FBL FINANCIAL GROUP INC - 10-Q Quarterly Report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2003

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. x Yes ¨ No

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ¨ Yes ¨ 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: 26,734,815 shares of Class A common stock and 1,192,990 shares of Class B common stock as of July 28, 2003.

FBL FINANCIAL GROUP, INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION

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

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

Item 3.		Quantitative and Qualitative Disclosures About Market Risk		31

Item 4.		Controls and Procedures		31

PART II.	OTHER INFORMATION

Item 4.		Submission of Matters to a Vote of Security Holders		31

Item 6.		Exhibits and Reports on Form 8-K		32

SIGNATURES				33

ITEM 1. FINANCIAL STATEMENTS

FBL FINANCIAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands, except per share data)

	June 30, 2003		December 31, 2002
Assets
Investments:
Fixed maturities – available for sale, at market (amortized cost: 2003 - $4,976,832; 2002 - $4,417,507)	$	5,268,036	$	4,621,271
Equity securities – available for sale, at market (cost: 2003 - $17,785; 2002 - $22,196)		18,947		21,545
Mortgage loans on real estate		529,491		483,627
Investment real estate, less allowances for depreciation of $4,974 in 2003 and $4,662 in 2002		27,719		25,031
Policy loans		179,491		178,997
Other long-term investments		6,782		6,032
Short-term investments		34,026		50,866

Total investments		6,064,492		5,387,369

Cash and cash equivalents		119,684		263,011
Securities and indebtedness of related parties		58,827		48,285
Accrued investment income		52,839		53,642
Accounts and notes receivable		43		80
Amounts receivable from affiliates		3,554		3,649
Reinsurance recoverable		109,100		95,455
Deferred policy acquisition costs		502,746		468,793
Value of insurance in force acquired		46,438		48,526
Property and equipment, less allowances for depreciation of $54,534 in 2003 and $51,198 in 2002		35,946		35,115
Current income taxes recoverable		–		8,537
Goodwill		11,170		11,170
Other assets		35,846		28,100
Assets held in separate accounts		392,708		347,717

Total assets	$	7,433,393	$	6,799,449

FBL FINANCIAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS (Continued)

(Dollars in thousands, except per share data)

	June 30, 2003		December 31, 2002
Liabilities and stockholders’ equity
Liabilities:
Policy liabilities and accruals:
Future policy benefits:
Interest sensitive and equity-indexed products	$	4,131,999	$	3,708,862
Traditional life insurance and accident and health products		1,117,220		1,096,995
Unearned revenue reserve		30,226		30,504
Other policy claims and benefits		19,564		19,846

		5,299,009		4,856,207
Other policyholders’ funds:
Supplementary contracts without life contingencies		338,231		321,046
Advance premiums and other deposits		142,670		125,614
Accrued dividends		13,129		15,453

		494,030		462,113

Amounts payable to affiliates		362		625
Short-term debt		40,000		40,000
Current income taxes payable		10,942		–
Deferred income taxes		121,530		101,226
Other liabilities		150,124		147,474
Liabilities related to separate accounts		392,708		347,717

Total liabilities		6,508,705		5,955,362

Minority interest in subsidiaries:
Company-obligated mandatorily redeemable preferred stock of subsidiary trust		97,000		97,000
Other		86		210

Series C redeemable preferred stock, $26.8404 par and redemption value per share - authorized 3,752,100 shares, issued and outstanding 3,411,000 shares		86,978		85,514

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 26,709,073 shares in 2003 and 26,578,279 shares in 2002		46,461		43,993
Class B common stock, without par value – authorized 1,500,000 shares, issued and outstanding 1,192,990 shares		7,528		7,533
Accumulated other comprehensive income		146,166		95,145
Retained earnings		537,469		511,692

Total stockholders’ equity		740,624		661,363

Total liabilities and stockholders’ equity	$	7,433,393	$	6,799,449

See accompanying notes.

FBL FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollars in thousands, except per share data)

	Three months ended June 30,						Six months ended June 30,
	2003			2002			2003			2002
Revenues:
Interest sensitive product charges	$	20,628		$	19,608		$	41,250		$	38,380
Traditional life insurance premiums		35,281			33,677			66,654			63,140
Accident and health premiums		239			178			326			270
Net investment income		99,970			82,977			197,917			162,514
Derivative income (loss)		10,708			(8,655	)		5,635			(9,437	)
Realized gains (losses) on investments		4,516			(5,823	)		(1,116	)		(3,577	)
Other income		4,422			4,338			8,431			8,797

Total revenues		175,764			126,300			319,097			260,087
Benefits and expenses:
Interest sensitive product benefits		71,706			42,958			125,786			91,226
Traditional life insurance and accident and health benefits		18,996			19,286			38,631			36,668
Increase in traditional life and accident and health future policy benefits		10,996			11,659			18,393			19,504
Distributions to participating policyholders		6,583			7,696			14,239			15,667
Underwriting, acquisition and insurance expenses		31,773			23,681			64,653			48,372
Interest expense		108			181			226			358
Other expenses		3,790			2,824			7,314			6,100

Total benefits and expenses		143,952			108,285			269,242			217,895

		31,812			18,015			49,855			42,192
Income taxes		(10,470	)		(5,450	)		(16,083	)		(13,121	)
Minority interest in earnings of subsidiaries:
Dividends on company-obligated mandatorily redeemable preferred stock of subsidiary trust		(1,212	)		(1,212	)		(2,425	)		(2,425	)
Other		61			(62	)		11			(95	)
Equity income (loss), net of related income taxes		1,438			679			2,217			(1,036	)

Net income		21,629			11,970			33,575			25,515
Dividends on Series B and C preferred stock		(1,116	)		(1,080	)		(2,222	)		(2,151	)

Net income applicable to common stock	$	20,513		$	10,890		$	31,353		$	23,364

Earnings per common share	$	0.74		$	0.39		$	1.13		$	0.85

Earnings per common share – assuming dilution	$	0.72		$	0.39		$	1.11		$	0.83

Cash dividends per common share	$	0.10		$	0.10		$	0.20		$	0.20

See accompanying notes.

FBL FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

(Dollars in thousands)

	Series B Preferred Stock		Class A Common Stock			Class B Common Stock			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total Stockholders’ Equity
Balance at January 1, 2002	$	3,000	$	39,446		$	7,563		$	39,364		$	476,420		$	565,793
Comprehensive income (loss):
Net income for six months ended June 30, 2002		–		–			–			–			25,515			25,515
Change in net unrealized investment gains/losses		–		–			–			(7,665	)		–			(7,665	)

Total comprehensive income																17,850
Issuance of 245,851 shares of common stock under compensation and stock option plans, including related income tax benefit		–		3,162			–			–			–			3,162
Adjustment resulting from capital transactions of equity investee		–		(55	)		(10	)		–			–			(65	)
Dividends on preferred stock		–		–			–			–			(2,151	)		(2,151	)
Dividends on common stock		–		–			–			–			(5,514	)		(5,514	)

Balance at June 30, 2002	$	3,000	$	42,553		$	7,553		$	31,699		$	494,270		$	579,075

Balance at January 1, 2003	$	3,000	$	43,993		$	7,533		$	95,145		$	511,692		$	661,363
Comprehensive income:
Net income for six months ended June 30, 2003		–		–			–			–			33,575			33,575
Change in net unrealized investment gains/losses		–		–			–			51,021			–			51,021

Total comprehensive income																84,596
Issuance of 130,794 shares of common stock under compensation and stock option plans, including related income tax benefit		–		2,502			–			–			–			2,502
Adjustment resulting from capital transactions of equity investee		–		(34	)		(5	)		–			–			(39	)
Dividends on preferred stock		–		–			–			–			(2,222	)		(2,222	)
Dividends on common stock		–		–			–			–			(5,576	)		(5,576	)

Balance at June 30, 2003	$	3,000	$	46,461		$	7,528		$	146,166		$	537,469		$	740,624

Comprehensive income totaled $63.8 million in the second quarter of 2003 and $45.8 million in the second quarter of 2002.

See accompanying notes.

FBL FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)

	Six months ended June 30,
	2003			2002
Operating activities
Net income	$	33,575		$	25,515
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments related to interest sensitive products:
Interest credited to account balances, excluding bonus interest		95,354			80,162
Change in fair value of embedded derivatives		10,740			(3,708	)
Charges for mortality and administration		(39,658	)		(37,428	)
Deferral of unearned revenues		757			1,221
Amortization of unearned revenue reserve		(708	)		(728	)
Provision for depreciation and amortization		(7,832	)		1,603
Equity loss (income)		(2,217	)		1,036
Realized losses on investments		1,116			3,577
Increase in traditional life and accident and health benefit accruals		18,393			19,504
Policy acquisition costs deferred		(55,122	)		(78,207	)
Amortization of deferred policy acquisition costs		22,399			10,403
Provision for deferred income taxes		(7,075	)		3,956
Other		(5,051	)		127

Net cash provided by operating activities		64,671			27,033

Investing activities
Sale, maturity or repayment of investments:
Fixed maturities – available for sale		733,057			400,714
Equity securities – available for sale		4,303			4,387
Mortgage loans on real estate		43,792			39,597
Investment real estate		419			–
Policy loans		19,220			22,145
Other long-term investments		501			501
Short-term investments – net		16,840			–

		818,132			467,344

Acquisition of investments:
Fixed maturities – available for sale		(1,252,168	)		(997,185	)
Equity securities – available for sale		(92	)		–
Mortgage loans on real estate		(93,082	)		(57,869	)
Investment real estate		(3,711	)		(1,331	)
Policy loans		(19,714	)		(21,744	)
Other long-term investments		(525	)		(506	)
Short-term investments – net		–			(10,563	)

		(1,369,292	)		(1,089,198	)
Proceeds from disposal, repayments of advances and other distributions from equity investees		4,256			1,901
Investments in and advances to equity investees		(12,876	)		–
Net purchases of property and equipment and other		(6,106	)		(2,171	)

Net cash used in investing activities		(565,886	)		(622,124	)

FBL FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Dollars in thousands)

	Six months ended June 30,
	2003			2002
Financing activities
Receipts from interest sensitive, equity-indexed and variable products credited to policyholder account balances	$	551,103		$	647,688
Return of policyholder account balances on interest sensitive, equity-indexed and variable products		(186,714	)		(158,578	)
Distributions on company-obligated mandatorily redeemable preferred stock of subsidiary trust		(2,425	)		(2,425	)
Other distributions related to minority interests - net		(99	)		(64	)
Issuance of common stock		2,356			2,687
Dividends paid		(6,333	)		(6,271	)

Net cash provided by financing activities		357,888			483,037

Decrease in cash and cash equivalents		(143,327	)		(112,054	)
Cash and cash equivalents at beginning of period		263,011			271,459

Cash and cash equivalents at end of period	$	119,684		$	159,405

Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest	$	250		$	361
Income taxes		4,727			18,657
Non-cash operating activity:
Deferral of bonus interest credited to account balances		9,550			9,131

See accompanying notes.

FBL Financial Group, Inc.

June 30, 2003

FBL FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2003

Basis of Presentation and Accounting Changes

The accompanying unaudited consolidated financial statements of FBL Financial Group, Inc. (we or the Company) have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. Our financial statements include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of our financial position and results of operations. Operating results for the three- and six-month periods ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. We encourage you to refer to our consolidated financial statements and notes for the year ended December 31, 2002 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.

Effective January 1, 2003, we adopted Statement of Financial Accounting Standards (Statement) No. 123, “Accounting for Stock-Based Compensation” and Statement No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” Under Statement No. 123, compensation expense is recognized as stock options vest in an amount equal to the estimated fair value of the options on the date of grant. Statement No. 148 amends Statement No. 123 by requiring more prominent and frequent disclosures regarding the effects of stock-based compensation and provides for alternative transition methods in the adoption of Statement No. 123. Historically, we have applied Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees,” to stock option grants, which generally has resulted in no compensation expense being recognized. We are using the prospective method in the adoption of Statement No. 123. Under the prospective method, expense is recognized for those options granted, modified or settled after the date of adoption. Net income was $0.1 million (less than $0.01 per common share) lower for the second quarter of 2003 and $0.2 million ($0.01 per common share) lower for the six months ended June 30, 2003 as a result of expensing stock options. The impact of adoption will increase over the five year vesting period of the underlying options as options issued before the date of adopting Statement No. 123 will continue to be accounted for under APB No. 25. See Note 3, “Stock Option Plan,” for more information on stock options.

In April 2003, the Derivative Implementation Group issued Statement 133 Implementation Issue No. 36, “Embedded Derivatives: Bifurcation of a Debt Instrument that Incorporates Both Interest Rate Risk and Credit Rate Risk Exposures that are Unrelated or Only Partially Related to the Creditworthiness of the Issuer of that Instrument” (DIG B36). DIG B36 addresses whether Statement No. 133 requires bifurcation of a debt instrument into a debt host contract and an embedded derivative if the debt instrument incorporates both interest rate risk and credit risk exposures that are unrelated or only partially related to the creditworthiness of the issuer of that instrument. Under DIG B36 modified coinsurance agreements where interest on funds withheld is determined by reference to a pool of fixed maturity assets is an example of an arrangement containing embedded derivatives requiring bifurcation. Embedded derivatives in these contracts are to be recorded at fair value at each balance sheet date and changes in the fair values of the derivatives are recorded as income or expense. At June 30, 2003, funds withheld on variable business assumed by us totaled $5.7 million, and funds withheld on variable business ceded by us totaled $4.7 million. We have not quantified the impact on our financial statements if we accounted for our modified coinsurance contracts as having an embedded derivative. However, the impact is not expected to be material due to the relatively small balances of funds withheld. We plan on adopting DIG B36 when it becomes effective in the fourth quarter of 2003.

In May 2003, the Financial Accounting Standards Board (FASB) issued Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. Statement No. 150 must be applied immediately to instruments entered

FBL Financial Group, Inc.

June 30, 2003

into or modified after May 31, 2003 and to all other instruments that exist as of the beginning of the third quarter of 2003. Our company-obligated mandatorily redeemable preferred stock of subsidiary trust and Series C redeemable preferred stock, with an aggregate carrying value of $184.0 million at June 30, 2003, will be reclassified to liabilities upon adoption of this Statement. There will not be any adjustment to the carrying values of these instruments upon reclassification. Amounts previously classified as dividends from these financial instruments (approximately $2.3 million per quarter) will be recorded as interest expense upon adoption of Statement No. 150 on a prospective basis. The adoption of Statement No. 150 will not impact net income applicable to common stock or earnings per common share.

In June 2003, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position (SOP) 03-1, “Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts.” The SOP provides guidance on separate account presentation and valuation, the accounting for sales inducements and the classification and valuation of long-duration contract liabilities. We expect to adopt this SOP when it becomes effective in the first quarter of 2004. While we currently comply with most of the guidance presented in this SOP, we will need to change our presentation of deferred expenses relating to sales inducements and to change our method of computing reserves for guaranteed minimum death benefits (GMDB) associated with our variable annuities. We have not quantified the impact of adoption on our financial statements, however, the impact is not expected to be material due to our limited exposure to GMDBs. Our exposure to GMDBs (GMDB exceeds account value), net of reinsurance ceded, totaled $28.5 million at June 30, 2003. Our recorded reserves for this benefit, which take into account the probability of death before the account value increases to an amount equal to or greater than the GMDB, totaled $0.4 million at June 30, 2003.

Interest Rate Swaps

During the second quarter of 2003, we entered into three interest rate swaps to manage interest rate risk associated with our flexible premium deferred annuity contracts. Under the interest rate swaps, we pay a fixed rate of interest and receive a floating rate of interest on a notional amount totaling $150.0 million. Details regarding the interest rate swaps as of June 30, 2003 are as follows:

Maturity Date	Notional Amount		Receive Rate	Pay Rate		Carrying Value		Fair Value
				(Dollars in thousands)
5/1/2006	$	50,000	1 month LIBOR	2.545	%	$	(1,074)	$	(1,074)
7/1/2008		50,000	1 month LIBOR	2.579			361		361
7/1/2008		50,000	1 month LIBOR	2.465			646		646

	$	150,000				$	(67)	$	(67)

These interest rate swaps effectively fix the interest crediting rate on a portion of our flexible premium deferred annuity contract liabilities thereby hedging our exposure to increases in market interest rates. We formally document this hedging relationship, including identification of the interest rate swaps as the hedging instruments and interest credited to the related flexible premium deferred annuity contract liabilities as the hedged transactions. We also document our risk management objectives and strategies for undertaking these transactions. The interest rate swap agreements are accounted for as cash flow hedges.

The interest rate swaps are carried at fair value on the consolidated balance sheet as either an other long-term investment or other liability. The effective portion of any unrealized gain or loss is recorded in accumulated other comprehensive income. If a portion of the hedges become ineffective, the ineffective portion of any unrealized gain or loss on the interest rate swap will be recorded in earnings as a component of derivative income (loss) as it occurs. The net periodic interest settlement between the interest paid and the interest received under these swaps is recorded as a component of interest sensitive product benefits. During the second quarter of 2003, interest sensitive product benefits were increased by $0.2 million as a result of the net interest paid on the interest rate swaps. There was no ineffectiveness recorded in the income statement during the quarter.

FBL Financial Group, Inc.

June 30, 2003

Stock Option Plan

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

Information relating to stock option grants, the majority of which were made in the first quarter of each respective year, is as follows:

	Six months ended June 30,
	2003			2002
	Number of Securities Underlying Options Granted	Weighted- Average Exercise Price Per Share		Number of Securities Underlying Options Granted	Weighted- Average Exercise Price Per Share
	(Dollars in thousands, except per share data)
William J. Oddy, Chief Executive Officer	31,691	$	19.50	30,078	$	17.97
Stephen M. Morain, Senior Vice President and General Counsel	16,468		19.50	17,183		17.97
James W. Noyce, Chief Financial Officer	21,181		19.50	19,844		17.97
JoAnn W. Rumelhart, Executive Vice President	15,906		19.50	11,244		17.97
John M. Paule, Chief Marketing Officer	11,376		19.50	11,118		17.97
Non-employee members of the Board of Directors	67,000		20.16	18,000		17.98
Officers, employees and other	374,640		19.50	316,291		17.98

Total	538,262		19.50	423,758		17.98

As described in Note 1, effective January 1, 2003, we adopted Statement No. 123, as amended by Statement No. 148, using the prospective method for all employee options granted, modified or settled after January 1, 2003. The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period.

FBL Financial Group, Inc.

June 30, 2003

	Three months ended June 30,						Six months ended June 30,
	2003			2002			2003			2002
	(Dollars in thousands, except per share data)
Net income, as reported:	$	21,629		$	11,970		$	33,575		$	25,515
Add: Stock-based employee and director compensation expense included in reported net income, net of related tax effects		117			–			180			–
Less: Total stock-based employee and director compensation expense determined under fair value based methods for all awards, net of related tax effects		(241	)		(153	)		(436	)		(316	)

Net income, pro forma		21,505			11,817			33,319			25,199

Earnings per common share, as reported	$	0.74		$	0.39		$	1.13		$	0.85

Earnings per common share, pro forma	$	0.73		$	0.39		$	1.12		$	0.84

Earnings per common share – assuming dilution, as reported	$	0.72		$	0.39		$	1.11		$	0.83

Earnings per common share – assuming dilution, pro forma	$	0.72		$	0.38		$	1.10		$	0.82

The fair value of our stock options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:

	June 30,
	2003	2002
	(Dollars in thousands, except per share data)
Risk-free interest rate	3.29%	4.25%
Dividend yield	1.90%	1.90%
Volatility factor of the expected market price	0.24	0.24
Weighted-average expected life	5.1 years	5.0 years

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Our employee stock options have characteristics significantly different from those of traded options and the subjective input assumptions can materially affect the fair value estimate produced by the Black-Scholes option valuation model.

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 certain other agreements. At June 30, 2003, 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 insurance to other insurance enterprises. 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.

June 30, 2003

During the first quarter of 2003, we entered into a reinsurance pool with various unaffiliated life insurance companies, effective July 1, 2003, 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 $6.9 million per event.

We self-insure our employee health and welfare 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.

We have extended a line of credit in the amount of $0.5 million to Western Computer Services, Inc., an affiliate. Interest on this agreement is equal to the prime rate of a national bank and payable monthly. There was less than $0.1 million at June 30, 2003 and December 31, 2002 outstanding on this line of credit.

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 June 30,						Six months ended June 30,
	2003			2002			2003			2002
	(Dollars in thousands, except per share data)
Numerator:
Net income	$	21,629		$	11,970		$	33,575		$	25,515
Dividends on Series B and C preferred stock		(1,116	)		(1,080	)		(2,222	)		(2,151	)

Numerator for earnings per common share-income available to common stockholders	$	20,513		$	10,890		$	31,353		$	23,364

Denominator:
Weighted average shares		27,879,777			27,585,372			27,844,211			27,524,325
Deferred common stock units related to directors compensation plan		17,996			14,443			17,459			13,960

Denominator for earnings per common share – weighted-average shares		27,897,773			27,599,815			27,861,670			27,538,285
Effect of dilutive securities – employee stock options		469,649			625,877			460,009			571,231

Denominator for diluted earnings per common share – adjusted weighted-average shares		28,367,422			28,225,692			28,321,679			28,109,516

Earnings per common share	$	0.74		$	0.39		$	1.13		$	0.85

Earnings per common share – assuming dilution	$	0.72		$	0.39		$	1.11		$	0.83

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

FBL Financial Group, Inc.

June 30, 2003

Segment Information

Management analyzes operations by reviewing financial information regarding products that are aggregated into three product segments. The product segments are (1) traditional annuity, (2) traditional and universal life insurance and (3) variable. We also have various support operations and corporate capital that is aggregated into a corporate and other segment.

The traditional annuity segment consists of traditional annuities, equity-indexed annuities and supplementary contracts (some of which involve life contingencies). Traditional and equity-indexed annuities provide for tax-deferred savings and supplementary contracts provide for the systematic repayment of funds that accumulate interest. Traditional annuities consist primarily of flexible premium deferred annuities, but also include single premium deferred and immediate contracts. With traditional annuities, we bear the underlying investment risk and credit interest to the contracts at rates we determine, subject to interest rate guarantees. With equity-indexed annuity products, we bear the underlying investment risk and credit interest in an amount equal to the greater of a guaranteed interest rate or a percentage of the gain in a specified market index.

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

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

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

•

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

•

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

•

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

•

advisory services for the management of investments and other companies;

•

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

•

leasing services, primarily with affiliates.

FBL Financial Group, Inc.

June 30, 2003

Financial information concerning our operating segments is as follows:

	Three months ended June 30,						Six months ended June 30,
	2003			2002			2003			2002
	(Dollars in thousands)
Operating revenues:
Traditional annuity	$	69,763		$	34,778		$	123,336		$	73,099
Traditional and universal life		81,941			80,225			160,368			156,802
Variable		12,363			11,633			24,472			22,572
Corporate and other		7,159			5,487			12,012			11,187

		171,226			132,123			320,188			263,660
Realized gains (losses) on investments (A)		4,538			(5,823	)		(1,091	)		(3,573	)

Consolidated revenues	$	175,764		$	126,300		$	319,097		$	260,087

Pre-tax operating income (loss):
Traditional annuity	$	10,002		$	5,602		$	21,358		$	11,572
Traditional and universal life		15,500			13,250			27,659			28,373
Variable		509			1,872			753			2,590
Corporate and other		2,917			855			2,605			(2,265	)

		28,928			21,579			52,375			40,270
Income taxes on operating income		(9,864	)		(7,144	)		(17,810	)		(13,331	)
Realized gains (losses) on investments, net (A)		2,565			(2,465	)		(990	)		(1,424	)

Consolidated net income	$	21,629		$	11,970		$	33,575		$	25,515

(A)

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

Our investment in equity method investees and the related equity income are attributable to the corporate and other segment. Goodwill at June 30, 2003 and December 31, 2002 is allocated among the segments as follows: traditional annuity ($3.9 million), traditional and universal life ($6.1 million) and variable ($1.2 million).

FBL Financial Group, Inc.

June 30, 2003

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) (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 2002 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 and Six Months Ended June 30, 2003 Compared to Three and Six Months Ended June 30, 2002

	Three months ended June 30,						Six months ended June 30,
	2003			2002			2003			2002
	(Dollars in thousands, except per share data)
Net income	$	21,629		$	11,970		$	33,575		$	25,515
Less dividends on Series B and C preferred stock		(1,116	)		(1,080	)		(2,222	)		(2,151	)

Net income applicable to common stock		20,513			10,890			31,353			23,364

Earnings per common share	$	0.74		$	0.39		$	1.13		$	0.85

Earnings per common share – assuming dilution	$	0.72		$	0.39		$	1.11		$	0.83

Net income applicable to common stock increased 88.4% in the second quarter of 2003 to $20.5 million and 34.2% in the six months ended June 30, 2003 to $31.4 million. These increases are attributable to growth in our volume of annuity business in force as well as favorable investment results. Annuity business in force increased due to strong sales from our core distribution agency force and premiums assumed from American Equity Investment Life Insurance Company (American Equity) during 2002 and the first six months of 2003. During the 2003 periods, net investment income has benefited from an increase in fee income from bond calls and mortgage loan prepayments and an increase in discount accretion on mortgage and asset-backed securities. In addition, as noted in the Segment Information section that follows, realized gains (losses) on investments, net of related offsets and income taxes, totaled $2.6 million in the second quarter of 2003 compared to ($2.5) million in the second quarter of 2002. For the six-month periods, realized investment gains (losses) on investments, net of offsets, totaled ($1.0) million in 2003 compared to ($1.4) million in 2002. Results in the 2003 periods were also favorably impacted by an increase in equity income. These items were partially offset by an increase in death benefits during the second quarter and six months ended June 30, 2003.

Premiums and product charges are as follows:

	Three months ended June 30,				Six months ended June 30,
	2003		2002		2003		2002
	(Dollars in thousands)
Premiums and product charges:
Interest sensitive product charges	$	20,628	$	19,608	$	41,250	$	38,380
Traditional life insurance premiums		35,281		33,677		66,654		63,140
Accident and health premiums		239		178		326		270

Total premiums and product charges	$	56,148	$	53,463	$	108,230	$	101,790

FBL Financial Group, Inc.

June 30, 2003

Premiums and product charges increased 5.0% in the second quarter of 2003 to $56.1 million and 6.3% in the six months ended June 30, 2003 to $108.2 million. Revenues assumed from American Equity include interest sensitive product charges totaling $2.4 million in the six months ended June 30, 2003 and $0.4 million in the respective 2002 period. In addition, cost of insurance charges, which are included in interest sensitive product charges, increased as a result of an increase in the volume and age of business in force. Traditional life insurance premiums increased 5.6% in the six months ended June 30, 2003 to $66.7 million due primarily to strong sales from our core distribution agency force during 2002.

Net investment income, which excludes investment income on separate account assets relating to variable products, increased 20.5% in the second quarter of 2003 to $100.0 million and 21.8% in the six months ended June 30, 2003 to $197.9 million due primarily to an increase in average invested assets. Average invested assets in the six-month period of 2003 increased 22.6% to $5,593.8 million (based on securities at amortized cost) due principally to net premium inflows from our American Equity coinsurance agreement and core distribution agency force. The annualized yield earned on average invested assets decreased to 7.20% in the six months ended June 30, 2003 from 7.25% in the respective 2002 period due principally to a decrease in market interest rates. The impact of the decrease in market interest rates on yield was partially offset by the impact of an increase in fee income from bond calls and mortgage loan prepayments and an increase in discount accretion on mortgage and asset-backed securities. Fee income from bond calls and mortgage loan prepayments totaled $6.4 million in the six months ended June 30, 2003 compared to $0.3 million in the respective 2002 period. For the six months ended June 30, net investment income includes $3.4 million in 2003 and $0.2 million in 2002 representing an acceleration of net discount accretion on mortgage and asset-backed securities resulting from increasing 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) totaled $10.7 million in the second quarter of 2003 compared to ($8.7) million in the second quarter of 2002. For the six months ended June 30, 2003, derivative income (loss) totaled $5.6 million compared to ($9.4) million in the 2002 period. Our derivative income (loss) consists of unrealized gains and losses on the value of call options used to fund returns on our equity-indexed annuity contracts assumed from American Equity and on the value of the conversion feature embedded in convertible fixed maturity securities. In addition, derivative income (loss) includes proceeds from the exercise of call options. The increases in derivative income are due to gains on the various indexes supporting the equity-indexed products during the second quarter of 2003. Changes in the value of the call options are partially offset by corresponding changes in the value of the embedded derivatives in the underlying equity-indexed contracts. Changes in the value of these embedded derivatives are recorded as a component of interest sensitive product benefits. Derivative income (loss) will fluctuate based on market conditions.

Realized gains (losses) on investments are as follows:

	Three months ended June 30,						Six months ended June 30,
	2003			2002			2003			2002
	(Dollars in thousands)
Realized gains (losses) on investments:
Gains on sales	$	7,301		$	3,162		$	11,014		$	10,768
Losses on sales		(341	)		(60	)		(381	)		(310	)
Losses due to impairments		(2,444	)		(8,925	)		(11,749	)		(14,035	)

Total realized gains (losses)	$	4,516		$	(5,823	)	$	(1,116	)	$	(3,577	)

Realized gains (losses) on investments totaled $4.5 million in the second quarter of 2003 compared to ($5.8) million in the second quarter of 2002. For the six months ended June 30, 2003, realized losses decreased 68.8% to ($1.1) million. Writedowns for other-than-temporary impairments are the result of the issuers of the securities having deteriorating operating trends, decreases in debt ratings, defaults on loan payments, unsuccessful efforts to raise capital and various other operational or economic factors that became evident in the respective periods. 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.

FBL Financial Group, Inc.

June 30, 2003

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.

Policy benefits are as follows:

	Three months ended June 30,				Six months ended June 30,
	2003		2002		2003		2002
	(Dollars in thousands)
Policy benefits:
Interest sensitive product benefits	$	71,706	$	42,958	$	125,786	$	91,226
Traditional life insurance and accident and health benefits		18,996		19,286		38,631		36,668
Increase in traditional life and accident and health future policy benefits		10,996		11,659		18,393		19,504
Distributions to participating policyholders		6,583		7,696		14,239		15,667

Total policy benefits	$	108,281	$	81,599	$	197,049	$	163,065

Policy benefits increased 32.7% in the second quarter of 2003 to $108.3 million and 20.8% in the six months ended June 30, 2003 to $197.0 million. These increases are due primarily to an increase in volume of annuity business in force principally as a result of our American Equity coinsurance agreement, and an increase in death benefits from our direct business. Benefits assumed from American Equity in the six-month period include interest sensitive product benefits totaling $34.0 million in 2003 and $4.3 million in 2002. In total, death benefits increased 18.2% to $41.0 million in the six months ended June 30, 2003. Partially offsetting these increases is the impact of reductions in our dividend and interest crediting rates on many of our products throughout 2002 and into 2003. These rate decreases were made in response to a declining investment portfolio yield. Interest crediting rates were 4.50% on our primary fixed annuity product and 5.10% on our primary universal life insurance product as of July 1, 2003. Policy benefits can tend to fluctuate from period to period as a result of changes in mortality experience.

Underwriting, acquisition and insurance expenses are as follows:

	Three months ended June 30,					Six months ended June 30,
	2003		2002			2003		2002
	(Dollars in thousands)
Underwriting, acquisition and insurance expenses:
Commission expense, net of deferrals	$	3,508	$	3,241		$	6,413	$	6,199
Amortization of deferred policy acquisition costs		10,620		5,323			22,399		10,403
Amortization of value of insurance in force acquired		628		(896	)		1,388		(68	)
Other underwriting, acquisition and insurance expenses, net of deferrals		17,017		16,013			34,453		31,838

Total	$	31,773	$	23,681		$	64,653	$	48,372

Underwriting, acquisition and insurance expenses increased 34.2% in the second quarter of 2003 to $31.8 million and 33.7% in the six months ended June 30, 2003 to $64.7 million. Amortization of deferred policy acquisition costs increased due primarily to an increase in the volume of business in force. Amortization of deferred policy acquisition costs on our business assumed from American Equity totaled $10.9 million in the six-month period of 2003 compared to $2.7 million in the respective 2002 period. Amortization of value of insurance in force acquired increased in the periods due to the impact of realized gains and losses on investments backing the related policyholder liabilities. Other underwriting, acquisition and insurance expenses increased due primarily to increases in salaries, employee benefits and expense allowances on reinsurance assumed.

Effective January 1, 2003, we started expensing the cost of employee stock options for those options granted, modified or settled after 2002 in accordance with Statement of Financial Accounting Standards (Statement) No. 123,

FBL Financial Group, Inc.

June 30, 2003

“Accounting for Stock-Based Compensation” and Statement No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” Stock compensation expense included in other underwriting expenses for the six months ended June 30, 2003 totaled $0.2 million. Stock compensation expense will increase over the five-year vesting period of the underlying options.

Interest expense decreased 40.3% in the second quarter of 2003 to $0.1 million and 36.9% in the six months ended June 30, 2003 to $0.2 million. These decreases are due to a decrease in the interest rate on our $40.0 million variable-rate debt.

Income taxes increased 92.1% in the second quarter of 2003 to $10.5 million and 22.6% in the six months ended June 30, 2003 to $16.1 million. The effective tax rate for the six months ended June 30, 2003 was 32.3% compared to 31.1% for the respective 2002 period. The effective tax rate was lower than the federal statutory rate of 35% due primarily to the tax benefit associated with the payment of dividends on mandatorily redeemable preferred stock of subsidiary trust, tax-exempt interest and tax-exempt dividend income.

Equity income (loss), net of related income taxes, totaled $1.4 million in the second quarter of 2003 compared to $0.7 million in 2002. Equity income (loss) for the six-month periods totaled $2.2 million in 2003 and ($1.0) million in 2002. 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 these entities, we will consistently use information that is as much as three months in arrears for certain of these entities. Several of these entities are investment companies whose operating results are derived primarily from unrealized and realized gains and losses generated by their investment portfolios. As is normal with these types of entities, the level of these gains and losses is subject to fluctuation from period to period depending on the prevailing economic environment, changes in prices of equity securities held by the investment partnerships, timing and success of initial public offerings and other exit strategies, and the timing of the sale of investments held by the partnerships and joint ventures. As a result of our common stock investment in American Equity Investment Life Holding Company, equity income includes $0.9 million in the second quarter of 2003 and $0.7 million in the respective 2002 period, representing our share of its net income. Our share of American Equity Investment Life Holding Company income (loss) for the six-month periods totaled $1.7 million in 2003 and ($0.1) million in 2002. See the “Other Assets” section following for additional information regarding the composition of our equity investees.

Pending Accounting Changes

FBL Financial Group, Inc.

June 30, 2003

2003. Our company-obligated mandatorily redeemable preferred stock of subsidiary trust and Series C redeemable preferred stock, with an aggregate carrying value of $184.0 million at June 30, 2003, will be reclassified to liabilities upon adoption of this Statement. There will not be any adjustment to the carrying values of these instruments upon reclassification. Amounts previously classified as dividends from these financial instruments (approximately $2.3 million per quarter) will be recorded as interest expense upon adoption of Statement No. 150 on a prospective basis. The adoption of Statement No. 150 will not impact net income applicable to common stock or earnings per common share.

Segment Information

Management analyzes financial information regarding products that are aggregated into three product segments. These segments are (1) traditional annuity, (2) traditional and universal life insurance and (3) variable. We also have various support operations and corporate capital that is aggregated into a corporate and other segment. See Note 6 of the notes to consolidated financial statements for additional information regarding segment information.

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

FBL Financial Group, Inc.

June 30, 2003

	Three months ended June 30,						Six months ended June 30,
	2003			2002			2003			2002
	(Dollars in thousands)
Net income	$	21,629		$	11,970		$	33,575		$	25,515

Realized losses (gains) on investments		(4,516	)		5,823			1,116			3,577
Change in amortization of:
Deferred policy acquisition costs		482			(397	)		470			(217	)
Value of insurance in force acquired		111			(1,634	)		(37	)		(1,166	)
Unearned revenue reserve		(22	)		–			(25	)		(3	)
Income tax offset		1,380			(1,327	)		(534	)		(767	)

Realized losses (gains), net of offsets		(2,565	)		2,465			990			1,424

Income taxes on operating income		9,864			7,144		$	17,810			13,331

Pre-tax operating income	$	28,928		$	21,579		$	52,375		$	40,270

Pre-tax operating income (loss) by segment:
Traditional annuity	$	10,002		$	5,602		$	21,358		$	11,572
Traditional and universal life		15,500			13,250			27,659			28,373
Variable		509			1,872			753			2,590
Corporate and other		2,917			855			2,605			(2,265	)

	$	28,928		$	21,579		$	52,375		$	40,270

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

Traditional Annuity Segment

	Three months ended June 30,					Six months ended June 30,
	2003		2002			2003		2002
	(Dollars in thousands)
Pre-tax operating income
Operating revenues:
Interest sensitive product charges	$	1,217	$	213		$	2,699	$	418
Net investment income		57,842		42,865			114,963		81,887
Derivative income (loss)		10,704		(8,300	)		5,674		(9,206	)

		69,763		34,778			123,336		73,099
Benefits and expenses		59,761		29,176			101,978		61,527

Pre-tax operating income	$	10,002	$	5,602		$	21,358	$	11,572

Other data
Annuity premiums collected, net of reinsurance	$	235,600	$	288,099		$	422,239	$	525,504
Policy liabilities and accruals, end of period							3,524,253		2,594,996

Pre-tax operating income for the traditional annuity segment increased 78.5% in the second quarter of 2003 to $10.0 million and 84.6% in the six months ended June 30, 2003 to $21.4 million. Revenues, benefits, expenses and the volume of business in force increased primarily due to additional business assumed from American Equity and increases in sales from our core distribution agency force. The increase in pre-tax operating income also includes $5.8 million in the six months ended June 30, 2003 compared to $0.2 million in 2002 in fee income from bond calls and mortgage loan prepayments and the acceleration of net discount accretion on mortgage and asset-backed securities noted in the investment income discussion above. The increases in derivative income are due to gains on the various indexes supporting the equity-indexed annuity products during the second quarter of 2003. Premiums collected assumed from American Equity totaled $295.2 million in the six months ended June 30, 2003 compared to $424.5 million in the respective 2002 period. Direct premiums collected increased 25.9% in the six months ended June 30, 2003 to $124.3 million.

FBL Financial Group, Inc.

June 30, 2003

Traditional and Universal Life Insurance Segment

	Three months ended June 30,						Six months ended June 30,
	2003			2002			2003			2002
	(Dollars in thousands)
Pre-tax operating income
Operating revenues:
Interest sensitive product charges	$	10,652		$	10,716		$	21,288		$	21,389
Traditional life insurance premiums and other income		35,281			33,677			66,654			63,140
Net investment income		36,032			36,179			72,493			72,391
Derivative loss		(24	)		(347	)		(67	)		(118	)

		81,941			80,225			160,368			156,802
Benefits and expenses		66,441			66,975			132,709			128,429

Pre-tax operating income	$	15,500		$	13,250		$	27,659		$	28,373

Other data
Life premiums collected, net of reinsurance	$	48,530		$	47,140		$	93,200		$	89,817
Policy liabilities and accruals, end of period								1,993,808			1,917,140

Pre-tax operating income for the traditional and universal life insurance segment increased 17.0% in the second quarter of 2003 to $15.5 million and decreased 2.5% in the six months ended June 30, 2003 to $27.7 million. The decrease in the six-month period is due primarily to an increase in traditional life and universal life insurance death benefits. In total, death benefits increased $4.6 million, or 15.0%, in the six-month period of 2003 to $35.4 million. Pre-tax operating income includes $2.1 million in the six months ended June 30, 2003 compared to $0.3 million in 2002 in fee income from bond calls and mortgage loan prepayments and the acceleration of net discount accretion on mortgage and asset-backed securities noted in the investment income discussion above. Life premiums collected increased 3.8% to $93.2 million in the six-month period of 2003 due to strong sales from our core distribution agency force during 2002.

Variable Segment

	Three months ended June 30,				Six months ended June 30,
	2003		2002		2003		2002
	(Dollars in thousands)
Pre-tax operating income
Operating revenues:
Interest sensitive product charges	$	8,737	$	8,679	$	17,238	$	16,569
Net investment income		3,433		2,736		6,791		5,584
Other income		193		218		443		419

		12,363		11,633		24,472		22,572
Benefits and expenses		11,854		9,761		23,719		19,982

Pre-tax operating income	$	509	$	1,872	$	753	$	2,590

Other data
Variable premiums collected, net of reinsurance and internal rollovers	$	29,475	$	39,719	$	58,394	$	72,166
Policy liabilities and accruals, end of period						213,326		167,524
Separate account assets, end of period						392,708		363,993

Pre-tax operating income for the variable segment decreased to $0.5 million in the second quarter of 2003 from $1.9 million in 2002 and decreased to $0.8 million in the six months ended June 30, 2003 compared to $2.6 million in 2002. Revenues increased 8.4% to $24.5 million in the six-month period of 2003 due to an increase in the volume of business in force. In addition, investment income increased due to the impact of a shift in the allocation of policyholder funds from the separate accounts to the general account. Benefits and expenses increased 18.7% to $23.7 million in the six-month period due primarily to increases in other underwriting expenses and the amortization of deferred policy acquisition costs. The rate of amortization of deferred policy acquisition costs increased beginning in the third quarter of 2002 due to changes in the emergence of profits on this business. Death benefits in

FBL Financial Group, Inc.

June 30, 2003

excess of related account values on variable universal life policies increased to $2.6 million in the second quarter of 2003 from $0.9 million in the 2002 period. Variable premiums collected decreased 19.1% to $58.4 million in the six-month period of 2003 due to the uncertain economic and equity market environment.

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 June 30,					Six months ended June 30,
	2003			2002		2003			2002
	(Dollars in thousands)
Pre-tax operating income (loss)
Operating revenues:
Accident and health insurance premiums	$	239		$ 178		$	326		$	270
Net investment income		2,663		1,197			3,670			2,652
Derivative income (loss)		28		(8	)		28			(113	)
Other income		4,229		4,120			7,988			8,378

		7,159		5,487			12,012			11,187
Benefits and expenses		5,303		4,403			10,403			9,339

		1,856		1,084			1,609			1,848
Minority interest		(1,151	)	(1,274	)		(2,414	)		(2,520	)
Equity income (loss), before tax		2,212		1,045			3,410			(1,593	)

Pre-tax operating income (loss)	$	2,917		$ 855		$	2,605		$	(2,265	)

Pre-tax operating income totaled $2.9 million in the second quarter of 2003 compared to $0.9 million in 2002. Pre-tax operating income (loss) totaled $2.6 million in the six months ended June 30, 2003 and ($2.3) million in the respective 2002 period. These increases in pre-tax operating income are primarily due to mortgage prepayment fee income totaling $1.9 million in the second quarter of 2003 and fluctuations in equity income as described above.

Financial Condition

Investments

Our total investment portfolio increased 12.6% to $6,064.5 million at June 30, 2003 compared to $5,387.4 million at December 31, 2002. This increase is primarily the result of net cash received from interest sensitive and equity-indexed products and positive cash flow provided by operating activities. In addition, net unrealized appreciation on fixed maturity securities classified as available for sale increased $87.4 million in the first six months of 2003 to $291.2 million at June 30, 2003 due principally to a decline in market interest rates.

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.

June 30, 2003

Our investment portfolio is summarized in the table below:

	June 30, 2003				December 31, 2002
	Carrying Value		Percent		Carrying Value		Percent
	(Dollars in thousands)
Fixed maturities:
Public	$	4,396,658	72.5	%	$	3,801,914	70.6	%
144A private placement		606,693	10.0			556,102	10.3
Private placement		264,685	4.4			263,255	4.9

Total fixed maturities		5,268,036	86.9			4,621,271	85.8
Equity securities		18,947	0.3			21,545	0.4
Mortgage loans on real estate		529,491	8.7			483,627	9.0
Investment real estate:
Acquired for debt		1,732	0.1			2,131	0.1
Investment		25,987	0.4			22,900	0.4
Policy loans		179,491	2.9			178,997	3.3
Other long-term investments		6,782	0.1			6,032	0.1
Short-term investments		34,026	0.6			50,866	0.9

Total investments	$	6,064,492	100.0	%	$	5,387,369	100.0	%

As of June 30, 2003, 93.8% (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 June 30, 2003, the investment in non-investment grade debt was 6.2% of fixed maturity securities. At that time no single non-investment grade holding exceeded 0.4% 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 June 30, 2003 is as follows:

FBL Financial Group, Inc.

June 30, 2003

	Total Carrying Value		Carrying Value of Securities with Gross Unrealized Gains		Gross Unrealized Gains		Carrying Value of Securities with Gross Unrealized Losses		Gross Unrealized Losses
	(Dollars in thousands)
Corporate securities:
Banking	$	636,201	$	626,708	$	74,936	$	9,493	$	(288	)
Manufacturing		450,764		413,599		41,378		37,165		(3,770	)
Mining		143,636		126,530		14,637		17,106		(667	)
Retail trade		78,525		61,403		8,059		17,122		(4,419	)
Services		60,823		40,809		2,056		20,014		(568	)
Transportation		82,571		46,983		6,589		35,588		(4,114	)
Public utilities		147,074		114,240		10,207		32,834		(1,194	)
Private utilities and other		253,765		226,522		22,616		27,243		(3,146	)
Other		58,978		58,978		7,638		–		–

Total corporate securities		1,912,337		1,715,772		188,116		196,565		(18,166	)
Mortgage and asset-backed securities		2,895,595		2,746,864		104,348		148,731		(3,499	)
United States Government and agencies		319,989		181,997		17,455		137,992		(4,828	)
State, municipal and other governments		140,115		118,570		9,141		21,545		(1,363	)

Total	$	5,268,036	$	4,763,203	$	319,060	$	504,833	$	(27,856	)

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

		June 30, 2003
NAIC Designation	Equivalent S&P Ratings (1)	Carrying Value		Percent
		(Dollars in thousands)
1	(AAA, AA, A)	$	3,892,752	73.9	%
2	(BBB)		1,046,411	19.9

	Total investment grade		4,939,163	93.8
3	(BB)		224,583	4.2
4	(B)		68,341	1.3
5	(CCC, CC, C)		32,847	0.6
6	In or near default		3,102	0.1

	Total below investment grade		328,873	6.2

	Total fixed maturities	$	5,268,036	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.

FBL Financial Group, Inc.

June 30, 2003

The following table sets forth the composition by credit quality of the fixed maturity securities with gross unrealized losses as of June 30, 2003.

NAIC Designation	Equivalent S&P Ratings	Carrying Value of Securities with Gross Unrealized Losses		Percent of Total		Gross Unrealized Losses			Percent of Total
		(Dollars in thousands)
1	(AAA, AA, A)	$	292,158	57.9	%	$	(6,979	)	25.1	%
2	(BBB)		105,047	20.8			(9,611	)	34.5

	Total investment grade		397,205	78.7			(16,590	)	59.6
3	(BB)		39,735	7.9			(1,730	)	6.2
4	(B)		40,754	8.1			(6,084	)	21.8
5	(CCC, CC, C)		26,629	5.2			(3,367	)	12.1
6	In or near default		510	0.1			(85	)	0.3

	Total below investment grade		107,628	21.3			(11,266	)	40.4

	Total	$	504,833	100.0	%	$	(27,856	)	100.0	%

As of June 30, 2003, $16.6 million, or 59.6%, of the gross unrealized losses on our fixed maturity securities 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. Any such unrealized losses are recognized in income if, and when, we decide to sell the securities.

As of June 30, 2003, $11.3 million, or 40.4%, of the gross unrealized losses on our fixed maturity securities are rated below investment grade. We believe the issuers of these securities 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.

The carrying value and estimated market value of our portfolio of fixed maturity securities at June 30, 2003, 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.

	Amortized Cost		Estimated Market Value
	(Dollars in thousands)
Due in one year or less	$	49,134	$	50,146
Due after one year through five years		422,517		456,008
Due after five years through ten years		484,469		536,699
Due after ten years		1,168,364		1,264,929

		2,124,484		2,307,782
Mortgage and asset-backed securities		2,794,746		2,895,595
Redeemable preferred stocks		57,602		64,659

	$	4,976,832	$	5,268,036

FBL Financial Group, Inc.

June 30, 2003

The scheduled maturity dates for securities in an unrealized loss position at June 30, 2003 are as follows:

	Carrying Value of Securities with Gross Unrealized Losses		Gross Unrealized Losses
	(Dollars in thousands)
Due in one year or less	$	1,029	$	(90	)
Due after one year through five years		32,400		(3,500	)
Due after five years through ten years		36,148		(4,768	)
Due after ten years		286,525		(15,999	)

		356,102		(24,357	)
Mortgage and asset-backed securities		148,731		(3,499	)

Total	$	504,833	$	(27,856	)

At June 30, 2003, no securities from the same issuer had an aggregate unrealized loss in excess of $4.5 million.

Mortgage and other asset-backed securities constitute a significant portion of our portfolio of 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.

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

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

The mortgage-backed portfolio includes pass-through and collateralized mortgage obligation (CMO) securities. With a pass-through security, we receive a pro rata share of principal payments as payments are made on the underlying mortgage loans. CMOs consist of pools of mortgages divided into sections or “tranches” which provide sequential retirement of the bonds. We invest in sequential tranches which provide cash flow stability in that principal payments do not occur until the previous tranches are paid off. In addition, to provide call protection and more stable average lives, we invest in CMOs such as planned amortization class (PAC) and targeted amortization class (TAC) securities. CMOs of these types provide more predictable cash flows within a range of prepayment speeds by shifting the prepayment risks to support tranches. We will also purchase interest only and Z securities to increase the duration of the CMO portfolio when deemed necessary to better match the duration of our liabilities. Interest only and Z securities generally tend to have more duration risk (risk the security’s price will change significantly with a given change in market interest rates) than the other types of mortgage-backed securities in our portfolio. 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.

FBL Financial Group, Inc.

June 30, 2003

The following table sets forth the amortized cost, par value and carrying value of our mortgage and asset-backed securities at June 30, 2003, summarized by type of security.

	Amortized Cost		Par Value		Carrying Value		Percent of Fixed Maturities
	(Dollars in thousands)
Residential mortgage-backed securities:
Sequential	$	1,696,173	$	1,703,218	$	1,748,903	33.3	%
Pass through		188,500		188,417		196,525	3.7
Planned and targeted amortization class		243,736		243,034		248,623	4.7
Other		289,200		290,338		296,130	5.6

Total residential mortgage-backed securities		2,417,609		2,425,007		2,490,181	47.3
Commercial mortgage-backed securities		241,215		238,428		266,188	5.1
Other asset-backed securities		135,922		138,760		139,226	2.6

Total mortgage and asset-backed securities	$	2,794,746	$	2,802,195	$	2,895,595	55.0	%

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.

At June 30, 2003, we held $18.9 million or 0.3% of invested assets in equity securities. At June 30, 2003, gross unrealized gains totaled $1.3 million and gross unrealized losses totaled $0.1 million on these securities.

At June 30, 2003, we held $529.5 million or 8.7% of invested assets in mortgage loans. These mortgage loans are diversified as to property type, location and loan size, and are collateralized by the related properties. At June 30, 2003, mortgages more than 60 days delinquent accounted for less than 1.0% of the carrying value of the mortgage portfolio. 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. Regions with the largest concentration of our mortgage loan portfolio at June 30, 2003 include: Pacific (26.4%), which includes California and Hawaii; and East North Central (16.2%), which includes Illinois, Indiana, Michigan, Ohio and Wisconsin. Mortgage loans on real estate are also diversified by collateral type with office buildings (38.5%), retail facilities (30.6%) and industrial facilities (28.3%) representing the largest holdings at June 30, 2003.

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. At June 30, 2003, the weighted average life of the fixed maturity portfolio, based on market values and excluding convertible bonds, was approximately 5.8 years. Based on calculations utilizing our fixed income analytical system, including our mortgage backed prepayment assumptions, the effective duration of the fixed income portfolio was 4.5 as of June 30, 2003.

Other Assets

Cash and cash equivalents decreased 54.5% to $119.7 million at June 30, 2003. The amount of cash and cash equivalents will fluctuate from period to period depending on many different factors, but is primarily caused by the timing of the settlement of security purchases and sales. Deferred policy acquisition costs increased 7.2% to $502.7 million at June 30, 2003 due to the capitalization of costs incurred with new sales, principally from the American Equity coinsurance agreement. Assets held in separate accounts increased 12.9% to $392.7 million at June 30, 2003 due primarily to appreciation in the value of investments and the transfer of net premiums to the separate accounts. At June 30, 2003, we had total assets of $7,433.4 million, a 9.3% increase from total assets at December 31, 2002.

FBL Financial Group, Inc.

June 30, 2003

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

	June 30, 2003			December 31, 2002
	(Dollars in thousands)
American Equity Investment Life Holding Company, common and preferred stock	$	34,293		$	31,667
Berthel Fisher and Company and affiliates		4,059			4,059
Investment partnerships (6 in 2003 and 8 in 2002)		8,452			2,340
Real estate investment partnerships (5 in 2003 and 2002)		12,178			8,268
Mortgage loans and other		6,011			6,047

		64,993			52,381
Proportionate share of net unrealized investment losses of equity investees		(6,166	)		(4,096	)

Securities and indebtedness of related parties	$	58,827		$	48,285

Securities and indebtedness of related parties increased 21.8% to $58.8 million due primarily to additional investments in investment partnerships and an increase in the value of our investment in American Equity Investment Life Holding Company.

Liabilities and Redeemable Preferred Stock

Policy liabilities and accruals and other policyholders’ funds increased 8.9% to $5,793.0 million at June 30, 2003 primarily due to the addition of the American Equity business and growth in the volume of business in force from our core distribution agency force. Deferred income taxes increased 20.1% to $121.5 million at June 30, 2003 due primarily to an increase in deferred taxes on the change in unrealized appreciation/depreciation on fixed maturity securities. At June 30, 2003, we had total liabilities of $6,508.7 million, a 9.3% increase from total liabilities at December 31, 2002.

Series C redeemable preferred stock increased 1.7% to $87.0 million at June 30, 2003 from $85.5 million at December 31, 2002. This increase represents the accretion of the discount on these securities. The Series C redeemable preferred stock was issued at an $11.6 million discount. The mandatory redemption is structured so that 49.5% of the Series C preferred stock will be redeemed at par value, or $45.3 million, on January 2, 2004 with the remaining 50.5% redeemed at par value, or $46.3 million, on January 3, 2006.

Stockholders’ Equity

Stockholders’ equity increased 12.0%, to $740.6 million at June 30, 2003, compared to $661.4 million at December 31, 2002. This increase is principally attributable to net income for the six-month period and the change in unrealized appreciation/depreciation on fixed maturity and equity securities, partially offset by dividends paid.

At June 30, 2003, common stockholders’ equity was $737.6 million, or $26.44 per share, compared to $658.4 million, or $23.71 per share at December 31, 2002. Included in stockholders’ equity per common share is $5.24 at June 30, 2003 and $3.43 at December 31, 2002 attributable to net unrealized investment gains resulting from marking our fixed maturity and equity securities classified as available for sale to market value. The change in unrealized appreciation of fixed maturity and equity securities increased stockholders’ equity $51.0 million during the six months ended June 30, 2003, after related adjustments to deferred policy acquisition costs, value of insurance in force acquired, unearned revenue reserve and deferred income taxes.

FBL Financial Group, Inc.

June 30, 2003

Liquidity

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 and (iv) 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 parent company debt issued to a subsidiary. In addition, the parent company will on occasion enter into capital transactions such as the acquisition of our common stock.

We paid cash dividends on our common and preferred stock during the six months ended June 30, totaling $6.3 million in 2003 and 2002. Interest payments on the parent company’s 5% Subordinated Deferable Interest Notes (the Notes), relating to the company-obligated mandatorily redeemable preferred stock of subsidiary trust, totaled $2.5 million in the six months ended June 30, 2003 and 2002. It is anticipated quarterly cash dividend requirements for the remainder of 2003 will be $0.10 per common and Series C redeemable preferred share, or approximately $5.7 million. We also anticipate quarterly cash dividend requirements will be $0.0075 per Series C redeemable preferred share or approximately $0.7 million. In addition, interest payments on the Notes are estimated to be $2.5 million for the remainder of 2003.

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.

FBL Financial Group, Inc. expects to rely on available cash resources and dividends from Farm Bureau Life to make any dividend payments to its stockholders and interest payments on its Notes. In addition, we expect to use these sources and borrowings, if needed, to fund the redemption of the Series C redeemable preferred stock in 2004 ($45.3 million) and 2006 ($46.3 million).

The ability of Farm Bureau Life 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, Farm Bureau Life 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 2003, the maximum amount legally available for distribution to FBL Financial Group, Inc. without further regulatory approval is approximately $29.2 million.

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 June 30, 2003, we had no material commitments for capital expenditures. The parent company had available cash and investments totaling $35.3 million at June 30, 2003.

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

FBL Financial Group, Inc.

June 30, 2003

to which cash inflows are adequate to meet benefit obligations to policyholders and normal operating expenses as they are incurred. The remaining cash flow is generally used to increase the asset base to provide funds to meet the need for future policy benefit payments and for writing new business. The Life Companies’ liquidity positions continued to be favorable in the three-month period ended June 30, 2003, 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 products provided funds amounting to $421.9 million in the six months ended June 30, 2003 and $513.2 million in the six months ended June 30, 2002. 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.

Through its membership in the Federal Home Loan Bank of Des Moines (FHLB), Farm Bureau Life is eligible to establish and borrow on a collateralized line of credit to provide additional liquidity. The line of credit available is based on the amount of capital stock of the FHLB owned by Farm Bureau Life, which supported a borrowing capacity of $69.4 million as of July 1, 2003. At June 30, 2003, we had outstanding borrowings of $40.0 million under this arrangement, leaving a borrowing capacity of $29.4 million. Additional collateral would need to be deposited with the FHLB in order to access this additional borrowing capacity. The outstanding debt is due September 17, 2003, and interest on the debt is charged at a variable rate equal to the London Interbank Offered Rate less 0.0475% (1.09% at June 30, 2003). Fixed maturity securities with a carrying value of $41.2 million are on deposit with the FHLB as collateral for the note. It is management’s intention to refinance this note when it matures.

In the normal course of business, we enter into 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, 2002, we had contractual obligations totaling $211.5 million with payments due as follows: less than one year - $96.4 million, one-to-three years - $52.5 million, four-to-five years - $51.3 million and after five years – $11.3 million. There have been no material changes to these contractual obligations since December 31, 2002.

We anticipate that funds to meet our short-term and long-term capital expenditures, cash dividends to stockholders and operating cash needs will come from existing capital and internally generated funds. We believe that the current level of cash 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 its insurance products, are adequate to meet our anticipated cash obligations for the foreseeable future. Our investment portfolio at June 30, 2003, included $34.0 million of short-term investments, $119.7 million of cash (consisting primarily of securities purchased with a maturity of three months or less) and $882.2 million in carrying value of U.S. Government and U.S. Government agency backed securities that could be readily converted to cash at or near carrying value.

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:

FBL Financial Group, Inc.

June 30, 2003

•

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.

•

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, 2002.

ITEM 4. CONTROLS AND PROCEDURES

As of 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 are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of this examination.

PART II. OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a)

The Company’s annual shareholders meeting was held on May 14, 2003.

(b) and (c) (i) Election of the following Class A directors to the Company’s Board of Directors:

	For	Withheld
Jerry L. Chicoine	37,642,972	635,634
John W. Creer	37,635,346	643,260
John E. Walker	37,640,583	638,023

FBL Financial Group, Inc.

June 30, 2003

(ii)

Election of the following Class B directors to the Company’s Board of Directors:

	For	Withheld
Eric K. Aasmundstad	1,183,590	–
Steve L. Baccus	1,183,590	–
O. Al Christopherson	1,183,590	–
Jerry C. Downin	1,183,590	–
Kenny J. Evans	1,183,590	–
Alan L. Foutz	1,183,590	–
Karen J. Henry	1,183,590	–
Craig D. Hill	1,183,590	–
Leland J. Hogan	1,183,590	–
Richard G. Kjerstad	1,183,590	–
G. Steven Kouplen	1,183,590	–
Craig A. Lang	1,183,590	–
David L. McClure	1,183,590	–
William J. Oddy	1,183,590	–
Keith R. Olsen	1,183,590	–
Howard D. Poulson	1,183,590	–
Frank S. Priestley	1,183,590	–
Michael S. White	1,183,590	–

(iii)

Approval of an amendment to the 1996 Class A Common Stock Compensation Plan. Shareholders cast 35,241,465 votes for and 3,988,155 against the amendment to the Director Compensation Plan. There were 232,575 abstentions and no broker non-votes.

(iv)

Approval of an amendment to the Articles of Incorporation. Shareholders cast 39,303,013 votes for and 134,858 against the amendment to the amendment to the Articles of Incorporation. There were 24,324 abstentions and no broker non-votes.

(v)

Approval of the appointment of Ernst & Young LLP as independent auditors for the Company for the year 2003. Shareholders cast 39,372,367 votes for and 80,902 votes against the appointment of Ernst & Young LLP. There were 8,926 abstentions and no broker non-votes.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)	Exhibits:

	3(i)(a)	Restated Articles of Incorporation, filed March 19, 1996
	3(i)(b)	Articles of Amendment, Designation of Series A Preferred Stock, filed April 30, 1996
	3(i)(c)	Articles of Amendment, Designation of Series B Preferred Stock, filed May 30, 1997
	3(i)(d)	Articles of Correction, filed October 27, 2000
	3(i)(e)	Articles of Amendment, Designation of Series C Preferred Stock, filed December 29, 2000
	3(i)(f)	Articles of Amendment, filed May 15, 2003
	3(ii)	First Restated Bylaws, adopted May 14, 2003
	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

(b)	Reports on Form 8-K filed during the quarter ended June 30, 2003:

	On May 5, 2003, a Form 8-K was filed in connection with a news release reporting the Company’s financial results for the three months ended March 31, 2003. A copy of the news release was furnished with the Form 8-K.

FBL Financial Group, Inc.

June 30, 2003

SIGNATURES

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

Date: July 31, 2003

FBL FINANCIAL GROUP, INC.

By		/s/ William J. Oddy
William J. Oddy Chief Executive Officer (Principal Executive Officer)

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

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