JoAnn Rumelhart, Bruce A. Trost, James P. Brannen, Douglas W. Gumm, Barbara J. Moore, Lou Ann Sandburg and David T. Sebastian *

exhibit relates to a compensatory plan for management or directors

Incorporated by reference to:

(A)   Form S-1 filed on July 11, 1996, File No. 333-04332

(B)   Form 8-K filed on June 6, 1997, File No. 001-11917

(C)   Form 10-Q for the period ended March 31, 1998, File No. 001-11917

(D)   Form 10-Q for the period ended June 30, 2002, File No. 001-11917

(E)   Form 10-Q for the period ended September 30, 2003, File No. 001-11917

(F)   Form 10-K for the period ended December 31, 2003, File No. 001-11917

(G)   Form S-4 filed on May 5, 2004, File No. 333-115197

(H)   Form 10-Q for the period ended June 30, 2004, File No. 001-11917

(I)   Form 10-Q for the period ended September 30, 2004, File No. 001-11917

(J)   Form 10-K for the period ended December 31, 2004, File No. 001-11917


PART I. FINANCIAL INFORMATION

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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			13

Item 3. Quantitative and Qualitative Disclosures About Market Risk			33

Item 4. Controls and Procedures			33

PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			34

Item 6. Exhibits			35

SIGNATURES			37
Exhibit 10.4 Form of Royalty Agreement
Exhibit 10.10 Management Performance Plan
Exhibit 31.1 Certification
Exhibit 31.2 Certification
Exhibit 32 Certification
Exhibit 99.6 Form of Restricted Stock Agreement

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	•	status of the industry in which the company operates;
	•	analyst ratings on the issuer and sector;
	•	quality of management;
	•	size of the unrealized loss;
	•	length of time the security has been in an unrealized loss position; and
	•	our intent and ability to hold the security.

	•	historical operating trends;
	•	business prospects;
	•	status of the industry in which the company operates;

	•	Changes to interest rate levels and stock market performance may impact our lapse rates, market value of our investment portfolio and our ability to sell life insurance products, notwithstanding product features to mitigate the financial impact of such changes.
	•	Little or no gains in the entire series of call options purchased over the life of index annuities could cause us to incur expenses for credited interest over and above our option costs. This would cause our spreads to tighten and reduce our profits, or potentially result in losses on these products.
	•	The degree to which customers and agents (including the agents of our alliance partners) accept our products will influence our future growth rate.
	•	Extraordinary acts of nature or man may result in higher than expected claim activity.
	•	Changes in federal and state income tax laws and regulations may affect the relative tax advantage of our products.

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


	FBL FINANCIAL GROUP, INC.
	By	/s/ William J. Oddy
		William J. Oddy
		Chief Executive Officer (Principal Executive Officer)


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