UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
 
FORM 10-Q


(Mark one)
(Mark one)
[X][X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018
or
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from____________________ to____________________
For the quarterly period ended March 31, 2019.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to _______________________

Commission File Number: 1-11917
ffglogoa04.jpg
(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)
   

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, without par valueFFGNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [ ] No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer [ X ]Accelerated filer [X][ ]Non-accelerated filer [ ]Smaller reporting company [ ]Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
 Title of each class Outstanding at July 31, 2018May 1, 2019
Class A Common Stock, without par value 24,806,79624,641,535
Class B Common Stock, without par value 11,413







(This page has been intentionally left blank.)





FBL FINANCIAL GROUP, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2018MARCH 31, 2019
TABLE OF CONTENTS




PART I.FINANCIAL INFORMATION 
   
Item 1.Financial Statements (Unaudited) 
 Consolidated Balance Sheets
2
 Consolidated Statements of Operations
4
 Consolidated Statements of Comprehensive Income
5
 Consolidated Statements of Changes in Stockholders’ Equity
5
 Consolidated Statements of Cash Flows
6
 Notes to Consolidated Financial Statements
8
   
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
3332
   
Item 3.Quantitative and Qualitative Disclosures About Market Risk
5250
   
Item 4.Controls and Procedures
5250
   
PART II.OTHER INFORMATION
5350
   
Item 1A.Risk Factors
5350
   
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
5350
   
Item 6.Exhibits
5451
   
SIGNATURES 
5552
    






1


ITEM 1. FINANCIAL STATEMENTS


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


June 30,
2018		 December 31,
2017		March 31,
2019		 December 31,
2018
Assets      
Investments:      
Fixed maturities - available for sale, at fair value (amortized cost: 2018 - $6,922,505; 2017 - $6,757,250)$7,173,415
 $7,291,967
Equity securities at fair value (cost: 2018 - $99,279; 2017 - $96,715)104,026
 104,145
Fixed maturities - available for sale, at fair value (amortized cost: 2019 - $6,873,217; 2018 - $6,856,277)$7,231,584
 $7,033,045
Equity securities at fair value (cost: 2019 - $104,814; 2018 - $93,564)108,525
 92,857
Mortgage loans982,987
 971,812
1,023,655
 1,039,829
Real estate1,543
 1,543
1,543
 1,543
Policy loans194,838
 191,398
199,230
 197,366
Short-term investments15,141
 17,007
11,515
 15,713
Other investments44,724
 42,371
44,663
 33,765
Total investments8,516,674
 8,620,243
8,620,715
 8,414,118
      
Cash and cash equivalents23,705
 52,696
6,057
 19,035
Securities and indebtedness of related parties127,876
 130,240
64,377
 60,962
Accrued investment income75,044
 76,468
80,102
 74,524
Amounts receivable from affiliates8,200
 3,561
5,735
 3,812
Reinsurance recoverable103,032
 108,948
103,825
 102,386
Deferred acquisition costs387,527
 302,611
373,711
 418,802
Value of insurance in force acquired8,880
 4,560
6,259
 10,385
Current income taxes recoverable—
 3,269
3,510
 4,807
Other assets106,722
 112,054
169,756
 163,518
Assets held in separate accounts638,061
 651,963
614,121
 561,281
      
      
      
      
      
      
      
   
Total assets$9,995,721
 $10,066,613
$10,048,168
 $9,833,630


 




2






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


June 30,
2018		 December 31,
2017		March 31,
2019		 December 31,
2018
Liabilities and stockholders’ equity      
Liabilities:      
Future policy benefits:      
Interest sensitive products$5,417,955
 $5,299,961
$5,426,491
 $5,403,125
Traditional life insurance and accident and health products1,775,968
 1,750,504
1,815,340
 1,802,346
Other policy claims and benefits46,681
 44,475
44,418
 51,298
Supplementary contracts without life contingencies312,399
 322,630
303,771
 303,627
Advance premiums and other deposits265,763
 267,023
264,544
 260,252
Amounts payable to affiliates1,299
 1,164
953
 1,461
Short-term debt payable to non-affiliates27,000
 —
4,000
 —
Long-term debt payable to non-affiliates97,000
 97,000
97,000
 97,000
Current income taxes payable2,984
 —
Deferred income taxes88,993
 131,912
103,300
 75,449
Other liabilities93,930
 111,131
110,709
 93,532
Liabilities related to separate accounts638,061
 651,963
614,121
 561,281
Total liabilities8,768,033
 8,677,763
8,784,647
 8,649,371
      
Stockholders’ equity:      
FBL Financial Group, Inc. stockholders’ equity:      
Preferred stock, without par value, at liquidation value - authorized 10,000,000 shares, issued and outstanding 5,000,000 Series B shares3,000
 3,000
3,000
 3,000
Class A common stock, without par value - authorized 88,500,000 shares, issued and outstanding 24,806,796 shares in 2018 and 24,919,113 shares in 2017153,114
 153,589
Class B common stock, without par value - authorized 1,500,000 shares, issued and outstanding 11,413 shares in 2018 and 201772
 72
Class A common stock, without par value - authorized 88,500,000 shares, issued and outstanding 24,640,927 shares in 2019 and 24,707,402 shares in 2018152,444
 152,652
Class B common stock, without par value - authorized 1,500,000 shares, issued and outstanding 11,413 shares in 2019 and 201872
 72
Accumulated other comprehensive income131,081
 284,983
189,166
 91,318
Retained earnings940,389
 947,148
918,718
 937,097
Total FBL Financial Group, Inc. stockholders’ equity1,227,656
 1,388,792
1,263,400
 1,184,139
Noncontrolling interest32
 58
121
 120
Total stockholders’ equity1,227,688
 1,388,850
1,263,521
 1,184,259
Total liabilities and stockholders’ equity$9,995,721
 $10,066,613
$10,048,168
 $9,833,630


See accompanying notes.




3






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


Three months ended June 30, Six months ended June 30,Three months ended March 31,
2018 2017 2018 20172019 2018
Revenues:          
Interest sensitive product charges$30,906
 $29,456
 $61,004
 $58,657
$31,266
 $30,098
Traditional life insurance premiums51,091
 50,262
 100,588
 98,696
49,392
 49,497
Net investment income103,974
 103,908
 204,996
 204,902
109,640
 101,022
Net realized capital gains (losses)841
 921
 (906) 518
10,157
 (1,747)
Net other-than-temporary impairment losses recognized in earnings(504) —
 (1,799) (66)(869) (1,040)
Other income3,637
 4,450
 8,237
 8,210
3,970
 4,600
Total revenues189,945
 188,997
 372,120
 370,917
203,556
 182,430
          
Benefits and expenses:          
Interest sensitive product benefits62,637
 58,251
 123,982
 121,011
70,596
 61,345
Traditional life insurance benefits43,725
 42,610
 89,181
 85,564
46,675
 45,456
Policyholder dividends2,560
 2,557
 5,111
 5,110
2,534
 2,551
Underwriting, acquisition and insurance expenses37,210
 36,341
 76,787
 70,694
36,189
 39,577
Interest expense1,213
 1,213
 2,426
 2,425
1,212
 1,213
Other expenses5,627
 4,740
 11,220
 8,891
6,250
 5,593
Total benefits and expenses152,972
 145,712
 308,707
 293,695
163,456
 155,735
36,973
 43,285
 63,413
 77,222
40,100
 26,695
Income taxes(6,650) (13,891) (11,337) (24,624)(6,276) (3,813)
Equity income, net of related income taxes2,087
 2,924
 3,942
 6,155
220
 660
Net income32,410
 32,318
 56,018
 58,753
34,044
 23,542
Net loss (income) attributable to noncontrolling interest18
 (27) 41
 (29)(1) 23
Net income attributable to FBL Financial Group, Inc.$32,428
 $32,291
 $56,059
 $58,724
$34,043
 $23,565
          
Earnings per common share$1.30
 $1.29
 $2.24
 $2.34
$1.37
 $0.94
Earnings per common share - assuming dilution$1.30
 $1.29
 $2.24
 $2.34
$1.37
 $0.94
       
Cash dividend per common share$0.46
 $0.44
 $0.92
 $0.88
Special cash dividend per common share$—
 $—
 $1.50
 $1.50


See accompanying notes.




4






FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(Dollars in thousands)
Three months ended June 30, Six months ended June 30,Three months ended March 31,
2018 2017 2018 20172019 2018
Net income$32,410
 $32,318
 $56,018
 $58,753
$34,044
 $23,542
Other comprehensive income (loss) (1)          
Change in net unrealized investment gains/losses(55,797) 46,570
 (148,951) 62,431
97,640
 (93,154)
Change in underfunded status of postretirement benefit plans267
 189
 529
 371
208
 262
Total other comprehensive income (loss), net of tax(55,530) 46,759
 (148,422) 62,802
97,848
 (92,892)
Total comprehensive income (loss), net of tax(23,120) 79,077
 (92,404) 121,555
131,892
 (69,350)
Comprehensive (income) loss attributable to noncontrolling interest18
 (27) 41
 (29)
Comprehensive loss (income) attributable to noncontrolling interest(1) 23
Total comprehensive income (loss) applicable to FBL Financial Group, Inc.$(23,102) $79,050
 $(92,363) $121,526
$131,891
 $(69,327)


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




FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
(Dollars in thousands)
 FBL Financial Group, Inc. Stockholders’ Equity    
 Series B Preferred Stock Class A and Class B Common Stock Accumulated Other Comprehensive Income Retained Earnings 
Non-
controlling Interest
 Total Stockholders’ Equity
Balance at January 1, 2018$3,000
 $153,661
 $284,983
 $935,423
 $58
 $1,377,125
Cumulative effect of change in accounting principle related to net unrealized gains on equity securities—
 —
 (5,869) 5,869
 —
 —
Net income - three months ended March 31, 2018—
 —
 —
 23,565
 (23) 23,542
Other comprehensive loss—
 —
 (92,892) —
 —
 (92,892)
Stock-based compensation—
 218
 —
 —
 —
 218
Purchase of common stock—
 (612) —
 (6,194) —
 (6,806)
Dividends on preferred stock—
 —
 —
 (38) —
 (38)
Dividends on common stock—
 —
 —
 (48,753) —
 (48,753)
Balance at March 31, 2018$3,000
 $153,267
 $186,222
 $909,872
 $35
 $1,252,396
            
Balance at January 1, 2019$3,000
 $152,724
 $91,318
 $937,097
 $120
 $1,184,259
Cumulative effect of change in accounting principle related to leases—
 —
 —
 595
 —
 595
Net income - three months ended March 31, 2019—
 —
 —
 34,043
 1
 34,044
Other comprehensive income—
 —
 97,848
 —
 —
 97,848
Stock-based compensation—
 202
 —
 —
 —
 202
Purchase of common stock—
 (410) —
 (4,167) —
 (4,577)
Dividends on preferred stock—
 —
 —
 (38) —
 (38)
Dividends on common stock—
 —
 —
 (48,812) —
 (48,812)
Balance at March 31, 2019$3,000
 $152,516
 $189,166
 $918,718
 $121
 $1,263,521

 FBL Financial Group, Inc. Stockholders’ Equity    
 Series B Preferred Stock Class A and Class B Common Stock Accumulated Other Comprehensive Income Retained Earnings 
Non-
controlling Interest
 Total Stockholders’ Equity
Balance at January 1, 2017$3,000
 $152,975
 $149,555
 $882,672
 $56
 $1,188,258
Net income - six months ended June 30, 2017—
 —
 —
 58,724
 29
 58,753
Other comprehensive income—
 —
 62,802
 —
 —
 62,802
Issuance of common stock under compensation plans—
 440
 —
 —
 —
 440
Dividends on preferred stock—
 —
 —
 (75) —
 (75)
Dividends on common stock—
 —
 —
 (59,309) —
 (59,309)
Balance at June 30, 2017$3,000
 $153,415
 $212,357
 $882,012
 $85
 $1,250,869
            
Balance at January 1, 2018$3,000
 $153,661
 $284,983
 $947,148
 $58
 $1,388,850
Cumulative effect of change in accounting principle related to net unrealized gains on equity securities—
 —
 (5,480) 5,480
 —
 —
Net income - six months ended June 30, 2018—
 —
 —
 56,059
 (41) 56,018
Other comprehensive loss—
 —
 (148,422) —
 —
 (148,422)
Issuance of common stock under compensation plans—
 320
 —
 —
 —
 320
Purchase of common stock—
 (795) —
 (8,054) —
 (8,849)
Dividends on preferred stock—
 —
 —
 (75) —
 (75)
Dividends on common stock—
 —
 —
 (60,169) —
 (60,169)
Receipts related to noncontrolling interest—
 —
 —
 —
 15
 15
Balance at June 30, 2018$3,000
 $153,186
 $131,081
 $940,389
 $32
 $1,227,688


See accompanying notes.




5






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


Six months ended June 30,Three months ended March 31,
2018 20172019 2018
Operating activities      
Net income$56,018
 $58,753
$34,044
 $23,542
Adjustments to reconcile net income to net cash provided by operating activities:      
Interest credited to account balances82,699
 79,938
38,531
 40,650
Charges for mortality, surrenders and administration(60,081) (58,037)(31,201) (29,827)
Net realized (gains) losses on investments2,705
 (452)(9,288) 3,042
Change in fair value of derivatives(3,089) (2,466)(29) (534)
Increase in liabilities for life insurance and other future policy benefits38,308
 43,282
17,507
 18,264
Deferral of acquisition costs(22,244) (21,908)(11,739) (11,293)
Amortization of deferred acquisition costs and value of insurance in force20,318
 16,565
7,774
 10,314
Change in reinsurance recoverable5,097
 (2,728)(805) 2,454
Provision for deferred income taxes(3,466) 1,054
1,822
 (3,146)
Other10,971
 6,787
(1,923) (1,865)
Net cash provided by operating activities127,236
 120,788
44,693
 51,601
      
Investing activities      
Sales, maturities or repayments:      
Fixed maturities - available for sale352,051
 293,162
128,274
 138,254
Equity securities - available for sale—
 8,928
Mortgage loans36,861
 28,584
24,603
 10,383
Derivative instruments8,912
 5,892
2,121
 4,131
Policy loans19,030
 19,410
9,095
 9,133
Securities and indebtedness of related parties3,064
 3,859
1,133
 1,596
Real estate—
 717
Other long-term investments3,524
 14
1,210
 938
Acquisitions:      
Fixed maturities - available for sale(529,344) (294,258)(128,578) (288,677)
Equity securities - available for sale(2,283) (1,102)(11,069) (1,389)
Mortgage loans(47,936) (90,450)(5,650) (7,186)
Derivative instruments(7,049) (4,557)(4,432) (3,219)
Policy loans(22,470) (19,786)(10,959) (11,148)
Securities and indebtedness of related parties(8,476) (6,859)(4,710) (4,633)
Other long-term investments(6,531) —
(975) (5,531)
Short-term investments, net change1,866
 (13,273)4,198
 (13,068)
Purchases and disposals of property and equipment, net(6,067) (5,954)(4,049) (1,859)
Net cash used in investing activities(204,848) (75,673)
Net cash provided by (used in) investing activities212
 (172,275)








6






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


Six months ended June 30,Three months ended March 31,
2018 20172019 2018
Financing activities      
Contract holder account deposits$402,751
 $263,551
$135,844
 $261,240
Contract holder account withdrawals(311,878) (239,237)(143,456) (124,978)
Dividends paid(60,244) (59,384)(48,850) (48,791)
Proceeds from issuance of short-term debt27,000
 —
4,000
 —
Issuance or repurchase of common stock, net(9,023) 181
(5,421) (5,840)
Other financing activities15
 —
Net cash provided by (used in) financing activities48,621
 (34,889)(57,883) 81,631
Increase (decrease) in cash and cash equivalents(28,991) 10,226
Decrease in cash and cash equivalents(12,978) (39,043)
Cash and cash equivalents at beginning of period52,696
 33,583
19,035
 52,696
Cash and cash equivalents at end of period$23,705
 $43,809
$6,057
 $13,653
      
Supplemental disclosures of cash flow information      
Cash (paid) received during the period for:      
Interest$(2,425) $(2,425)$(1,213) $(1,213)
Income taxes(20) (3,602)—
 (5)


See accompanying notes.




7


FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2018March 31, 2019


1. Significant Accounting Policies


Basis of Presentation


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


Operating results for the three- and six-month periodsquarter ended June 30, 2018March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 20182019. We encourage you to refer to the notes to our consolidated financial statements included in Item 8 of our Form 10-K for the year ended December 31, 20172018 for a complete description of our material accounting policies. Also included in the Form 10-K is a description of areas of judgments and estimates and other information necessary to understand our financial position and results of operations.


New Accounting Pronouncements


DescriptionDate of adoptionEffect on our consolidated financial statements or other significant matters
Standards adopted:
Stockholders' Equity
Leases
In February 2018,2016, the Financial Accounting Standards Board (FASB)FASB issued guidance allowing a reclassification from accumulated other comprehensive income (AOCI)new lease accounting standard, which, for most lessees, results in a gross-up of the balance sheet. Under the new standard, lessees recognize the leased assets on the balance sheet and recognize a corresponding liability for the present value of lease payments over the lease term. The new standard requires the application of judgment and estimates. Also, there are accounting policy elections that may be taken both at transition and for the accounting post-transition, including whether to adopt a short-term lease recognition exemption.
January 1, 2019Upon adoption using the modified retrospective approach, a cumulative effect adjustment of $0.6 million representing the elimination of a deferred gain on a sale-leaseback transaction was recorded to retained earnings and both other assets and other liabilities increased by $7.2 million. We elected the practical expedients provided for stranded tax effects resulting from changesunder the guidance, but did not use hindsight in the federal income tax ratedetermining lease term. We have no finance leases and have elected to treat leases with terms of twelve months or less as short-term leases. The impact to earnings per share due to enactment of the Tax Cuts and Jobs Act of 2017 on December 22, 2017 (Tax Act). Accountingadopting this guidance requires that deferred tax assets and liabilities, including those associated with components of AOCI, be remeasured during the period new tax laws are enacted, with any changes reflected as a component of income tax expense (benefit). Under the previous guidance, retained earnings would reflect the full amount of the change and AOCI would not be adjusted for the portion of the change related to its components, leaving the unadjusted change “stranded” in AOCI. The new guidance allows AOCI to be adjusted to reclassify these stranded tax effects to retained earnings.October 1, 2017The new guidance was effective for 2018, with early adoption permitted. We adopted the new guidance in 2017 by reporting the reclassification in our Consolidated Statement of Stockholders’ Equity. We consider the remeasurement of deferred tax assets and liabilities a provisional estimate, so any adjustments to this estimate associated with components of AOCI during 2018 would result in additional reclassification. There have been no such adjustments during the sixthree months ended June 30, 2018.

March 31, 2019 was less than ($0.01) per share. See Note 6 for additional discussion.
Financial instruments - recognition and measurement
In January 2016, the FASB issued guidance that amended certain aspects of the recognition and measurement of financial instruments. The new guidance primarily affected the accounting for equity securities, which are now carried at fair value with valuation changes recognized in the statement of operations rather than as other comprehensive income. The presentation and disclosure requirements for financial instruments and the methodology for assessing the need for a valuation allowance on deferred tax assets resulting from unrealized losses on available-for-sale fixed maturity securities were also revised under the new guidance. The new standard required the use of a modified retrospective method at adoption.
January 1, 2018Upon adoption, we reclassified $5.5$5.9 million of net unrealized investment gains, net of adjustments to deferred acquisition costs, interest sensitive policy reserves and income taxes, on our equity securities from AOCIaccumulated other comprehensive income to retained earnings as a cumulative effect adjustment. Adoption resulted in a decrease to net income of $1.9 million ($0.08 per basic and diluted earnings per share) during the six months ended June 30, 2018 and $0.6 million ($0.02 per basic and diluted earnings per share) during the second quarter of 2018.





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Revenue recognition
In May 2014, the FASB issued guidance that outlined a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. Insurance contract and investment related revenue, which make up the majorityDescription
Date of adoptionEffect on our earnings, were specifically excluded from the scope of this guidance. The new guidance was based on the principle that an entity should recognize revenue to reflect the transfer of goodsconsolidated financial statements or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also required disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, includingother significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. We had the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard.January 1, 2018Our revenues that fall under the scope of the new guidance primarily consist of the net commissions on insurance and investment products we broker for others. We have evaluated those contracts and concluded that there was no change in timing or measurement of revenues, as the historical accounting is consistent with the new guidance. Accordingly, there was no impact from adoption.matters
Standards not yet adopted:
Leases
In February 2016, the FASB issued a new lease accounting standard, which, for most lessees, will result in a gross-up of the balance sheet. Under the new standard, lessees will recognize the leased assets on the balance sheet and will recognize a corresponding liability for the present value of lease payments over the lease term. The new standard requires the application of judgment and estimates. Also, there are accounting policy elections that may be taken both at transition and for the accounting post-transition, including whether to adopt a short-term lease recognition exemption.
January 1, 2019We are currently evaluating the impact of this guidance on our consolidated financial statements. Our most significant lease is for our home office building. See Note 10 of Item 8 of our 2017 Form 10-K for a further description of this lease, including future commitments. Our other leases are primarily shorter term in nature, relating to equipment. Upon adoption we will be required to recognize and measure leases at the beginning of the earliest period presented using the modified retrospective approach.
Financial Instrumentsinstruments - credit impairment

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

We are currently evaluating the impact of this guidance on our consolidated financial statements, but expect the impact to the timing of profit emergence for the impacted insurance contracts to be significant. Adoption of certain portions of the guidance may be applied on a modified retrospective basis and others on a full retrospective basis. Early adoption is allowed.



Reclassifications


During the firstthird quarter of 2018, we began reportingvoluntarily changed our holdingsaccounting policy for low income housing tax credit investments as discussed in Note 1 to our consolidated financial statements included in Item 8 of Federal Home Loan Bank of Des Moines (FHLB) common stock, which we are required to hold as a member ofour Form 10-K for the FHLB system, as other investments rather than equity securities as the stock is restricted in nature.fiscal year ended December 31, 2018. The 20172018 consolidated financial statements have been reclassified to conform to the current financial statement presentation.reflect this accounting change.






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2. Investment Operations


Fixed Maturity and Equity Securities


Available-For-Sale Fixed Maturity Securities by Investment CategoryAvailable-For-Sale Fixed Maturity Securities by Investment Category  Available-For-Sale Fixed Maturity Securities by Investment Category  
June 30, 2018March 31, 2019
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 Non-credit losses on other-than-temporary impairments (1)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 Non-credit losses on other-than-temporary impairments (1)
(Dollars in thousands)(Dollars in thousands)
Fixed maturities:                  
Corporate (2)$3,259,368
 $169,981
 $(56,088) $3,373,261
 $—
$3,259,853
 $213,704
 $(40,981) $3,432,576
 $—
Residential mortgage-backed577,566
 29,353
 (7,450) 599,469
 1,788
584,767
 36,715
 (2,733) 618,749
 3,035
Commercial mortgage-backed863,195
 19,067
 (21,289) 860,973
 —
896,528
 31,393
 (11,217) 916,704
 —
Other asset-backed770,178
 17,452
 (3,606) 784,024
 1,573
680,507
 17,781
 (3,472) 694,816
 968
United States Government and agencies20,491
 1,099
 (230) 21,360
 —
19,555
 1,203
 (45) 20,713
 —
States and political subdivisions1,431,707
 106,026
 (3,405) 1,534,328
 —
1,432,007
 118,037
 (2,018) 1,548,026
 —
Total fixed maturities$6,922,505
 $342,978
 $(92,068) $7,173,415
 $3,361
$6,873,217
 $418,833
 $(60,466) $7,231,584
 $4,003
Available-For-Sale Fixed Maturity and Equity Securities by Investment Category  
December 31, 2017December 31, 2018
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 Non-credit losses on other-than-temporary impairments (1)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 Non-credit losses on other-than-temporary impairments (1)
(Dollars in thousands)(Dollars in thousands)
Fixed maturities:                  
Corporate (2)$3,374,927
 $329,299
 $(15,955) $3,688,271
 $(504)
Corporate$3,231,846
 $138,972
 $(90,933) $3,279,885
 $—
Residential mortgage-backed483,671
 35,890
 (3,280) 516,281
 339
584,133
 29,969
 (7,242) 606,860
 2,823
Commercial mortgage-backed674,076
 34,464
 (3,233) 705,307
 —
873,672
 24,284
 (19,390) 878,566
 —
Other asset-backed818,071
 18,645
 (3,214) 833,502
 845
697,332
 15,567
 (5,329) 707,570
 1,143
United States Government and agencies23,378
 1,606
 (79) 24,905
 —
19,673
 996
 (134) 20,535
 —
States and political subdivisions1,383,127
 141,813
 (1,239) 1,523,701
 —
1,449,621
 95,921
 (5,913) 1,539,629
 —
Total fixed maturities$6,757,250
 $561,717
 $(27,000) $7,291,967
 $680
$6,856,277
 $305,709
 $(128,941) $7,033,045
 $3,966
         
Equity securities:         
Non-redeemable preferred stocks$92,951
 $7,146
 $(265) $99,832
  
Common stocks3,764
 549
 —
 4,313
  
Total equity securities$96,715
 $7,695
 $(265) $104,145
  


(1)Non-credit losses subsequent to the initial impairment measurement date on other-than-temporary impairment (OTTI) losses are included in the gross unrealized gains and gross unrealized losses columns above. The non-credit loss component of OTTI losses for residential mortgage-backed and other asset-backed securities at June 30, 2018March 31, 2019 and December 31, 20172018 were in an unrealized gain position due to increases in estimated fair value subsequent to initial recognition of non-credit losses on such securities.
(2)Corporate securities include hybrid preferred securities with a fair value of $13.7 million at June 30, 2018 and $17.5 million at December 31, 2017. Corporate securities also include redeemable preferred stock with a fair value of $20.6 million at June 30, 2018 and $21.7 million at December 31, 2017.





Available-For-Sale Fixed Maturities by Maturity Date   
 March 31, 2019
 
Amortized
Cost
 

Fair Value
 (Dollars in thousands)
Due in one year or less$106,619
 $107,635
Due after one year through five years534,193
 555,588
Due after five years through ten years697,348
 729,149
Due after ten years3,373,255
 3,608,943
 4,711,415
 5,001,315
Mortgage-backed and other asset-backed2,161,802
 2,230,269
Total fixed maturities$6,873,217
 $7,231,584




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Available-For-Sale Fixed Maturities by Maturity Date   
 June 30, 2018
 
Amortized
Cost
 

Fair Value
 (Dollars in thousands)
Due in one year or less$129,205
 $132,022
Due after one year through five years547,317
 566,723
Due after five years through ten years713,103
 727,046
Due after ten years3,321,941
 3,503,158
 4,711,566
 4,928,949
Mortgage-backed and other asset-backed2,210,939
 2,244,466
Total fixed maturities$6,922,505
 $7,173,415


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


Net Unrealized Gains on Investments in Accumulated Other Comprehensive Income
 March 31,
2019		 December 31,
2018
 (Dollars in thousands)
Net unrealized appreciation on:   
Fixed maturities - available for sale$358,367
 $176,768
Adjustments for assumed changes in amortization pattern of:   
Deferred acquisition costs(96,710) (46,732)
Value of insurance in force acquired(10,469) (6,878)
Unearned revenue reserve11,297
 5,134
Adjustments for assumed changes in policyholder liabilities(12,240) (1,642)
Provision for deferred income taxes(52,551) (26,596)
Net unrealized investment gains$197,694
 $100,054

Net Unrealized Gains on Investments in Accumulated Other Comprehensive Income
 June 30,
2018		 December 31,
2017
 (Dollars in thousands)
Net unrealized appreciation on:   
Fixed maturities - available for sale$250,910
 $534,718
Equity securities - available for sale—
 7,430
 250,910
 542,148
Adjustments for assumed changes in amortization pattern of:   
Deferred acquisition costs(65,530) (147,173)
Value of insurance in force acquired(9,459) (14,870)
Unearned revenue reserve7,108
 12,705
Adjustments for assumed changes in policyholder liabilities(4,199) (18,499)
Provision for deferred income taxes(37,555) (78,605)
Net unrealized investment gains$141,275
 $295,706


Net unrealized investment gains and losses are recorded net of deferred income taxes and other adjustments for assumed changes in deferred acquisition costs, value of insurance in force acquired, unearned revenue reserve and policyholder liabilities. Subsequent changes in the fair value of securities for which a previous non-credit OTTI loss was recognized in accumulated other comprehensive income, are reported along with changes in fair value for which no OTTI losses were previously recognized.


Fixed Maturity Securities with Unrealized Losses by Length of Time  
  March 31, 2019
  Less than one year One year or more Total  
Description of Securities 

Fair Value
 Unrealized Losses 

Fair Value
 Unrealized Losses  Fair Value Unrealized Losses Percent of Total
  (Dollars in thousands)  
Fixed maturities:              
Corporate $211,512
 $(7,452) $445,481
 $(33,529) $656,993
 $(40,981) 67.8%
Residential mortgage-backed 16,335
 (590) 89,982
 (2,143) 106,317
 (2,733) 4.5
Commercial mortgage-backed 41,535
 (673) 294,545
 (10,544) 336,080
 (11,217) 18.6
Other asset-backed 142,050
 (2,218) 170,790
 (1,254) 312,840
 (3,472) 5.7
United States Government and agencies —
 —
 3,699
 (45) 3,699
 (45) 0.1
States and political subdivisions 7,872
 (571) 23,357
 (1,447) 31,229
 (2,018) 3.3
Total fixed maturities $419,304
 $(11,504) $1,027,854
 $(48,962) $1,447,158
 $(60,466) 100.0%
Fixed Maturity Securities with Unrealized Losses by Length of Time  
  June 30, 2018
  Less than one year One year or more Total  
Description of Securities 

Fair Value
 Unrealized Losses 

Fair Value
 Unrealized Losses  Fair Value Unrealized Losses Percent of Total
  (Dollars in thousands)  
Fixed maturities:              
Corporate $927,826
 $(36,269) $164,984
 $(19,819) $1,092,810
 $(56,088) 60.9%
Residential mortgage-backed 245,127
 (6,475) 27,229
 (975) 272,356
 (7,450) 8.1
Commercial mortgage-backed 442,114
 (18,046) 29,415
 (3,243) 471,529
 (21,289) 23.1
Other asset-backed 299,747
 (2,234) 67,874
 (1,372) 367,621
 (3,606) 3.9
United States Government and agencies 5,010
 (180) 1,846
 (50) 6,856
 (230) 0.3
States and political subdivisions 103,189
 (1,829) 17,393
 (1,576) 120,582
 (3,405) 3.7
Total fixed maturities $2,023,013
 $(65,033) $308,741
 $(27,035) $2,331,754
 $(92,068) 100.0%



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

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Fixed Maturity and Equity Securities with Unrealized Losses by Length of Time  
  December 31, 2017
  Less than one year One year or more Total  
Description of Securities Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Percent of Total
  (Dollars in thousands)  
Fixed maturities:              
Corporate $85,019
 $(1,261) $183,820
 $(14,694) $268,839
 $(15,955) 59.1%
Residential mortgage-backed 76,393
 (1,757) 31,779
 (1,523) 108,172
 (3,280) 12.1
Commercial mortgage-backed 151,158
 (2,078) 16,398
 (1,155) 167,556
 (3,233) 12.0
Other asset-backed 159,111
 (2,006) 71,064
 (1,208) 230,175
 (3,214) 11.9
United States Government and agencies 5,698
 (47) 1,864
 (32) 7,562
 (79) 0.3
States and political subdivisions 5,904
 (96) 20,505
 (1,143) 26,409
 (1,239) 4.6
Total fixed maturities $483,283
 $(7,245) $325,430
 $(19,755) $808,713
 $(27,000) 100.0%
               
Equity securities:              
Non-redeemable preferred stocks $2,819
 $(71) $4,807
 $(194) $7,626
 $(265)  
Total equity securities $2,819
 $(71) $4,807
 $(194) $7,626
 $(265)  

Fixed maturities in the above tables include 642412securities from 406271 issuers at June 30, 2018March 31, 2019 and 247709 securities from 154465 issuers at December 31, 2017.2018.



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Unrealized losses increaseddecreased during the sixthree months ended June 30, 2018March 31, 2019 primarily due to higher Treasury rates and wider credit spreads.lower market interest rates. We do not consider securities to be OTTI when the market decline is attributable to factors such as interest rate movements, market volatility, liquidity, spread widening and credit quality when recovery of all amounts due under the contractual terms of the security is anticipated. Based on our intent not to sell or our belief that we will not be required to sell these securities before recovery of their amortized cost basis, we do not consider these investments to be OTTI at June 30, 2018March 31, 2019. We will continue to monitor the investment portfolio for future changes in issuer facts and circumstances that could result in future impairments beyond those currently identified.

Our largest unrealized loss was from an oil field service provider and totaled $2.0 million at June 30, 2018.


As described more fully in Note 1 to our consolidated financial statements included in Item 8 of our Form 10-K for the year ended December 31, 2017,2018, we perform a regular evaluation of all investment classes for impairment including fixed maturity securities and equity securities, in order to evaluate whether such investments are OTTI.


Credit Loss Component of Other-Than-Temporary Impairments on Fixed Maturities
 Three months ended March 31,
 2019
2018
 (Dollars in thousands)
Balance at beginning of period$(5,963) $(12,392)
Reductions due to investments sold or paid down230
 271
Reduction for credit loss that no longer has a portion of the OTTI loss recognized in other comprehensive income—
 2,529
Balance at end of period$(5,733) $(9,592)

Credit Loss Component of Other-Than-Temporary Impairments on Fixed Maturities
 Six months ended June 30,
 2018
2017
 (Dollars in thousands)
Balance at beginning of period$(12,392) $(14,500)
Reductions due to investments sold or paid down3,369
 829
Reduction for credit loss that no longer has a portion of the OTTI loss recognized in other comprehensive income2,529
 587
Balance at end of period$(6,494) $(13,084)



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The table above sets forth the amount of credit loss impairments on fixed maturities held by the Company as of the dates indicated for which the non-credit portion of the OTTI was recognized in other comprehensive income and corresponding changes in such amounts. Credit loss impairments with no portion of the loss recognized in other comprehensive income, such as securities for which OTTI was measured at fair value, are excluded from the table.
Realized Gains (Losses) - Recorded in Income 
   
 Three months ended March 31,
 2019 2018
 (Dollars in thousands)
Realized gains (losses) on investments   
Fixed maturities:   
Gross gains$2,994
 $83
Mortgage loans2,778
 —
Other(4) (13)
 5,768
 70
    
Net gains (losses) recognized during the period on equity securities4,419
 (1,817)
Less net gains and (losses) recognized during the period on equity securities sold during the period(30) —
Net gains (losses) recognized during the period on equity securities held at the end of the period4,389
 (1,817)
Net realized gains (losses)10,157
 (1,747)
    
Impairment losses recognized in earnings:   
Other credit-related(869) (1,040)
Net realized gains (losses) on investments recorded in income$9,288
 $(3,042)

Realized Gains (Losses) - Recorded in Income 
       
 Three months ended June 30, Six months ended June 30,
 2018 2017 2018 2017
 (Dollars in thousands)
Realized gains (losses) on sales of investments       
Fixed maturities:       
Gross gains$1,713
 $1,081
 $1,796
 $1,205
Gross losses(1) (414) (1) (941)
Equity securities—
 (90) —
 (90)
Other long-term investments(5) 40
 (18) 40
Real estate—
 304
 —
 304
 1,707
 921
 1,777
 518
Net unrealized losses recognized during the period on equity securities held at the end of the period (1)(866) —
 (2,683) —
Net realized gains (losses)841
 921
 (906) 518
        
Impairment losses recognized in earnings:       
Other credit-related (2)(504) —
 (1,799) (66)
Net realized gains (losses) on investments recorded in income$337
 $921
 $(2,705) $452


(1)See Note 1 to our consolidated financial statements for discussion of change in accounting policy for equity securities during the quarter.
(2)Amount represents credit-related losses for fixed maturities written down to fair value through income and impairment losses related to investments accounted for under the equity method of accounting, which are included in securities and indebtedness of related parties within our consolidated balance sheets.

Proceeds from sales of fixed maturities totaled $56.3$6.7 million during the sixthree months ended June 30, 2018March 31, 2019 and $85.1$5.2 million during the sixthree months ended June 30, 2017March 31, 2018.




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


Mortgage Loans


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


Any loan delinquent on contractual payments is considered non-performing. Mortgage loans are placed on non-accrual status if we have concerns regarding the collectability of future payments. Interest income on non-performing loans is generally recognized on a cash basis. Once mortgage loans are classified as non-accrual loans, the resumption of the interest accrual would commence only after all past due interest has been collected or the mortgage loan has been restructured such that the collection of interest is considered likely. At June 30, 2018March 31, 2019 and December 31, 2017,2018, there were no non-performing loans over 90 days past due on contractual payments. At June 30, 2018,March 31, 2019, we had committed to provide additional funding for mortgage loans totaling $16.2$9.5 million. These commitments arose in the normal course of business at terms that are comparable to similar investments.

Mortgage Loans by Collateral Type        
  March 31, 2019 December 31, 2018
Collateral Type Carrying Value Percent of Total Carrying Value Percent of Total
  (Dollars in thousands)
Office $438,068
 42.8% $443,048
 42.6%
Retail 312,276
 30.5
 310,625
 29.9
Industrial 198,973
 19.4
 211,138
 20.3
Other 74,338
 7.3
 75,018
 7.2
Total $1,023,655
 100.0% $1,039,829
 100.0%



Mortgage Loans by Geographic Location within the United States  
  March 31, 2019 December 31, 2018
Region of the United States Carrying Value Percent of Total Carrying Value Percent of Total
  (Dollars in thousands)
South Atlantic $297,927
 29.1% $301,206
 29.0%
Pacific 157,713
 15.4
 162,824
 15.7
West North Central 127,499
 12.5
 126,320
 12.1
East North Central 121,913
 11.9
 117,768
 11.3
Mountain 90,475
 8.8
 101,335
 9.7
West South Central 85,003
 8.3
 85,919
 8.3
East South Central 75,442
 7.4
 76,098
 7.3
Middle Atlantic 34,559
 3.4
 34,843
 3.4
New England 33,124
 3.2
 33,516
 3.2
Total $1,023,655
 100.0% $1,039,829
 100.0%




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Mortgage Loans by Loan-to-Value Ratio        
  March 31, 2019 December 31, 2018
Loan-to-Value Ratio 

Carrying Value
 Percent of Total Carrying Value Percent of Total
  (Dollars in thousands)
0% - 50% $404,912
 39.6% $409,089
 39.3%
51% - 60% 304,608
 29.8
 314,038
 30.2
61% - 70% 270,610
 26.4
 264,973
 25.5
71% - 80% 37,186
 3.6
 37,418
 3.6
81% - 90% 6,339
 0.6
 14,311
 1.4
Total $1,023,655
 100.0% $1,039,829
 100.0%

Mortgage Loans by Collateral Type        
  June 30, 2018 December 31, 2017
Collateral Type Carrying Value Percent of Total Carrying Value Percent of Total
  (Dollars in thousands)
Office $415,920
 42.3% $410,090
 42.2%
Retail 295,997
 30.1
 292,257
 30.1
Industrial 208,815
 21.2
 207,180
 21.3
Other 62,255
 6.4
 62,285
 6.4
Total $982,987
 100.0% $971,812
 100.0%

Mortgage Loans by Geographic Location within the United States  
  June 30, 2018 December 31, 2017
Region of the United States Carrying Value Percent of Total Carrying Value Percent of Total
  (Dollars in thousands)
South Atlantic $278,061
 28.3% $296,947
 30.5%
Pacific 155,917
 15.9
 146,320
 15.0
West North Central 124,177
 12.6
 127,096
 13.1
Mountain 103,331
 10.5
 105,627
 10.9
East North Central 102,597
 10.4
 91,971
 9.5
West South Central 92,322
 9.4
 85,566
 8.8
East South Central 66,063
 6.7
 67,228
 6.9
New England 34,286
 3.5
 35,005
 3.6
Middle Atlantic 26,233
 2.7
 16,052
 1.7
Total $982,987
 100.0% $971,812
 100.0%

Mortgage Loans by Loan-to-Value Ratio        
  June 30, 2018 December 31, 2017
Loan-to-Value Ratio 

Carrying Value
 Percent of Total Carrying Value Percent of Total
  (Dollars in thousands)
0% - 50% $381,586
 38.8% $334,037
 34.4%
51% - 60% 250,732
 25.5
 258,359
 26.6
61% - 70% 310,805
 31.6
 297,404
 30.6
71% - 80% 21,212
 2.2
 63,116
 6.5
81% - 90% 18,652
 1.9
 18,896
 1.9
Total $982,987
 100.0% $971,812
 100.0%


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


Mortgage Loans by Year of Origination        
  March 31, 2019 December 31, 2018
Year of Origination Carrying Value Percent of Total Carrying Value Percent of Total
  (Dollars in thousands)
2019 $5,650
 0.6% $—
 —%
2018 136,693
 13.4
 137,519
 13.2
2017 205,744
 20.1
 207,540
 20.0
2016 148,175
 14.4
 149,437
 14.4
2015 127,800
 12.5
 128,877
 12.4
2014 & prior 399,593
 39.0
 416,456
 40.0
Total $1,023,655
 100.0% $1,039,829
 100.0%

Mortgage Loans by Year of Origination        
  June 30, 2018 December 31, 2017
Year of Origination Carrying Value Percent of Total Carrying Value Percent of Total
  (Dollars in thousands)
2018 $46,500
 4.6% $—
 —%
2017 211,055
 21.5
 214,365
 22.1
2016 151,923
 15.5
 154,359
 15.9
2015 135,616
 13.8
 144,890
 14.9
2014 76,363
 7.8
 77,866
 8.0
2013 and prior 361,530
 36.8
 380,332
 39.1
Total $982,987
 100.0% $971,812
 100.0%



 Impaired Mortgage Loans
 March 31, 2019 December 31, 2018
 (Dollars in thousands)
Unpaid principal balance$4,706
 $18,622
Less:   
Related allowance(329) (3,107)
Carrying value of impaired mortgage loans$4,377
 $15,515


 Allowance on Mortgage Loans
 Three months ended March 31,
 2019 2018
 (Dollars in thousands)
Balance at beginning of period$3,107
 $497
Recoveries(2,778) (50)
Balance at end of period$329
 $447




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 Impaired Mortgage Loans
 June 30, 2018 December 31, 2017
 (Dollars in thousands)
Unpaid principal balance$18,826
 $19,027
Less:   
Related allowance(397) (497)
Carrying value of impaired mortgage loans$18,429
 $18,530
 Allowance on Mortgage Loans
 Six months ended June 30,
 2018 2017
 (Dollars in thousands)
Balance at beginning of period$497
 $713
Recoveries(100) (98)
Balance at end of period$397
 $615


Mortgage Loan Modifications


Our commercial mortgage loan portfolio can include loans that have been modified. We assess loan modifications on a loan-by-loan basis to evaluate whether a troubled debt restructuring has occurred. Generally, the types of concessions include: reduction of the contractual interest rate to a below-market rate, extension of the maturity date and/or a reduction of accrued interest. The amount, timing and extent of the concession granted is considered in determining if an impairment loss is needed for the restructuring. There were no loan modifications during the sixthree months ended June 30, 2018March 31, 2019 or June 30, 2017.March 31, 2018.

Low Income Housing Tax Credit Investments (LIHTC)

We invest in non-guaranteed federal LIHTC that are included in securities and indebtedness of related parties in the consolidated balance sheets. These investments take the form of limited partnerships, which in turn invest in a number of low income housing projects. We use the equity method of accounting for these investments. The limited partnerships generate pre-tax operating losses primarily from the depreciation of the underlying properties, but after-tax gains as the related tax credits are realized and the operating losses are deducted. The timing of the realization of tax credits is subject to fluctuation from period to period due to the timing of housing project completions and the approval of tax credits. Impairment losses may occur when the carrying value of the limited partnership exceeds the future tax benefits. We recognized $0.8 million of impairment losses on these investments during the first six months of 2018, which is reported as other-than-temporary impairment losses in the consolidated statement of operations. The Tax Act did not impact the tax credits we expect to receive from these investments. Equity income, however, was lower as a result of the Tax Act by $0.9 million during the second quarter 2018, and $2.3 million for the six months ended June 30, 2018 due to impairment losses recorded by the underlying partnerships in their fourth quarter earnings. Equity income from LIHTC is generally recorded one quarter in arrears as financial information becomes available from the investee. The carrying value of our LIHTC totaled $75.4 million at June 30, 2018 and $82.4 million at December 31, 2017.

LIHTC Equity Income (Loss), Net of Related Income Taxes
  Three months ended June 30, Six months ended June 30,
  2018 2017 2018 2017
  (Dollars in thousands)
Equity losses from LIHTC $(3,304) $(2,938) $(6,309) $(4,743)
Income tax benefits:        
Tax benefits from equity losses 694
 1,028
 1,325
 1,660
Investment tax credits 3,558
 3,568
 7,127
 7,097
Equity income from LIHTC, net of related income tax benefits $948
 $1,658
 $2,143
 $4,014



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At June 30, 2018, we had committed to provide additional funds for limited partnerships and limited liability companies in which we invest. The amounts of these unfunded commitments totaled $43.4 million, including $1.6 million for LIHTC commitments, which are summarized by year in the following table.

LIHTC Commitments by Year 
 June 30, 2018
 (Dollars in thousands)
2018$472
2019248
2020-2025884
Total$1,604


Variable Interest Entities


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


We have reviewed the circumstances surrounding our investments in VIEs, which are classified as securities and indebtedness of related parties and consist of LIHTC,(i) limited partnerships or limited liability companies accounted for under the equity method.method included in securities and indebtedness of related parties and (ii) non-guaranteed federal LIHTC investments included in other assets. In addition, we have reviewed the ownership interestsinterest in our VIEs and determined that we do not hold direct majority ownership or have other contractual rights (such as kick out rights) that give us effective control over these entities resulting in us having both the power to direct activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE. The maximum loss exposure relative to our VIEs is limited to the carrying value and any unfunded commitments that exist for each particular VIE. We also have not provided additional support or other guarantees that waswere not previously contractually required (financial or otherwise) to any of the VIEs as of June 30, 2018March 31, 2019 or December 31, 2017.2018. Based on thisour analysis, none of our VIEs were required to be consolidated at March 31, 2019 or December 31, 2018.

LIHTC investments take the form of limited partnerships or limited liability companies, which in turn invest in a number of low income housing projects. We use the proportional amortization method of accounting for any reporting periods presentedthese investments. The proportional amortization method amortizes the cost of the investment over the period in this Form 10-Q.which the investor expects to receive tax credits and other tax benefits, and the resulting amortization is recognized along with the tax benefits as a component of federal income tax expense on our consolidated statements of operations. The net benefits reflected in federal income tax expense related to LIHTC investments were $0.9 million for the first quarter of 2019, compared to $0.9 million for the first quarter of 2018.


At March 31, 2019, we had committed to provide additional funds for limited partnerships and limited liability companies in which we invest. The amounts of these unfunded commitments totaled $44.8 million, including $1.5 million for LIHTC investment commitments, which are summarized by year in the following table.

LIHTC Investment Commitments by Year 
 March 31, 2019
 (Dollars in thousands)
2019$505
2020165
2021-2025831
Total$1,501





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VIE Investments by Category       
 June 30, 2018 December 31, 2017
 Carrying Value Maximum Exposure to Loss Carrying Value Maximum Exposure to Loss
 (Dollars in thousands)
LIHTC$75,374
 $76,978
 $82,417
 $84,103
Investment companies31,300
 62,706
 25,335
 62,372
Real estate limited partnerships9,317
 19,463
 8,589
 20,590
Other724
 918
 1,182
 1,488
Total$116,715
 $160,065
 $117,523
 $168,553


VIE Investments by Category       
 March 31, 2019 December 31, 2018
 Carrying Value Maximum Exposure to Loss Carrying Value Maximum Exposure to Loss
 (Dollars in thousands)
LIHTC investments$51,156
 $52,657
 $54,037
 $55,597
Investment companies44,164
 80,590
 40,236
 79,578
Real estate limited partnerships8,489
 15,344
 8,945
 15,673
Other494
 504
 483
 493
Total$104,303
 $149,095
 $103,701
 $151,341


In addition, we make passive investments in the normal course of business in structured securities issued by VIEs for which we are not the investment manager. These structured securities include all of the residential mortgage-backed securities, commercial mortgage-backed securities and other asset-backed securities included in our fixed maturities. Our maximum exposure to loss on these securities is limited to our carrying value of the investment. We have determined that we are not the primary beneficiary of these structured securities because we do not have the power to direct the activities that most significantly impact the entities’ economic performance.



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Derivative Instruments


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


Derivatives Instruments by Type  
June 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
(Dollars in thousands)(Dollars in thousands)
Assets      
Freestanding derivatives:      
Call options (reported in other investments)$14,002
 $14,824
$15,741
 $4,745
Embedded derivatives:      
Modified coinsurance (reported in reinsurance recoverable)1,145
 2,125
110
 157
Interest-only security (reported in fixed maturities)1,624
 2,096
786
 855
Total assets$16,771
 $19,045
$16,637
 $5,757
      
Liabilities      
Embedded derivatives:      
Indexed annuity and universal life products (reported in liability for future policy benefits)$32,969
 $27,774
Modified coinsurance agreements (reported in other liabilities)106
 268
Indexed products (reported in liability for future policy benefits)$51,891
 $40,028
Modified coinsurance (reported in other liabilities)99
 7,426
Total liabilities$33,075
 $28,042
$51,990
 $47,454


Derivative Income (Loss)   
 Three months ended March 31,
 2019 2018
 (Dollars in thousands)
Change in fair value of free standing derivatives:   
Call options$8,685
 $(1,152)
Change in fair value of embedded derivatives:   
Modified coinsurance633
 (943)
Interest-only security47
 (35)
Indexed products(9,336) 2,664
Total income from derivatives$29
 $534



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Derivative Income (Loss)       
 Three months ended June 30, Six months ended June 30,
 2018 2017 2018 2017
 (Dollars in thousands)
Change in fair value of free standing derivatives:       
Call options$2,193
 $1,400
 $1,041
 $3,765
Change in fair value of embedded derivatives:       
Modified coinsurance agreements125
 (12) (818) (1,422)
Interest-only security(44) (174) (79) (195)
Indexed annuity and universal life products281
 (91) 2,945
 318
Total income from derivatives$2,555
 $1,123
 $3,089
 $2,466


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


We are exposed to credit losses in the event of nonperformance of the derivative counterparties. This credit risk is minimized by purchasing such agreements from financial institutions with high credit ratings (currently rated A or better by nationally recognized statistical rating organizations). We have also entered into credit support agreements with the counterparties requiring them to post collateral when net exposures exceed pre-determined thresholds that vary by counterparty. The net amount of such exposure is essentially the market value less collateral held for such agreements with each counterparty. The call options are supported by securities collateral received of $9.5$11.9 million at June 30, 2018,March 31, 2019, which is held in a separate custodial account. Subject to certain constraints, we are permitted to sell or re-pledge this collateral, but do not have legal rights to the collateral; accordingly, it has not been recorded on our balance sheet. At June 30, 2018,March 31, 2019, none of the collateral had been sold or re-pledged. As of June 30, 2018,March 31, 2019, our net derivative exposure was $4.8$4.0 million.




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3. Fair Values


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


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


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


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


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


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


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


Fixed maturities:


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


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


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


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


17
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security and may include a market liquidity premium. Our selection of comparable companies as well as the level of spread


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


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


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


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


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


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


We compare prices between different pricing sources for unusual disparity.


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


Equity securities:


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


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


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


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


Other investments:


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






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Cash, cash equivalents and short-term investments:


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


Reinsurance recoverable:


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


Assets held in separate accounts:


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


Future policy benefits-indexedbenefits - indexed product embedded derivatives:


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


Other liabilities:


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








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Valuation of our Financial Instruments Measured on a Recurring Basis by Hierarchy Levels
 March 31, 2019
 
Quoted prices in active markets
for identical assets (Level 1)
 
Significant other observable inputs
(Level 2)
 
Significant unobservable inputs
(Level 3)
 Fair Value
 (Dollars in thousands)
Assets       
Fixed maturities:       
Corporate securities$—
 $3,405,623
 $26,953
 $3,432,576
Residential mortgage-backed securities—
 618,749
 —
 618,749
Commercial mortgage-backed securities—
 908,579
 8,125
 916,704
Other asset-backed securities—
 687,167
 7,649
 694,816
United States Government and agencies7,894
 12,819
 —
 20,713
States and political subdivisions—
 1,548,026
 —
 1,548,026
Total fixed maturities7,894
 7,180,963
 42,727
 7,231,584
Non-redeemable preferred stocks—
 80,980
 7,129
 88,109
Common stocks (1)16,716
 —
 —
 16,716
Other investments—
 15,741
 —
 15,741
Cash, cash equivalents and short-term investments17,572
 —
 —
 17,572
Reinsurance recoverable—
 109
 —
 109
Assets held in separate accounts614,121
 —
 —
 614,121
Total assets$656,303
 $7,277,793
 $49,856
 $7,983,952
        
Liabilities       
Future policy benefits - indexed product embedded derivatives$—
 $—
 $51,891
 $51,891
Other liabilities—
 99
 —
 99
Total liabilities$—
 $99
 $51,891
 $51,990





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Valuation of our Financial Instruments Measured on a Recurring Basis by Hierarchy Levels
 December 31, 2018
 
Quoted prices in active markets
for identical assets (Level 1)
 
Significant other observable inputs
(Level 2)
 
Significant unobservable inputs
(Level 3)
 Fair Value
 (Dollars in thousands)
Assets       
Fixed maturities:       
Corporate securities$—
 $3,257,874
 $22,011
 $3,279,885
Residential mortgage-backed securities—
 606,860
 —
 606,860
Commercial mortgage-backed securities—
 810,626
 67,940
 878,566
Other asset-backed securities—
 703,969
 3,601
 707,570
United States Government and agencies7,917
 12,618
 —
 20,535
States and political subdivisions—
 1,539,629
 —
 1,539,629
Total fixed maturities7,917
 6,931,576
 93,552
 7,033,045
Non-redeemable preferred stocks—
 77,433
 6,862
 84,295
Common stocks (1)5,261
 —
 —
 5,261
Other investments—
 4,745
 —
 4,745
Cash, cash equivalents and short-term investments34,748
 —
 —
 34,748
Reinsurance recoverable—
 157
 —
 157
Assets held in separate accounts561,281
 —
 —
 561,281
Total assets$609,207
 $7,013,911
 $100,414
 $7,723,532
        
Liabilities       
Future policy benefits - indexed product embedded derivatives$—
 $—
 $40,028
 $40,028
Other liabilities—
 780
 —
 780
Total liabilities$—
 $780
 $40,028
 $40,808

Valuation of our Financial Instruments Measured on a Recurring Basis by Hierarchy Levels
 June 30, 2018
 
Quoted prices in active markets
for identical assets (Level 1)
 
Significant other observable inputs
(Level 2)
 
Significant unobservable inputs
(Level 3)
 Fair Value
 (Dollars in thousands)
Assets       
Fixed maturities:       
Corporate securities$—
 $3,342,791
 $30,470
 $3,373,261
Residential mortgage-backed securities—
 575,529
 23,940
 599,469
Commercial mortgage-backed securities—
 773,606
 87,367
 860,973
Other asset-backed securities—
 767,725
 16,299
 784,024
United States Government and agencies8,403
 12,957
 —
 21,360
States and political subdivisions—
 1,534,328
 —
 1,534,328
Total fixed maturities8,403
 7,006,936
 158,076
 7,173,415
Non-redeemable preferred stocks—
 90,269
 7,056
 97,325
Common stocks (1)5,395
 —
 —
 5,395
Other investments—
 14,002
 —
 14,002
Cash, cash equivalents and short-term investments38,846
 —
 —
 38,846
Reinsurance recoverable—
 1,145
 —
 1,145
Assets held in separate accounts638,061
 —
 —
 638,061
Total assets$690,705
 $7,112,352
 $165,132
 $7,968,189
        
Liabilities       
Future policy benefits - indexed product embedded derivatives$—
 $—
 $32,969
 $32,969
Other liabilities—
 106
 —
 106
Total liabilities$—
 $106
 $32,969
 $33,075


(1)A private equity fund with a fair value estimate of $1.3$3.7 million at March 31, 2019 and $3.3 million at December 31, 2018 using net asset value per share as a practical expedient, has not been classified in the fair value hierarchy above perin accordance with fair value reporting guidance. This fund invests in senior secured middle market loans and hashad unfunded commitments totaling $8.7$6.4 million at June 30,March 31, 2019 and December 31, 2018. The investment is not currently eligible for redemption.



Level 3 Assets by Valuation Source - Recurring Basis
 March 31, 2019
 Third-party vendors Priced
internally		 Fair Value
 (Dollars in thousands)
Corporate securities$7,782
 $19,171
 $26,953
Commercial mortgage-backed securities8,125
 —
 8,125
Other asset-backed securities5,000
 2,649
 7,649
Non-redeemable preferred stocks—
 7,129
 7,129
Total assets$20,907
 $28,949
 $49,856
Percent of total41.9% 58.1% 100.0%




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Level 3 Assets by Valuation Source - Recurring Basis     
 December 31, 2018
 Third-party vendors 
Priced
internally
 Fair Value
 (Dollars in thousands)
Corporate securities$1,940
 $20,071
 $22,011
Commercial mortgage-backed securities67,940
 —
 67,940
Other asset-backed securities—
 3,601
 3,601
Non-redeemable preferred stocks—
 6,862
 6,862
Total assets$69,880
 $30,534
 $100,414
Percent of total69.6% 30.4% 100.0%

Valuation of our Financial Instruments Measured on a Recurring Basis by Hierarchy Levels
 December 31, 2017
 
Quoted prices in active markets
for identical assets (Level 1)
 
Significant other observable inputs
(Level 2)
 
Significant unobservable inputs
(Level 3)
 Fair Value
 (Dollars in thousands)
Assets       
Fixed maturities:       
Corporate securities$—
 $3,654,671
 $33,600
 $3,688,271
Residential mortgage-backed securities—
 507,157
 9,124
 516,281
Commercial mortgage-backed securities—
 619,606
 85,701
 705,307
Other asset-backed securities—
 780,022
 53,480
 833,502
United States Government and agencies9,078
 15,827
 —
 24,905
States and political subdivisions—
 1,523,701
 —
 1,523,701
Total fixed maturities9,078
 7,100,984
 181,905
 7,291,967
Non-redeemable preferred stocks—
 92,425
 7,407
 99,832
Common stocks4,313
 —
 —
 4,313
Other investments—
 14,824
 —
 14,824
Cash, cash equivalents and short-term investments69,703
 —
 —
 69,703
Reinsurance recoverable—
 2,125
 —
 2,125
Assets held in separate accounts651,963
 —
 —
 651,963
Total assets$735,057
 $7,210,358
 $189,312
 $8,134,727
        
Liabilities       
Future policy benefits - indexed product embedded derivatives$—
 $—
 $27,774
 $27,774
Other liabilities—
 268
 —
 268
Total liabilities$—
 $268
 $27,774
 $28,042


Quantitative Information about Level 3 Fair Value Measurements - Recurring Basis
 March 31, 2019
 Fair Value Valuation Technique Unobservable Input Range (Weighted Average)
 (Dollars in thousands)      
Assets       
Corporate securities$18,460
 Discounted cash flow Credit spread 1.06% - 5.95% (3.77%)
Commercial mortgage-backed securities8,125
 Discounted cash flow Credit spread 1.30% - 2.25% (1.90%)
Non-redeemable preferred stocks7,129
 Discounted cash flow Credit spread 3.40% (3.40%)
Total assets$33,714
      
        
Liabilities       
Future policy benefits - indexed product embedded derivatives$51,891
 Discounted cash flow 
Credit risk
Risk margin
 
0.35% - 1.70% (1.05%)
0.15% - 0.40% (0.25%)

Level 3 Assets by Valuation Source - Recurring Basis
 June 30, 2018
 Third-party vendors Priced
internally		 Fair Value
 (Dollars in thousands)
Corporate securities$2,257
 $28,213
 $30,470
Residential mortgage-backed securities23,940
 —
 23,940
Commercial mortgage-backed securities78,376
 8,991
 87,367
Other asset-backed securities16,299
 —
 16,299
Non-redeemable preferred stocks—
 7,056
 7,056
Total assets$120,872
 $44,260
 $165,132
Percent of total73.2% 26.8% 100.0%


 December 31, 2018
 Fair Value Valuation Technique Unobservable Input Range (Weighted Average)
 (Dollars in thousands)      
Assets       
Corporate securities$19,178
 Discounted cash flow Credit spread 1.23% - 7.00% (4.01%)
Commercial mortgage-backed securities55,866
 Discounted cash flow Credit spread 1.45% - 3.55% (2.58%)
Non-redeemable preferred stocks6,862
 Discounted cash flow Credit spread 4.36% (4.36%)
Total assets$81,906
      
        
Liabilities       
Future policy benefits - indexed product embedded derivatives$40,028
 Discounted cash flow 
Credit risk
Risk margin
 
0.55% - 1.80% (1.05%)
0.15% - 0.40% (0.25%)

 December 31, 2017
 Third-party vendors 
Priced
internally
 Fair Value
 (Dollars in thousands)
Corporate securities$4,555
 $29,045
 $33,600
Residential mortgage-backed securities9,124
 —
 9,124
Commercial mortgage-backed securities85,701
 —
 85,701
Other asset-backed securities47,080
 6,400
 53,480
Non-redeemable preferred stocks—
 7,407
 7,407
Total assets$146,460
 $42,852
 $189,312
Percent of total77.4% 22.6% 100.0%



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Quantitative Information about Level 3 Fair Value Measurements - Recurring Basis
 June 30, 2018
 Fair Value Valuation Technique Unobservable Input Range (Weighted Average)
 (Dollars in thousands)      
Assets       
Corporate securities$20,376
 Discounted cash flow Credit spread 0.98% - 5.52% (3.17%)
Commercial mortgage-backed62,694
 Discounted cash flow Credit spread 1.42% - 3.65% (2.34%)
Non-redeemable preferred stocks7,056
 Discounted cash flow Credit spread 3.57% (3.57%)
Total assets$90,126
      
        
Liabilities       
Future policy benefits - indexed product embedded derivatives$32,969
 Discounted cash flow 
Credit risk
Risk margin
 
0.60% - 1.75% (1.15%)
0.15% - 0.40% (0.25%)

 December 31, 2017
 Fair Value Valuation Technique Unobservable Input Range (Weighted Average)
 (Dollars in thousands)      
Assets       
Corporate securities$27,682
 Discounted cash flow Credit spread 0.91% - 6.20% (4.17%)
Commercial mortgage-backed72,224
 Discounted cash flow Credit spread 1.40% - 4.10% (2.50%)
Non-redeemable preferred stocks7,407
 Discounted cash flow Credit spread 2.94% (2.94%)
Total assets$107,313
      
        
Liabilities       
Future policy benefits - indexed product embedded derivatives$27,774
 Discounted cash flow 
Credit risk
Risk margin
 
0.40% - 1.60% (0.90%)
0.15% - 0.40% (0.25%)


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






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Level 3 Financial Instruments Changes in Fair Value - Recurring Basis   
 March 31, 2019
      Realized and unrealized gains (losses), net       
 Balance, December 31, 2018 Purchases Disposals Included in net income Included in other compre-hensive income 
Transfers into
Level 3
 
Transfers
out of
Level 3 (1)
 Amort-ization included in net income Balance, March 31, 2019
 (Dollars in thousands)
Assets                 
Corporate securities$22,011
 $6,000
 $(1,262) $—
 $212
 $—
 $—
 $(8) $26,953
Commercial mortgage-backed securities67,940
 —
 (92) —
 195
 —
 (59,918) —
 8,125
Other asset-backed securities3,601
 5,000
 (83) —
 (869) —
 —
 —
 7,649
Non-redeemable preferred stocks6,862
 —
 —
 —
 267
 —
 —
 —
 7,129
Total assets$100,414
 $11,000
 $(1,437) $—
 $(195) $—
 $(59,918) $(8) $49,856
                  
Liabilities                 
Future policy benefits - indexed product embedded derivatives$40,028
 $3,479
 $(1,169) $9,553
 $—
 $—
 $—
 $—
 $51,891

Level 3 Financial Instruments Changes in Fair Value - Recurring Basis   
 June 30, 2018
      Realized and unrealized gains (losses), net       
 Balance, December 31, 2017 Purchases Disposals Included in net income Included in other compre-hensive income 
Transfers into
Level 3 (1)
 
Transfers
out of
Level 3 (1)
 Amort-ization included in net income Balance, June 30, 2018
 (Dollars in thousands)
Assets                 
Corporate securities$33,600
 $—
 $(7,682) $—
 $(812) $7,082
 $(2,000) $282
 $30,470
Residential mortgage-backed securities9,124
 23,940
 —
 —
 —
 —
 (9,124) —
 23,940
Commercial mortgage-backed securities85,701
 35,531
 (423) —
 (2,590) —
 (30,826) (26) 87,367
Other asset-backed securities53,480
 20,255
 (2,106) —
 13
 —
 (55,343) —
 16,299
Non-redeemable preferred stocks7,407
 —
 —
 —
 (351) —
 —
 —
 7,056
Total assets$189,312
 $79,726
 $(10,211) $—
 $(3,740) $7,082
 $(97,293) $256
 $165,132
                  
Liabilities                 
Future policy benefits - indexed product embedded derivatives$27,774
 $5,226
 $(2,476) $2,445
 $—
 $—
 $—
 $—
 $32,969

 March 31, 2018
      Realized and unrealized gains (losses), net       
 Balance, December 31, 2017 Purchases Disposals Included in net income Included in other compre-hensive income 
Transfers into
Level 3
 
Transfers
out of
Level 3 (1)
 Amort-ization included in net income 
Balance,
March 31, 2018
 (Dollars in thousands)
Assets                 
Corporate securities$33,600
 $—
 $(1,091) $—
 $30
 $—
 $(2,000) $(8) $30,531
Residential mortgage-backed securities9,124
 —
 —
 —
 —
 —
 (9,124) —
 —
Commercial mortgage-backed securities85,701
 21,875
 (227) —
 (1,838) —
 (13,477) (22) 92,012
Other asset-backed securities53,480
 8,250
 (2,025) —
 13
 —
 (47,080) —
 12,638
Non-redeemable preferred stocks7,407
 —
 —
 —
 (82) —
 —
 —
 7,325
Total assets$189,312
 $30,125
 $(3,343) $—
 $(1,877) $—
 $(71,681) $(30) $142,506
                  
Liabilities                 
Future policy benefits - indexed product embedded derivatives$27,774
 $2,254
 $(942) $(366) $—
 $—
 $—
 $—
 $28,720

Level 3 Financial Instruments Changes in Fair Value - Recurring Basis   
                  
 June 30, 2017
      Realized and unrealized gains (losses), net       
 Balance, December 31, 2016 Purchases Disposals Included in net income Included in other compre-hensive income 
Transfers into
Level 3 (1)
 
Transfers
out of
Level 3 (1)
 Amort-ization included in net income 
Balance,
June 30, 2017
 (Dollars in thousands)
Assets                 
Corporate securities$59,119
 $—
 $(3,311) $—
 $(778) $4,408
 $(22,877) $(20) $36,541
Residential mortgage-backed securities—
 21,326
 —
 —
 (1) —
 (15,307) 1
 6,019
Commercial mortgage-backed securities81,434
 5,723
 (394) —
 6,547
 —
 (14,544) (42) 78,724
Other asset-backed securities54,368
 63,542
 (3,921) —
 269
 10,959
 (26,817) (12) 98,388
Non-redeemable preferred stocks7,411
 —
 —
 —
 114
 —
 —
 —
 7,525
Total assets$202,332
 $90,591
 $(7,626) $—
 $6,151
 $15,367
 $(79,545) $(73) $227,197
                  
Liabilities                 
Future policy benefits - indexed product embedded derivatives$15,778
 $3,566
 $(909) $3,860
 $—
 $—
 $—
 $—
 $22,295


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


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





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Valuation of our Financial Instruments Not Reported at Fair Value by Hierarchy LevelsValuation of our Financial Instruments Not Reported at Fair Value by Hierarchy Levels  Valuation of our Financial Instruments Not Reported at Fair Value by Hierarchy Levels  
June 30, 2018  March 31, 2019  
Quoted prices in active markets
for identical assets (Level 1)
 
Significant other observable inputs
(Level 2)
 
Significant unobservable inputs
(Level 3)
 Fair Value Carrying Value
Quoted prices in active markets
for identical assets (Level 1)
 
Significant other observable inputs
(Level 2)
 
Significant unobservable inputs
(Level 3)
 Fair Value Carrying Value
(Dollars in thousands)  (Dollars in thousands)  
Assets                  
Mortgage loans$—
 $—
 $979,716
 $979,716
 $982,987
$—
 $—
 $1,044,026
 $1,044,026
 $1,023,655
Policy loans—
 —
 232,375
 232,375
 194,838
—
 —
 244,677
 244,677
 199,230
Other investments—
 —
 31,753
 31,753
 30,722
—
 —
 29,958
 29,958
 28,922
Total assets$—
 $—
 $1,243,844
 $1,243,844
 $1,208,547
$—
 $—
 $1,318,661
 $1,318,661
 $1,251,807
                  
Liabilities                  
Future policy benefits$—
 $—
 $4,010,881
 $4,010,881
 $4,261,390
$—
 $—
 $4,101,370
 $4,101,370
 $4,215,476
Supplementary contracts without life contingencies—
 —
 308,067
 308,067
 312,399
—
 —
 305,768
 305,768
 303,771
Advance premiums and other deposits—
 —
 257,939
 257,939
 257,939
—
 —
 256,261
 256,261
 256,261
Short-term debt—
 —
 27,000
 27,000
 27,000
—
 —
 4,000
 4,000
 4,000
Long-term debt—
 —
 82,266
 82,266
 97,000
—
 —
 71,004
 71,004
 97,000
Liabilities related to separate accounts—
 —
 636,205
 636,205
 638,061
—
 —
 612,681
 612,681
 614,121
Total liabilities$—
 $—
 $5,322,358
 $5,322,358
 $5,593,789
$—
 $—
 $5,351,084
 $5,351,084
 $5,490,629


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

 December 31, 2017  
 
Quoted prices in active markets
for identical assets (Level 1)
 
Significant other observable inputs
(Level 2)
 
Significant unobservable inputs
(Level 3)
 Fair Value Carrying Value
 (Dollars in thousands)  
Assets         
Mortgage loans$—
 $—
 $989,503
 $989,503
 $971,812
Policy loans—
 —
 236,223
 236,223
 191,398
Other investments—
 —
 28,619
 28,619
 27,547
Total assets$—
 $—
 $1,254,345
 $1,254,345
 $1,190,757
          
Liabilities         
Future policy benefits$—
 $—
 $4,119,880
 $4,119,880
 $4,164,593
Supplementary contracts without life contingencies—
 —
 327,151
 327,151
 322,630
Advance premiums and other deposits—
 —
 259,099
 259,099
 259,099
Long-term debt—
 —
 78,628
 78,628
 97,000
Liabilities related to separate accounts—
 —
 649,610
 649,610
 651,963
Total liabilities$—
 $—
 $5,434,368
 $5,434,368
 $5,495,285


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


Certain assets are measured at fair value on a nonrecurring basis, generally mortgage loans or real estate that have been deemed to be impaired during the reporting period. There were no mortgage loans or real estate impaired to fair value during the sixthree months ended June 30, 2018March 31, 2019 or June 30, 2017.March 31, 2018.






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4. Defined Benefit Plan


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


Components of Net Periodic Pension Cost for FBL and Affiliates Combined - Multiemployer Plan
Three months ended June 30, Six months ended June 30,Three months ended March 31,
2018 2017 2018 20172019 2018
(Dollars in thousands)(Dollars in thousands)
Service cost$1,493
 $1,388
 $2,986
 $2,776
$1,137
 $1,493
Interest cost3,410
 3,531
 6,821
 7,062
3,318
 3,411
Expected return on assets(5,562) (4,796) (11,124) (9,592)(4,707) (5,562)
Amortization of prior service cost12
 33
 23
 66
—
 11
Amortization of actuarial loss3,127
 2,530
 6,254
 5,060
2,229
 3,127
Net periodic pension cost$2,480
 $2,686
 $4,960
 $5,372
$1,977
 $2,480
          
FBL Financial Group, Inc. share of net periodic pension costs$760
 $851
 $1,520
 $1,702
$633
 $760


Components of Net Periodic Pension Cost for FBL and Affiliates Combined - Other Plans
 Three months ended March 31,
 2019 2018
 (Dollars in thousands)
Service cost$117
 $135
Interest cost248
 240
Amortization of actuarial loss266
 338
Net periodic pension cost$631
 $713
    
FBL Financial Group, Inc. share of net periodic pension costs$362
 $418

Components of Net Periodic Pension Cost for FBL and Affiliates Combined - Other Plans
 Three months ended June 30, Six months ended June 30,
 2018 2017 2018 2017
 (Dollars in thousands)
Service cost$134
 $109
 $269
 $218
Interest cost239
 251
 479
 502
Amortization of actuarial loss339
 293
 677
 586
Net periodic pension cost$712
 $653
 $1,425
 $1,306
        
FBL Financial Group, Inc. share of net periodic pension costs$417
 $388
 $835
 $776


5. Income Taxes

The Tax Act made broad changes to the U.S. tax code impacting our companies, including reducing the federal corporate tax rate from 35% to 21% and numerous base-broadening provisions. We recorded a provisional estimate of the impact of the Tax Act on our deferred tax assets and liabilities as of December 31, 2017. As of June 30, 2018, little guidance regarding the Tax Act has been issued and a number of the Tax Act’s provisions still contain some level of uncertainty.

Our income tax provisions and deferred income taxes at June 30, 2018 reflect the lower corporate tax rate and the other provisions of the Tax Act, based on our current understanding of the legislation. Certain provisional estimates used in the determination of deferred tax assets and liabilities at December 31, 2017 have been updated during the first six months of 2018, including the determination of the 8-year transition liability related to tax reserves. The adjustments to these estimates only affected the classification of items on the balance sheet and did not impact net income for the first six months of 2018 or total equity as of June 30, 2018. As additional guidance and information is provided, these estimates will continue to be updated as needed.



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6. Credit Arrangements


Short-term debt as of June 30, 2018March 31, 2019 consists of twoa $4.0 million short-term advances,advance, collateralized by fixed maturity securities, payable to FHLB totaling $27.0 million.Federal Home Loan Bank of Des Moines (FHLB.) The advances included an $8.0 million advance was taken on JuneMarch 29, 2018 that2019 and was paid off on July 2, 2018,April 1, 2019, with an interest rate of 2.10% and a $19.0 million advance on June 29, 2018 that was paid off on July 16, 2018, with a weighted average interest rate of 2.13%2.62%.




7.6. Commitments and Contingencies


Legal Proceedings


In the normal course of business, we may be involved in litigation in which damages are alleged that are substantially in excess of contractual policy benefits or certain other agreements. In recent years, companies in the life insurance and annuity business have faced litigation, including class action lawsuits, alleging improper product design, improper sales practices and similar claims. We are not aware of any claims threatened or pending against FBL Financial Group, Inc. or any of its subsidiaries for which a material loss is reasonably possible.


Lease Commitments

As discussed in Note 1 to our consolidated financial statements, we adopted new accounting guidance for leases. Upon adoption, we elected to follow the following practical expedients as allowed under the new guidance:
We did not reassess whether any expired or existing contracts are or contain leases.
We did not reassess the lease classification (operating vs. finance) for any expired or existing leases.
We did not reassess initial direct costs for any existing leases.


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We consider leases with original terms of one year or less to be short-term. We have elected not to carry short-term leases on our consolidated balance sheet. We have no agreements with lease and non-lease components. None of our leases are considered finance leases.
At March 31, 2019 and on the date of adoption, January 1, 2019, we held four long-term leases all of which related to real estate. The net present value of future cash flows for these leases is reported within our consolidated balance sheet in other assets and other liabilities. The carrying value of these leases was $6.8 million at March 31, 2019, and $7.2 million on the date of adoption, January 1, 2019. The most significant lease is for our home office facilities, which is owned by a subsidiary of our majority owner, the Iowa Farm Bureau Federation. That lease has a carrying value of $5.6 million as of March 31, 2019 and $6.1 million on January 1, 2019. All of the leases are based on fixed terms which expire from 2021 through 2024, but allow renewal. Two of the leases, not including the home office property, contain provisions that allow the lease cost to increase based on a stated step-up schedule or changes in the consumer price index. Our estimated incremental borrowing rate of 4.5% was used in determining the net present value of the future leases commitments.
Total lease expense for the quarter ended March 31, 2019 was $1.3 million.

Future remaining minimum lease payments for the long-term leases discussed above, as of March 31, 2019, are as follows:
Lease commitments by year 
 March 31, 2019
 (Dollars in thousands)
2019$1,920
20202,573
20212,574
2022222
202355
Thereafter24
Total minimum lease payments7,368
Less: Interest(526)
Present value of lease liabilities$6,842




8.7. Stockholders’ Equity


Share Repurchases


We periodically repurchase our Class A common stock under programs approved by our Board of Directors. These repurchase programs authorize us to make repurchases in the open market or through privately negotiated transactions, with the timing and terms of the purchases to be determined by management based on market conditions. Under these programs, we repurchased 129,01166,475 shares for $8.8for$4.6 million during the sixthree months ended June 30, 2018. No repurchases were madeMarch 31, 2019 and 99,312 shares for $6.8 million during the sixthree months ended June 30, 2017.March 31, 2018. Completion of the current program is dependent on market conditions and other factors. There is no guarantee as to the exact timing of any repurchases or the number of shares that we will repurchase. The share repurchase program may be modified or terminated at any time without prior notice. At June 30, 2018, $48.0March 31, 2019, $36.3 million remains available for repurchase under the active repurchase program.


Dividends   
 Three months ended March 31,
 2019 2018
Class A and B common stock:   
Cash dividends per common share$0.48
 $0.46
Special cash dividend per common share1.50
 1.50
Total common stock dividends per share$1.98
 $1.96
    
Series B preferred stock dividends per share$0.0075
 $0.0075



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Special Dividends

In March 2018, the Board of Directors approved a special $1.50 per share cash dividend payabledividends paid to our Class A and Class B common shareholders totalingtotaled $37.0 million in the first quarter of 2019 and $37.3 million. In March 2017,million in the Boardfirst quarter of Directors approved a special $1.50 per share cash dividend payable to Class A and Class B common shareholders totaling $37.4 million.2018.




Reconciliation of Outstanding Common Stock        
 Class A Class B Total
 Shares Dollars Shares Dollars Shares Dollars
 (Dollars in thousands)
Outstanding at January 1, 201824,919,113
 $153,589
 11,413
 $72
 24,930,526
 $153,661
Stock-based compensation6,762
 218
 —
 —
 6,762
 218
Purchase of common stock(99,312) (612) —
 —
 (99,312) (612)
Outstanding at March 31, 201824,826,563
 $153,195
 11,413
 $72
 24,837,976
 $153,267
            
Outstanding at January 1, 201924,707,402
 $152,652
 11,413
 $72
 24,718,815
 $152,724
Stock-based compensation—
 202
 —
 —
 —
 202
Purchase of common stock(66,475) (410) —
 —
 (66,475) (410)
Outstanding at March 31, 201924,640,927
 $152,444
 11,413
 $72
 24,652,340
 $152,516

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Accumulated Other Comprehensive Income, Net of Tax and Other Offsets    
 Unrealized Net Investment Gains (Losses) on Available For Sale Securities (1) Accumulated Non-Credit Impairment Losses (1) Underfunded Status of Postretirement Benefit Plans Total
 (Dollars in thousands)
Balance at January 1, 2018$295,169
 $537
 $(10,723) $284,983
Cumulative effect of change in accounting principle related to net unrealized gains on equity securities (2)(5,869) —
 —
 (5,869)
Other comprehensive income (loss) before reclassifications(95,937) 2,808
 —
 (87,260)
Reclassification adjustments(25) —
 262
 237
Balance at March 31, 2018$193,338
 $3,345
 $(10,461) $186,222
        
Balance at January 1, 2019$96,921
 $3,133
 $(8,736) $91,318
Other comprehensive income before reclassifications99,871
 29
 —
 99,900
Reclassification adjustments(2,260) —
 208
 (2,052)
Balance at March 31, 2019$194,532
 $3,162
 $(8,528) $189,166

Reconciliation of Outstanding Common Stock        
 Class A Class B Total
 Shares Dollars Shares Dollars Shares Dollars
 (Dollars in thousands)
Outstanding at January 1, 201724,882,542
 $152,903
 11,413
 $72
 24,893,955
 $152,975
Issuance of common stock under compensation plans34,613
 440
 —
 —
 34,613
 440
Outstanding at June 30, 201724,917,155
 $153,343
 11,413
 $72
 24,928,568
 $153,415
            
Outstanding at January 1, 201824,919,113
 $153,589
 11,413
 $72
 24,930,526
 $153,661
Issuance of common stock under compensation plans16,694
 320
 —
 —
 16,694
 320
Purchase of common stock(129,011) (795) —
 —
 (129,011) (795)
Outstanding at June 30, 201824,806,796
 $153,114
 11,413
 $72
 24,818,209
 $153,186

Accumulated Other Comprehensive Income, Net of Tax and Other Offsets    
 Unrealized Net Investment Gains (Losses) on Available For Sale Securities (1) Accumulated Non-Credit Impairment Losses (1) Underfunded Status of Postretirement Benefit Plans Total
 (Dollars in thousands)
Balance at January 1, 2017$156,963
 $311
 $(7,719) $149,555
Other comprehensive income before reclassifications61,285
 1,201
 —
 62,486
Reclassification adjustments(55) —
 371
 316
Balance at June 30, 2017$218,193
 $1,512
 $(7,348) $212,357
        
Balance at January 1, 2018$295,169
 $537
 $(10,723) $284,983
Net unrealized gains on equity securities (2)(5,480) —
 —
 (5,480)
Other comprehensive income (loss) before reclassifications(149,645) 2,118
 —
 (147,527)
Reclassification adjustments(1,424) —
 529
 (895)
Balance at June 30, 2018$138,620
 $2,655
 $(10,194) $131,081


(1)Includes the impact of taxes, deferred acquisition costs, value of insurance in force acquired, unearned revenue reserves and policyholder liabilities. See Note 2 to our consolidated financial statements for further information.
(2)See Note 1 to our consolidated financial statements for further discussion on this one-time adjustment related to an accounting change.




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Accumulated Other Comprehensive Income Reclassification Adjustments    
 Six months ended June 30, 2018
 Unrealized Net Investment Gains (Losses) on Available For Sale Securities (1) Accumulated Non-Credit Impairment Losses (1) 
Underfunded Status of Postretirement Benefit
Plans
 Total
 (Dollars in thousands)
Realized capital gains on sales of investments$(1,795) $—
 $—
 $(1,795)
Adjustments for assumed changes in deferred acquisition costs, value of insurance in force acquired, unearned revenue reserve and policyholder liabilities(8) —
 —
 (8)
Other expenses - change in unrecognized postretirement items:      

Net actuarial loss—
 —
 668
 668
Reclassifications before income taxes(1,803) —
 668
 (1,135)
Income taxes379
 —
 (139) 240
Reclassification adjustments$(1,424) $—
 $529
 $(895)


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Accumulated Other Comprehensive Income Reclassification Adjustments    
 Three months ended March 31, 2019
 Unrealized Net Investment Gains (Losses) on Available For Sale Securities (1) Accumulated Non-Credit Impairment Losses (1) 
Underfunded Status of Postretirement Benefit
Plans
 Total
 (Dollars in thousands)
Realized capital gains on sales of fixed maturities$(2,994) $—
 $—
 $(2,994)
Adjustments for assumed changes in deferred acquisition costs, value of insurance in force acquired, unearned revenue reserve and policyholder liabilities133
 —
 —
 133
Other expenses - change in unrecognized postretirement items:      

Net actuarial loss—
 —
 263
 263
Reclassifications before income taxes(2,861) —
 263
 (2,598)
Income taxes601
 —
 (55) 546
Reclassification adjustments$(2,260) $—
 $208
 $(2,052)
Accumulated Other Comprehensive Income Reclassification Adjustments    
Six months ended June 30, 2017
Unrealized Net Investment Gains (Losses) on Available For Sale Securities (1) Accumulated Non-Credit Impairment Losses (1) 
Underfunded Status of Postretirement Benefit
Plans
 Total
(Dollars in thousands)Three months ended March 31, 2018
Realized capital losses on sales of investments$(174) $—
 $—
 $(174)
Unrealized Net Investment Gains (Losses) on Available For Sale Securities (1) Accumulated Non-Credit Impairment Losses (1) 
Underfunded Status of Postretirement Benefit
Plans
 Total
(Dollars in thousands)
Realized capital gains on sales of fixed maturities$(83) $—
 $—
 $(83)
Adjustments for assumed changes in deferred acquisition costs, value of insurance in force acquired, unearned revenue reserve and policyholder liabilities89
 —
 —
 89
51
 —
 —
 51
Other expenses - change in unrecognized postretirement items:      

      

Net actuarial loss—
 —
 571
 571
—
 —
 331
 331
Reclassifications before income taxes(85) —
 571
 486
(32) —
 331
 299
Income taxes30
 —
 (200) (170)7
 —
 (69) (62)
Reclassification adjustments$(55) $—
 $371
 $316
$(25) $—
 $262
 $237


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




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9.
8. Earnings per Share


Computation of Earnings per Common Share
 Three months ended March 31,
 2019 2018
 (Dollars in thousands, except per share data)
Numerator:   
Net income attributable to FBL Financial Group, Inc.$34,043
 $23,565
Less: Dividends on Series B preferred stock38
 38
Income available to common stockholders$34,005
 $23,527
    
Denominator:   
Weighted average shares - basic24,765,277
 25,003,691
Effect of dilutive securities - stock-based compensation11,176
 15,818
Weighted average shares - diluted24,776,453
 25,019,509
    
Earnings per common share$1.37
 $0.94
Earnings per common share - assuming dilution$1.37
 $0.94

 Three months ended June 30, Six months ended June 30,
 2018 2017 2018 2017
 (Dollars in thousands, except per share data)
Numerator:       
Net income attributable to FBL Financial Group, Inc.$32,428
 $32,291
 $56,059
 $58,724
Less: Dividends on Series B preferred stock37
 37
 75
 75
Income available to common stockholders$32,391
 $32,254
 $55,984
 $58,649
        
Denominator:       
Weighted average shares - basic24,916,597
 25,031,312
 24,960,391
 25,033,307
Effect of dilutive securities - stock-based compensation12,903
 19,663
 14,405
 20,777
Weighted average shares - diluted24,929,500
 25,050,975
 24,974,796
 25,054,084
        
Earnings per common share$1.30
 $1.29
 $2.24
 $2.34
Earnings per common share - assuming dilution:$1.30
 $1.29
 $2.24
 $2.34
There were no antidilutive stock options outstanding in any of the periods presented.




10.9. Segment Information


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

WeOur chief operating decision makers use non-GAAPpre-tax adjusted operating income (ato evaluate segment performance and allocate resources. Pre-tax adjusted operating income is not a measure used in financial statements prepared in accordance with GAAP, but is a common life insurance industry measure of earnings not recognized under GAAP), in addition to net income, to measure our performance. Non-GAAP
Pre-tax adjusted operating income for the periods presented, consists of pre-tax net income adjusted to exclude the initial impact of changes in federal statutory income tax rates and tax laws, realized gains and losses on investments and the change in net unrealized gains and losses onfair value of derivatives and equity securities, which can fluctuate greatly from period to period. These fluctuations make it difficult to analyze core operating trends. In addition, for derivatives not designated as hedges, there


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is a mismatch between the valuation of the asset and liability when deriving net income (loss). Specifically, call options relating to our indexed business are one-year assets while the embedded derivatives in the indexed contracts represent the rights of the contract holder to receive index credits over the entire period the indexed products are expected to be in force.
Non-GAAP operating income is not a measure used in financial statements prepared in accordance with GAAP, but is a common life insurance industry measure of performance. We use non-GAAP operating income for goal setting, determining short-term incentive compensation and evaluating performance on a basis comparable Adjustments to that used by many in the investment community.
We analyze our segment results based on pre-tax non-GAAP operating income. Accordingly, income taxes are not allocated to the segments. In addition, non-GAAP operating results are reported net of transactions between the segments. Adjustments to net income are net of amortization of unearned revenue reserves, deferred acquisition costs and value of insurance in force acquired, as well as changes in interest sensitive product reserves and income taxes attributable to these items.reserves. While not applicable for the periods reported herein, our non-GAAPin determining pre-tax adjusted operating income policywe will also calls for adjustments to net income relating toremove the following:

impact of: settlements or judgments arising from lawsuits, net of any recoveries from third parties,
parties; the cumulative effect of changes in accounting principles and
discontinued operations.

Segment results are reported net of inter-segment transactions.





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Reconciliation Between Net Income and Non-GAAP Operating Income    
 Three months ended June 30, Six months ended June 30,
 2018 2017 2018 2017
 (Dollars in thousands)
Net income attributable to FBL Financial Group, Inc.$32,428
 $32,291
 $56,059
 $58,724
Net income adjustments:       
Initial impact of the Tax Act (1)754
 —
 1,823
 —
Net realized gains/losses on investments (2) (3)(295) (788) 2,129
 (234)
Change in net unrealized gains/losses on derivatives (2)(194) (686) 315
 (685)
Non-GAAP operating income$32,693
 $30,817
 $60,326
 $57,805
Financial Information Concerning our Operating Segments   
    
 Three months ended March 31,
 2019 2018
 (Dollars in thousands)
Pre-tax adjusted operating income:   
Annuity$15,662
 $16,582
Life Insurance10,092
 10,897
Corporate and Other4,319
 3,533
Total pre-tax adjusted operating income30,073
 31,012
    
Adjustments to pre-tax adjusted operating income:   
Net realized gains/losses on investments (1)9,152
 (2,814)
Change in fair value of derivatives (1)1,153
 (644)
Pre-tax net income attributable to FBL Financial Group, Inc.40,378
 27,554
Income tax expense(6,276) (3,813)
Tax on equity income(59) (176)
Net income attributable to FBL Financial Group, Inc.$34,043
 $23,565
    
Adjusted operating revenues:   
Annuity$52,682
 $57,435
Life Insurance107,258
 107,727
Corporate and Other23,128
 24,111
 183,068
 189,273
Net realized gains/losses on investments (1)9,289
 (2,971)
Change in fair value of derivatives (1)11,199
 (3,872)
Consolidated revenues$203,556
 $182,430

(1)Amount represents LIHTC equity losses related to changes in tax rates under the Tax Act. See Note 2 to our consolidated financial statements for further information.
(2)Amounts are net of adjustments, as applicable, to amortization of unearned revenue reserves, deferred acquisition costs, value of insurance in force acquired, interest sensitive policy reserves and income taxes attributable to these items.
(3)Beginning in 2018, amounts include the change in net unrealized gains/losses on equity securities due to a change in accounting guidance. See Note 1 to our consolidated financial statements for additional information.



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Financial Information Concerning our Operating Segments    
 Three months ended June 30, Six months ended June 30,
 2018 2017 2018 2017
 (Dollars in thousands)
Pre-tax non-GAAP operating income:       
Annuity$15,998
 $18,174
 $32,580
 $34,595
Life Insurance16,381
 17,631
 27,278
 31,380
Corporate and Other3,084
 4,195
 4,965
 8,357
Total pre-tax non-GAAP operating income35,463
 40,000
 64,823
 74,332
Income taxes on non-GAAP operating income(2,770) (9,183) (4,497) (16,527)
Non-GAAP operating income$32,693
 $30,817
 $60,326
 $57,805
        
Non-GAAP operating revenues:       
Annuity$56,415
 $56,833
 $113,850
 $111,884
Life Insurance109,581
 107,068
 217,308
 211,211
Corporate and Other23,869
 24,104
 47,980
 47,770
 189,865
 188,005
 379,138
 370,865
Net realized gains/losses on investments (1) (2)340
 794
 (2,886) 313
Change in net unrealized gains/losses on derivatives (1)(260) 198
 (4,132) (261)
Consolidated revenues$189,945
 $188,997
 $372,120
 $370,917



(1)Amounts are net of adjustments, as applicable, to amortization of unearned revenue reserves, deferred acquisition costs, value of insurance in force acquired and interest sensitive policy reserves and income taxes attributable to these items.
(2)Beginning in 2018, amounts include the change in net unrealized gains/losses on equity securities due to a change in accounting guidance. See Note 1 to our consolidated financial statements for additional information.


Interest expense is attributable to the Corporate and Other segment. Expenditures for long-lived assets were not significant during the periods presented above. Goodwill at June 30, 2018March 31, 2019 and December 31, 20172018 was allocated among the segments as follows: Annuity ($3.9 million) and Life Insurance ($6.1 million).


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


Equity Income by Operating Segment   
 Three months ended March 31,
 2019 2018
 (Dollars in thousands)
Pre-tax equity income:   
Life Insurance$370
 $695
Corporate and Other(91) 141
 279
 836
 
 
Income taxes(59) (176)
Equity income, net of related income taxes$220
 $660

Equity Income (Loss) by Operating Segment    
 Three months ended June 30, Six months ended June 30,
 2018 2017 2018 2017
 (Dollars in thousands)
Pre-tax equity income (loss):       
Life Insurance$1,292
 $1,289
 $1,987
 $2,455
Corporate and Other(2,200) (2,279) (3,711) (3,903)
 (908) (990) (1,724) (1,448)
        
Income taxes3,749
 3,914
 7,489
 7,603
Equity income, net of related taxes, included in non-GAAP operating income2,841
 2,924
 5,765
 6,155
LIHTC equity losses related to the enactment of the Tax Act (1)(754) —
 $(1,823) $—
Equity income, net of related income taxes$2,087
 $2,924
 $3,942
 $6,155

(1)Amount represents LIHTC equity losses related to changes in tax rates under the Tax Act. Such investments are accounted for under the equity method of accounting with income/loss recorded in arrears. See Note 2 to our consolidated financial statements for further information.



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Premiums collected, which is not a measure used in financial statements prepared according to GAAP, includes premiums received on life insurance policies and deposits on annuities and universal life-type products. Premiums collected is a common life insurance industry measure of agent productivity. Net premiums collected totaled $171.4$160.7 million for the quarter ended June 30, 2018March 31, 2019 and $165.9$169.7 million for the same period in 2017. Net premiums collected totaled $341.0 million for the six months ended June 30, 2018 and $335.7 million for the same period in 2017.2018.




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


Reconciliation of Traditional Life Insurance Premiums, Net of Reinsurance   
    
 Three months ended March 31,
 2019 2018
 (Dollars in thousands)
Traditional and universal life insurance premiums collected$78,001
 $76,263
Premiums collected on interest sensitive products(28,379) (26,582)
Traditional life insurance premiums collected49,622
 49,681
Change in due premiums and other(230) (184)
Traditional life insurance premiums as included in the Consolidated Statements of Operations$49,392
 $49,497

Reconciliation of Traditional Life Insurance Premiums, Net of Reinsurance    
 Three months ended June 30, Six months ended June 30,
 2018
2017 2018 2017
 (Dollars in thousands)
Traditional and universal life insurance premiums collected$77,900
 $75,162
 $154,163
 $148,735
Premiums collected on interest sensitive products(27,849) (26,164) (54,431) (50,879)
Traditional life insurance premiums collected50,051
 48,998
 99,732
 97,856
Change in due premiums and other1,040
 1,264
 856
 840
Traditional life insurance premiums as included in the Consolidated Statements of Operations$51,091
 $50,262
 $100,588
 $98,696


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


Interest Sensitive Product Charges by Segment   
 Three months ended March 31,
 2019 2018
 (Dollars in thousands)
Annuity   
Surrender charges and other$1,567
 $1,202
    
Life Insurance   
Administration charges4,667
 4,046
Cost of insurance charges12,633
 12,537
Surrender charges621
 681
Amortization of policy initiation fees1,067
 795
Total18,988
 18,059
    
Corporate and Other   
Administration charges$1,236
 $1,316
Cost of insurance charges7,202
 7,140
Surrender charges24
 23
Separate account charges1,936
 2,145
Amortization of policy initiation fees7
 397
Total10,405
 11,021
    
Impact of net realized gains/losses on investments and change in fair value of derivatives on amortization of unearned revenue reserves306
 (184)
Interest sensitive product charges as included in the Consolidated Statements of Operations$31,266
 $30,098

Interest Sensitive Product Charges by Segment    
 Three months ended June 30, Six months ended June 30,
 2018
2017 2018 2017
 (Dollars in thousands)
Annuity       
Surrender charges and other$1,217
 $1,202
 $2,419
 $2,337
        
Life Insurance       
Administration charges$4,194
 $3,899
 $8,240
 $7,764
Cost of insurance charges12,681
 12,369
 25,218
 24,404
Surrender charges568
 469
 1,249
 994
Amortization of policy initiation fees1,141
 620
 1,755
 1,284
Total$18,584
 $17,357
 $36,462
 $34,446
        
Corporate and Other       
Administration charges$1,325
 $1,377
 $2,641
 $2,802
Cost of insurance charges7,195
 7,269
 14,335
 14,594
Surrender charges20
 27
 43
 79
Separate account charges2,165
 2,027
 4,310
 4,029
Amortization of policy initiation fees400
 197
 794
 370
Total$11,105
 $10,897
 $22,123
 $21,874
        
Interest sensitive product charges as included in the Consolidated Statements of Operations$30,906
 $29,456
 $61,004
 $58,657






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


This section includes a summary of FBL Financial Group, Inc.’s consolidated results of operations, financial condition and where appropriate, factors that management believes may affect future performance. Unless noted otherwise, all references to FBL Financial Group, Inc. (we or the Company) include all of its direct and indirect subsidiaries, including insurance subsidiaries Farm Bureau Life Insurance Company (Farm Bureau Life) and Greenfields Life Insurance Company (Greenfields Life). Please read this discussion in conjunction with the accompanying consolidated financial statements and related notes. In addition, we encourage you to refer to our Form 10-K for the fiscal year ended December 31, 20172018 for a complete description of our significant accounting policies and estimates. Familiarity with this information is important in understanding our financial position and results of operations.


This Form 10-Q includes statements relating to anticipated financial performance, business prospects, new products and similar matters. These statements and others, which include words such as “expect,” “anticipate,” “believe,” “intend” and other similar expressions, constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. A variety of factors could cause our actual results and experiences to differ materially from the anticipated results or other expectations expressed in our forward-looking statements. See Part 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended December 31, 20172018 for additional information on the risks and uncertainties that may affect the operations, performance, development and results of our business.


Overview


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


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


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


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


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


The U.S. 10-year Treasury yield decreased during the first quarter of 2019 to 2.41% at March 31, 2019 from 2.69% at December 31, 2018.
Gross Domestic Product increased at an annual rate of 4.1%3.2% during the secondfirst quarter of 20182019 based on recent estimates.
U.S. unemployment was estimated to be 4.0%3.8% at the end of the secondfirst quarter of 2018.2019.


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U.S. net farm income is forecast to decrease 6.7%increase 10.0% in 2019 and farm real estate value is estimated to increase 2.1%1.8% during 2018the first quarter of 2019 according to recent U.S. Department of Agriculture estimates.
The impact to our businesscustomer base from tariffs recently imposed as well as proposed on the general U.S. and farm economies is uncertain.


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economies.
The U.S. 10-year Treasury yield increased during 2018 to 2.85% at June 30, 2018 from 2.40% at December 31, 2017.
Thelong-term impact of the enactment of the Tax Cuts and Jobs Act during Decemberof 2017 on the general U.S. economy, business initiatives and consumer demand for our insurance products is uncertain.products.


The low market interest rate environment continues to impact our investment yields as well as the interest we credit on our interest sensitive products. The benchmark 10-year U.S. Treasury yield increasedtrended lower in the first half of the second quarter reaching a seven-year high of 3.11%and finished at 2.41%, before partially reversing course28 basis points lower than year-end 2018. We experienced an increase in the second half and endingfair value of our fixed maturity security portfolio during the first quarter at 2.85%. Corporateof 2019 primarily due to a decrease in market yields. Average corporate credit spreads continued to widentightened during the quarter.first quarter of 2019 by approximately 33 basis points as yields remain historically low. Low crediting rates still pose challenges to maintaining attractive annuity and universal life products, although our rates are comparable to other insurance companies, allowing us to maintain our competitive position within the market. We experienced a decrease in the fair value of our fixed maturity security portfolio during the second quarter and first six months of 2018 primarily due to an increase in market yields. See the segment discussion and “Financial Condition” section that follows for additional information regarding the impact of low market interest rates on our business.


Results of Operations for the Periods Ended June 30,March 31, 2019 and 2018 and 2017


 Three months ended June 30, Six months ended June 30,
 2018 2017 Change 2018 2017 Change
 (Dollars in thousands, except per share data)
Net income attributable to FBL Financial Group, Inc.$32,428
 $32,291
 — % $56,059
 $58,724
 (5)%
Adjustments to net income:           
Initial impact of the Tax Act754
 —
 N/A
 1,823
 —
 N/A
Realized gains/losses on investments (1)(2)(295) (788) (63)% 2,129
 (234) (1,010)%
Change in net unrealized gains/losses on derivatives (1)(194) (686) (72)% 315
 (685) N/A
Non-GAAP operating income (3)$32,693
 $30,817
 6 % $60,326
 $57,805
 4 %
            
Pre-tax non-GAAP operating income:           
Annuity segment$15,998
 $18,174
 (12)% $32,580
 $34,595
 (6)%
Life Insurance segment16,381
 17,631
 (7)% 27,278
 31,380
 (13)%
Corporate and Other segment3,084
 4,195
 (26)% 4,965
 8,357
 (41)%
Total pre-tax non-GAAP operating income35,463
 40,000
 (11)% 64,823
 74,332
 (13)%
Income taxes on non-GAAP operating income(2,770) (9,183) (70)% (4,497) (16,527) (73)%
Non-GAAP operating income (3)$32,693
 $30,817
 6 % $60,326
 $57,805
 4 %
           
Earnings per common share - assuming dilution$1.30
 $1.29
 1 % $2.24
 $2.34
 (4)%
Non-GAAP operating income per common share - assuming dilution (3)1.31
 1.23
 7 % 2.41
 2.30
 5 %
Effective tax rate on non-GAAP operating income8% 23% 
 7% 22% 
Average invested assets, at amortized cost (4)    
 $8,306,061
 $8,001,013
 4 %
Annualized yield on average invested assets (4)      5.15% 5.35% 
 Three months ended March 31,
 2019 2018 Change
 (Dollars in thousands, except per share data)
Net income attributable to FBL Financial Group, Inc.$34,043
 $23,565
 44 %
Net income adjustments:     
Net realized gains/losses on investments (1)(7,230) 2,223
 (425)%
Change in fair value of derivatives (1)(911) 509
 (279)%
Adjusted operating income (2)$25,902
 $26,297
 (2)%
      
Pre-tax adjusted operating income:     
Annuity segment$15,662
 $16,582
 (6)%
Life Insurance segment10,092
 10,897
 (7)%
Corporate and Other segment4,319
 3,533
 22 %
Total pre-tax adjusted operating income30,073
 31,012
 (3)%
Income taxes on adjusted operating income(4,171) (4,715) (12)%
Adjusted operating income (2)$25,902
 $26,297
 (2)%
     
Earnings per common share - assuming dilution$1.37
 $0.94
 46 %
Adjusted operating income per common share - assuming dilution (2)1.04
 1.05
 (1)%
Effective tax rate on adjusted operating income14% 15% 
Average invested assets, at amortized cost (3)$8,292,919
 $8,191,122
 1 %
Annualized yield on average invested assets (3)4.97% 5.21% 


(1)Amounts are net of adjustments, as applicable, to amortization of unearned revenue reserves, deferred acquisition costs and value of insurance in force acquired, as well as changes in interest sensitive product reserves and income taxes attributable to these items.
(2)Beginning in 2018, amount includes changes in net unrealized gains/losses on equity securities.Adjusted operating income is a non-GAAP measure of earnings, see the Overview section above for additional information.
(3)See Note 10 to our consolidated financial statements for further information on non-GAAP operating income.
(4)Average invested assets and annualized yield, including investments held as securities and indebtedness of related parties.


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Net income and non-GAAP operating income were positively impactedincreased in the secondfirst quarter of 2018 and the six months ended June 30, 2018,2019, compared to the prior year periods,period, primarily due to net realized gains from investments and changes in fair value of derivatives. Net income and adjusted operating income were negatively impacted by reducedless investment-related income, tax rates related to changes under the Tax Actless spread income earned from lower yields on invested assets and increased earnings from an increase in the volume of business in force. These increases to income weredeath benefits, partially offset by increases in death benefits, expensesthe positive impact of market performance on our indexed products and amortization of deferred acquisition costs. Other investment-related income also reduced earnings for the quarter ended June 30, 2018 and benefited results for the six month period, compared to prior year periods.variable business. See the discussion that follows for details regarding non-GAAPpre-tax adjusted operating income by segment. Net income for the six months ended June 30, 2018 was negatively impacted by net realized losses from investments and lower equity income due to the enactment


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Annuity Segment                
Three months ended June 30, Six months ended June 30,Three months ended March 31,
2018 2017 Change 2018 2017 Change2019 2018 Change
(Dollars in thousands)(Dollars in thousands)
Non-GAAP operating revenues:           
Adjusted operating revenues:     
Interest sensitive product charges$1,217
 $1,202
 1 % $2,419
 $2,337
 4 %$1,567
 $1,202
 30 %
Net investment income55,198
 55,631
 (1)% 111,431
 109,547
 2 %51,115
 56,233
 (9)%
Total non-GAAP operating revenues56,415
 56,833
 (1)% 113,850
 111,884
 2 %
Total adjusted operating revenues52,682
 57,435
 (8)%
                
Non-GAAP operating benefits and expenses:           
Adjusted operating benefits and expenses:     
Interest sensitive product benefits31,393
 29,865
 5 % 62,679
 59,743
 5 %28,070
 31,286
 (10)%
Underwriting, acquisition and insurance expenses:                
Commissions net of deferrals518
 483
 7 % 1,022
 1,014
 1 %514
 504
 2 %
Amortization of deferred acquisition costs3,070
 2,783
 10 % 6,135
 5,311
 16 %2,679
 3,065
 (13)%
Amortization of value of insurance in force172
 170
 1 % 344
 340
 1 %163
 172
 (5)%
Other underwriting expenses5,264
 5,358
 (2)% 11,090
 10,881
 2 %5,594
 5,826
 (4)%
Total underwriting, acquisition and insurance expenses9,024
 8,794
 3 % 18,591
 17,546
 6 %8,950
 9,567
 (6)%
Total non-GAAP operating benefits and expenses40,417
 38,659
 5 % 81,270
 77,289
 5 %
Pre-tax non-GAAP operating income (1)$15,998
 $18,174
 (12)% $32,580
 $34,595
 (6)%
Total adjusted operating benefits and expenses37,020
 40,853
 (9)%
Pre-tax adjusted operating income$15,662
 $16,582
 (6)%


Other data     
Annuity premiums collected, direct (1)$69,506
 $78,810
 (12)%
Policy liabilities and accruals, end of period4,379,558
 4,462,979
 (2)%
Average invested assets, at amortized cost4,481,499
 4,505,251
 (1)%
Other investment-related income included in net investment income (2)1,039
 2,657
 (61)%
Average individual annuity account value3,179,153
 3,106,259
 2 %
      
Earned spread on individual annuity products:     
Weighted average yield on cash and invested assets4.76% 5.03%  
Weighted average crediting rate2.53% 2.46%  
Spread2.23% 2.57%  
      
Individual annuity withdrawal rate5.6% 5.4%  

Other data           
Annuity premiums collected, direct (2)$79,838
 $76,539
 4 % $158,648
 $158,002
 —%
Policy liabilities and accruals, end of period      4,422,265
 4,236,547
 4%
Average invested assets, at amortized cost      4,523,314
 4,327,948
 5%
Other investment-related income included in net investment income (3)1,233
 2,515
 (51)% 3,890
 3,115
 25%
Average individual annuity account value      3,123,772
 3,009,171
 4%
            
Earned spread on individual annuity products:           
Weighted average yield on cash and invested assets      4.92% 5.20%  
Weighted average crediting rate      2.48% 2.62%  
Spread      2.44% 2.58%  
            
Individual annuity withdrawal rate      5.2% 4.1%  


(1)See Note 10 to our consolidated financial statements for further information on non-GAAP operating income.
(2)Premiums collected is a non-GAAP measure of sales production, see Note 109 to our consolidated financial statements.statements for additional information.
(3)(2)Includes prepayment fee income and adjustments to the amortization of premium or discounts from changes in our payment speed assumptions.


Pre-tax non-GAAPadjusted operating income for the Annuity segment decreased in the secondfirst quarter of 2018,2019, compared to the prior year period, primarily due to less other investment-related income and an increase in interest sensitive benefits, partially offset


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by the impactreduced spread income earned from an increase in the volume of business in force. Pre-tax non-GAAP operating income decreased in the six months ended June 30, 2018, compared to the prior year period, primarily due to increases in amortization of deferred acquisition costs and interest sensitive product benefits,lower yields on invested assets, partially offset by the impact from increases in other investment-related income and in the volume of business in force.favorable market performance on reserves associated with guaranteed living withdrawal benefits.


The average aggregate account value for individual annuity contracts in force increased in the six months ended June 30, 2018,first quarter of 2019, compared to the prior year period, due to continued sales advances on our funding agreements with FHLB and the crediting of interest. Continued growth in our business in force contributes to increases in revenues, benefits and expenses. Premiums collected were higherlower in the secondfirst quarter of 2018 and the six months ended June 30, 2018,2019, compared to the prior year periods,period, due to increaseddecreased sales of indexed annuity products, partially offset by decreasedincreased sales of fixed rate deferred annuity products. Individual fixed rate deferred annuity collected premiums were $39.0$39.4 million in the secondfirst quarter of 2018 and $77.4 in the six months ended June 30, 2018,2019, compared to $46.9$38.4 million in the secondfirst quarter of 2017 and $103.8 million in the six months ended June 30, 2017.2018. Indexed annuity collected premiums were $37.4$28.3 million in the secondfirst quarter of 2018 and $75.1 in the six months ended June 30, 2018,2019, compared to $28.8$37.7 million in the secondfirst quarter of 20172018. The decrease in our annuity segment policy liabilities contributed to decreases in revenues and $52.3 millionbenefits. The decrease was driven by a decrease in the six months ended June 30, 2017. Outstanding funding agreements with FHLB totaled $463.7 million at June 30, 2018 and $399.2 million at June 30, 2017. During the second quarter of 2018, outstanding funding agreements with FHLB decreased $66.6which totaled $437.2 million at March 31, 2019 and for the six months ended June 30, 2018, outstanding funding agreements increased $48.6 million.$530.3 million at March 31, 2018.




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Amortization of deferred acquisition costs changedwas less during the secondfirst quarter and the six months ended June 30, 2018,of 2019, compared to the prior year periods,period, due to changes in actual and expected profits on the underlying business.


The weighted average yield on cash and invested assets for individual annuities decreased in the six months ended June 30, 2018,first quarter of 2019, compared to the prior year period, primarily due to lower yields on new investment acquisitions from premium receipts and reinvestment of the proceeds from maturing investments, compared with the average existing portfolio yield.yield, and less other investment-related income. See the “Financial Condition” section for additional information regarding the yields obtained on investment acquisitions. Weighted average crediting rates on our individual annuity products decreasedincreased due to crediting rate actions taken in 2017 and 2018 in response to the declining portfolio yield and a change in the underlying product mix.increased amortization on our call options supporting our indexed annuity products.
 


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Life Insurance Segment                
Three months ended June 30, Six months ended June 30,Three months ended March 31,
2018 2017 Change 2018 2017 Change2019 2018 Change
(Dollars in thousands)(Dollars in thousands)
Non-GAAP operating revenues:           
Adjusted operating revenues:     
Interest sensitive product charges and other income$18,726
 $17,370
 8 % $36,706
 $34,310
 7 %$18,875
 $17,980
 5 %
Traditional life insurance premiums51,091
 50,262
 2 % 100,588
 98,696
 2 %49,392
 49,497
 — %
Net investment income39,764
 39,436
 1 % 80,014
 78,205
 2 %38,991
 40,250
 (3)%
Total non-GAAP operating revenues109,581
 107,068
 2 % 217,308
 211,211
 3 %
Total adjusted operating revenues107,258
 107,727
 — %
                
Non-GAAP operating benefits and expenses:          
Adjusted operating benefits and expenses:    
Interest sensitive product benefits:          
    
Interest and index credits9,093
 8,267
 10 % 17,486
 16,652
 5 %8,051
 8,393
 (4)%
Death benefits and other14,709
 13,338
 10 % 29,950
 27,412
 9 %14,466
 15,241
 (5)%
Total interest sensitive product benefits23,802
 21,605
 10 % 47,436
 44,064
 8 %22,517
 23,634
 (5)%
Traditional life insurance benefits:          
    
Death benefits19,297
 19,997
 (4)% 43,032
 41,664
 3 %24,416
 23,735
 3 %
Surrender and other benefits10,392
 8,936
 16 % 20,536
 19,365
 6 %9,723
 10,144
 (4)%
Increase in traditional life future policy benefits14,022
 13,678
 3 % 25,600
 24,537
 4 %12,534
 11,578
 8 %
Total traditional life insurance benefits43,711
 42,611
 3 % 89,168
 85,566
 4 %46,673
 45,457
 3 %
Distributions to participating policyholders2,560
 2,557
 — % 5,111
 5,110
 — %2,534
 2,551
 (1)%
Underwriting, acquisition and insurance expenses:          
    
Commission expense, net of deferrals4,715
 4,874
 (3)% 9,638
 9,777
 (1)%4,639
 4,923
 (6)%
Amortization of deferred acquisition costs4,498
 4,519
 — % 8,934
 8,430
 6 %4,799
 4,436
 8 %
Amortization of value of insurance in force373
 375
 (1)% 746
 750
 (1)%372
 373
 — %
Other underwriting expenses14,833
 14,185
 5 % 30,984
 28,589
 8 %16,002
 16,151
 (1)%
Total underwriting, acquisition and insurance expenses24,419
 23,953
 2 % 50,302
 47,546
 6 %25,812
 25,883
 — %
Total non-GAAP operating benefits and expenses94,492
 90,726
 4 % 192,017
 182,286
 5 %
Total adjusted operating benefits and expenses97,536
 97,525
 — %
15,089
 16,342
 (8)% 25,291
 28,925
 (13)%9,722
 10,202
 (5)%
Equity income, before tax1,292
 1,289
 — % 1,987
 2,455
 (19)%370
 695
 (47)%
Pre-tax non-GAAP operating income (1)$16,381
 $17,631
 (7)% $27,278
 $31,380
 (13)%
Pre-tax adjusted operating income$10,092
 $10,897
 (7)%






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Life Insurance Segment - continued                
Three months ended June 30, Six months ended June 30,Three months ended March 31,
2018 2017 Change 2018 2017 Change2019 2018 Change
(Dollars in thousands)(Dollars in thousands)
Other data                
Life premiums collected, net of reinsurance (2)(1)$77,900
 $75,162
 4 % $154,163
 $148,735
 4%$78,001
 $76,263
 2 %
Policy liabilities and accruals, end of period    
 2,942,046
 2,833,191
 4%3,015,751
 2,918,284
 3 %
Life insurance in force, end of period    
 59,008,306
 56,967,379
 4%60,240,261
 58,543,298
 3 %
Average invested assets, at amortized cost (3)(2)    
 2,999,681
 2,900,290
 3%3,107,575
 2,979,404
 4 %
Other investment-related income included in net investment income (4)(3)374
 763
 (51)% 1,872
 884
 112%330
 1,498
 (78)%
Average interest sensitive life account value    
 848,459
 824,152
 3%869,476
 844,559
 3 %
                
Interest sensitive life insurance spread:                
Weighted average yield on cash and invested assets (3)(2)      5.35% 5.59%  5.21% 5.33%  
Weighted average crediting rate      3.68% 3.77%  3.68% 3.64%  
Spread      1.67% 1.82%  1.53% 1.69%  
                
Life insurance lapse and surrender rates      4.8% 4.9%  4.6% 4.9%  
Death benefits, net of reinsurance and reserves released22,384
 21,292
 5 % $48,863
 $44,273
 10%$26,672
 $26,479
 1 %


(1)See Note 10 to our consolidated financial statements for further information on non-GAAP operating income.
(2)Premiums collected is a non-GAAP measure of sales production, see Note 109 to our consolidated financial statements.statements for additional information.
(3)(2)Average invested assets and weighted average yield including investments held as securities and indebtedness of related parties.
(4)(3)Includes prepayment fee income and adjustments to the amortization of premium or discounts from changes in our payment speed assumptions.


Pre-tax non-GAAPadjusted operating income for the Life Insurance segment decreased in the secondfirst quarter of 2018 and the six months ended June 30, 2018,2019, compared to the prior year periods,period, primarily due to increases in death benefits, net of reinsurance and reserves released, andless other underwriting expenses,investment-related income, partially offset by the impact of an increase in the volume of business in force.


Continued growth in our business in force contributes to the increase in revenues benefits and expenses. The increase in other underwriting expenses included increased expenses associated with salaries, including a one-time employee bonus in the first quarter of 2018 related to the enactment of the Tax Act, and additional expenses associated with system enhancements.benefits.


Amortization of deferred acquisition costs changedwas higher during the secondfirst quarter of 2018 and the six months ended June 30, 2018,2019, compared to the prior year periods,period, due to changes in actual and expected profits on the underlying business.

Death benefits, net of reinsurance and reserves released, increased in the second quarter of 2018 and the six months ended June 30, 2018, compared to the prior year periods, primarily due to an increase in the average claim amount, net of reinsurance and reserves released. Surrenders and other benefits increased in the second quarter of 2018 and the six months ended June 30, 2018, compared to the prior year periods, primarily due to an increase in scheduled endowment benefits.


We assign a portion of our investments held in securities and indebtedness of related parties to the Life Insurance segment. These investments include equity interests in limited liability partnerships and corporations, accounted for under the equity method of accounting. Equity income, before tax, consists of our proportionate share of gains and losses attributable to our relative ownership interest in these investments. See the Equity Income discussion that follows, and Note 109 to our consolidated financial statements, for additional information regarding these investments.


The weighted average yield on cash and invested assets for interest sensitive life insurance products decreased in the six months ended June 30, 2018,first quarter of 2019, compared to the prior year period, due to lower yields on new investment acquisitions from premium receipts and reinvestment of the proceeds from maturing investments.investments, and less other investment-related income. See the “Financial Condition” section for additional


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information regarding the yields obtained on investment acquisitions. Weighted average crediting rates on our interest sensitive life insurance products decreasedincreased due to crediting rate actions taken in 2017 and 2018 in response to the declining portfolio yield.increased amortization on our call options supporting our indexed universal life product.
 


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Corporate and Other Segment                
Three months ended June 30, Six months ended June 30,Three months ended March 31,
2018 2017 Change 2018 2017 Change2019 2018 Change
(Dollars in thousands)(Dollars in thousands)
Non-GAAP operating revenues:           
Adjusted operating revenues:     
Interest sensitive product charges$11,102
 $10,894
 2 % $22,123
 $21,872
 1 %$10,405
 $11,021
 (6)%
Net investment income8,777
 8,643
 2 % 17,188
 17,411
 (1)%8,640
 8,411
 3 %
Other income3,990
 4,567
 (13)% 8,669
 8,487
 2 %4,083
 4,679
 (13)%
Total non-GAAP operating revenues23,869
 24,104
 (1)% 47,980
 47,770
 — %
Total adjusted operating revenues23,128
 24,111
 (4)%
                
Non-GAAP operating benefits and expenses:           
Adjusted operating benefits and expenses:     
Interest sensitive product benefits7,714
 7,894
 (2)% 17,056
 17,953
 (5)%10,365
 9,342
 11 %
Underwriting, acquisition and insurance expenses:                
Commission expense, net of deferrals667
 812
 (18)% 1,347
 1,533
 (12)%704
 680
 4 %
Amortization of deferred acquisition costs1,876
 1,223
 53 % 4,388
 1,860
 136 %(967) 2,512
 (138)%
Other underwriting expenses1,506
 1,721
 (12)% 2,908
 2,819
 3 %1,153
 1,402
 (18)%
Total underwriting, acquisition and insurance expenses4,049
 3,756
 8 % 8,643
 6,212
 39 %890
 4,594
 (81)%
Interest expense1,213
 1,213
 — % 2,426
 2,425
 — %1,212
 1,213
 — %
Other expenses5,627
 4,740
 19 % 11,220
 8,891
 26 %6,250
 5,593
 12 %
Total non-GAAP operating benefits and expenses18,603
 17,603
 6 % 39,345
 35,481
 11 %
Total adjusted operating benefits and expenses18,717
 20,742
 (10)%
5,266
 6,501
 (19)% 8,635
 12,289
 (30)%4,411
 3,369
 31 %
Net loss (income) attributable to noncontrolling interest18
 (27) (167)% 41
 (29) (241)%
Equity loss, before tax(2,200) (2,279) (3)% (3,711) (3,903) (5)%
Pre-tax non-GAAP operating income (1)$3,084
 $4,195
 (26)% $4,965
 $8,357
 (41)%
Net (income) loss attributable to noncontrolling interest(1) 23
 (104)%
Equity (loss) income, before tax(91) 141
 (165)%
Pre-tax adjusted operating income$4,319
 $3,533
 22 %
Other data                
Average invested assets, at amortized cost (2)(1)    
 $783,066
 $772,775
 1 %$703,846
 $706,468
 — %
Other investment-related income included in net investment income (3)(2)$149
 $117
 27 % 286
 467
 (39)%121
 137
 (12)%
Average interest sensitive life account value    
 359,978
 362,195
 (1)%361,872
 360,586
 — %
Death benefits, net of reinsurance and reserves released4,321
 4,679
 (8)% 10,260
 11,564
 (11)%7,069
 5,939
 19 %
Estimated impact on pre-tax non-GAAP operating income from separate account performance on amortization of deferred acquisition costs (1)(255) 330
 (177)% (1,115) 1,261
 (188)%
Estimated impact on pre-tax adjusted operating income from separate account performance on amortization of deferred acquisition costs, deferred sales inducements and unearned revenue reserve2,200
 (700) (414)%


(1)See Note 10 to our consolidated financial statements for further information on non-GAAP operating income.
(2)Average invested assets including investments held as securities and indebtedness of related parties.
(3)(2)Includes prepayment fee income and adjustments to the amortization of premium or discounts from changes in our payment speed assumptions.


Pre-tax non-GAAPadjusted operating income decreasedincreased for the Corporate and Other segment in the secondfirst quarter of 2018 and the six months ended June 30, 2018,2019, compared to the prior year periods,period, primarily due to increasesa decrease in amortization of deferred acquisition costs from the impact of favorable market performance on our variable business, and expenses. The decreases in pre-tax non-GAAP operating income for the quarter and six months ended June 30, 2018, compared to the prior year period, were partially offset by decreasesincreases in death benefits.benefits and expenses.



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Death benefits, net of reinsurance and reserves released, decreasedincreased in the secondfirst quarter of 2018,2019, compared to the prior year period, primarily due to a decrease in the number of claims reported. The decrease in death benefits in the six months ended June 30, 2018, compared to the prior year period, was due to a decreasean increase in the average size of claims.


Other income and other expenses includes fees and expenses from sales of brokered products and operating results of our non-insurance subsidiaries, which include management, advisory, marketing and distribution services and leasing activities.
IncreasesOther expenses increased in other expenses,the first quarter of 2019, compared to the prior year periods, included $0.8 million for the second quarter of 2018 and $1.4 million for the six months ended June 30, 2018 in expensesperiod, primarily due to costs associated with expanding our wealth management offerings. Other income included a one-time benefit of $0.7 million in first quarter of 2018.


We assign a portion of our investments held in securities and indebtedness of related parties to the Corporate and Other segment. These investments include equity interests in limited liability partnerships and corporations, accounted for under the equity method of accounting. Equity loss,income, before tax, consists of our proportionate share of gains and losses attributable to our relative ownership interest in these investments. See the Equity Income discussion that follows and Note 109 to our consolidated financial statements for additional information regarding these investments.

Equity Income       
 Three months ended June 30, Six months ended June 30,
 2018 2017 2018 2017
 (Dollars in thousands)
Pre-tax equity income (loss):       
LIHTC$(2,350) $(2,938) $(4,002) $(4,743)
Other equity method investments1,442
 1,948
 2,278
 3,295
 (908) (990) (1,724) (1,448)
        
Income taxes
 
    
Taxes on equity income (loss)191
 346
 362
 506
Investment tax credits3,558
 3,568
 7,127
 7,097
Equity income, net of related taxes, included in non-GAAP operating income

2,841
 2,924
 5,765
 6,155
LIHTC equity losses related to the enactment of the Tax Act (1)

(754) —
 $(1,823) $—
Equity income, net of related income taxes$2,087
 $2,924
 $3,942
 $6,155

(1)Amount represents LIHTC equity losses recorded by the partnerships upon enactment of the Tax Act. See Note 2 to our consolidated financial statements for additional information.



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Equity Income

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

The level of these gains and losses is subject to fluctuationfor these entities normally fluctuates from period to period depending on the prevailing economic environment, changes in prices of bond and equity securities held by the investment partnerships, the timing and success of initial public offerings or exit strategies, and the timing of the sale of investments held by the partnerships and joint ventures. Our LIHTCs generally generate pre-tax losses and after-tax gains as

Equity income, net of related taxes, for the related tax credits are realized. The timingfirst quarter of 2019 was $0.2 million compared with $0.7 million for the realizationfirst quarter of tax credits is subject to fluctuation from period to period due to the timing of housing project completions and the approval of tax credits.2018. See Note 2 to our consolidated financial statements for further information.


Income Taxes on Non-GAAPAdjusted Operating Income


The effective tax rate on non-GAAPadjusted operating income was 7.8%13.9% for the secondfirst quarter of 2018 and 6.9%2019, compared with 15.2% for the six months ended June 30, 2018, compared with 23.0% for the secondfirst quarter of 2017 and 22.2% for the six months ended June 30, 2017. The 2018 effective tax rate differs from the 2017 rate due to the decrease in the federal corporate tax rate from 35% to 21%


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under the Tax Act, effective for 2018. As discussed earlier, any impact related to the initial enactment of the Tax Act is excluded from non-GAAP operating income. The effective tax rates differ from the federal statutory rate of 21% in 2018 and 35% in 2017 primarily due to the impact of low-income housing tax credits from equity method investeesLIHTC investments andtax-exempt investment income.


Components of income taxes   
 Three months ended March 31,
 2019 2018
 (Dollars in thousands)
Income tax expense$(6,276) $(3,813)
Tax on equity income(59) (176)
Income tax offset on net income adjustments2,164
 (726)
Income taxes on adjusted operating income$(4,171) $(4,715)
    
Income taxes on adjusted operating income before benefits of LIHTC investments$(5,076) $(5,642)
Amounts related to LIHTC investments905
 927
Income taxes on adjusted operating income$(4,171) $(4,715)

Impact of Adjustments to Net Income Attributable to FBLImpact of Adjustments to Net Income Attributable to FBL       
Three months ended June 30, Six months ended June 30,   
2018 2017 2018 2017Three months ended March 31,
(Dollars in thousands)2019 2018
Initial impact of the Tax Act$(754) $—
 $(1,823) $—
Realized gains (losses) on investments1,203
 921
 (22) 452
Change in net unrealized gain/loss on equity securities(866) —
 (2,683) —
Change in net unrealized gains/losses on derivatives516
 107
 (692) 58
(Dollars in thousands)
Realized gains (losses) on investments and change in fair value of equity securities and derivatives$10,846
 $(3,995)
Offsets: (1)          
Change in amortization(226) 222
 112
 475
(256) 338
Reserve change on interest sensitive products(7) 1,018
 192
 428
(285) 199
Income tax(131) (794) 649
 (494)(2,164) 726
Net impact of adjustments to net income$(265) $1,474
 $(4,267) $919
$8,141
 $(2,732)
Net impact per common share - basic$(0.01) $0.06
 $(0.17) $0.04
Net impact per common share - assuming dilution$(0.01) $0.06
 $(0.17) $0.04
Net impact per common share - basic and assuming dilution$0.33
 $(0.11)


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


Under the Tax Act, the federal statutory tax rate was changed from 35% to 21% effective January 1, 2018. Accordingly, income taxes on adjustments to net income have been recorded at 35% in 2017 and 21% in 2018 as there are no permanent differences between book and taxable income relating to these adjustments.


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Realized Gains (Losses) on Investments       
 Three months ended June 30, Six months ended June 30,
 2018 2017 2018 2017
 (Dollars in thousands)
Realized gains (losses) on investments:       
Realized gains on sales$1,713
 $1,425
 $1,796
 $1,549
Realized losses on sales(6) (504) (19) (1,031)
Change in unrealized gains (losses) on equity securities(866) —
 (2,683) —
Total other-than-temporary impairment charges(504) —
 (1,799) (66)
Net realized investment gains (losses)$337
 $921
 $(2,705) $452


Realized Gains (Losses) on Investments   
 Three months ended March 31,
 2019 2018
 (Dollars in thousands)
Realized gains (losses) on investments:   
Realized gains$5,772
 $83
Realized losses(34) (13)
Change in unrealized gains/losses on equity securities4,419
 (1,817)
Total other-than-temporary impairment charges(869) (1,040)
Net realized investment gains (losses)$9,288
 $(2,787)

The level of realized gains (losses) is subject to fluctuation from period to period due to movements in credit spreads and prevailing interest rates, changes in the economic environment, the timing of the sales of the investments generating the realized gains and losses, as well as the timing of other than temporary impairment charges, recovery of allowances and unrealized gains and losses on equity securities. See “Financial Condition - Investments” and Note 2 to our consolidated financial statements for details regarding our unrealized gains and losses on available-for-sale securities at June 30, 2018March 31, 2019 and December 31, 20172018.



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Investment Credit Impairment Losses Recognized in Net IncomeInvestment Credit Impairment Losses Recognized in Net Income   
Three months ended June 30,
Six months ended June 30,Three months ended March 31,
2018
2017
2018
20172019
2018
(Dollars in thousands)(Dollars in thousands)
Corporate securities:          
Financial$—
 $—
 $26
 $—
$—
 $26
Energy—
 —
 1,014
 —
—
 1,014
Residential mortgage-backed—
 —
 —
 66
Securities and indebtedness of related parties504
 —
 759
 —
Other asset-backed869
 —
Total other-than-temporary impairment losses reported in net income$504
 $—
 $1,799
 $66
$869
 $1,040


Other-than-temporary credit impairment losses for the sixthree months ended June 30,March 31, 2019 include an asset-backed bond due to a decline in expected cash flows. Other-than-temporary credit impairment losses for the three months ended March 31, 2018 included a previously impaired energy sector bond due to the commencement of bankruptcy proceedings. Impairment charges were also recognized on securities and indebtedness of related parties due to a decrease in the expected future tax benefits of LIHTC entities.




Financial Condition


Investments


Our investment portfolio decreased 1.2%increased 2.5% to $8,516.78,620.7 million at June 30, 2018March 31, 2019 compared to $8,620.28,414.1 million at December 31, 2017.2018. The portfolio decreasedincrease is primarily due to a decrease of $283.8$181.6 million of net unrealized appreciation of fixed maturities, partially offset by positive cash flows from operating activities during 2018.maturities. Additional details regarding securities in an unrealized gain or loss position at June 30, 2018March 31, 2019 are included in the discussion that follows and in Note 2 to our consolidated financial statements. Details regarding investment impairments are discussed above in the “Realized Gains (Losses) on Investments” section under “Results of Operations.”
 
We manage the investment portfolio to optimize risk-adjusted yield within the context of prudent asset-liability management. We evaluate multiple cash flow testing scenarios as part of this process. The Company’s investment policy calls for investing primarily in high quality fixed maturity securitiesmaturities and commercial mortgage loans.




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Fixed Maturity Acquisitions Selected Information        
 Six months ended June 30, Three months ended March 31,
 2018 2017 2019 2018
 (Dollars in thousands) (Dollars in thousands)
Cost of acquisitions:        
Corporate $86,494
 $93,917
 $75,567
 $48,683
Mortgage- and asset-backed 366,866
 232,152
 57,951
 189,771
United States Government and agencies —
 748
Tax-exempt municipals 60,600
 17,566
 8,060
 33,750
Taxable municipals —
 11,715
Total $513,960
 $356,098
 $141,578
 $272,204
Effective annual yield 4.05% 4.03% 4.33% 3.89%
Credit quality        
NAIC 1 designation 84.6% 67.9% 74.3% 85.6%
NAIC 2 designation 15.4% 32.1% 25.7% 14.4%
Weighted-average life in years 14.0
 13.0 15.0
 16.0
The table above summarizes selected information for fixed maturity purchases. The effective annual yield shown is the yield calculated to the “worst-call date.” For non-callable bonds, the worst-call date is always the maturity date. For callable bonds, the worst-call date is the call or maturity date that produces the lowest yield. The weighted-average life is calculated using scheduled pay-downs and expected prepayments for amortizing securities. For non-amortizing securities, the weighted-average life is equal to the stated maturity date.



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A portion of the securities acquired during the sixthree months ended June 30,March 31, 2019 and March 31, 2018 and June 30, 2017 were obtainedacquired with the proceeds from advances on our funding agreements with the FHLB. The securities acquired to support these funding agreements often carry a lower average yield than securities acquired to support our other insurance products, due to the shorter maturity and relatively low interest rate paid on those advances. In addition, certain municipal securities acquired are exempt from federal income taxes, and accordingly have a higher actual return than reflected in the yields stated above. The average yield of the securities acquired, excluding the securities supporting the funding agreements and using a tax-adjusted yield for the municipal securities, was 4.13%4.42% during the sixthree months ended June 30, 2018March 31, 2019 and was 4.06%3.97% during the sixthree months ended June 30, 2017.March 31, 2018.


Investment Portfolio Summary
              
June 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
Carrying Value Percent Carrying Value PercentCarrying Value Percent Carrying Value Percent
(Dollars in thousands)(Dollars in thousands)
Fixed maturities - available for sale:              
Public$5,418,781
 63.7% $5,510,658
 63.9%$5,512,264
 63.9% $5,367,590
 63.8%
144A private placement1,543,536
 18.1
 1,547,097
 18.0
1,522,247
 17.7
 1,477,550
 17.6
Private placement211,098
 2.5
 234,212
 2.7
197,073
 2.3
 187,905
 2.2
Total fixed maturities - available for sale7,173,415
 84.3
 7,291,967
 84.6
7,231,584
 83.9
 7,033,045
 83.6
Equity securities104,026
 1.2
 104,145
 1.2
108,525
 1.3
 92,857
 1.1
Mortgage loans982,987
 11.5
 971,812
 11.3
1,023,655
 11.9
 1,039,829
 12.4
Real estate1,543
 —
 1,543
 —
1,543
 —
 1,543
 —
Policy loans194,838
 2.3
 191,398
 2.2
199,230
 2.3
 197,366
 2.3
Short-term investments15,141
 0.2
 17,007
 0.5
11,515
 0.1
 15,713
 0.2
Other investments44,724
 0.5
 42,371
 0.2
44,663
 0.5
 33,765
 0.4
Total investments$8,516,674
 100.0% $8,620,243
 100.0%$8,620,715
 100.0% $8,414,118
 100.0%


As of June 30, 2018March 31, 2019, 97.197.3% (based on carrying value) of the available-for-sale fixed maturities were investment grade debt securities, defined as being in the highest two National Association of Insurance Commissioners (NAIC) designations. Non-investment grade debt securities generally provide higher yields and involve greater risks than investment grade debt securities because their issuers typically are more highly leveraged and more vulnerable to adverse economic conditions than investment grade issuers. In addition, the trading market for these securities is usually more limited than for investment grade debt securities. We regularly review the percentage of our portfolio that is invested in non-investment grade debt securities (NAIC designations 3 through 6). As of June 30, 2018March 31, 2019, no single non-investment grade holding exceeded 0.2% of total investments.




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Credit Quality by NAIC Designation and Equivalent Rating
 June 30, 2018 December 31, 2017 March 31, 2019 December 31, 2018
NAIC Designation Equivalent Rating (1) Carrying Value Percent Carrying Value Percent Equivalent Rating (1) Carrying Value Percent Carrying Value Percent
 (Dollars in thousands) (Dollars in thousands)
1 AAA, AA, A $4,848,931
 67.6% $4,771,407
 65.4% AAA, AA, A $4,939,251
 68.3% $4,802,497
 68.3%
2 BBB 2,114,763
 29.5
 2,267,892
 31.1
 BBB 2,100,462
 29.0
 2,063,069
 29.3
 Total investment grade 6,963,694
 97.1
 7,039,299
 96.5
 Total investment grade 7,039,713
 97.3
 6,865,566
 97.6
3 BB 143,039
 2.0
 174,660
 2.4
 BB 121,325
 1.7
 105,544
 1.5
4 B 56,684
 0.8
 57,970
 0.8
 B 50,009
 0.7
 48,051
 0.7
5 CCC 7,272
 0.1
 13,111
 0.2
 CCC 11,466
 0.2
 9,640
 0.1
6 In or near default 2,726
 —
 6,927
 0.1
 In or near default 9,071
 0.1
 4,244
 0.1
 Total below investment grade 209,721
 2.9
 252,668
 3.5
 Total below investment grade 191,871
 2.7
 167,479
 2.4
 Total fixed maturities - available for sale $7,173,415
 100.0% $7,291,967
 100.0% Total fixed maturities - available for sale $7,231,584
 100.0% $7,033,045
 100.0%


(1)Equivalent ratings are based on those provided by nationally recognized rating agencies with some exceptions for certain residential mortgage, commercial mortgage- and asset-backed securities that are based on the expected loss of the security rather than the probability of default. This may result in a final designation being higher or lower than the equivalent credit rating.
 
See Note 2 to our consolidated financial statements for a summary of fixed maturity securitiesmaturities by contractual maturity date.

Gross Unrealized Gains and Gross Unrealized Losses by Internal Industry Classification
 March 31, 2019
 Total Carrying Value Carrying Value of Securities
with Gross Unrealized Gains		 Gross Unrealized Gains 
Carrying Value of Securities
with Gross Unrealized Losses
 Gross Unrealized Losses
 (Dollars in thousands)
Corporate securities:         
Basic industrial$331,507
 $261,110
 $17,273
 $70,397
 $(3,133)
Capital goods252,936
 179,799
 11,872
 73,137
 (2,369)
Communications137,686
 111,916
 8,921
 25,770
 (2,146)
Consumer cyclical119,234
 106,500
 5,899
 12,734
 (1,208)
Consumer non-cyclical538,302
 343,974
 23,800
 194,328
 (16,337)
Energy404,739
 332,634
 23,371
 72,105
 (7,942)
Finance632,748
 522,635
 32,934
 110,113
 (4,023)
Transportation106,348
 93,348
 5,301
 13,000
 (1,111)
Utilities744,403
 675,517
 75,760
 68,886
 (2,193)
Other164,673
 148,150
 8,573
 16,523
 (519)
Total corporate securities3,432,576
 2,775,583
 213,704
 656,993
 (40,981)
Mortgage- and asset-backed securities2,230,269
 1,475,032
 85,889
 755,237
 (17,422)
United States Government and agencies20,713
 17,014
 1,203
 3,699
 (45)
States and political subdivisions1,548,026
 1,516,797
 118,037
 31,229
 (2,018)
Total$7,231,584
 $5,784,426
 $418,833
 $1,447,158
 $(60,466)




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Gross Unrealized Gains and Gross Unrealized Losses by Internal Industry Classification
          
 December 31, 2018
 Total Carrying Value Carrying Value of Securities
with Gross Unrealized Gains		 Gross Unrealized Gains 
Carrying Value of Securities
with Gross Unrealized Losses
 Gross Unrealized Losses
 (Dollars in thousands)
Corporate securities:         
Basic industrial$321,192
 $194,019
 $9,990
 $127,173
 $(8,376)
Capital goods248,385
 123,157
 6,933
 125,228
 (7,208)
Communications131,364
 75,687
 5,098
 55,677
 (4,705)
Consumer cyclical105,882
 74,866
 3,627
 31,016
 (1,782)
Consumer non-cyclical497,789
 224,674
 12,441
 273,115
 (29,469)
Energy384,982
 227,770
 11,460
 157,212
 (17,063)
Finance602,159
 392,188
 22,124
 209,971
 (10,298)
Transportation96,579
 61,034
 3,049
 35,545
 (2,135)
Utilities733,604
 565,250
 60,399
 168,354
 (7,483)
Other157,949
 98,683
 3,851
 59,266
 (2,414)
Total corporate securities3,279,885
 2,037,328
 138,972
 1,242,557
 (90,933)
Mortgage- and asset-backed securities2,192,996
 1,076,388
 69,820
 1,116,608
 (31,961)
United States Government and agencies20,535
 14,061
 996
 6,474
 (134)
States and political subdivisions1,539,629
 1,378,005
 95,921
 161,624
 (5,913)
Total$7,033,045
 $4,505,782
 $305,709
 $2,527,263
 $(128,941)


Credit Quality of Available-for-Sale Fixed Maturities with Unrealized Losses
    March 31, 2019
NAIC Designation Equivalent Rating Carrying Value of Securities with Gross Unrealized Losses Percent of Total Gross Unrealized Losses Percent of Total
    (Dollars in thousands)
1 AAA, AA, A $803,920
 55.5% $(18,923) 31.3%
2 BBB 539,618
 37.3
 (23,424) 38.7
  Total investment grade 1,343,538
 92.8
 (42,347) 70.0
3 BB 60,328
 4.2
 (8,251) 13.6
4 B 26,033
 1.8
 (9,115) 15.1
5 CCC 8,489
 0.6
 (401) 0.7
6 In or near default 8,770
 0.6
 (352) 0.6
  Total below investment grade 103,620
 7.2
 (18,119) 30.0
  Total $1,447,158
 100.0% $(60,466) 100.0%



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

Available-For-Sale Fixed Maturities with Unrealized Losses by Length of Time
 March 31, 2019
 Amortized Cost Gross Unrealized Losses
 
Fair Value
is Less than 75% of Cost
 
Fair Value is
75% or Greater
than Cost
 Fair Value is Less than 75% of Cost 
Fair Value is
75% or Greater
than Cost
 (Dollars in thousands)
Three months or less$—
 $23,998
 $—
 $(136)
Greater than three months to six months—
 96,397
 —
 (1,490)
Greater than six months to nine months—
 87,318
 —
 (3,043)
Greater than nine months to twelve months—
 223,095
 —
 (6,835)
Greater than twelve months21,769
 1,055,047
 (7,406) (41,556)
Total$21,769
 $1,485,855
 $(7,406) $(53,060)

 December 31, 2018
 Amortized Cost Gross Unrealized Losses
 
Fair Value
is Less than 75% of Cost
 Fair Value is 75% or Greater than Cost Fair Value is Less than 75% of Cost 
Fair Value is
75% or Greater
than Cost
 (Dollars in thousands)
Three months or less$—
 $329,067
 $—
 $(7,081)
Greater than three months to six months—
 362,426
 —
 (10,386)
Greater than six months to nine months—
 514,023
 —
 (21,352)
Greater than nine months to twelve months—
 799,994
 —
 (43,191)
Greater than twelve months24,809
 625,885
 (9,547) (37,384)
Total$24,809
 $2,631,395
 $(9,547) $(119,394)



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Gross Unrealized Gains and Gross Unrealized Losses by Internal Industry Classification
 June 30, 2018
 Total Carrying Value 
Carrying
Value of
Securities
with Gross
Unrealized
Gains
 Gross Unrealized Gains 
Carrying Value of Securities
with Gross Unrealized Losses
 Gross Unrealized Losses
 (Dollars in thousands)
Corporate securities:         
Basic industrial$331,528
 $221,447
 $13,809
 $110,081
 $(5,379)
Capital goods249,021
 142,282
 8,641
 106,739
 (3,644)
Communications130,515
 80,095
 5,454
 50,420
 (4,035)
Consumer cyclical113,576
 82,725
 4,231
 30,851
 (1,122)
Consumer non-cyclical496,747
 241,231
 14,956
 255,516
 (16,856)
Energy415,132
 259,214
 16,541
 155,918
 (10,953)
Finance630,092
 457,225
 27,566
 172,867
 (7,287)
Transportation95,560
 65,668
 3,475
 29,892
 (1,145)
Utilities750,200
 619,355
 69,595
 130,845
 (4,258)
Other160,890
 111,209
 5,713
 49,681
 (1,409)
Total corporate securities3,373,261
 2,280,451
 169,981
 1,092,810
 (56,088)
Mortgage- and asset-backed securities2,244,466
 1,132,960
 65,872
 1,111,506
 (32,345)
United States Government and agencies21,360
 14,504
 1,099
 6,856
 (230)
States and political subdivisions1,534,328
 1,413,746
 106,026
 120,582
 (3,405)
Total$7,173,415
 $4,841,661
 $342,978
 $2,331,754
 $(92,068)
Available-For-Sale Fixed Maturities with Unrealized Losses by Maturity Date
 March 31, 2019 December 31, 2018
 Carrying Value of Securities with Gross Unrealized Losses 
Gross
Unrealized
Losses
 Carrying Value of Securities with Gross Unrealized Losses 
Gross
Unrealized
Losses
 (Dollars in thousands)
Due in one year or less$498
 $(2) $496
 $(4)
Due after one year through five years36,450
 (1,765) 86,795
 (3,286)
Due after five years through ten years146,922
 (6,906) 299,532
 (14,667)
Due after ten years508,051
 (34,371) 1,023,832
 (79,023)
 691,921
 (43,044) 1,410,655
 (96,980)
Mortgage- and asset-backed755,237
 (17,422) 1,116,608
 (31,961)
Total$1,447,158
 $(60,466) $2,527,263
 $(128,941)

 December 31, 2017
 Total Carrying Value 
Carrying
Value of
Securities
with Gross
Unrealized
Gains
 Gross Unrealized Gains 
Carrying Value of Securities
with Gross Unrealized Losses
 Gross Unrealized Losses
 (Dollars in thousands)
Corporate securities:         
Basic industrial$353,351
 $336,293
 $29,849
 $17,058
 $(479)
Capital goods279,281
 271,346
 21,624
 7,935
 (139)
Communications151,763
 133,263
 12,364
 18,500
 (862)
Consumer cyclical128,618
 117,370
 9,118
 11,248
 (516)
Consumer non-cyclical521,128
 461,205
 41,221
 59,923
 (4,684)
Energy462,437
 409,768
 34,028
 52,669
 (5,950)
Finance695,604
 633,513
 50,908
 62,091
 (1,143)
Transportation103,049
 93,921
 7,978
 9,128
 (141)
Utilities814,238
 796,782
 108,914
 17,456
 (1,909)
Other178,802
 165,971
 13,295
 12,831
 (132)
Total corporate securities3,688,271
 3,419,432
 329,299
 268,839
 (15,955)
Mortgage- and asset-backed securities2,055,090
 1,549,187
 88,999
 505,903
 (9,727)
United States Government and agencies24,905
 17,343
 1,606
 7,562
 (79)
States and political subdivisions1,523,701
 1,497,292
 141,813
 26,409
 (1,239)
Total$7,291,967
 $6,483,254
 $561,717
 $808,713
 $(27,000)

At June 30, 2018, our largest unrealized loss is in the consumer non-cyclical sector. Within this sector two companies represent 20.8% of the unrealized loss. One company is a grocery store chain representing $1.8 million of the unrealized loss while the other company is a large pharmaceutical company representing $1.7 million of the unrealized loss.



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Credit Quality of Available-for-Sale Fixed Maturities with Unrealized Losses
    June 30, 2018
NAIC Designation Equivalent Rating Carrying Value of Securities with Gross Unrealized Losses Percent of Total Gross Unrealized Losses Percent of Total
    (Dollars in thousands)
1 AAA, AA, A $1,429,091
 61.3% $(42,275) 45.9%
2 BBB 765,629
 32.8
 (36,821) 40.0
  Total investment grade 2,194,720
 94.1
 (79,096) 85.9
3 BB 101,890
 4.4
 (5,761) 6.3
4 B 32,837
 1.4
 (7,049) 7.6
5 CCC 2,298
 0.1
 (162) 0.2
6 In or near default 9
 —
 —
 —
  Total below investment grade 137,034
 5.9
 (12,972) 14.1
  Total $2,331,754
 100.0% $(92,068) 100.0%

NAIC Designation Equivalent Rating Carrying Value of Securities with Gross Unrealized Losses Percent of Total Gross Unrealized Losses Percent of Total
    (Dollars in thousands)
1 AAA, AA, A $518,748
 64.1% $(8,638) 32.0%
2 BBB 199,529
 24.7
 (6,927) 25.6
  Total investment grade 718,277
 88.8
 (15,565) 57.6
3 BB 41,488
 5.1
 (819) 3.0
4 B 37,944
 4.7
 (8,125) 30.1
5 CCC 4,109
 0.5
 (1,314) 4.9
6 In or near default 6,895
 0.9
 (1,177) 4.4
  Total below investment grade 90,436
 11.2
 (11,435) 42.4
  Total $808,713
 100.0% $(27,000) 100.0%

Available-For-Sale Fixed Maturities with Unrealized Losses by Length of Time
 June 30, 2018
 Amortized Cost Gross Unrealized Losses
 
Fair Value
is Less than 75% of Cost
 
Fair Value is
75% or Greater
than Cost
 Fair Value is Less than 75% of Cost 
Fair Value is
75% or Greater
than Cost
 (Dollars in thousands)
Three months or less$—
 $798,934
 $—
 $(13,330)
Greater than three months to six months—
 917,544
 —
 (35,269)
Greater than six months to nine months—
 230,489
 —
 (8,853)
Greater than nine months to twelve months—
 141,079
 —
 (7,581)
Greater than twelve months15,703
 320,073
 (4,277) (22,758)
Total$15,703
 $2,408,119
 $(4,277) $(87,791)



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Available-For-Sale Fixed Maturities with Unrealized Losses by Length of Time
 December 31, 2017
 Amortized Cost Gross Unrealized Losses
 
Fair Value
is Less than 75% of Cost
 Fair Value is 75% or Greater than Cost Fair Value is Less than 75% of Cost 
Fair Value is
75% or Greater
than Cost
 (Dollars in thousands)
Three months or less$—
 $292,187
 $—
 $(3,974)
Greater than three months to six months—
 164,170
 —
 (2,331)
Greater than six months to nine months—
 24,821
 —
 (579)
Greater than nine months to twelve months—
 9,350
 —
 (361)
Greater than twelve months16,747
 328,438
 (4,798) (14,957)
Total$16,747
 $818,966
 $(4,798) $(22,202)

Available-For-Sale Fixed Maturities with Unrealized Losses by Maturity Date
 June 30, 2018 December 31, 2017
 Carrying Value of Securities with Gross Unrealized Losses 
Gross
Unrealized
Losses
 Carrying Value of Securities with Gross Unrealized Losses 
Gross
Unrealized
Losses
 (Dollars in thousands)
Due in one year or less$400
 $—
 $872
 $(2)
Due after one year through five years79,411
 (2,112) 25,857
 (1,052)
Due after five years through ten years279,836
 (10,985) 107,198
 (3,657)
Due after ten years860,601
 (46,626) 168,883
 (12,562)
 1,220,248
 (59,723) 302,810
 (17,273)
Mortgage- and asset-backed1,111,506
 (32,345) 505,903
 (9,727)
Total$2,331,754
 $(92,068) $808,713
 $(27,000)


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


Mortgage- and Asset-Backed Securities


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


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


At each balance sheet date, we review and update our expectation of future prepayment speeds and the book value of the mortgage and other asset-backed securities purchased at a premium or discount is reset, if needed. See Note 1 to our consolidated financial statements included in Item 8 of our Form 10-K for the year ended December 31, 20172018 for more detail on accounting for the amortization of premium and accrual of discount on mortgage-backed and asset-backed securities.


Our direct exposure to the Alt-A home equity and subprime first-lien sectors is limited to investments in structured securities collateralized by senior tranches of residential mortgage loans. We also have a partnership interest in one fund at June 30, 2018March 31, 2019 and December 31, 2017,2018, that owns securities backed by Alt-A home equity, subprime first-lien and adjustable rate mortgage collateral. The fund is reported as securities and indebtedness of related parties in our consolidated balance sheets with a fair value of $2.5$1.7 million at June 30, 2018March 31, 2019 and $3.0$2.0 million at December 31, 20172018. We do not own any direct investments in subprime lenders.




46
Mortgage- and Asset-Backed Securities by Collateral Type
 March 31, 2019 December 31, 2018
 Amortized Cost Carrying Value 
Percent
of Fixed Maturities
 Amortized Cost Carrying Value 
Percent
of Fixed Maturities
 (Dollars in thousands)
Government agency$225,720
 $235,689
 3.2% $227,545
 $232,658
 3.3%
Prime285,112
 298,106
 4.1
 279,856
 287,073
 4.1
Alt-A78,077
 92,161
 1.3
 81,668
 95,396
 1.4
Subprime143,305
 153,562
 2.1
 143,441
 152,907
 2.1
Commercial mortgage896,528
 916,704
 12.7
 873,672
 878,566
 12.5
Non-mortgage533,060
 534,047
 7.4
 548,955
 546,396
 7.8
Total$2,161,802
 $2,230,269
 30.8% $2,155,137
 $2,192,996
 31.2%



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Mortgage- and Asset-Backed Securities by Collateral Type
 June 30, 2018 December 31, 2017
 Amortized Cost Carrying Value 
Percent
of Fixed Maturities
 Amortized Cost Carrying Value 
Percent
of Fixed Maturities
 (Dollars in thousands)
Government agency$231,570
 $234,779
 3.3% $220,385
 $230,792
 3.2%
Prime262,903
 271,022
 3.8
 181,397
 194,081
 2.7
Alt-A89,716
 104,050
 1.5
 98,100
 111,993
 1.5
Subprime140,404
 151,704
 2.1
 139,826
 149,469
 2.0
Commercial mortgage863,195
 860,973
 12.0
 674,076
 705,307
 9.7
Non-mortgage623,151
 621,938
 8.7
 662,034
 663,448
 9.1
Total$2,210,939
 $2,244,466
 31.4% $1,975,818
 $2,055,090
 28.2%


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


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


Residential Mortgage-Backed Securities by NAIC Designation and Origination YearResidential Mortgage-Backed Securities by NAIC Designation and Origination Year  Residential Mortgage-Backed Securities by NAIC Designation and Origination Year  
 June 30, 2018 March 31, 2019
 2004 & Prior 2005 to 2008 2009 & After Total 2004 & Prior 2005 to 2008 2009 & After Total
NAIC Designation Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 
Amortized
Cost
 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 
Amortized
Cost
 
Carrying
Value
 (Dollars in thousands) (Dollars in thousands)
1 $80,315
 $82,611
 $74,925
 $95,332
 $411,339
 $409,090
 $566,579
 $587,033
 $69,191
 $70,450
 $68,796
 $88,297
 $437,016
 $447,422
 $575,003
 $606,169
2 —
 —
 1,507
 1,443
 —
 —
 1,507
 1,443
 —
 —
 1,047
 1,012
 —
 —
 1,047
 1,012
3 —
 —
 672
 669
 —
 —
 672
 669
 —
 —
 480
 472
 —
 —
 480
 472
4 436
 445
 8,363
 9,870
 —
 —
 8,799
 10,315
 —
 —
 7,910
 10,760
 —
 —
 7,910
 10,760
6 9
 9
 —
 —
 —
 —
 9
 9
 8
 8
 —
 —
 —
 —
 8
 8
Total $80,760
 $83,065
 $85,467
 $107,314
 $411,339
 $409,090
 $577,566
 $599,469
 $69,518
 $70,786
 $78,233
 $100,541
 $437,016
 $447,422
 $584,767
 $618,749


 December 31, 2017 December 31, 2018
 2004 & Prior 2005 to 2008 2009 & After Total 2004 & Prior 2005 to 2008 2009 & After Total
NAIC Designation Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 
Amortized
Cost
 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 
Amortized
Cost
 
Carrying
Value
 (Dollars in thousands) (Dollars in thousands)
1 $88,773
 $91,424
 $79,358
 $101,123
 $303,659
 $311,883
 $471,790
 $504,430
 $72,281
 $72,921
 $69,478
 $89,128
 $430,982
 $430,881
 $572,741
 $592,930
2 —
 —
 876
 877
 —
 —
 876
 877
 —
 —
 2,420
 2,301
 —
 —
 2,420
 2,301
3 —
 —
 1,697
 1,634
 —
 —
 1,697
 1,634
 —
 —
 562
 553
 —
 —
 562
 553
4 584
 592
 8,713
 8,738
 —
 —
 9,297
 9,330
 354
 359
 8,048
 10,709
 —
 —
 8,402
 11,068
6 11
 10
 —
 —
 —
 —
 11
 10
 8
 8
 —
 —
 —
 —
 8
 8
Total $89,368
 $92,026
 $90,644
 $112,372
 $303,659
 $311,883
 $483,671
 $516,281
 $72,643
 $73,288
 $80,508
 $102,691
 $430,982
 $430,881
 $584,133
 $606,860



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Table of Contents


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


Commercial Mortgage-Backed Securities by NAIC Designation and Origination YearCommercial Mortgage-Backed Securities by NAIC Designation and Origination Year  Commercial Mortgage-Backed Securities by NAIC Designation and Origination Year  
 June 30, 2018 March 31, 2019
 2004 & Prior 2005 to 2008 2009 & After Total 2004 & Prior 2005 to 2008 2009 & After Total
NAIC Designation Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 
Amortized
Cost
 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 
Amortized
Cost
 
Carrying
Value
 (Dollars in thousands) (Dollars in thousands)
1 $8,655
 $9,130
 $114,775
 $125,785
 $703,713
 $689,165
 $827,143
 $824,080
 $8,297
 $8,919
 $113,288
 $126,780
 $739,238
 $743,760
 $860,823
 $879,459
2 —
 —
 36,052
 36,893
 —
 —
 36,052
 36,893
 —
 —
 35,705
 37,245
 —
 —
 35,705
 37,245
Total (1) $8,655
 $9,130
 $150,827
 $162,678
 $703,713
 $689,165
 $863,195
 $860,973
 $8,297
 $8,919
 $148,993
 $164,025
 $739,238
 $743,760
 $896,528
 $916,704




45
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Commercial Mortgage-Backed Securities by NAIC Designation and Origination YearCommercial Mortgage-Backed Securities by NAIC Designation and Origination Year  
 December 31, 2017 December 31, 2018
 2004 & Prior 2005 to 2008 2009 & After Total 2004 & Prior 2005 to 2008 2009 & After Total
NAIC Designation Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 
Amortized
Cost
 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 
Amortized
Cost
 
Carrying
Value
 (Dollars in thousands) (Dollars in thousands)
1 $8,878
 $9,661
 $114,230
 $128,907
 $515,654
 $529,192
 $638,762
 $667,760
 $8,415
 $9,029
 $113,526
 $124,885
 $715,899
 $708,447
 $837,840
 $842,361
2 —
 —
 35,314
 37,547
 —
 —
 35,314
 37,547
 —
 —
 35,832
 36,205
 —
 —
 35,832
 36,205
Total (1) $8,878
 $9,661
 $149,544
 $166,454
 $515,654
 $529,192
 $674,076
 $705,307
 $8,415
 $9,029
 $149,358
 $161,090
 $715,899
 $708,447
 $873,672
 $878,566


(1)The commercial mortgage-backed securities (CMBS)CMBS portfolio included government agency-backed securities with a carrying value of $674.1$733.0 million at June 30, 2018March 31, 2019 and $515.7$693.3 million at December 31, 2017.2018. Also included in the CMBS are military housing bonds totaling $158.0$159.9 million at June 30, 2018March 31, 2019 and $161.1$156.7 million at December 31, 2017.2018. These bonds are used to fund the construction of multi-family homes on United States military bases. The bonds are backed by a first mortgage lien on residential military housing projects.


The other asset-backed securities are backed by both residential and non-residential collateral. The collateral for residential asset-backed securities primarily consists of second lien fixed-rate home equity loans. The cash flows of these securities are less subject to prepayment risk than residential mortgage-backed securities as the borrowers are less likely to refinance than those with only a first lien mortgage. The collateral for non-residential asset-backed securities primarily includes securities backed by credit card receivables, auto dealer receivables, auto installment loans, aircraft leases, middle market and syndicated business loans, timeshare receivables and trade and account receivables. The majority of these securities are high quality, short-duration assets with limited cash flow variability.
Other Asset-Backed Securities by NAIC Designation and Origination Year  
  June 30, 2018
  2004 & Prior 2005 to 2008 2009 & After Total
NAIC Designation Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 
Amortized
Cost
 
Carrying
Value
  (Dollars in thousands)
1 $10,013
 $9,762
 $143,306
 $158,477
 $473,224
 $472,087
 $626,543
 $640,326
2 1,658
 1,751
 2,083
 2,141
 112,983
 113,212
 116,724
 117,104
3 —
 —
 348
 342
 22,085
 21,788
 22,433
 22,130
4 184
 170
 —
 —
 —
 —
 184
 170
5 —
 —
 —
 —
 4,294
 4,294
 4,294
 4,294
Total $11,855
 $11,683
 $145,737
 $160,960
 $612,586
 $611,381
 $770,178
 $784,024


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Other Asset-Backed Securities by NAIC Designation and Origination Year  
  March 31, 2019
  2004 & Prior 2005 to 2008 2009 & After Total
NAIC Designation Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 
Amortized
Cost
 
Carrying
Value
  (Dollars in thousands)
1 $8,997
 $8,756
 $141,103
 $154,699
 $397,964
 $396,693
 $548,064
 $560,148
2 1,546
 1,649
 1,791
 1,852
 123,149
 124,840
 126,486
 128,341
3 —
 —
 —
 —
 3,131
 3,509
 3,131
 3,509
4 176
 168
 —
 —
 —
 —
 176
 168
5 —
 —
 —
 —
 2,650
 2,650
 2,650
 2,650
Total $10,719
 $10,573
 $142,894
 $156,551
 $526,894
 $527,692
 $680,507
 $694,816
Other Asset-Backed Securities by NAIC Designation and Origination Year  
 December 31, 2017 December 31, 2018
 2004 & Prior 2005 to 2008 2009 & After Total 2004 & Prior 2005 to 2008 2009 & After Total
NAIC Designation Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 
Amortized
Cost
 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 
Amortized
Cost
 
Carrying
Value
 (Dollars in thousands) (Dollars in thousands)
1 $10,606
 $10,367
 $151,775
 $166,223
 $512,548
 $513,792
 $674,929
 $690,382
 $9,314
 $9,038
 $141,728
 $154,747
 $415,228
 $412,078
 $566,270
 $575,863
2 1,745
 1,846
 2,612
 2,557
 97,549
 98,811
 101,906
 103,214
 1,586
 1,693
 1,890
 1,943
 121,796
 122,300
 125,272
 125,936
3 —
 —
 —
 —
 26,586
 26,444
 26,586
 26,444
 —
 —
 313
 303
 1,697
 1,697
 2,010
 2,000
4 189
 178
 —
 —
 —
 —
 189
 178
 179
 170
 —
 —
 —
 —
 179
 170
5 —
 —
 —
 —
 6,400
 6,400
 6,400
 6,400
 —
 —
 —
 —
 3,601
 3,601
 3,601
 3,601
6 —
 —
 8,061
 6,884
 —
 —
 8,061
 6,884
Total $12,540
 $12,391
 $162,448
 $175,664
 $643,083
 $645,447
 $818,071
 $833,502
 $11,079
 $10,901
 $143,931
 $156,993
 $542,322
 $539,676
 $697,332
 $707,570


State and Political Subdivision Securities


State and political subdivision securities totaled $1,534.3$1,548.0 million, or 21.4% of total fixed maturities, at June 30, 2018March 31, 2019, and $1,523.7$1,539.6 million, or 20.9%21.9% of total fixed maturities at December 31, 20172018 and include investments in general obligation, revenue and municipal housing bonds. Our investment strategy is to utilize municipal bonds in addition to corporate bonds, as we believe they provide additional diversification and have historically low default rates compared with similarly rated corporate bonds. We evaluate the credit strength of the underlying issues on both a quantitative and qualitative basis, excluding insurance, prior to acquisition. The majority of the municipal bonds we hold are investment grade credits without consideration of insurance. Our municipal bonds are well diversified by type and geography with the top exposure being water and sewer


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revenue bonds. We do not hold any Puerto Rico-related bonds. Exposure to the state of Illinois and municipalities within the state accounted for 1.5%1.4% of our total fixed maturities at June 30, 2018March 31, 2019. As of June 30, 2018March 31, 2019, our Illinois-related portfolio holdings were rated investment grade, and were trading at 108.3%110.2% of amortized cost. Our municipal bond exposure had an average rating of Aa2/AA and our holdings were trading at 107.2%108.1% of amortized cost at June 30, 2018.March 31, 2019.


Equity Securities

Equity securities totaled $104.0 million at June 30, 2018 and $104.1 million at December 31, 2017. Due to the adoption of new accounting guidance during 2018, changes in unrealized gains and losses are recognized in net income rather than other comprehensive income. See Note 1 to our consolidated financial statements for further information regarding the impact of the new guidance on the reporting of equity securities. At December 31, 2017, gross unrealized gains totaled $7.7 million and gross unrealized losses totaled $0.3million on these securities. The unrealized losses were attributable to non-redeemable perpetual preferred securities from issuers in the financial sector.
Mortgage Loans


Mortgage loans totaled $983.01,023.7 million at June 30, 2018March 31, 2019 and $971.81,039.8 million at December 31, 20172018. Our mortgage loans are diversified as to property type, location and loan size, and are collateralized by the related properties. The total number of commercial mortgage loans outstanding was 193207 at June 30, 2018March 31, 2019 and 190208 at December 31, 20172018. In the first sixthree months of 2018,2019, one new loans ranged from $1.4loan in the amount of $5.7 million to $10.5 million in size,was funded with an average loan size of $5.3 million, an averagea loan term of 1423 years and an averagea net yield of 4.68%4.97%. Our mortgage lending policies establish limits on the amount that can be loaned to one borrower and require diversification by geographic location and collateral type. The majority of our mortgage loans amortize principal; only 0.6%principal, with 2.2% that are interest-only loans as of June 30, 2018March 31, 2019. At June 30, 2018March 31, 2019, the average loan-to-value of the current outstanding principal balance using the most recent appraised value was 54.0%52.9% and the weighted average debt service coverage ratio was 1.71.6 based on the results of our 2017 annual study. See Note 2 to our consolidated financial statements for further discussion regarding our mortgage loans.




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Other Assets and Liabilities

 March 31,
2019		 December 31,
2018		 Percentage change
Selected other assets:     
Cash and cash equivalents6,057
 19,035
 (68.2)%
Reinsurance recoverable103,825
 102,386
 1.4 %
Deferred acquisition costs373,711
 418,802
 (10.8)%
Other assets169,756
 163,518
 3.8 %
Assets held in separate accounts614,121
 561,281
 9.4 %
Selected other liabilities:     
Future policy benefits7,241,831
 7,205,471
 0.5 %
Other policyholder funds612,733
 615,177
 (0.4)%
Deferred income taxes103,300
 75,449
 36.9 %
Other liabilities110,709
 93,532
 18.4 %
Liabilities held in separate accounts614,121
 561,281
 9.4 %

Cash and cash equivalents decreased primarily due to normal fluctuations in timing of payments made and received. Deferred acquisition costs increased 28.1% to $387.5 million at June 30, 2018,decreased compared to December 31, 2017,the prior year primarily due to an $81.6a $50.0 million decreaseincrease in the impact of the change in net unrealized appreciation on fixed maturity securities during the period. Cash and cash equivalents decreased 55.0% to $23.7 million primarily due to normal fluctuations in timing of payments made and received. Assets and liabilities held in separate accounts decreased 2.1% to $638.1 million primarilyincreased due to benefits paid in excess of premiums andmarket performance on the underlying investment gains.portfolios.


Future policy benefits increased 2.0% to $7,193.9 million at June 30, 2018, compared to December 31, 2017, primarily due to an increase in the volume of annuity and life business in force. Deferred income taxes decreased 32.5% to $89.0 millionincreased primarily due to the tax impact of the change in unrealized appreciation/depreciation on investments. Other liabilities decreased 15.5% to $93.9 millionincreased due to a decreasean increase in unsettled security trades.


Stockholders’ Equity


As discussed in Note 87 to our consolidated financial statements, stockholders’ equity was impacted by capital deployment actions during the first quarter of 2018. We paid2019, which included a special cash dividend of $1.50 per share on Class A and Class B common stock and increasedan increase in our regular quarterly dividend by 4.5%4.3% to $0.46$0.48 per share during March 2018.share.




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 March 31,
2019		 December 31,
2018		 Percentage change
 (dollars in thousands, except per share data)  
Total FBL Financial Group, Inc. stockholders’ equity$1,263,400
 $1,184,139
 6.7 %
Common stockholders’ equity1,260,400
 1,181,139
 6.7 %
      
Book value per share$51.13
 $47.78
 7.0 %
Less: Per share impact of accumulated other comprehensive income7.68
 3.69
 108.1 %
Book value per share, excluding accumulated other comprehensive income$43.45
 $44.09
 (1.5)%

Our stockholders’ equity decreased 11.6% to $1,227.7 million at June 30, 2018,increased compared to $1,388.8 million at December 31, 2017,the prior year primarily due to the change in unrealized appreciation of fixed maturity securities during the period and dividends paid,net income, partially offset by net income.

At June 30, 2018, our common stockholders’ equity was $1,224.7 million, or $49.35dividends paid. Book value per share compared to $1,385.8 million, or $55.59 per share, at December 31, 2017. Included in stockholders’ equity per common share is $5.29 at June 30, 2018 and $11.43 at December 31, 2017 attributable toexcluding accumulated other comprehensive income.income is a non-GAAP financial measure. Since accumulated other comprehensive income fluctuates from quarter to quarter due to unrealized changes in the fair value of investments caused principally by changes in market interest rates, FBL Financial Group believes this non-GAAP financial measure provides useful supplemental information.


Liquidity and Capital Resources


Cash Flows


During the first sixthree months of 2018,2019, our operating activities generated cash flows totaling $127.2$44.7 million, consisting of net income of $56.0$34.0 million adjusted for non-cash operating revenues and expenses netting to $71.2$10.7 million. We used cash of $204.8$0.2 million in our investing activities during the 20182019 period. The primary uses were $624.1$166.4 million of investment acquisitions, mostly in fixed maturity securities, partially offset by $423.4$166.4 million in sales, maturities and repayments of investments. Our financing activities providedused cash of $48.6$57.9 million during the 20182019 period. The primary financing source was $402.8$135.8 million in receipts from interest sensitive products credited to policyholder account balances, which was partially offset by $311.9$143.5 million for return of policyholder account balances on interest sensitive products and $60.2$48.9 million for dividends paid to stockholders.


Sources and Uses of Capital Resources


Parent company cash inflows from operations consist primarily of fees that it charges various subsidiaries and affiliates for management of their operations, expense reimbursements and tax settlements from subsidiaries and affiliates, proceeds from the exercise of employee stock options, investment income and dividends from subsidiaries, if declared and paid. Revenue sources for the parent company during the sixthree months ended June 30, 2018March 31, 2019 included management fees from subsidiaries and affiliates totaling $4.0$2.1 million and dividends of $65.0$50.0 million. Cash outflows are principally for salaries, taxes and other expenses related to providing management services, dividends on outstanding stock, stock repurchases and interest on our parent company debt.


We paid regular cash dividends on our common and preferred stock during the six-monththree-month period ended June 30March 31 totaling $22.9$11.9 million in 20182019 and $22.0$11.5 million in 2017.2018. In addition, we paid a special $1.50 per common share cash dividend in March 2019 and March 2018 totaling $37.0 million and $37.3 million, and a $1.50 per common share cash dividend in March 2017 totaling $37.4 million.respectively. It is anticipated that quarterly cash dividend requirements for 20182019 will be $0.0075 per Series B preferred share and $0.46$0.48 per common share. The level of common stock dividends are analyzed quarterly and are dependent upon our capital and liquidity positions. In addition, alternative uses of excess capital may impact future dividend levels. Assuming these quarterly dividend rates, the common and preferred dividends would total approximately $23.0$35.6 million for the remainder of 2018.2019. The parent company expects to have sufficient resources and cash flows to meet its interest and dividend payments throughout 2018.2019. The parent company had


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available cash and investments totaling $47.6$34.7million at June 30, 2018.March 31, 2019. The parent company expects to rely on available cash resources, dividends from Farm Bureau Life and management fee income to make dividend payments to its stockholders, and interest payments on its debt.debt and to fund any capital initiatives such as stock repurchases. In addition, our parent company and Farm Bureau Life have entered into a reciprocal line of credit arrangement, which provides additional liquidity for either entity up to $20.0 million. We had no material commitments for capital expenditures as of June 30, 2018.March 31, 2019.


As discussed in Note 87 to our consolidated financial statements, we have periodically taken advantage of opportunities to repurchase our outstanding Class A common stock through Class A common stock repurchase programs approved by our Board


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of Directors. At June 30, 2018, $48.0March 31, 2019, $36.3 million remains available for repurchase under the current Class A common stock repurchase program. WeUnder this program, we repurchased 129,01166,475 shares of Class A common stock for $8.8$4.6 million during the sixthree months ended June 30, 2018.March 31, 2019. Completion of this program is dependent on market conditions and other factors. There is no guarantee as to the exact timing of any repurchases or the number of shares that we will repurchase. The share repurchase program may be modified or terminated at any time without prior notice.


Interest payments on our debt totaled $2.4$1.2 million for the sixthree months ended June 30, 2018March 31, 2019 and June 30, 2017.March 31, 2018. Interest payments on our debt outstanding at June 30, 2018March 31, 2019 are estimated to be $2.4$3.6 million for the remainder of 2018.2019.


Farm Bureau Life’s cash inflows primarily consist of premiums; deposits to policyholder account balances; income from investments; sales, maturities and calls of investments; and repayments of investment principal. Farm Bureau Life’s cash outflows are primarily related to withdrawals of policyholder account balances, investment purchases, payment of policy acquisition costs, policyholder benefits, income taxes, current operating expenses and dividends. Life insurance companies generally produce a positive cash flow that may be measured by the degree to which cash inflows are adequate to meet benefit obligations to policyholders and normal operating expenses as they are incurred. The remaining cash flow is generally used to increase the asset base to provide funds to meet the need for future policy benefit payments and for writing new business. Continuing operations and financing activities from Farm Bureau Life relating to interest sensitive products provided funds totaling $222.6$45.3 million for the three months ended June 30, 2018March 31, 2019 and $140.7$196.4 million for the prior year period.


Farm Bureau Life’s ability to pay dividends to the parent company is limited by law to earned profits (statutory unassigned surplus) as of the date the dividend is paid, as determined in accordance with accounting practices prescribed by insurance regulatory authorities of the State of Iowa. At December 31, 2017,2018, Farm Bureau Life’s statutory unassigned surplus was $482.5$503.7 million. There are certain additional limits on the amount of dividends that may be paid within a year without approval of the Insurance Division, Department of Commerce of the State of Iowa as discussed in Note 87 to our consolidated financial statements included in Item 8 of our 20172018 Form 10-K. During the remainder of 2018,2019, the maximum amount legally available for distribution to the parent company without further regulatory approval is $43.6$50.8 million.


We manage the amount of capital held by our insurance subsidiaries to ensure they meet regulatory requirements. State laws specify regulatory actions if an insurer’s risk-based capital (RBC) ratio, a measure of solvency, falls below certain levels. The NAIC has a standard formula for annually assessing RBC based on the various risk factors related to an insurance company’s capital and surplus, including insurance, business, asset and interest rate risks. The insurance regulators monitor the level of RBC against a statutory “authorized control level” RBC at which point regulators have the option to assume control of the insurance company. The company action level RBC is 200% of the authorized control level and is the first point at which any action would be triggered. Our adjusted capital and RBC is reported to our insurance regulators annually based on formulas that may be revised throughout the year. We estimate our adjusted capital and RBC quarterly and have included the impact of the NAIC’s recently approved change to the RBC formula factors due to the Tax Act. Thesequarterly; however, these estimates may differ from actual results. As of June 30, 2018,March 31, 2019, Farm Bureau Life’s statutory total adjusted capital is estimated at $682.1$677.2 million, resulting in a RBC ratio of 541%517%, based on company action level capital of $126.2$131.0 million.


On a consolidated basis, we anticipate that funds to meet our short-term and long-term capital expenditures, cash dividends to stockholders and operating cash needs will come from existing capital and internally-generated funds. However, there can be no assurance that future experience regarding benefits and surrenders will be similar to historic experience since benefits and surrender levels are influenced by such factors as the interest rate environment, our financial strength ratings, the economy and other factors that impact policyholder behavior. Farm Bureau Life is a member of the FHLB, which provides a source for additional liquidity, if needed. This membership allows us to utilize fixed or floating rate advances offered by the FHLB and secured by qualifying collateral. Our total capacity to utilize such advances is impacted by multiple factors including the market value of eligible collateral, our level of statutory admitted assets and excess reserves and our willingness or capacity to hold activity-based FHLB common stock. At June 30, 2018, Farm Bureau Life had two short-term advances from the FHLB totaling $27.0 million that were repaid in July 2018.




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Contractual Obligations


In the normal course of business, we enter into insurance contracts, financing transactions, lease agreements or other commitments that are necessary or beneficial to our operations. These commitments may obligate us to certain cash flows during future periods. There have been no material changes to our total contractual obligations since December 31, 20172018.




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Market Risks of Financial Instruments
 
There have been no material changes in the market risks from the information provided in “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Form 10-K for the fiscal year ended December 31, 2017.2018.




ITEM 4. CONTROLS AND PROCEDURES


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


Our internal control over financial reporting changes from time-to-time as we modify and enhance our systems and processes to meet our dynamic needs. Changes are also made as we strive to be more efficient in how we conduct our business. While changes have taken place in our internal controls during the quarter ended June 30, 2018,March 31, 2019, there have been no changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.




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PART II. OTHER INFORMATION


ITEM 1A. RISK FACTORS


The performance of our company is subject to a variety of risks that you should review. Occurrence of these risks could materially affect our business, results of operations or financial condition, cause the trading price of our common stock to decline materially or cause our actual results to differ materially from those expected or those expressed in any forward looking statements made by or on behalf of the Company. Please refer to Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.2018.




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


(c) Issuer Repurchases of Equity Securities



The following table sets forth issuer purchases of equity securities for the quarter ended June 30, 2018.March 31, 2019.
Period  (a) Total Number of Shares (or Units) Purchased (b) Average Price Paid per Share (or Unit) (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
April 1, 2018 through April 30, 2018 29,699
 $68.78
 29,699 $47,957,437
May 1, 2018 through May 31, 2018 —
 —
 — $47,957,437
June 1, 2018 through June 30, 2018 —
 —
 — $47,957,437
Total 29,699
 $68.78
    
Period  (a) Total Number of Shares (or Units) Purchased (b) Average Price Paid per Share (or Unit) (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
January 1, 2019 through January 31, 2019 57,726
 $68.81
 57,726 $36,927,457
February 1, 2019 through February 28, 2019 8,749
 69.26
 8,749 $36,321,488
March 1, 2019 through March 31, 2019 —
 —
 — $36,321,488
Total 66,475
 $68.87
    




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Activity in this table represents Class A common shares repurchased by the Company in connection with the repurchase program announced on March 1, 2018, which will expire March 31, 2022. The program authorizes us to make repurchases of Class A common stock in the open market or through privately negotiated transactions, with the timing and terms of the purchases to be determined by management based on market conditions. Completion of the program is dependent on market conditions and other factors. There is no guarantee as to the exact timing of any repurchases or the number of shares, if any, that we will repurchase. The share repurchase program may be modified or terminated at any time without prior notice.




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ITEM 6. EXHIBITS


(a) Exhibits:
10.1*+
Management Performance Plan, effective January 1, 2019
10.2*+
Cash-Based Restricted Stock Unit Plan, as amended through February 27, 2019
10.3*+
Cash-Based Restricted Surplus Unit Plan, as amended through February 27, 2019
10.4*+
Form of 2019 Restricted Stock Unit Agreement between the Company and participants
10.5*+
Form of 2019 Restricted Surplus Unit Agreement between the Company and participants
31.1+
Certification Pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2+
Certification Pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32+
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101+#Interactive Data Files formatted in XBRL (eXtensible Business Reporting Language) from FBL Financial Group, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018March 31, 2019 as follows: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statement of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Financial Statements
  
+Filed or furnished herewith
*Exhibit relates to a compensatory plan for management or directors.
#In accordance with Rule 402 of Regulation S-T, the XBRL related information in this report shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.




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SIGNATURES


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




Date: AugustMay 2, 20182019




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






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