UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended June 30, 2019.

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

For the transition period from ____________________ to _______________________

Commission File Number: 1-11917

FBL FINANCIAL GROUP INC

(Exact name of registrant as specified in its charter)

Iowa 42-1411715

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

5400 University Avenue, West Des Moines,Iowa50266-5997

(Address of principal executive offices) (Zip Code)

(515) 225-5400

(Registrant’s telephone number, including area code)

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



~~(Mark one)~~Title of each class	Trading Symbol(s)	Name of each exchange on which registered
~~[X]~~Class A Common Stock, without par value	FFG	~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

		~~For the quarterly period ended September 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____________________~~
		New York Stock Exchange

~~Commission File Number:~~ ~~1-11917~~



~~(Exact name of registrant as specified in its charter)~~

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

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

~~(515) 225-5400~~
~~(Registrant’s telephone number, including area code)~~


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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ~~[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 [ ]~~	~~Accelerated filer [X]~~	~~Non-accelerated filer [ ]~~	~~Smaller reporting company [ ]~~	~~Emerging growth company [ ]~~

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

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

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



~~Indicate 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 ~~October~~July 30, ~~2018~~2019
Class A Common Stock, without par value		~~24,786,498~~24,648,472
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 ~~SEPTEMBER~~JUNE 30, ~~2018~~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	67
	Notes to Consolidated Financial Statements	89

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5554

Item 4.	Controls and Procedures	5554

PART II.	OTHER INFORMATION	5655

Item 1A.	Risk Factors	5655

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5655

Item 6.	Exhibits	5755

SIGNATURES		5856

ITEM 1. FINANCIAL STATEMENTS

FBL FINANCIAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands)


	September 30, 2018		December 31, 2017		June 30, 2019		December 31, 2018
Assets
Investments:
Fixed maturities - available for sale, at fair value (amortized cost: 2018 - $6,925,616; 2017 - $6,757,250)	$	7,099,025	$	7,291,967
Equity securities at fair value (cost: 2018 - $99,882; 2017 - $96,715)	103,896		104,145
Fixed maturities - available for sale, at fair value (amortized cost: 2019 - $6,909,984; 2018 - $6,856,277)					$	7,484,622	$	7,033,045
Equity securities at fair value (cost: 2019 - $101,847; 2018 - $93,564)					106,021		92,857
Mortgage loans	1,015,618		971,812		1,019,124		1,039,829
Real estate	1,543		1,543		1,543		1,543
Policy loans	195,723		191,398		200,246		197,366
Short-term investments	25,569		17,007		9,521		15,713
Other investments	48,636		42,371		48,833		33,765
Total investments	8,490,010		8,620,243		8,869,910		8,414,118

Cash and cash equivalents	14,425		52,696		13,854		19,035
Securities and indebtedness of related parties	59,546		47,823		68,733		60,962
Accrued investment income	81,199		76,468		73,683		74,524
Amounts receivable from affiliates	7,617		3,561		6,330		3,812
Reinsurance recoverable	104,550		108,948		102,898		102,386
Deferred acquisition costs	412,046		302,611		314,301		418,802
Value of insurance in force acquired	10,821		4,560		3,366		10,385
Current income taxes recoverable	1,454		6,764		2,036		4,807
Other assets	171,754		177,764		179,408		163,518
Assets held in separate accounts	651,797		651,963		625,177		561,281







Total assets	$	10,005,219	$	10,053,401	$	10,259,696	$	9,833,630

FBL FINANCIAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS (Continued)

(Dollars in thousands)


	September 30, 2018		December 31, 2017		June 30, 2019		December 31, 2018
Liabilities and stockholders’ equity
Liabilities:
Future policy benefits:
Interest sensitive products	$	5,451,535	$	5,299,961	$	5,471,944	$	5,403,125
Traditional life insurance and accident and health products	1,789,650		1,750,504		1,826,458		1,802,346
Other policy claims and benefits	51,820		44,475		40,058		51,298
Supplementary contracts without life contingencies	310,152		322,630		302,685		303,627
Advance premiums and other deposits	268,935		267,023		258,295		260,252
Amounts payable to affiliates	1,379		1,164		3,421		1,461
Long-term debt payable to non-affiliates	97,000		97,000		97,000		97,000
Deferred income taxes	77,958		130,425		134,702		75,449
Other liabilities	111,195		111,131		102,414		93,532
Liabilities related to separate accounts	651,797		651,963		625,177		561,281
Total liabilities	8,811,421		8,676,276		8,862,154		8,649,371

Stockholders’ equity:
FBL Financial Group, Inc. stockholders’ equity:
Preferred stock, without par value, at liquidation value - authorized 10,000,000 shares, issued and outstanding 5,000,000 Series B shares	3,000		3,000		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 2017	153,160		153,589
Class B common stock, without par value - authorized 1,500,000 shares, issued and outstanding 11,413 shares in 2018 and 2017	72		72
Class A common stock, without par value - authorized 88,500,000 shares, issued and outstanding 24,648,472 shares in 2019 and 24,707,402 shares in 2018					152,454		152,652
Class B common stock, without par value - authorized 1,500,000 shares, issued and outstanding 11,413 shares in 2019 and 2018					72		72
Accumulated other comprehensive income	88,961		284,983		302,793		91,318
Retained earnings	948,530		935,423		939,143		937,097
Total FBL Financial Group, Inc. stockholders’ equity	1,193,723		1,377,067		1,397,462		1,184,139
Noncontrolling interest	75		58		80		120
Total stockholders’ equity	1,193,798		1,377,125		1,397,542		1,184,259
Total liabilities and stockholders’ equity	$	10,005,219	$	10,053,401	$	10,259,696	$	9,833,630

See accompanying notes.

FBL FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(Dollars in thousands, except per share data)


	Three months ended September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Revenues:
Interest sensitive product charges	$	31,161		$	28,004		$	92,165		$	86,661		$	32,534		$	30,906		$	63,800		$	61,004
Traditional life insurance premiums	48,124			47,087			148,712			145,783			50,987			51,091			100,379			100,588
Net investment income	105,757			102,950			310,753			307,852			104,894			103,974			214,534			204,996
Net realized capital gains (losses)	(709		)	81			(1,615		)	599			377			841			10,534			(906		)
Net other-than-temporary impairment losses recognized in earnings	(50		)	(67		)	(1,090		)	(133		)	—			—			(869		)	(1,040		)
Other income	3,828			3,501			12,065			11,711			4,114			3,637			8,084			8,237
Total revenues	188,111			181,556			560,990			552,473			192,906			190,449			396,462			372,879

Benefits and expenses:
Interest sensitive product benefits	70,145			67,206			194,127			188,217			65,223			62,637			135,819			123,982
Traditional life insurance benefits	44,168			42,633			133,349			128,197			41,960			43,725			88,635			89,181
Policyholder dividends	2,480			2,487			7,591			7,597			2,564			2,560			5,098			5,111
Underwriting, acquisition and insurance expenses	30,834			27,535			107,621			98,229			38,948			37,210			75,137			76,787
Interest expense	1,212			1,213			3,638			3,638			1,212			1,213			2,424			2,426
Other expenses	5,061			4,971			16,281			13,862			6,635			5,627			12,885			11,220
Total benefits and expenses	153,900			146,045			462,607			439,740			156,542			152,972			319,998			308,707
	34,211			35,511			98,383			112,733			36,364			37,477			76,464			64,172
Income taxes	(4,818		)	(9,880		)	(14,462		)	(32,017		)	(5,511		)	(5,831		)	(11,787		)	(9,644		)
Equity income, net of related income taxes	1,642			487			3,441			2,629			1,404			1,139			1,624			1,799
Net income	31,035			26,118			87,362			83,345			32,257			32,785			66,301			56,327
Net loss (income) attributable to noncontrolling interest	(25		)	9			16			(20		)
Net loss attributable to noncontrolling interest													41			18			40			41
Net income attributable to FBL Financial Group, Inc.	$	31,010		$	26,127		$	87,378		$	83,325		$	32,298		$	32,803		$	66,341		$	56,368

Earnings per common share	$	1.24		$	1.04		$	3.50		$	3.32		$	1.30		$	1.31		$	2.68		$	2.26
Earnings per common share - assuming dilution	$	1.24		$	1.04		$	3.50		$	3.32		$	1.30		$	1.31		$	2.68		$	2.25

See accompanying notes.

FBL FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

(Dollars in thousands)


	Three months ended September 30,					Nine months ended September 30,						Three months ended June 30,					Six months ended June 30,
	2018			2017		2018			2017			2019		2018			2019		2018
Net income	$	31,035		$	26,118	$	87,362		$	83,345		$	32,257	$	32,785		$	66,301	$	56,327
Other comprehensive income (loss) (1)
Change in net unrealized investment gains/losses	(42,388		)	11,320		(191,339		)	73,751			113,416		(55,797		)	211,056		(148,951		)
Change in underfunded status of postretirement benefit plans	268			192		797			563			211		267			419		529
Total other comprehensive income (loss), net of tax	(42,120		)	11,512		(190,542		)	74,314			113,627		(55,530		)	211,475		(148,422		)
Total comprehensive income (loss), net of tax	(11,085		)	37,630		(103,180		)	157,659			145,884		(22,745		)	277,776		(92,095		)
Comprehensive (income) loss attributable to noncontrolling interest	(25		)	9		16			(20		)
Comprehensive loss attributable to noncontrolling interest												41		18			40		41
Total comprehensive income (loss) applicable to FBL Financial Group, Inc.	$	(11,110	)	$	37,639	$	(103,164	)	$	157,639		$	145,925	$	(22,727	)	$	277,816	$	(92,054	)


(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																	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			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
Cumulative effect of change in accounting for low income housing tax credit investments	—		—			—			(4,703		)	—			(4,703		)
Net income - nine months ended September 30, 2017	—		—			—			83,325			20			83,345
Other comprehensive income	—		—			74,314			—			—			74,314
Stock-based compensation	—		644			—			—			—			644
Dividends on preferred stock	—		—			—			(112		)	—			(112		)
Dividends on common stock	—		—			—			(70,280		)	—			(70,280		)
Receipts related to noncontrolling interest	—		—			—			—			(34		)	(34		)
Balance at September 30, 2017	$	3,000	$	153,619		$	223,869		$	890,902		$	42		$	1,271,432

Balance at January 1, 2018	$	3,000	$	153,661		$	284,983		$	935,423		$	58		$	1,377,125
Balance at April 1, 2018																		$	3,000	$	153,267		$	186,222		$	909,872		$	35		$	1,252,396
Cumulative effect of change in accounting principle related to net unrealized gains on equity securities	—		—			(5,480		)	5,480			—			—			—		—			389			(389		)	—			—
Net income - nine months ended September 30, 2018	—		—			—			87,378			(16		)	87,362
Net income - three months ended June 30, 2018																		—		—			—			32,803			(18		)	32,785
Other comprehensive loss	—		—			(190,542		)	—			—			(190,542		)	—		—			(55,530		)	—			—			(55,530		)
Stock-based compensation	—		366			—			—			—			366			—		102			—			—			—			102
Purchase of common stock	—		(795		)	—			(8,054		)	—			(8,849		)	—		(183		)	—			(1,860		)	—			(2,043		)
Dividends on preferred stock	—		—			—			(112		)	—			(112		)	—		—			—			(37		)	—			(37		)
Dividends on common stock	—		—			—			(71,585		)	—			(71,585		)	—		—			—			(11,416		)	—			(11,416		)
Receipts related to noncontrolling interest	—		—			—			—			33			33			—		—			—			—			15			15
Balance at September 30, 2018	$	3,000	$	153,232		$	88,961		$	948,530		$	75		$	1,193,798
Balance at June 30, 2018																		$	3,000	$	153,186		$	131,081		$	928,973		$	32		$	1,216,272

Balance at April 1, 2019																		$	3,000	$	152,516		$	189,166		$	918,718		$	121		$	1,263,521
Net income - three months ended June 30, 2019																		—		—			—			32,298			(41		)	32,257
Other comprehensive income																		—		—			113,627			—			—			113,627
Stock-based compensation																		—		10			—			—			—			10
Dividends on preferred stock																		—		—			—			(37		)	—			(37		)
Dividends on common stock																		—		—			—			(11,836		)	—			(11,836		)
Balance at June 30, 2019																		$	3,000	$	152,526		$	302,793		$	939,143		$	80		$	1,397,542

FBL FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Continued)

(Dollars in thousands)



	FBL Financial Group, Inc. Stockholders’ Equity
	Series B Preferred Stock		Class A and Class B Common Stock			Accumulated Other Comprehensive Income			Retained Earnings			Non- controlling Interest			Total Stockholders’ Equity
Balance at January 1, 2018	$	3,000	$	153,661		$	284,983		$	935,423		$	58		$	1,377,125
Cumulative effect of change in accounting principle related to net unrealized gains on equity securities	—		—			(5,480		)	5,480			—			—
Net income - six months ended June 30, 2018	—		—			—			56,368			(41		)	56,327
Other comprehensive loss	—		—			(148,422		)	—			—			(148,422		)
Stock-based compensation	—		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		$	928,973		$	32		$	1,216,272

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 - six months ended June 30, 2019	—		—			—			66,341			(40		)	66,301
Other comprehensive income	—		—			211,475			—			—			211,475
Stock-based compensation	—		212			—			—			—			212
Purchase of common stock	—		(410		)	—			(4,167		)	—			(4,577		)
Dividends on preferred stock	—		—			—			(75		)	—			(75		)
Dividends on common stock	—		—			—			(60,648		)	—			(60,648		)
Balance at June 30, 2019	$	3,000	$	152,526		$	302,793		$	939,143		$	80		$	1,397,542

See accompanying notes.

FBL FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)


	Nine months ended September 30,						Six months ended June 30,
	2018			2017			2019			2018
Operating activities
Net income	$	87,362		$	83,345		$	66,301		$	56,327
Adjustments to reconcile net income to net cash provided by operating activities:
Interest credited to account balances	123,425			121,028			80,152			82,699
Charges for mortality, surrenders and administration	(89,958		)	(86,975		)	(62,978		)	(60,081		)
Net realized (gains) losses on investments	2,705			(466		)	(9,665		)	2,705
Change in fair value of derivatives	(2,370		)	(5,450		)	(1,242		)	(3,089		)
Increase in liabilities for life insurance and other future policy benefits	61,112			67,802			34,593			38,308
Deferral of acquisition costs	(31,276		)	(31,819		)	(22,628		)	(22,244		)
Amortization of deferred acquisition costs and value of insurance in force	24,199			15,984			17,176			20,318
Change in reinsurance recoverable	2,370			(488		)	742			5,097
Provision for deferred income taxes	(1,816		)	3,005			3,020			(4,190		)
Other	1,050			7,055			(19,850		)	11,362
Net cash provided by operating activities	176,803			173,021			85,621			127,212

Investing activities
Sales, maturities or repayments:
Fixed maturities - available for sale	455,104			444,130			314,460			352,051
Equity securities - available for sale	—			9,168			5,085			—
Mortgage loans	51,680			39,880			49,386			36,861
Derivative instruments	13,203			9,054			7,314			8,912
Policy loans	28,416			27,092			18,057			19,030
Securities and indebtedness of related parties	4,945			6,245			4,466			3,021
Real estate	—			717
Other long-term investments	4,948			14			2,950			3,524
Acquisitions:
Fixed maturities - available for sale	(613,278		)	(457,988		)	(346,440		)	(529,344		)
Equity securities - available for sale	(2,799		)	(1,102		)	(13,092		)	(2,283		)
Mortgage loans	(95,336		)	(147,200		)	(25,902		)	(47,936		)
Derivative instruments	(10,480		)	(6,556		)	(9,766		)	(7,049		)
Policy loans	(32,741		)	(29,090		)	(20,937		)	(22,470		)
Securities and indebtedness of related parties	(15,922		)	(10,178		)	(11,476		)	(8,409		)
Other long-term investments	(6,611		)	—			(2,788		)	(6,531		)
Short-term investments, net change	(8,562		)	(9,051		)	6,192			1,866
Purchases and disposals of property and equipment, net	(8,483		)	(7,889		)	(7,931		)	(6,067		)
Net cash used in investing activities	(235,916		)	(132,754		)	(30,422		)	(204,824		)

FBL FINANCIAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Dollars in thousands)


	Nine months ended September 30,						Six months ended June 30,
	2018			2017			2019			2018
Financing activities
Contract holder account deposits	$	525,245		$	358,211		$	316,988		$	402,751
Contract holder account withdrawals	(423,714		)	(333,261		)	(311,187		)	(311,878		)
Dividends paid	(71,697		)	(70,392		)	(60,723		)	(60,244		)
Proceeds from issuance of short-term debt	27,000			—			4,000			27,000
Repayments of short-term debt	(27,000		)	—			(4,000		)	—
Issuance or repurchase of common stock, net	(9,025		)	305			(5,458		)	(9,023		)
Other financing activities	33			—			—			15
Net cash provided by (used in) financing activities	20,842			(45,137		)	(60,380		)	48,621
Decrease in cash and cash equivalents	(38,271		)	(4,870		)	(5,181		)	(28,991		)
Cash and cash equivalents at beginning of period	52,696			33,583			19,035			52,696
Cash and cash equivalents at end of period	$	14,425		$	28,713		$	13,854		$	23,705

Supplemental disclosures of cash flow information
Cash (paid) received during the period for:
Interest	$	(3,656	)	$	(3,638	)	$	(2,426	)	$	(2,425	)
Income taxes	(2,027		)	(10,302		)	(30		)	(20		)

See accompanying notes.

FBL FINANCIAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~September~~June 30, ~~2018~~2019

1. Significant Accounting Policies

Basis of Presentation

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

Operating results for the ~~three- and nine-month periods~~quarter ended ~~September~~June 30, ~~2018~~2019 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2018~~2019. We encourage you to refer to the notes to our consolidated financial statements included in Item 8 of our Form 10-K for the year ended December 31, ~~2017~~2018 for a complete description of our material accounting policies. Also included in the Form 10-K is a description of areas of judgments and estimates and other information necessary to understand our financial position and results of operations.

~~Accounting Policy Change~~

During the third quarter of 2018, we voluntarily changed our accounting policy for low income housing tax credit (LIHTC) investments from the equity method to the proportional amortization method. We believe the proportional amortization method is preferable because it better reflects the economics of an investment that is made for the primary purpose of receiving tax credits and other tax benefits and is consistent with the accounting method used by most life insurance companies that have disclosed their accounting policies for LIHTC investments. In addition to a change in the timing of the recognition of income or loss on LIHTC investments, there are also differences in how these investments are reported within our consolidated financial statements, as the unamortized cost of the LIHTC investments is now reflected in the "Other asset" line instead of the "Securities and indebtedness of related parties" line on the consolidated balance sheets and income/expense from LIHTC investments is now reflected in the "Income taxes" line instead of the "Equity income" line on the consolidated statements of operations. Changes to the consolidated statements of cash flows were immaterial and included moving additional funding and return of capital from LIHTC investments from the “Securities and indebtedness of related parties” lines under investing to the “Other” line under operating cash flows.

As a result of this accounting policy change, the opening balance as of January 1, 2017 of retained earnings was reduced by $4.7 million, as shown on the consolidated statements of changes in stockholders’ equity. In addition, the following presents the effect of the change on financial statement line items for prior periods that were retrospectively adjusted:

Consolidated Balance Sheet Impact
December 31, 2017
As Originally Reported As Adjusted Effect of Change
(Dollars in thousands)
Assets
Securities and indebtedness of related parties $ 130,240
$ 47,823
$ (82,417 )
Current income taxes recoverable 3,269
6,764
3,495
Other assets 112,054
177,764
65,710
Total assets $ (13,212 )

Liabilities and stockholders’ equity
Deferred income taxes $ 131,912
$ 130,425
$ (1,487 )
Retained earnings 947,148
935,423
(11,725 )
Total liabilities and stockholders’ equity $ (13,212 )

~~Table of Contents~~

Consolidated Statements of Operations Impact
Three months ended September 30, 2017 Nine months ended September 30, 2017
As Originally Reported As Adjusted Effect of Change As Originally Reported As Adjusted Effect of Change
(Dollars in thousands)
Income taxes $ (11,220 ) $ (9,880 ) $ 1,340
$ (35,844 ) $ (32,017 ) $ 3,827
Equity income (loss), net of related income taxes 2,804
487
(2,317 ) 8,959
2,629
(6,330 )
Net income (loss) attributable to FBL Financial Group, Inc. $ (977 ) $ (2,503 )

Earnings (loss) per common share - basic and assuming dilution $ (0.04 ) $ (0.10 )

Net income would have been $0.1 million higher ($0.01 per basic and diluted share) for the three months ended September 30, 2018 and $0.2 million lower ($0.1 per basic and diluted share) for the nine months ended September 30, 2018 if the Company had continued to record LIHTC investments using the equity method.

New Accounting Pronouncements



Description	Date of adoption	Effect 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, 2019	Upon adoption using the modified retrospective approach, a cumulative effect adjustment of $0.6 million was recorded to retained earnings, representing the elimination of a deferred gain on a sale-leaseback transaction, and both other assets and other liabilities increased by $7.2 million. We elected the practical expedients provided for ~~stranded tax effects resulting from changes~~under the guidance, but did not use hindsight in ~~the federal income tax rate~~determining lease term. We have no finance leases and have elected to treat leases with terms of twelve months or less as short-term leases. The impact to earnings per share due to ~~enactment of the Tax Cuts and Jobs Act of 2017 on December 22, 2017 (Tax Act). Accounting~~adopting 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, 2017~~	The 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 assetsthree 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 ninesix months ended ~~September~~June 30, ~~2018.~~ 2019 was ($0.01) per share. See Note 5 for additional discussion.
Financial instruments - recognition and measurement In January 2016, the FASB issued guidance that amended certain aspects of the recognition and measurement of financial instruments. The new guidance primarily affected the accounting for equity securities, which are now carried at fair value with valuation changes recognized in the statement of operations rather than as other comprehensive income. The presentation and disclosure requirements for financial instruments and the methodology for assessing the need for a valuation allowance on deferred tax assets resulting from unrealized losses on available-for-sale fixed maturity securities were also revised under the new guidance. The new standard required the use of a modified retrospective method at adoption.	January 1, 2018	Upon adoption, we reclassified $5.5 million of net unrealized investment gains, net of adjustments to deferred acquisition costs, interest sensitive policy reserves and income taxes, on our equity securities from ~~AOCI~~accumulated other comprehensive income to retained earnings as a cumulative effect adjustment. Adoption resulted in a decrease to net income of $2.4 million ($0.10 per basic and diluted earnings per share) during the nine months ended September 30, 2018 and $0.5 million ($0.02 per basic and diluted earnings per share) during the third quarter of 2018.

Table of Contents



~~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 adoption	Effect 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 goods~~consolidated 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, 2018~~	Our 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, 2019~~	We are currently evaluating the impact of this guidance on our consolidated financial statements, but do not believe it will be material. 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. This standard may be applied using the modified retrospective approach or prospectively, recognizing a cumulative effect adjustment.
Financial instruments - credit impairment In June 2016, the FASB issued guidance amending the accounting for the credit impairment of financial instruments. Under the new guidance, impairment losses are required to be estimated using an expected loss model under which a valuation allowance is established and adjusted over time. The valuation allowance will be based on the probability of loss over the life of the instrument, considering historical, current and forecasted information. The new guidance differs significantly from the incurred loss model used today, and will result in the earlier recognition of impairment losses. The new guidance may also increase the volatility of earnings to the extent actual results differ from the assumptions used in the establishment of the valuation allowance. The financial instruments for which we will be required to use the new model include but are not limited to, mortgage loans, lease receivables and reinsurance recoverables. Our available-for-sale fixed maturities will continue to apply the incurred loss ~~model. However, rather than impairment losses resulting in a permanent reduction of carrying value as they do today,~~model; however, such losses will be in the form of a valuation allowance, which can be increased in the case of future credit losses or decreased should conditions improve.	January 1, 2020	We are currently evaluating the impact of this new guidance on our consolidated financial statements. We believe the most significant impact upon adoption will be the establishment of an additional valuation allowance for our mortgage loan ~~investments. This~~investments, which historically have not experienced significant credit impairment losses. We 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.~~

~~Table of Contents~~

Reclassifications

~~In addition to~~During the ~~LIHTC reclassifications discussed above, in~~third quarter of 2018, we ~~began reporting~~voluntarily changed our ~~holdings~~accounting 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 of~~our 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 ~~2017~~2018 consolidated financial statements have been reclassified to ~~conform to the current financial statement presentation.~~reflect this accounting change.

Table of Contents

2. Investment Operations

Fixed Maturity ~~and Equity~~ Securities


Available-For-Sale Fixed Maturity Securities by Investment Category	Available-For-Sale Fixed Maturity Securities by Investment Category											Available-For-Sale Fixed Maturity Securities by Investment Category
	September 30, 2018											June 30, 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	$	3,226,039	$	148,003	$	(60,509	)	$	3,313,533	$	—	$	3,287,380	$	320,359	$	(21,989	)	$	3,585,750	$	—
Residential mortgage-backed	592,376		28,761		(13,668		)	607,469		3,026		581,099		49,055		(775		)	629,379		2,084
Commercial mortgage-backed	883,023		14,063		(32,412		)	864,674		—		937,041		67,240		(526		)	1,003,755		—
Other asset-backed	748,415		16,410		(4,700		)	760,125		1,364		671,762		22,017		(2,332		)	691,447		740
United States Government and agencies	19,712		816		(295		)	20,233		—		17,029		1,572		(16		)	18,585		—
States and political subdivisions	1,456,051		87,208		(10,268		)	1,532,991		—		1,415,673		140,791		(758		)	1,555,706		—
Total fixed maturities	$	6,925,616	$	295,261	$	(121,852	)	$	7,099,025	$	4,390	$	6,909,984	$	601,034	$	(26,396	)	$	7,484,622	$	2,824


Available-For-Sale Fixed Maturity and Equity Securities by Investment Category
	December 31, 2017												December 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	$	3,374,927	$	329,299	$	(15,955	)	$	3,688,271	$	(504	)	$	3,231,846	$	138,972	$	(90,933	)	$	3,279,885	$	—
Residential mortgage-backed	483,671		35,890		(3,280		)	516,281		339			584,133		29,969		(7,242		)	606,860		2,823
Commercial mortgage-backed	674,076		34,464		(3,233		)	705,307		—			873,672		24,284		(19,390		)	878,566		—
Other asset-backed	818,071		18,645		(3,214		)	833,502		845			697,332		15,567		(5,329		)	707,570		1,143
United States Government and agencies	23,378		1,606		(79		)	24,905		—			19,673		996		(134		)	20,535		—
States and political subdivisions	1,383,127		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 stocks	3,764		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 ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 were in an unrealized gain position due to increases in estimated fair value subsequent to initial recognition of non-credit losses on such securities.



Available-For-Sale Fixed Maturities by Maturity Date
	June 30, 2019
	Amortized Cost		Fair Value
	(Dollars in thousands)
Due in one year or less	$	73,729	$	74,777
Due after one year through five years	530,041		556,513
Due after five years through ten years	716,263		771,586
Due after ten years	3,400,049		3,757,165
	4,720,082		5,160,041
Mortgage-backed and other asset-backed	2,189,902		2,324,581
Total fixed maturities	$	6,909,984	$	7,484,622

Table of Contents

Available-For-Sale Fixed Maturities by Maturity Date
September 30, 2018

Amortized
Cost

Fair Value
(Dollars in thousands)
Due in one year or less $ 116,178
$ 118,398
Due after one year through five years 545,151
562,662
Due after five years through ten years 699,717
708,989
Due after ten years 3,340,756
3,476,708
4,701,802
4,866,757
Mortgage-backed and other asset-backed 2,223,814
2,232,268
Total fixed maturities $ 6,925,616
$ 7,099,025

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
	June 30, 2019			December 31, 2018
	(Dollars in thousands)
Net unrealized appreciation on:
Fixed maturities - available for sale	$	574,638		$	176,768
Adjustments for assumed changes in amortization pattern of:
Deferred acquisition costs	(158,405		)	(46,732		)
Value of insurance in force acquired	(12,827		)	(6,878		)
Unearned revenue reserve	15,127			5,134
Adjustments for assumed changes in policyholder liabilities	(24,724		)	(1,642		)
Provision for deferred income taxes	(82,699		)	(26,596		)
Net unrealized investment gains	$	311,110		$	100,054

Net Unrealized Gains on Investments in Accumulated Other Comprehensive Income
September 30,
2018 December 31,
2017
(Dollars in thousands)
Net unrealized appreciation on:
Fixed maturities - available for sale $ 173,409
$ 534,718
Equity securities - available for sale —
7,430
173,409
542,148
Adjustments for assumed changes in amortization pattern of:
Deferred acquisition costs (46,865 ) (147,173 )
Value of insurance in force acquired (6,980 ) (14,870 )
Unearned revenue reserve 5,673
12,705
Adjustments for assumed changes in policyholder liabilities (64 ) (18,499 )
Provision for deferred income taxes (26,286 ) (78,605 )
Net unrealized investment gains $ 98,887
$ 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
	June 30, 2019
	Less than one year					One year or more					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Percent of Total
	(Dollars in thousands)
Fixed maturities:
Corporate	$	29,173	$	(738	)	$	252,898	$	(21,251	)	$	282,071	$	(21,989	)	83.3	%
Residential mortgage-backed	3,857		(329		)	24,215		(446		)	28,072		(775		)	2.9
Commercial mortgage-backed	89		—			18,704		(526		)	18,793		(526		)	2.0
Other asset-backed	95,239		(1,401		)	93,275		(931		)	188,514		(2,332		)	8.8
United States Government and agencies	—		—			2,982		(16		)	2,982		(16		)	0.1
States and political subdivisions	4,219		(208		)	6,426		(550		)	10,645		(758		)	2.9
Total fixed maturities	$	132,577	$	(2,676	)	$	398,500	$	(23,720	)	$	531,077	$	(26,396	)	100.0	%

Fixed Maturity Securities with Unrealized Losses by Length of Time
September 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 $ 1,008,619
$ (41,103 ) $ 179,151
$ (19,406 ) $ 1,187,770
$ (60,509 ) 49.7 %
Residential mortgage-backed 321,318
(11,240 ) 44,511
(2,428 ) 365,829
(13,668 ) 11.2
Commercial mortgage-backed 492,258
(22,110 ) 97,859
(10,302 ) 590,117
(32,412 ) 26.6
Other asset-backed 301,551
(2,819 ) 93,174
(1,881 ) 394,725
(4,700 ) 3.9
United States Government and agencies 3,889
(221 ) 2,423
(74 ) 6,312
(295 ) 0.2
States and political subdivisions 218,383
(7,995 ) 16,697
(2,273 ) 235,080
(10,268 ) 8.4
Total fixed maturities $ 2,346,018
$ (85,488 ) $ 433,815
$ (36,364 ) $ 2,779,833
$ (121,852 ) 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	%

~~Table of Contents~~

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 ~~763~~182securities from ~~473~~144 issuers at ~~September~~June 30, ~~2018~~2019 and ~~247~~709 securities from ~~154~~465 issuers at December 31, ~~2017.~~2018.

Table of Contents

Unrealized losses ~~increased~~decreased during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 primarily due to ~~higher~~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 ~~September~~June 30, ~~2018~~2019. We will continue to monitor the investment portfolio for future changes in issuer facts and circumstances that could result in future impairments beyond those currently identified.

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



Credit Loss Component of Other-Than-Temporary Impairments on Fixed Maturities
	Six months ended June 30,
	2019			2018
	(Dollars in thousands)
Balance at beginning of period	$	(5,963	)	$	(12,392	)
Reductions due to investments sold or paid down	729			3,369
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	$	(5,234	)	$	(6,494	)

Credit Loss Component of Other-Than-Temporary Impairments on Fixed Maturities
Nine months ended September 30,
2018
2017
(Dollars in thousands)
Balance at beginning of period $ (12,392 ) $ (14,500 )
Reductions due to investments sold or paid down 3,648
1,154
Reduction for credit loss that no longer has a portion of the OTTI loss recognized in other comprehensive income 2,529
587
Balance at end of period $ (6,215 ) $ (12,759 )

~~Table of Contents~~

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 June 30,						Six months ended June 30,
	2019			2018			2019			2018
	(Dollars in thousands)
Realized gains (losses) on investments
Fixed maturities:
Gross gains	$	143		$	1,713		$	3,137		$	1,796
Gross losses	(304		)	(1		)	(304		)	(1		)
Mortgage loans	—			—			2,778			—
Other	—			(5		)	(4		)	(18		)
	(161		)	1,707			5,607			1,777

Net gains (losses) recognized during the period on equity securities held at the end of the period	463			(866		)	4,882			(2,683		)
Net gains recognized during the period on equity securities sold during the period	75			—			45			—
Net gains (losses) recognized during the period on equity securities	538			(866		)	4,927			(2,683		)
Net realized gains (losses)	377			841			10,534			(906		)

Impairment losses recognized in earnings:
Other credit-related	—			—			(869		)	(1,040		)
Net realized gains (losses) on investments recorded in income	$	377		$	841		$	9,665		$	(1,946	)

Table of Contents

Realized Gains (Losses) - Recorded in Income

Three months ended September 30, Nine months ended September 30,
2018 2017 2018 2017
(Dollars in thousands)
Realized gains (losses) on sales of investments
Fixed maturities:
Gross gains $ 25
$ 221
$ 1,821
$ 1,426
Gross losses (1 ) (140 ) (2 ) (1,082 )
Equity securities —
—
—
(90 )
Other long-term investments (1 ) —
(19 ) 40
Real estate —
—
—
305
23
81
1,800
599
Net unrealized losses recognized during the period on equity securities held at the end of the period (1) (732 ) —
(3,415 ) —
Net realized gains (losses) (709 ) 81
(1,615 ) 599

Impairment losses recognized in earnings:
Other credit-related (2) (50 ) (67 ) (1,090 ) (133 )
Net realized gains (losses) on investments recorded in income $ (759 ) $ 14
$ (2,705 ) $ 466


~~(1)~~	~~See Note 1 to our consolidated financial statements for discussion of change in accounting policy for equity securities during 2018.~~


~~(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 ~~$59.3~~$22.2 million during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~$57.7~~$56.3 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018.

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 ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, there were no non-performing loans over 90 days past due on contractual payments. At ~~September~~June 30, ~~2018,~~2019, we had committed to provide additional funding for

~~Table of Contents~~

mortgage loans totaling ~~$21.1~~$9.3 million. These commitments arose in the normal course of business at terms that are comparable to similar investments.



Mortgage Loans by Collateral Type
	June 30, 2019				December 31, 2018
Collateral Type	Carrying Value		Percent of Total		Carrying Value		Percent of Total
	(Dollars in thousands)
Office	$	421,867	41.4	%	$	443,048	42.6	%
Retail	317,685		31.2		310,625		29.9
Industrial	205,917		20.2		211,138		20.3
Other	73,655		7.2		75,018		7.2
Total	$	1,019,124	100.0	%	$	1,039,829	100.0	%



Mortgage Loans by Geographic Location within the United States
	June 30, 2019				December 31, 2018
Region of the United States	Carrying Value		Percent of Total		Carrying Value		Percent of Total
	(Dollars in thousands)
South Atlantic	$	304,277	29.9	%	$	301,206	29.0	%
Pacific	156,210		15.3		162,824		15.7
East North Central	120,371		11.8		117,768		11.3
West North Central	112,130		11.0		126,320		12.1
Mountain	89,531		8.8		101,335		9.7
West South Central	85,648		8.4		85,919		8.3
East South Central	83,959		8.2		76,098		7.3
Middle Atlantic	34,271		3.4		34,843		3.4
New England	32,727		3.2		33,516		3.2
Total	$	1,019,124	100.0	%	$	1,039,829	100.0	%

Table of Contents

Mortgage Loans by Collateral Type
September 30, 2018 December 31, 2017
Collateral Type Carrying Value Percent of Total Carrying Value Percent of Total
(Dollars in thousands)
Office $ 425,459
41.9 % $ 410,090
42.2 %
Retail 306,614
30.2
292,257
30.1
Industrial 211,585
20.8
207,180
21.3
Other 71,960
7.1
62,285
6.4
Total $ 1,015,618
100.0 % $ 971,812
100.0 %



Mortgage Loans by Loan-to-Value Ratio
	June 30, 2019				December 31, 2018
Loan-to-Value Ratio	Carrying Value		Percent of Total		Carrying Value		Percent of Total
	(Dollars in thousands)
0% - 50%	$	415,111	40.7	%	$	409,089	39.3	%
51% - 60%	298,116		29.3		314,038		30.2
61% - 70%	283,310		27.8		264,973		25.5
71% - 80%	18,235		1.8		37,418		3.6
81% - 90%	4,352		0.4		14,311		1.4
Total	$	1,019,124	100.0	%	$	1,039,829	100.0	%

Mortgage Loans by Geographic Location within the United States
September 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 $ 294,262
29.0 % $ 296,947
30.5 %
Pacific 164,405
16.2
146,320
15.0
West North Central 122,743
12.1
127,096
13.1
East North Central 105,982
10.4
91,971
9.5
Mountain 102,339
10.1
105,627
10.9
West South Central 91,402
9.0
85,566
8.8
East South Central 65,459
6.4
67,228
6.9
Middle Atlantic 35,123
3.5
16,052
1.7
New England 33,903
3.3
35,005
3.6
Total $ 1,015,618
100.0 % $ 971,812
100.0 %

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

Carrying Value
Percent of Total Carrying Value Percent of Total
(Dollars in thousands)
0% - 50% $ 404,171
39.8 % $ 334,037
34.4 %
51% - 60% 283,036
27.9
258,359
26.6
61% - 70% 288,808
28.4
297,404
30.6
71% - 80% 21,076
2.1
63,116
6.5
81% - 90% 18,527
1.8
18,896
1.9
Total $ 1,015,618
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
	June 30, 2019				December 31, 2018
Year of Origination	Carrying Value		Percent of Total		Carrying Value		Percent of Total
	(Dollars in thousands)
2019	$	25,878	2.6	%	$	—	—	%
2018	135,831		13.3		137,519		13.2
2017	203,949		20.0		207,540		20.0
2016	146,900		14.4		149,437		14.4
2015	126,711		12.4		128,877		12.4
2014 & prior	379,855		37.3		416,456		40.0
Total	$	1,019,124	100.0	%	$	1,039,829	100.0	%



Impaired Mortgage Loans
	June 30, 2019			December 31, 2018
	(Dollars in thousands)
Unpaid principal balance	$	4,681		$	18,622
Less:
Related allowance	(329		)	(3,107		)
Carrying value of impaired mortgage loans	$	4,352		$	15,515



Allowance on Mortgage Loans
	Six months ended June 30,
	2019			2018
	(Dollars in thousands)
Balance at beginning of period	$	3,107		$	497
Recoveries	(2,778		)	(100		)
Balance at end of period	$	329		$	397

Table of Contents

Mortgage Loans by Year of Origination
September 30, 2018 December 31, 2017
Year of Origination Carrying Value Percent of Total Carrying Value Percent of Total
(Dollars in thousands)
2018 $ 93,611
9.2 % $ —
— %
2017 209,307
20.6
214,365
22.1
2016 150,686
14.8
154,359
15.9
2015 134,529
13.3
144,890
14.9
2014 75,598
7.4
77,866
8.0
2013 and prior 351,887
34.7
380,332
39.1
Total $ 1,015,618
100.0 % $ 971,812
100.0 %

Impaired Mortgage Loans
September 30, 2018 December 31, 2017
(Dollars in thousands)
Unpaid principal balance $ 18,724
$ 19,027
Less:
Related allowance (346 ) (497 )
Carrying value of impaired mortgage loans $ 18,378
$ 18,530

Allowance on Mortgage Loans
Nine months ended September 30,
2018 2017
(Dollars in thousands)
Balance at beginning of period $ 497
$ 713
Recoveries (151 ) (147 )
Balance at end of period $ 346
$ 566

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:~~include reduction of the contractual interest rate to a below-market rate, extension of the maturity date and/or a reduction of accrued interest. The amount, timing and extent of the concession granted is considered in determining if an impairment loss is needed for the restructuring. There were no loan modifications during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 or ~~September~~June 30, ~~2017.~~2018.

Variable Interest Entities

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

We have reviewed the circumstances surrounding our investments in VIEs, which consist of (i) limited partnerships or limited liability companies accounted for under the equity method included in securities and indebtedness of related parties and (ii) non-guaranteed federal LIHTC investments included in other assets. ~~LIHTC investments take the form of limited partnerships, which in turn invest in a number of low income housing projects. We use the proportional amortization method of accounting~~

~~Table of Contents~~

for these investments. The proportional amortization method amortizes the cost of the investment over the period in which the investor expects to receive tax credits and other tax benefits, and the resulting amortization is recognized along with the tax benefits as a component of federal income tax expense on our consolidated statements of operations. The net benefits reflected in federal income tax expense related to LIHTC investments were $0.9 million for the third quarter of 2018 and $2.7 million for the nine months ended September 30, 2018, compared to $1.3 million for the third quarter of 2017 and $3.8 million at for the nine months ended September 30, 2017. The carrying value of our LIHTC investments totaled $56.7 million at September 30, 2018 and $65.7 million at December 31, 2017. See Note 1 to our consolidated financial statements for discussion of a change in accounting method applied to these investments.

At September 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 $56.4 million, including $1.6 million for LIHTC investment commitments, which are summarized by year in the following table.

LIHTC Investment Commitments by Year
September 30, 2018
(Dollars in thousands)
2018 $ 341
2019 248
2020-2025 996
Total $ 1,585

In addition, we have reviewed the ownership ~~interests~~interest in our VIEs and determined that we do not hold direct majority ownership or have other contractual rights (such as kick out rights) that give us effective control over these entities resulting in us having both the power to direct activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE. The maximum loss exposure relative to our VIEs is limited to the carrying value and any unfunded commitments that exist for each particular VIE. We also have not provided additional support or other guarantees that ~~was~~were not previously contractually required (financial or otherwise) to any of the VIEs as of ~~September~~June 30, ~~2018~~2019 or December 31, ~~2017.~~2018. Based on ~~this~~our analysis, none of our VIEs were required to be consolidated at June 30, 2019 or December 31, 2018.

LIHTC investments take the form of limited partnerships or limited liability companies, which in turn invest in a number of low income housing projects. We use the proportional amortization method of accounting for ~~any reporting periods presented~~these 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 second quarter of 2019 and $1.8 million for the six months ended June 30, 2019, compared to $0.9 million for the second quarter of 2018 and $1.9 million for the six months ended June 30, 2018.



VIE Investments by Category
	June 30, 2019				December 31, 2018
	Carrying Value		Maximum Exposure to Loss		Carrying Value		Maximum Exposure to Loss
	(Dollars in thousands)
LIHTC investments	$	48,250	$	49,752	$	54,037	$	55,597
Investment companies	47,840		94,091		40,236		79,578
Real estate limited partnerships	9,415		15,938		8,945		15,673
Other	493		493		483		493
Total	$	105,998	$	160,274	$	103,701	$	151,341

VIE Investments by Category
September 30, 2018 December 31, 2017
Carrying Value Maximum Exposure to Loss Carrying Value Maximum Exposure to Loss
(Dollars in thousands)
LIHTC investments $ 56,715
$ 58,300
$ 65,710
$ 67,396
Investment companies 37,388
82,167
25,335
62,372
Real estate limited partnerships 9,694
19,522
8,589
20,590
Other 455
649
1,182
1,488
Total $ 104,252
$ 160,638
$ 100,816
$ 151,846

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

Table of Contents

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.

~~Table of Contents~~

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
	September 30, 2018		December 31, 2017		June 30, 2019		December 31, 2018
	(Dollars in thousands)				(Dollars in thousands)
Assets
Freestanding derivatives:
Call options (reported in other investments)	$	19,140	$	14,824	$	19,698	$	4,745
Embedded derivatives:
Modified coinsurance assumed (reported in reinsurance recoverable)	98		2,125
Modified coinsurance ceded (reported in reinsurance recoverable)	20		—
Modified coinsurance (reported in reinsurance recoverable)					824		157
Interest-only security (reported in fixed maturities)	1,422		2,096		676		855
Total assets	$	20,680	$	19,045	$	21,198	$	5,757

Liabilities
Embedded derivatives:
Indexed annuity and universal life products (reported in liability for future policy benefits)	$	42,017	$	27,774
Modified coinsurance agreements (reported in other liabilities)	288		268
Indexed products (reported in liability for future policy benefits)					$	59,375	$	40,028
Modified coinsurance (reported in other liabilities)					193		7,426
Total liabilities	$	42,305	$	28,042	$	59,568	$	47,454



Derivative Income (Loss)
	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
	(Dollars in thousands)
Change in fair value of free-standing derivatives:
Call options	$	3,816		$	2,193		$	12,502		$	1,041
Change in fair value of embedded derivatives:
Modified coinsurance	620			125			1,253			(818		)
Interest-only security	69			(44		)	116			(79		)
Indexed products	(3,294		)	281			(12,629		)	2,945
Total income from derivatives	$	1,211		$	2,555		$	1,242		$	3,089

Derivative Income (Loss)
Three months ended September 30, Nine months ended September 30,
2018 2017 2018 2017
(Dollars in thousands)
Change in fair value of free standing derivatives:
Call options $ 5,999
$ 2,482
$ 7,039
$ 6,247
Change in fair value of embedded derivatives:
Modified coinsurance agreements (1,209 ) (86 ) (2,027 ) (1,508 )
Interest-only security (1 ) 28
(79 ) (167 )
Indexed annuity and universal life products (5,509 ) 560
(2,563 ) 878
Total income (loss) from derivatives $ (720 ) $ 2,984
$ 2,370
$ 5,450

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 ~~$14.3~~$16.2 million at ~~September~~June 30, ~~2018,~~2019, which is held in a separate custodial account. Subject to certain constraints, we are permitted to sell or re-pledge this collateral, but do not have legal rights to the collateral; accordingly, it has not been recorded on our balance sheet. At ~~September~~June 30, ~~2018,~~2019, none of the collateral had been sold or re-pledged. As of ~~September~~June 30, ~~2018,~~2019, our net derivative exposure was ~~$5.1~~$3.6 million.

1817

Table of Contents

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~~we obtain prices from ~~third party~~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~~using matrix pricing methods rely on an estimate of credit spreads to a risk-free U.S. Treasury yield. Selecting the credit spread requires judgment based on an understanding of the security and may include a market liquidity premium. Our selection of comparable companies as well as the level of spread requires

1918

Table of Contents

~~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~~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~~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 ~~fluctuation~~fluctuations based on our knowledge of the market and the particular instrument. As fluctuations are noted, we will perform further research that may include discussions with the original pricing source or other external sources to ensure we ~~are in agreement~~agree with the valuation.

We compare prices between different pricing sources for unusual disparity.

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

Equity securities:

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

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

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

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

Other investments:

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

2019

Table of Contents

Cash, cash equivalents and short-term investments:

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

Reinsurance recoverable:

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

Assets held in separate accounts:

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

Future policy ~~benefits-indexed~~benefits - indexed product embedded derivatives:

~~Certain index~~Indexed product contracts include embedded derivatives that are measured at fair value on a recurring basis. These embedded derivatives are a Level 3 measurement. The fair value of the embedded derivatives is based on the discounted excess of projected account values (including a risk margin) over projected guaranteed account values. The key unobservable inputs required in the projection of future values that require management judgment include the risk margin as well as ~~the~~our 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.

Table of Contents



Valuation of our Financial Instruments Measured on a Recurring Basis by Hierarchy Levels
	June 30, 2019
	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Fair Value
	(Dollars in thousands)
Assets
Fixed maturities:
Corporate securities	$	—	$	3,566,052	$	19,698	$	3,585,750
Residential mortgage-backed securities	—		627,255		2,124		629,379
Commercial mortgage-backed securities	—		995,421		8,334		1,003,755
Other asset-backed securities	—		677,645		13,802		691,447
United States Government and agencies	7,382		11,203		—		18,585
States and political subdivisions	—		1,555,706		—		1,555,706
Total fixed maturities	7,382		7,433,282		43,958		7,484,622
Non-redeemable preferred stocks	—		76,823		7,048		83,871
Common stocks (1)	16,749		—		—		16,749
Other investments	—		19,698		—		19,698
Cash, cash equivalents and short-term investments	23,375		—		—		23,375
Reinsurance recoverable	—		824		—		824
Assets held in separate accounts	625,177		—		—		625,177
Total assets	$	672,683	$	7,530,627	$	51,006	$	8,254,316

Liabilities
Future policy benefits - indexed product embedded derivatives	$	—	$	—	$	59,375	$	59,375
Other liabilities	—		193		—		193
Total liabilities	$	—	$	193	$	59,375	$	59,568

Table of Contents



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

Liabilities
Future policy benefits - indexed product embedded derivatives	$	—	$	—	$	40,028	$	40,028
Other liabilities	—		780		—		780
Total liabilities	$	—	$	780	$	40,028	$	40,808

Valuation of our Financial Instruments Measured on a Recurring Basis by Hierarchy Levels
September 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 $ —
$ 3,290,359
$ 23,174
$ 3,313,533
Residential mortgage-backed securities —
603,591
3,878
607,469
Commercial mortgage-backed securities —
788,162
76,512
864,674
Other asset-backed securities —
747,771
12,354
760,125
United States Government and agencies 7,927
12,306
—
20,233
States and political subdivisions —
1,532,991
—
1,532,991
Total fixed maturities 7,927
6,975,180
115,918
7,099,025
Non-redeemable preferred stocks —
89,328
7,210
96,538
Common stocks (1) 5,622
—
—
5,622
Other investments —
19,140
—
19,140
Cash, cash equivalents and short-term investments 39,994
—
—
39,994
Reinsurance recoverable —
118
—
118
Assets held in separate accounts 651,797
—
—
651,797
Total assets $ 705,340
$ 7,083,766
$ 123,128
$ 7,912,234

Liabilities
Future policy benefits - indexed product embedded derivatives $ —
$ —
$ 42,017
$ 42,017
Other liabilities —
288
—
288
Total liabilities $ —
$ 288
$ 42,017
$ 42,305

(1)

A private equity fund with a fair value estimate of ~~$1.7~~$5.4 million at June 30, 2019 and $3.3 million at December 31, 2018 using net asset value per share as a practical expedient, has not been classified in the fair value hierarchy above ~~per~~in accordance with fair value reporting guidance. This fund invests in senior secured middle market loans and ~~has~~had unfunded commitments totaling ~~$8.3~~$4.7 million at ~~September~~June 30, 2019 and $6.8 million at December 31, 2018. The investment is not currently eligible for redemption.



Level 3 Assets by Valuation Source - Recurring Basis
	June 30, 2019
	Third-party vendors			Priced internally			Fair Value
	(Dollars in thousands)
Corporate securities	$	—		$	19,698		$	19,698
Residential mortgage-backed securities	2,124			—			2,124
Commercial mortgage-backed securities	8,334			—			8,334
Other asset-backed securities	11,710			2,092			13,802
Non-redeemable preferred stocks	—			7,048			7,048
Total assets	$	22,168		$	28,838		$	51,006
Percent of total	43.5		%	56.5		%	100.0		%

Table of Contents



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

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 agencies 9,078
15,827
—
24,905
States and political subdivisions —
1,523,701
—
1,523,701
Total fixed maturities 9,078
7,100,984
181,905
7,291,967
Non-redeemable preferred stocks —
92,425
7,407
99,832
Common stocks 4,313
—
—
4,313
Other investments —
14,824
—
14,824
Cash, cash equivalents and short-term investments 69,703
—
—
69,703
Reinsurance recoverable —
2,125
—
2,125
Assets held in separate accounts 651,963
—
—
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
	June 30, 2019
	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(Dollars in thousands)
Assets
Corporate securities	$	18,012	Discounted cash flow	Credit spread	1.09% - 6.50% (3.82%)
Commercial mortgage-backed securities	8,334		Discounted cash flow	Credit spread	1.20% - 2.20% (1.85%)
Non-redeemable preferred stocks	7,048		Discounted cash flow	Credit spread	2.86% (2.86%)
Total assets	$	33,394

Liabilities
Future policy benefits - indexed product embedded derivatives	$	59,375	Discounted cash flow	Credit risk Risk margin	0.40% - 1.65% (1.00%) 0.15% - 0.40% (0.25%)

Level 3 Assets by Valuation Source - Recurring Basis
September 30, 2018
Third-party vendors Priced
internally Fair Value
(Dollars in thousands)
Corporate securities $ 2,128
$ 21,046
$ 23,174
Residential mortgage-backed securities 3,878
—
3,878
Commercial mortgage-backed securities 67,243
9,269
76,512
Other asset-backed securities 12,354
—
12,354
Non-redeemable preferred stocks —
7,210
7,210
Total assets $ 85,603
$ 37,525
$ 123,128
Percent of total 69.5 % 30.5 % 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 securities	55,866		Discounted cash flow	Credit spread	1.45% - 3.55% (2.58%)
Non-redeemable preferred stocks	6,862		Discounted cash flow	Credit spread	4.36% (4.36%)
Total assets	$	81,906

Liabilities
Future policy benefits - indexed product embedded derivatives	$	40,028	Discounted cash flow	Credit risk Risk margin	0.55% - 1.80% (1.05%) 0.15% - 0.40% (0.25%)

December 31, 2017
Third-party vendors
Priced
internally
Fair Value
(Dollars in thousands)
Corporate securities $ 4,555
$ 29,045
$ 33,600
Residential mortgage-backed securities 9,124
—
9,124
Commercial mortgage-backed securities 85,701
—
85,701
Other asset-backed securities 47,080
6,400
53,480
Non-redeemable preferred stocks —
7,407
7,407
Total assets $ 146,460
$ 42,852
$ 189,312
Percent of total 77.4 % 22.6 % 100.0 %

~~Table of Contents~~

Quantitative Information about Level 3 Fair Value Measurements - Recurring Basis
September 30, 2018
Fair Value Valuation Technique Unobservable Input Range (Weighted Average)
(Dollars in thousands)
Assets
Corporate securities $ 19,848
Discounted cash flow Credit spread 0.92% - 5.75% (3.22%)
Commercial mortgage-backed 70,052
Discounted cash flow Credit spread 1.08% - 3.51% (2.18%)
Non-redeemable preferred stocks 7,210
Discounted cash flow Credit spread 3.05% (3.05%)
Total assets $ 97,110

Liabilities
Future policy benefits - indexed product embedded derivatives $ 42,017
Discounted cash flow
Credit risk
Risk margin

0.45% - 1.60% (1.05%)
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-backed 72,224
Discounted cash flow Credit spread 1.40% - 4.10% (2.50%)
Non-redeemable preferred stocks 7,407
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.

2423

Table of Contents



Level 3 Financial Instruments Changes in Fair Value - Recurring Basis
	June 30, 2019
								Realized and unrealized gains (losses), net
	Balance, December 31, 2018		Purchases		Disposals				Included in net income		Included in other compre-hensive income			Transfers into Level 3		Transfers out of Level 3 (1)			Amort-ization included in net income			Balance, June 30, 2019
	(Dollars in thousands)
Assets
Corporate securities	$	22,011	$	6,000	$	(2,673	)		$	—	$	376		$	—	$	(6,000	)	$	(16	)	$	19,698
Residential mortgage-backed securities	—		2,124		—				—		—			—		—			—			2,124
Commercial mortgage-backed securities	67,940		—		(186		)		—		498			—		(59,918		)	—			8,334
Other asset-backed securities	3,601		16,710		(640		)		—		(869		)	—		(5,000		)	—			13,802
Non-redeemable preferred stocks	6,862		—		—				—		186			—		—			—			7,048
Total assets	$	100,414	$	24,834	$	(3,499	)		$	—	$	191		$	—	$	(70,918	)	$	(16	)	$	51,006

Liabilities
Future policy benefits - indexed product embedded derivatives	$	40,028	$	6,899	$	(3,364	)		$	15,812	$	—		$	—	$	—		$	—		$	59,375

Level 3 Financial Instruments Changes in Fair Value - Recurring Basis
September 30, 2018
Realized and unrealized gains (losses), net
Balance, December 31, 2017 Purchases Disposals Included in net income Included in other compre-hensive income
Transfers into
Level 3 (1)

Transfers
out of
Level 3 (1)
Amort-ization included in net income Balance, September 30, 2018
(Dollars in thousands)
Assets
Corporate securities $ 33,600
$ —
$ (8,373 ) $ —
$ (878 ) $ 7,082
$ (8,530 ) $ 273
$ 23,174
Residential mortgage-backed securities 9,124
27,818
—
—
—
—
(33,064 ) —
3,878
Commercial mortgage-backed securities 85,701
36,008
(659 ) —
(4,522 ) —
(39,990 ) (26 ) 76,512
Other asset-backed securities 53,480
28,855
(2,622 ) —
(12 ) —
(67,347 ) —
12,354
Non-redeemable preferred stocks 7,407
—
—
—
(197 ) —
—
—
7,210
Total assets $ 189,312
$ 92,681
$ (11,654 ) $ —
$ (5,609 ) $ 7,082
$ (148,931 ) $ 247
$ 123,128

Liabilities
Future policy benefits - indexed product embedded derivatives $ 27,774
$ 7,920
$ (3,919 ) $ 10,242
$ —
$ —
$ —
$ —
$ 42,017



	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		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 securities	9,124		23,940		—				—		—			—		(9,124		)	—			23,940
Commercial mortgage-backed securities	85,701		35,531		(423		)		—		(2,590		)	—		(30,826		)	(26		)	87,367
Other asset-backed securities	53,480		20,255		(2,106		)		—		13			—		(55,343		)	—			16,299
Non-redeemable preferred stocks	7,407		—		—				—		(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

September 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,
September 30, 2017
(Dollars in thousands)
Assets
Corporate securities $ 59,119
$ 3,000
$ (11,251 ) $ 84
$ (1,015 ) $ 13,440
$ (22,877 ) $ (30 ) $ 40,470
Residential mortgage-backed securities —
23,331
—
—
(1 ) —
(21,326 ) 1
2,005
Commercial mortgage-backed securities 81,434
12,114
(613 ) —
6,850
—
(20,267 ) (63 ) 79,455
Other asset-backed securities 54,368
81,867
(8,286 ) —
614
13,353
(48,392 ) (21 ) 93,503
Non-redeemable preferred stocks 7,411
—
—
—
243
—
—
—
7,654
Total assets $ 202,332
$ 120,312
$ (20,150 ) $ 84
$ 6,691
$ 26,793
$ (112,862 ) $ (113 ) $ 223,087

Liabilities
Future policy benefits - indexed product embedded derivatives $ 15,778
$ 4,893
$ (1,405 ) $ 4,808
$ —
$ —
$ —
$ —
$ 24,074

(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~~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.

2524

Table of Contents


Valuation 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										Valuation of our Financial Instruments Not Reported at Fair Value by Hierarchy Levels
	September 30, 2018										June 30, 2019
	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Fair Value		Carrying Value		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	$	—	$	—	$	1,005,598	$	1,005,598	$	1,015,618	$	—	$	—	$	1,061,562	$	1,061,562	$	1,019,124
Policy loans	—		—		229,408		229,408		195,723		—		—		253,802		253,802		200,246
Other investments	—		—		30,468		30,468		29,496		—		—		29,934		29,934		29,135
Total assets	$	—	$	—	$	1,265,474	$	1,265,474	$	1,240,837	$	—	$	—	$	1,345,298	$	1,345,298	$	1,248,505

Liabilities
Future policy benefits	$	—	$	—	$	4,005,338	$	4,005,338	$	4,276,325	$	—	$	—	$	4,255,017	$	4,255,017	$	4,237,938
Supplementary contracts without life contingencies	—		—		303,856		303,856		310,152		—		—		311,443		311,443		302,685
Advance premiums and other deposits	—		—		260,888		260,888		260,888		—		—		250,601		250,601		250,601
Long-term debt	—		—		71,761		71,761		97,000		—		—		78,182		78,182		97,000
Liabilities related to separate accounts	—		—		650,063		650,063		651,797		—		—		623,839		623,839		625,177
Total liabilities	$	—	$	—	$	5,291,906	$	5,291,906	$	5,596,162	$	—	$	—	$	5,519,082	$	5,519,082	$	5,513,401



	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 ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 or ~~September~~June 30, ~~2017.~~2018.

2625

Table of Contents

4. Defined Benefit Plan

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

																									Components of Net Periodic Pension Cost for FBL and Affiliates Combined - Multiemployer Plan
	Three months ended September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
	(Dollars in thousands)												(Dollars in thousands)
Service cost	$	1,494		$	1,388		$	4,480		$	4,164		$	1,137		$	1,493		$	2,274		$	2,986
Interest cost	3,411			3,531			10,232			10,593			3,319			3,410			6,637			6,821
Expected return on assets	(5,562		)	(4,796		)	(16,686		)	(14,388		)	(4,707		)	(5,562		)	(9,414		)	(11,124		)
Amortization of prior service cost	11			32			34			98			—			12			—			23
Amortization of actuarial loss	3,126			2,531			9,380			7,591			2,228			3,127			4,457			6,254
Net periodic pension cost	$	2,480		$	2,686		$	7,440		$	8,058		$	1,977		$	2,480		$	3,954		$	4,960

FBL Financial Group, Inc. share of net periodic pension costs	$	760		$	851		$	2,280		$	2,553		$	633		$	760		$	1,266		$	1,520



Components of Net Periodic Pension Cost for FBL and Affiliates Combined - Other Plans
	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018
	(Dollars in thousands)
Service cost	$	116	$	134	$	233	$	269
Interest cost	248		239		496		479
Amortization of actuarial loss	267		339		533		677
Net periodic pension cost	$	631	$	712	$	1,262	$	1,425

FBL Financial Group, Inc. share of net periodic pension costs	$	363	$	417	$	725	$	835

Components of Net Periodic Pension Cost for FBL and Affiliates Combined - Other Plans
Three months ended September 30, Nine months ended September 30,
2018 2017 2018 2017
(Dollars in thousands)
Service cost $ 135
$ 109
$ 404
$ 327
Interest cost 240
250
719
752
Amortization of actuarial loss 338
293
1,015
879
Net periodic pension cost $ 713
$ 652
$ 2,138
$ 1,958

FBL Financial Group, Inc. share of net periodic pension costs $ 418
$ 388
$ 1,253
$ 1,164

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 income tax provisions and deferred tax assets and liabilities as of December 31, 2017. As of September 30, 2018, some guidance regarding the Tax Act has been issued, though a number of the Tax Act’s provisions still contain some level of uncertainty.

Our income tax provisions and deferred income taxes at September 30, 2018 reflect the lower corporate tax rate and the other provisions of the Tax Act, based on our current understanding of the legislation. Provisional estimates used in the determination of income tax provisions and deferred tax assets and liabilities at December 31, 2017 have been updated as of September 30, 2018 to reflect amounts reported in our 2017 income tax return. The impact of the change in the corporate tax rate on these updated estimates resulted in an increase to net income of approximately $0.6 million for the first nine months of 2018.

See Note 1 for discussion of the accounting policy change from the equity method to the proportional method for our LIHTC investments, the effects of which are now reported on the income tax line in the consolidated statements of operations.

~~Table of Contents~~

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 during 2019. Upon adoption, we elected to follow the following practical expedients as allowed under the new guidance:

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

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

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

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

Table of Contents

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 $14.9 million at June 30, 2019, and $7.2 million on the date of adoption. The most significant lease is for our home office facilities, which is owned by a subsidiary of our majority owner, the Iowa Farm Bureau Federation. Due to substantial leasehold improvements underway on this property, there is reasonable assurance that we will exercise the five-year renewal of the lease term, increasing the carrying value of our leased asset during the second quarter of 2019 to $13.6 million on June 30, 2019, compared to $6.1 million on January 1, 2019. All of our leases are based on fixed terms which expire from 2021 through 2024, but allow renewal. Two of our leases, not including the home office property, contain provisions that allow the lease cost to increase based on a stated step-up schedule or changes in the consumer price index. Our estimated incremental borrowing rate of 4.5% was used in determining the net present value of the future leases commitments.

Total lease expense was $1.3 million for the quarter and $2.6 million for the six months ended June 30, 2019.

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



Lease commitments by year
	June 30, 2019
	(Dollars in thousands)
2019	$	1,303
2020	2,608
2021	2,610
2022	2,444
2023	2,278
Thereafter	6,594
Total minimum lease payments	17,837
Less: Interest	(2,894		)
Present value of lease liabilities	$	14,943

Commitments for Partnership Investments and Private Corporate Bond Investments

In addition to our commitments to fund mortgage loans discussed above, we have unfunded investment commitments at June 30, 2019 to limited partnerships and limited liability companies of $54.3 million and to purchase privately placed corporate securities of $17.2 million.

Table of Contents

6. Stockholders’ Equity

Share Repurchases

We periodically repurchase our Class A common stock under programs approved by our Board of Directors. These repurchase programs authorize us to make repurchases in the open market or through privately negotiated transactions, with the timing and terms of the purchases to be determined by management based on market conditions. Under these programs, we repurchased 66,475 shares for $4.6 million during the six months ended June 30, 2019 and 129,011 shares for $8.8 million during the ~~nine~~six months ended ~~September~~June 30, 2018. ~~No repurchases were made during the nine months ended September 30, 2017.~~ Completion of the current program is dependent on market conditions and other factors. There is no guarantee as to the exact timing of any repurchases or the number of shares that we will repurchase. The share repurchase program may be modified or terminated at any time without prior notice. At ~~September~~June 30, ~~2018, $48.0~~2019, $36.3 million remains available for repurchase under the active repurchase program.



Dividends
	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018
Class A and B common stock:
Cash dividends per common share	$	0.48	$	0.46	$	0.96	$	0.92
Special cash dividend per common share	—		—		1.50		1.50
Total common stock dividends per share	$	0.48	$	0.46	$	2.46	$	2.42

Series B preferred stock dividends per share	$	0.0075	$	0.0075	$	0.0150	$	0.0150

Dividends
Three months ended September 30, Nine months ended September 30,
2018 2017 2018 2017
Class A and B common stock:
Cash dividends per common share $ 0.46
$ 0.44
$ 1.38
$ 1.32
Special cash dividend per common share —
—
1.50
1.50
Total common stock dividends per share $ 0.46
$ 0.44
$ 2.88
$ 2.82

Series B preferred stock dividends per share $ 0.0075
$ 0.0075
$ 0.0225
$ 0.0225

~~In March 2018, the Board of Directors approved a special $1.50 per share~~Special cash ~~dividend payable~~dividends paid to our Class A and Class B common shareholders ~~totaling~~totaled $37.0 million for the six months ended June 30, 2019 and $37.3 ~~million. In March 2017,~~million for the ~~Board of Directors approved a special $1.50 per share cash dividend payable to Class A and Class B common shareholders totaling $37.4 million.~~six months ended June 30, 2018.



Reconciliation of Outstanding Common Stock
	Class A					Class B			Total
	Shares		Dollars			Shares	Dollars		Shares		Dollars
	(Dollars in thousands)
Outstanding at January 1, 2018	24,919,113		$	153,589		11,413	$	72	24,930,526		$	153,661
Stock-based compensation	16,694		320			—	—		16,694		320
Purchase of common stock	(129,011	)	(795		)	—	—		(129,011	)	(795		)
Outstanding at June 30, 2018	24,806,796		$	153,114		11,413	$	72	24,818,209		$	153,186

Outstanding at January 1, 2019	24,707,402		$	152,652		11,413	$	72	24,718,815		$	152,724
Stock-based compensation	7,545		212			—	—		7,545		212
Purchase of common stock	(66,475	)	(410		)	—	—		(66,475	)	(410		)
Outstanding at June 30, 2019	24,648,472		$	152,454		11,413	$	72	24,659,885		$	152,526

Reconciliation of Outstanding Common Stock
Class A Class B Total
Shares Dollars Shares Dollars Shares Dollars
(Dollars in thousands)
Outstanding at January 1, 2017 24,882,542
$ 152,903
11,413
$ 72
24,893,955
$ 152,975
Stock-based compensation 39,555
644
—
—
39,555
644
Outstanding at September 30, 2017 24,922,097
$ 153,547
11,413
$ 72
24,933,510
$ 153,619

Outstanding at January 1, 2018 24,919,113
$ 153,589
11,413
$ 72
24,930,526
$ 153,661
Stock-based compensation 16,694
366
—
—
16,694
366
Purchase of common stock (129,011 ) (795 ) —
—
(129,011 ) (795 )
Outstanding at September 30, 2018 24,806,796
$ 153,160
11,413
$ 72
24,818,209
$ 153,232

Table of Contents



Accumulated Other Comprehensive Income, Net of Tax and Other Offsets
	Unrealized Net Investment Gains (Losses) on Available-for-Sale Securities (1)			Accumulated Non-Credit Impairment Losses (1)			Underfunded Status of Postretirement Benefit Plans			Total
	(Dollars in thousands)
Balance at January 1, 2018	$	295,169		$	537		$	(10,723	)	$	284,983
Cumulative effect of change in accounting principle related to net unrealized gains on equity securities (2)	(5,480		)	—			—			(5,480		)
Other comprehensive income (loss) before reclassifications	(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

Balance at January 1, 2019	$	96,921		$	3,133		$	(8,736	)	$	91,318
Other comprehensive income (loss) before reclassifications	214,083			(902		)	—			213,181
Reclassification adjustments	(2,125		)	—			419			(1,706		)
Balance at June 30, 2019	$	308,879		$	2,231		$	(8,317	)	$	302,793

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 reclassifications 72,293
1,520
—
73,813
Reclassification adjustments (61 ) —
562
501
Balance at September 30, 2017 $ 229,195
$ 1,831
$ (7,157 ) $ 223,869

Balance at January 1, 2018 $ 295,169
$ 537
$ (10,723 ) $ 284,983
Cumulative effect of change in accounting principle related to net unrealized gains on equity securities (2) (5,480 ) —
—
(5,480 )
Other comprehensive income (loss) before reclassifications (192,832 ) 2,932
—
(189,900 )
Reclassification adjustments (1,439 ) —
797
(642 )
Balance at September 30, 2018 $ 95,418
$ 3,469
$ (9,926 ) $ 88,961


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


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


Accumulated Other Comprehensive Income Reclassification Adjustments	Accumulated Other Comprehensive Income Reclassification Adjustments											Accumulated Other Comprehensive Income Reclassification Adjustments
	Nine months ended September 30, 2018											Six months ended June 30, 2019
	Unrealized Net Investment Gains (Losses) on Available For Sale Securities (1)			Accumulated Non-Credit Impairment Losses (1)		Underfunded Status of Postretirement Benefit Plans			Total			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)											(Dollars in thousands)
Realized capital gains on sales of investments	$	(1,819	)	$	—	$	—		$	(1,819	)
Realized capital gains on sales of fixed maturities												$	(2,833	)	$	—	$	—		$	(2,833	)
Adjustments for assumed changes in deferred acquisition costs, value of insurance in force acquired, unearned revenue reserve and policyholder liabilities	(3		)	—		—			(3		)	143			—		—			143
Other expenses - change in unrecognized postretirement items:
Net actuarial loss	—			—		1,009			1,009			—			—		530			530
Reclassifications before income taxes	(1,822		)	—		1,009			(813		)	(2,690		)	—		530			(2,160		)
Income taxes	383			—		(212		)	171			565			—		(111		)	454
Reclassification adjustments	$	(1,439	)	$	—	$	797		$	(642	)	$	(2,125	)	$	—	$	419		$	(1,706	)

Table of Contents


Accumulated Other Comprehensive Income Reclassification Adjustments	Accumulated Other Comprehensive Income Reclassification Adjustments											Accumulated Other Comprehensive Income Reclassification Adjustments
	Nine months ended September 30, 2017											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			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)											(Dollars in thousands)
Realized capital losses on sales of investments	$	(254	)	$	—	$	—		$	(254	)
Realized capital gains on sales of fixed maturities												$	(1,795	)	$	—	$	—		$	(1,795	)
Adjustments for assumed changes in deferred acquisition costs, value of insurance in force acquired, unearned revenue reserve and policyholder liabilities	160			—		—			160			(8		)	—		—			(8		)
Other expenses - change in unrecognized postretirement items:
Net actuarial loss	—			—		865			865			—			—		668			668
Reclassifications before income taxes	(94		)	—		865			771			(1,803		)	—		668			(1,135		)
Income taxes	33			—		(303		)	(270		)	379			—		(139		)	240
Reclassification adjustments	$	(61	)	$	—	$	562		$	501		$	(1,424	)	$	—	$	529		$	(895	)


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

8.7. Earnings per Share

Computation of Earnings per Common Share



	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018
	(Dollars in thousands, except per share data)
Numerator:
Net income attributable to FBL Financial Group, Inc.	$	32,298	$	32,803	$	66,341	$	56,368
Less: Dividends on Series B preferred stock	37		37		75		75
Income available to common stockholders	$	32,261	$	32,766	$	66,266	$	56,293

Denominator:
Weighted average shares - basic	24,757,090		24,916,597		24,761,161		24,960,391
Effect of dilutive securities - stock-based compensation	11,122		12,903		11,149		14,405
Weighted average shares - diluted	24,768,212		24,929,500		24,772,310		24,974,796

Earnings per common share	$	1.30	$	1.31	$	2.68	$	2.26
Earnings per common share - assuming dilution	$	1.30	$	1.31	$	2.68	$	2.25

Three months ended September 30, Nine months ended September 30,
2018 2017 2018 2017
(Dollars in thousands, except per share data)
Numerator:
Net income attributable to FBL Financial Group, Inc. $ 31,010
$ 26,127
$ 87,378
$ 83,325
Less: Dividends on Series B preferred stock 37
37
112
112
Income available to common stockholders $ 30,973
$ 26,090
$ 87,266
$ 83,213

Denominator:
Weighted average shares - basic 24,918,725
25,037,020
24,946,752
25,036,258
Effect of dilutive securities - stock-based compensation 11,076
17,530
13,317
19,703
Weighted average shares - diluted 24,929,801
25,054,550
24,960,069
25,055,961

Earnings per common share $ 1.24
$ 1.04
$ 3.50
$ 3.32
Earnings per common share - assuming dilution: $ 1.24
$ 1.04
$ 3.50
$ 3.32

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

Table of Contents

8. 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-GAAP~~pre-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 on~~fair value of derivatives and equity securities, which can fluctuate greatly from period to period. These fluctuations make it difficult to analyze core operating trends. In addition, for derivatives not designated as hedges, there

~~Table of Contents~~

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-GAAP~~in determining pre-tax adjusted operating income ~~policy~~we will also ~~calls for adjustments to net income relating to~~remove 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.



Financial Information Concerning our Operating Segments

	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
	(Dollars in thousands)
Pre-tax adjusted operating income:
Annuity	$	14,637		$	15,998		$	30,299		$	32,580
Life Insurance	18,239			16,381			28,331			27,278
Corporate and Other	4,595			5,434			8,914			8,967
Total pre-tax adjusted operating income	37,471			37,813			67,544			68,825

Adjustments to pre-tax adjusted operating income:
Net realized gains/losses on investments (1)	366			878			9,518			(1,936		)
Change in fair value of derivatives (1)	345			246			1,498			(398		)
Pre-tax net income attributable to FBL Financial Group, Inc.	38,182			38,937			78,560			66,491
Income tax expense	(5,511		)	(5,831		)	(11,787		)	(9,644		)
Tax on equity income	(373		)	(303		)	(432		)	(479		)
Net income attributable to FBL Financial Group, Inc.	$	32,298		$	32,803		$	66,341		$	56,368

Adjusted operating revenues:
Annuity	$	54,263		$	56,415		$	106,945		$	113,850
Life Insurance	110,938			109,581			218,196			217,308
Corporate and Other	23,554			23,869			46,682			47,980
	188,755			189,865			371,823			379,138
Net realized gains/losses on investments (1)	377			844			9,666			(2,127		)
Change in fair value of derivatives (1)	3,774			(260		)	14,973			(4,132		)
Consolidated revenues	$	192,906		$	190,449		$	396,462		$	372,879

Reconciliation Between Net Income and Non-GAAP Operating Income

Three months ended September 30, Nine months ended September 30,
2018 2017 2018 2017
(Dollars in thousands)
Net income attributable to FBL Financial Group, Inc. (1) $ 31,010
$ 26,127
$ 87,378
$ 83,325
Net income adjustments:
Initial impact of the Tax Act (2) (617 ) —
(617 ) —
Net realized gains/losses on investments (3) (4) 603
38
2,132
(196 )
Change in net unrealized gains/losses on derivatives (3) 876
(1,389 ) 1,191
(2,074 )
Non-GAAP operating income (1) $ 31,872
$ 24,776
$ 90,084
$ 81,055


(1)	~~Prior period amounts have been adjusted to reflect the accounting change for LIHTC investments. See Note 1 to our consolidated financial statements for additional information.~~


~~(2)~~	Amount represents a change in the provisional estimate of the impact of the Tax Act on our deferred tax assets and liabilities as of December 31, 2017. See Note 5 to our consolidated financial statements for additional information.


~~(3)~~	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.


~~(4)~~	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.

Table of Contents

Financial Information Concerning our Operating Segments

Three months ended September 30, Nine months ended September 30,
2018 2017 2018 2017
(Dollars in thousands)
Pre-tax non-GAAP operating income:
Annuity $ 18,179
$ 17,015
$ 50,759
$ 51,610
Life Insurance 11,958
12,620
39,236
44,000
Corporate and Other (1) 7,999
4,556
16,966
17,656
Total pre-tax non-GAAP operating income (1) 38,136
34,191
106,961
113,266
Income taxes on non-GAAP operating income (1) (6,264 ) (9,415 ) (16,877 ) (32,211 )
Non-GAAP operating income (1) $ 31,872
$ 24,776
$ 90,084
$ 81,055

Non-GAAP operating revenues:
Annuity $ 55,424
$ 54,993
$ 169,274
$ 166,877
Life Insurance 106,546
102,627
323,854
313,838
Corporate and Other 22,779
22,701
70,759
70,471
184,749
180,321
563,887
551,186
Net realized gains/losses on investments (2) (3) (758 ) (123 ) (2,885 ) 190
Change in net unrealized gains/losses on derivatives (2) 4,120
1,358
(12 ) 1,097
Consolidated revenues $ 188,111
$ 181,556
$ 560,990
$ 552,473


~~(1)~~	~~Prior period amounts have been adjusted to reflect the accounting change for LIHTC investments. See Note 1 to our consolidated financial statements for additional 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.

Interest expense is attributable to the Corporate and Other segment. Expenditures for long-lived assets were not significant during the periods presented above. Goodwill at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 was allocated among the segments as follows: Annuity ($3.9 million) and Life Insurance ($6.1 million).

Equity income ~~or loss~~ related to securities and indebtedness of related parties is attributable to the Life Insurance and Corporate and Other segments. ~~LIHTC investments are no longer included in pre-tax non-GAAP operating income. See Note 1 to our consolidated financial statements for additional information.~~ The following chart provides the related equity income by segment.



Equity Income by Operating Segment
	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
	(Dollars in thousands)
Pre-tax equity income:
Life Insurance	$	1,008		$	1,292		$	1,378		$	1,987
Corporate and Other	769			150			678			291
	1,777			1,442			2,056			2,278

Income taxes	(373		)	(303		)	(432		)	(479		)
Equity income, net of related income taxes	$	1,404		$	1,139		$	1,624		$	1,799

Equity Income by Operating Segment
Three months ended September 30, Nine months ended September 30,
2018 2017 2018 2017
(Dollars in thousands)
Pre-tax equity income:
Life Insurance $ 860
$ 548
$ 2,847
$ 3,003
Corporate and Other 1,217
201
1,508
1,041
2,077
749
4,355
4,044

Income taxes (435 ) (262 ) (914 ) (1,415 )
Equity income, net of related income taxes $ 1,642
$ 487
$ 3,441
$ 2,629

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 ~~$141.7~~$152.2 million for the quarter ended ~~September~~June 30, ~~2018~~2019 and ~~$141.6~~$171.4 million for the same period in ~~2017.~~2018. Net premiums collected totaled ~~$482.7~~$312.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~$477.4~~$341.0 million for the same period in ~~2017.~~2018.

~~Table of Contents~~

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 June 30,						Six months ended June 30,
	2019			2018			2019			2018
	(Dollars in thousands)
Traditional and universal life insurance premiums collected	$	79,398		$	77,900		$	157,399		$	154,163
Premiums collected on interest sensitive products	(29,517		)	(27,849		)	(57,896		)	(54,431		)
Traditional life insurance premiums collected	49,881			50,051			99,503			99,732
Change in due premiums and other	1,106			1,040			876			856
Traditional life insurance premiums as included in the Consolidated Statements of Operations	$	50,987		$	51,091		$	100,379		$	100,588

Reconciliation of Traditional Life Insurance Premiums, Net of Reinsurance

Three months ended September 30, Nine months ended September 30,
2018
2017 2018 2017
(Dollars in thousands)
Traditional and universal life insurance premiums collected $ 73,867
$ 71,214
$ 228,030
$ 219,949
Premiums collected on interest sensitive products (25,507 ) (24,142 ) (79,938 ) (75,021 )
Traditional life insurance premiums collected 48,360
47,072
148,092
144,928
Change in due premiums and other (236 ) 15
620
855
Traditional life insurance premiums as included in the Consolidated Statements of Operations $ 48,124
$ 47,087
$ 148,712
$ 145,783

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.

Table of Contents

Interest Sensitive Product Charges by Segment
Three months ended September 30, Nine months ended September 30,
2018
2017 2018 2017
(Dollars in thousands)
Annuity
Surrender charges and other $ 1,280
$ 1,115
$ 3,699
$ 3,452

Life Insurance
Administration charges $ 4,100
$ 3,740
$ 12,340
$ 11,504
Cost of insurance charges 13,160
12,638
38,378
37,042
Surrender charges 497
499
1,746
1,493
Amortization of policy initiation fees 1,629
(382 ) 3,384
902
Total $ 19,386
$ 16,495
$ 55,848
$ 50,941

Corporate and Other
Administration charges $ 1,185
$ 1,272
$ 3,826
$ 4,074
Cost of insurance charges 7,698
7,431
22,033
22,025
Surrender charges 15
52
58
131
Separate account charges 2,155
2,071
6,465
6,100
Amortization of policy initiation fees (558 ) (432 ) 236
(62 )
Total $ 10,495
$ 10,394
$ 32,618
$ 32,268

Interest sensitive product charges as included in the Consolidated Statements of Operations $ 31,161
$ 28,004
$ 92,165
$ 86,661



Interest Sensitive Product Charges by Segment
	Three months ended June 30,					Six months ended June 30,
	2019		2018			2019		2018
	(Dollars in thousands)
Annuity
Rider and other product charges	$	1,370	$	933		$	2,633	$	1,786
Surrender charges	402		284			706		633
Total	1,772		1,217			3,339		2,419

Life Insurance
Administration charges	4,926		4,194			9,593		8,240
Cost of insurance charges	12,813		12,681			25,446		25,218
Surrender charges	718		568			1,339		1,249
Amortization of policy initiation fees	1,178		1,636			2,245		2,431
Total	19,635		19,079			38,623		37,138

Corporate and Other
Administration charges	1,232		1,325			2,468		2,641
Cost of insurance charges	7,184		7,195			14,386		14,335
Surrender charges	37		20			61		43
Separate account charges	2,016		2,165			3,952		4,310
Amortization of policy initiation fees	245		397			252		794
Total	10,714		11,102			21,119		22,123

Impact of net realized gains/losses on investments and change in fair value of derivatives on amortization of unearned revenue reserves	413		(492		)	719		(676		)
Interest sensitive product charges as included in the Consolidated Statements of Operations	$	32,534	$	30,906		$	63,800	$	61,004

Table of Contents

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, ~~2017~~2018 for a complete description of our significant accounting policies and estimates. Familiarity with this information is important in understanding our financial position and results of operations.

This Form 10-Q includes statements relating to anticipated financial performance, business prospects, new products and similar matters. These statements and others, which include words such as “expect,” “anticipate,” “believe,” “intend” and other similar expressions, constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. A variety of factors could cause our actual results and experiences to differ materially from the anticipated results or other expectations expressed in our forward-looking statements. See Part 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017~~2018 for additional information on the risks and uncertainties that may affect the operations, performance, development and results of our business.

Overview

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

We analyze operations by reviewing financial information regarding our primary products that are aggregated in Annuity and Life Insurance product segments. In addition, our Corporate and Other segment includes various support operations, corporate capital and other product lines that are not currently underwritten by the Company. We analyze our segment results based on pre-tax ~~non-GAAP~~adjusted operating income, which excludes the impact of certain items that are included in pre-tax net income. Pre-tax adjusted operating income is a basis allowed for segment reporting under U.S. generally accounting principles (GAAP). We also analyze operations using adjusted operating income on a post-tax basis. 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 98 to our consolidated financial statements for further information regarding how we define our segments and ~~non-GAAP~~pre-tax adjusted operating income.

We also include within our analysis “premiums collected,” which is not a measure used in financial statements prepared in accordance with GAAP, but is a common life insurance industry measure of agent productivity. See Note 98 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 second quarter of 2019 to 2.00% at June 30, 2019 from 2.69% at December 31, 2018.

Gross Domestic Product increased at an annual rate of ~~3.5%~~2.1% during the ~~third~~second quarter of ~~2018~~2019 based on recent estimates.

Table of Contents

U.S. unemployment was estimated to be 3.7% at the end of the ~~third~~second quarter of ~~2018.~~2019.

U.S. net farm income is forecast to ~~decrease 13.0%~~increase 10.0% in 2019 and farm real estate value is estimated to increase 1.8% during ~~2018~~2019 according to recent U.S. Department of Agriculture estimates.

The impact to our ~~business~~customer base from tariffs recently imposed as well as proposed on the general U.S. and farm ~~economies is uncertain.~~

~~Table of Contents~~

economies.

The ~~U.S. 10-year Treasury yield increased during 2018 to 3.05% at September 30, 2018 from 2.40% at December 31, 2017.~~

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

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

The interest rate environment continues to impact our investment yields as well as the interest we credit on our interest sensitive products. The ~~benchmark~~ 10-year U.S. Treasury yield ~~continued to trend higher~~trended lower in the ~~third~~second quarter and finished at ~~3.05%~~2.00%, ~~approximately 65~~69 basis points ~~higher~~lower than year-end ~~2017. Conversely, average~~2018. We experienced an increase in the fair value of our fixed maturity security portfolio during the second quarter of 2019 primarily due to a decrease in market yields. Average corporate credit spreads tightened during the second quarter of 2019 by approximately 184 basis ~~points. Yields~~points as yields remain historically low. Low crediting rates pose challenges to maintaining attractive annuity and universal life products, although our rates are comparable to other insurance companies, allowing us to maintain our competitive position within the market. ~~We experienced a decrease in the fair value of our fixed maturity security portfolio during the third quarter 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.

Table of Contents

Results of Operations for the Periods Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018

Three months ended September 30, Nine months ended September 30,
2018 2017 Change 2018 2017 Change
(Dollars in thousands, except per share data)
Net income attributable to FBL Financial Group, Inc. (1) $ 31,010
$ 26,127
19 % $ 87,378
$ 83,325
5 %
Adjustments to net income:
Initial impact of the Tax Act (2) (617 ) —
N/A
(617 ) —
N/A
Realized gains/losses on investments (3)(4) 603
38
1,487 % 2,132
(196 ) (1,188 )%
Change in net unrealized gains/losses on derivatives (3) 876
(1,389 ) (163 )% 1,191
(2,074 ) (157 )%
Non-GAAP operating income (1) (5) $ 31,872
$ 24,776
29 % $ 90,084
$ 81,055
11 %

Pre-tax non-GAAP operating income:
Annuity segment $ 18,179
$ 17,015
7 % $ 50,759
$ 51,610
(2 )%
Life Insurance segment 11,958
12,620
(5 )% 39,236
44,000
(11 )%
Corporate and Other segment (1) 7,999
4,556
76 % 16,966
17,656
(4 )%
Total pre-tax non-GAAP operating income (1) 38,136
34,191
12 % 106,961
113,266
(6 )%
Income taxes on non-GAAP operating income (1) (6,264 ) (9,415 ) (33 )% (16,877 ) (32,211 ) (48 )%
Non-GAAP operating income (1) (5) $ 31,872
$ 24,776
29 % $ 90,084
$ 81,055
11 %

Earnings per common share - assuming dilution (1) $ 1.24
$ 1.04
19 % $ 3.50
$ 3.32
5 %
Non-GAAP operating income per common share - assuming dilution (1) (5) 1.28
0.99
29 % 3.60
3.23
11 %
Effective tax rate on non-GAAP operating income (1) 16 % 28 %
16 % 28 %
Average invested assets, at amortized cost (1) (6)
$ 8,252,013
$ 7,932,953
4 %
Annualized yield on average invested assets (1) (6) 5.16 % 5.30 %
Impact on non-GAAP operating income of unlocking deferred acquisition costs, deferred sales inducements, unearned revenue reserve and interest sensitive product reserves, net of tax (5) $ (227 ) $ 682
(133 )% $ (227 ) $ 682
(133 )%



	Three months ended June 30,								Six months ended June 30,
	2019			2018			Change		2019			2018			Change
	(Dollars in thousands, except per share data)
Net income attributable to FBL Financial Group, Inc.	$	32,298		$	32,803		(2	)%	$	66,341		$	56,368		18	%
Net income adjustments:
Net realized gains/losses on investments (1)	(289		)	(694		)	(58	)%	(7,519		)	1,529			(592	)%
Change in fair value of derivatives (1)	(272		)	(194		)	40	%	(1,183		)	315			(476	)%
Adjusted operating income (2)	$	31,737		$	31,915		(1	)%	$	57,639		$	58,212		(1	)%

Pre-tax adjusted operating income:
Annuity segment	$	14,637		$	15,998		(9	)%	$	30,299		$	32,580		(7	)%
Life Insurance segment	18,239			16,381			11	%	28,331			27,278			4	%
Corporate and Other segment	4,595			5,434			(15	)%	8,914			8,967			(1	)%
Total pre-tax adjusted operating income	37,471			37,813			(1	)%	67,544			68,825			(2	)%
Income taxes on adjusted operating income	(5,734		)	(5,898		)	(3	)%	(9,905		)	(10,613		)	(7	)%
Adjusted operating income (2)	$	31,737		$	31,915		(1	)%	$	57,639		$	58,212		(1	)%

Earnings per common share - assuming dilution	$	1.30		$	1.31		(1	)%	$	2.68		$	2.25		19	%
Adjusted operating income per common share - assuming dilution (2)	1.28			1.28			—	%	2.32			2.33			—	%
Effective tax rate on adjusted operating income	15		%	16		%			15		%	15		%
Average invested assets, at amortized cost (3)									$	8,307,155		$	8,227,072		1	%
Annualized yield on average invested assets (3)									5.00		%	5.18		%


(1)	~~Prior period amounts have been adjusted to reflect the accounting change for LIHTC investments. See Note 1 to our consolidated financial statements for additional information.~~


~~(2)~~	Amount represents a change in the provisional estimate of the impact of the Tax Act on our deferred tax assets and liabilities as of December 31, 2017. See Note 5 to our consolidated financial statements for additional information.


~~(3)~~	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.


~~(4)~~(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.


~~(5)~~	~~See Note 9 to our consolidated financial statements for further information on non-GAAP operating income.~~


~~(6)~~(3)	Average invested assets and annualized yield, including investments held as securities and indebtedness of related parties.

Net income and ~~non-GAAP~~pre-tax adjusted operating income ~~were positively impacted~~decreased in the ~~third~~second quarter of ~~2018 and the nine months ended September 30, 2018,~~2019, compared to the prior year ~~periods, by reduced~~period, primarily due to less spread income ~~tax rates related to changes under the Tax Act,~~earned from lower yields on invested assets and increased ~~earnings from an increase in the volume of business in force and reductions in future policy benefit liabilities associated with guaranteed withdrawal benefits,~~expenses, partially offset by a decrease in death benefits and the positive impact of ~~unlocking. The nine~~market performance on our indexed products and variable business. Net income increased in the six months ended June 30, 2019, compared to the prior year period, primarily due to net realized gains from investments and changes in the fair value of derivatives. Net income and pre-tax adjusted operating income for the six month period, compared to the prior year period, was ~~also~~negatively impacted by ~~increases in death benefits,~~less spread income earned from lower yields on invested assets, less other investment-related income and increased expenses, ~~and amortization of deferred acquisition~~

~~Table of Contents~~

~~costs from~~partially offset by the positive impact of market performance on our indexed products and variable business. Net income for the three and nine months ended September 30, 2018, compared to prior year periods was also negatively impacted by net realized losses from investments and decreases in net unrealized gains on derivatives. See the discussion that follows for details regarding ~~non-GAAP~~pre-tax adjusted operating income by segment.

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

Table of Contents

Annuity Segment
Three months ended September 30, Nine months ended September 30,
2018 2017 Change 2018 2017 Change
(Dollars in thousands)
Non-GAAP operating revenues:
Interest sensitive product charges $ 1,280
$ 1,115
15 % $ 3,699
$ 3,452
7 %
Net investment income 54,144
53,878
— % 165,575
163,425
1 %
Total non-GAAP operating revenues 55,424
54,993
1 % 169,274
166,877
1 %

Non-GAAP operating benefits and expenses:
Interest sensitive product benefits 29,037
31,385
(7 )% 91,716
91,128
1 %
Underwriting, acquisition and insurance expenses:
Commissions net of deferrals 374
537
(30 )% 1,396
1,551
(10 )%
Amortization of deferred acquisition costs 2,319
505
359 % 8,454
5,816
45 %
Amortization of value of insurance in force 165
169
(2 )% 509
509
— %
Other underwriting expenses 5,350
5,382
(1 )% 16,440
16,263
1 %
Total underwriting, acquisition and insurance expenses 8,208
6,593
24 % 26,799
24,139
11 %
Total non-GAAP operating benefits and expenses 37,245
37,978
(2 )% 118,515
115,267
3 %
Pre-tax non-GAAP operating income (1) $ 18,179
$ 17,015
7 % $ 50,759
$ 51,610
(2 )%

Other data
Annuity premiums collected, direct (2) $ 56,333
$ 58,133
(3 )% $ 214,981
$ 216,135
(1 )%
Policy liabilities and accruals, end of period 4,441,277
4,243,232
5 %
Average invested assets, at amortized cost 4,533,009
4,336,465
5 %
Other investment-related income included in net investment income (3) 854
953
(10 )% 4,744
4,068
17 %
Average individual annuity account value 3,124,364
3,020,747
3 %

Earned spread on individual annuity products:
Weighted average yield on cash and invested assets 4.91 % 5.15 %
Weighted average crediting rate 2.50 % 2.62 %
Spread 2.41 % 2.53 %

Individual annuity withdrawal rate 5.3 % 4.1 %



Annuity Segment
	Three months ended June 30,						Six months ended June 30,
	2019		2018		Change		2019		2018		Change
	(Dollars in thousands)
Adjusted operating revenues:
Interest sensitive product charges	$	1,772	$	1,217	46	%	$	3,339	$	2,419	38	%
Net investment income	52,491		55,198		(5	)%	103,606		111,431		(7	)%
Total adjusted operating revenues	54,263		56,415		(4	)%	106,945		113,850		(6	)%

Adjusted operating benefits and expenses:
Interest sensitive product benefits	30,450		31,393		(3	)%	58,520		62,679		(7	)%
Underwriting, acquisition and insurance expenses:
Commissions net of deferrals	482		518		(7	)%	996		1,022		(3	)%
Amortization of deferred acquisition costs	2,917		3,070		(5	)%	5,596		6,135		(9	)%
Amortization of value of insurance in force	163		172		(5	)%	326		344		(5	)%
Other underwriting expenses	5,614		5,264		7	%	11,208		11,090		1	%
Total underwriting, acquisition and insurance expenses	9,176		9,024		2	%	18,126		18,591		(3	)%
Total adjusted operating benefits and expenses	39,626		40,417		(2	)%	76,646		81,270		(6	)%
Pre-tax adjusted operating income	$	14,637	$	15,998	(9	)%	$	30,299	$	32,580	(7	)%



Other data
Annuity premiums collected, direct (1)	$	59,652	$	79,838	(25	)%	$	129,158		$	158,648		(19	)%
Policy liabilities and accruals, end of period							4,400,928			4,422,265			—	%
Average invested assets, at amortized cost							4,486,038			4,523,314			(1	)%
Other investment-related income included in net investment income (2)	507		1,233		(59	)%	1,546			3,890			(60	)%
Average individual annuity account value							3,180,894			3,123,772			2	%

Earned spread on individual annuity products:
Weighted average yield on cash and invested assets							4.75		%	4.92		%
Weighted average crediting rate							2.56		%	2.48		%
Spread							2.19		%	2.44		%

Individual annuity withdrawal rate							5.5		%	5.2		%


(1)	~~See Note 9 to our consolidated financial statements for further information on non-GAAP operating income.~~

~~Table of Contents~~


~~(2)~~	Premiums collected is a non-GAAP measure of sales production, see Note 98 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-GAAP~~adjusted operating income for the Annuity segment ~~increased~~decreased in the ~~third~~second quarter of ~~2018,~~2019 and the six months ended June 30, 2019, compared to the prior year ~~period,~~periods, primarily due to reduced spread income earned from lower yields on invested assets and lower other investment-related income, partially offset by the impact ~~from an increase in the volume~~ of ~~business in force and a reduction in future policy benefit liabilities~~favorable market performance on reserves associated with guaranteed living withdrawal benefits ~~partially offset by the impact of unlocking. Pre-tax non-GAAP operating income decreased~~and increases in ~~the nine months ended September 30, 2018, compared to the prior year period, primarily~~interest sensitive product charges due to ~~an increase~~growth in ~~amortization~~our indexed annuity business in force.

Table of ~~deferred acquisition costs and the impact of unlocking, partially offset by a benefit from a reduction in future policy benefit liabilities associated with guaranteed living withdrawal benefits.~~Contents

The average aggregate account value for individual annuity contracts in force increased in the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~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 lower in the ~~third~~second quarter of ~~2018~~2019 and the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, compared to the prior year periods, due to decreased sales of indexed annuity and fixed rate deferred ~~annuity products, partially offset by increased sales of indexed~~ annuity products. Individual fixed rate deferred annuity collected premiums were ~~$26.0~~$30.3 million in the ~~third~~second quarter of 2019 and $69.7 million in the six months ended June 30, 2019, compared to $39.0 million in the second quarter of 2018 and ~~$103.4~~$77.4 million in the ~~nine~~six months ended ~~September~~June 30, 2018. Indexed annuity collected premiums were $28.4 million in the second quarter of 2019 and $56.7 million in the six months ended June 30, 2019, compared to $37.4 million in the second quarter of 2018 and $75.1 million in the six months ended June 30, 2018. Outstanding funding agreements with FHLB decreased to $443.0 million at June 30, 2019 compared with $463.7 million at June 30, 2018 and contributed to the decrease in our annuity segment policy liabilities. The decrease in our annuity segment policy liabilities contributed to decreases in benefits, invested assets and net investment income.

Interest sensitive product charges increased for the quarter and six month periods ending June 30, 2019, compared to ~~$27.7 million~~the prior year periods, primarily due to growth in our indexed annuity business in force resulting from the introduction of a flexible premium indexed annuity product in the third quarter of 2017, ~~and $131.5 million in~~which includes certain product fees beginning at the ~~nine months ended September 30, 2017. Indexed annuity collected premiums were $29.2 million in~~end of the third quarter of 2018 and $104.3 in the nine months ended September 30, 2018, compared to $28.1 million in the third quarter of 2017 and $80.4 million in the nine months ended September 30, 2017. Outstanding funding agreements with FHLB totaled $457.5 million at September 30, 2018 and $393.2 million at September 30, 2017. During the third quarter of 2018, outstanding funding agreements with FHLB decreased $6.2 million and for the nine months ended September 30, 2018, outstanding funding agreements increased $42.4 million.contract year.

Amortization of deferred acquisition costs ~~changed~~was less during the ~~third~~second quarter of 2019 and ~~the nine~~six months ended ~~September~~June 30, ~~2018,~~2019, compared to the prior year periods, primarily due to changes in actual spreads earned and expected profits on the underlying business. Amortization, as well as reserves held on certain interest sensitive products, also changed due to the impact of unlocking. Unlocking generally reflects changes in our projected earned spreads, policy lapses and mortality assumptions. The impact of unlocking on pre-tax operating income for the quarter and nine months ended September 30, 2018 and 2017 was as follows:

Impact of Unlocking on Pre-tax Non-GAAP Operating Income

Three months ended September 30, Nine months ended September 30,
2018 2017 2018 2017
(Dollars in thousands)
Amortization of deferred sales inducements reported in interest sensitive product benefits $ 13
$ 10
$ 13
$ 10
Amortization of deferred acquisition costs 236
1,743
236
1,743
Changes in reserves reported in interest sensitive product benefits —
(228 ) —
(228 )
Increase to pre-tax non-GAAP operating income (1) $ 249
$ 1,525
$ 249
$ 1,525


~~(1)~~	~~Pre-tax operating income is a non-GAAP measure of earnings, see Note 9 to our consolidated financial statements.~~

The reserve for guaranteed living withdrawal benefits decreased as a result of strong performance of the S&P index, as well as changes in the estimation of gross profits and option costs used in the calculation of this reserve.

The weighted average yield on cash and invested assets for individual annuities decreased in the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, compared to the prior year period, primarily due to less other investment-related income and lower yields on new investment acquisitions from premium receipts and reinvestment of the proceeds from maturing investments, compared with the average existing portfolio yield. See the “Financial Condition” section for additional information regarding the yields obtained on investment acquisitions. Weighted average crediting rates on our individual annuity products ~~decreased~~increased 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.

Table of Contents


Life Insurance Segment
	Three months ended September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
	2018		2017		Change		2018		2017		Change		2019		2018		Change		2019		2018		Change
	(Dollars in thousands)												(Dollars in thousands)
Non-GAAP operating revenues:
Adjusted operating revenues:
Interest sensitive product charges and other income	$	18,768	$	16,545	13	%	$	55,474	$	50,855	9	%	$	19,497	$	18,726	4	%	$	38,372	$	36,706	5	%
Traditional life insurance premiums	48,124		47,087		2	%	148,712		145,783		2	%	50,987		51,091		—	%	100,379		100,588		—	%
Net investment income	39,654		38,995		2	%	119,668		117,200		2	%	40,454		39,764		2	%	79,445		80,014		(1	)%
Total non-GAAP operating revenues	106,546		102,627		4	%	323,854		313,838		3	%
Total adjusted operating revenues													110,938		109,581		1	%	218,196		217,308		—	%

Non-GAAP operating benefits and expenses:
Adjusted operating benefits and expenses:
Interest sensitive product benefits:
Interest and index credits	8,697		8,289		5	%	26,183		24,941		5	%	9,018		9,093		(1	)%	17,069		17,486		(2	)%
Death benefits and other	18,475		16,569		12	%	48,425		43,981		10	%	13,892		14,709		(6	)%	28,358		29,950		(5	)%
Total interest sensitive product benefits	27,172		24,858		9	%	74,608		68,922		8	%	22,910		23,802		(4	)%	45,427		47,436		(4	)%
Traditional life insurance benefits:
Death benefits	21,888		21,530		2	%	64,920		63,194		3	%	20,577		19,297		7	%	44,993		43,032		5	%
Surrender and other benefits	8,110		7,409		9	%	28,646		26,774		7	%	10,092		10,392		(3	)%	19,815		20,536		(4	)%
Increase in traditional life future policy benefits	14,170		13,694		3	%	39,770		38,231		4	%	11,291		14,022		(19	)%	23,825		25,600		(7	)%
Total traditional life insurance benefits	44,168		42,633		4	%	133,336		128,199		4	%	41,960		43,711		(4	)%	88,633		89,168		(1	)%
Distributions to participating policyholders	2,480		2,487		—	%	7,591		7,597		—	%	2,564		2,560		—	%	5,098		5,111		—	%
Underwriting, acquisition and insurance expenses:
Commission expense, net of deferrals	4,200		4,544		(8	)%	13,838		14,321		(3	)%	5,179		4,715		10	%	9,818		9,638		2	%
Amortization of deferred acquisition costs	2,148		1,122		91	%	11,082		9,552		16	%	4,344		4,498		(3	)%	9,143		8,934		2	%
Amortization of value of insurance in force	373		375		(1	)%	1,119		1,125		(1	)%	372		373		—	%	744		746		—	%
Other underwriting expenses	14,907		14,536		3	%	45,891		43,125		6	%	16,378		14,833		10	%	32,380		30,984		5	%
Total underwriting, acquisition and insurance expenses	21,628		20,577		5	%	71,930		68,123		6	%	26,273		24,419		8	%	52,085		50,302		4	%
Total non-GAAP operating benefits and expenses	95,448		90,555		5	%	287,465		272,841		5	%
Total adjusted operating benefits and expenses													93,707		94,492		(1	)%	191,243		192,017		—	%
	11,098		12,072		(8	)%	36,389		40,997		(11	)%	17,231		15,089		14	%	26,953		25,291		7	%
Equity income, before tax	860		548		57	%	2,847		3,003		(5	)%	1,008		1,292		(22	)%	1,378		1,987		(31	)%
Pre-tax non-GAAP operating income (1)	$	11,958	$	12,620	(5	)%	$	39,236	$	44,000	(11	)%
Pre-tax adjusted operating income													$	18,239	$	16,381	11	%	$	28,331	$	27,278	4	%

Table of Contents


Life Insurance Segment - continued
	Three months ended September 30,						Nine months ended September 30,								Three months ended June 30,						Six months ended June 30,
	2018		2017		Change		2018			2017			Change		2019		2018		Change		2019			2018			Change
	(Dollars in thousands)														(Dollars in thousands)
Other data
Life premiums collected, net of reinsurance ~~(2)~~(1)	$	73,867	$	71,214	4	%	$	228,030		$	219,949		4	%	$	79,398	$	77,900	2	%	$	157,399		$	154,163		2	%
Policy liabilities and accruals, end of period							2,975,533			2,863,901			4	%							3,032,835			2,942,046			3	%
Life insurance in force, end of period							59,373,168			57,559,618			3	%							60,708,865			59,008,306			3	%
Average invested assets, at amortized cost ~~(3)~~(2)							3,016,565			2,916,544			3	%							3,122,408			2,999,681			4	%
Other investment-related income included in net investment income ~~(4)~~(3)	353		167		111	%	2,225			1,051			112	%	953		374		155	%	1,283			1,872			(31	)%
Average interest sensitive life account value							850,390			826,589			3	%							872,635			848,459			3	%

Interest sensitive life insurance spread:
Weighted average yield on cash and invested assets ~~(3)~~(2)							5.36		%	5.54		%									5.27		%	5.35		%
Weighted average crediting rate							3.63		%	3.80		%									3.72		%	3.68		%
Spread							1.73		%	1.74		%									1.55		%	1.67		%

Life insurance lapse and surrender rates							4.5		%	4.7		%									4.7		%	4.8		%
Death benefits, net of reinsurance and reserves released	24,050		21,193		13	%	$	72,913		$	65,466		11	%	$19,867		$22,384		(11	)%	$	46,539		$	48,863		(5	)%


(1)	~~See Note 9 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 98 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-GAAP~~adjusted operating income for the Life Insurance segment ~~decreased~~increased in the ~~third~~second quarter of ~~2018~~2019 and the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, compared to the prior year periods, primarily due to ~~increases~~decreases in death benefits, net of reinsurance and reserves released and ~~other underwriting expenses, partially offset by~~ the impact of an increase in the volume of business in force, ~~and increases~~partially offset by an increase in ~~investment-related income.~~expenses.

Continued growth in our business in force ~~contributes~~contributed to the increase in revenues ~~benefits~~ and expenses. ~~The increase~~Increases in ~~other underwriting~~ expenses ~~included increased expenses associated with salaries, including a one-time employee bonus~~ in the ~~first~~ quarter ~~of 2018 related~~and six months ended June 30, 2019, compared to the ~~enactment of the Tax Act, and~~prior year periods, were also due to additional expenses associated with system enhancements.

Amortization of deferred acquisition costs ~~changed~~was lower during the ~~third~~second quarter of ~~2018 and~~2019, but higher during the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, compared to the prior year periods, due to changes in actual and expected profits on the underlying business. Amortization, as well as reserves held on certain interest sensitive products, also changed due to the impact of unlocking. Unlocking generally reflects changes in our projected earned spreads, policy lapses, premium persistency and mortality assumptions. The impact of unlocking on pre-tax operating income for the quarter and nine months ended September 30, 2018 and 2017 was as follows:

~~Table of Contents~~

Impact of Unlocking on Pre-tax Non-GAAP Operating Income

Three months ended September 30, Nine months ended September 30,
2018 2017 2018 2017
(Dollars in thousands)
Amortization of unearned revenue reserve reported in interest sensitive product charges and other income $ 420
$ (1,166 ) $ 420
$ (1,166 )
Amortization of deferred sales inducements reported in interest sensitive product benefits (209 ) 422
(209 ) 422
Amortization of deferred sales inducements reported in traditional life insurance benefits 65
55
65
55
Amortization of deferred acquisition costs 2,152
3,873
2,152
3,873
Changes in reserves reported in interest sensitive product benefits (4,755 ) (5,574 ) (4,755 ) (5,574 )
Decrease to pre-tax non-GAAP operating income (1) $ (2,327 ) $ (2,390 ) $ (2,327 ) $ (2,390 )


~~(1)~~	~~Pre-tax operating income is a non-GAAP measure of earnings, see Note 9 to our consolidated financial statements.~~

Death benefits, net of reinsurance and reserves released, ~~increased~~decreased in the ~~third~~second quarter of ~~2018~~2019 and the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, compared to the prior year periods, primarily due to ~~an increase~~a decrease in the average claim amount, net of reinsurance and reserves ~~released. Surrenders and other benefits increased~~released, in the ~~third~~second quarter of 2018 and the nine months ended September 30, 2018, compared to the prior year periods, primarily due to an increase in the average size of policies surrendered. The increase in surrenders and other benefits for the nine months ended September 30, 2018, compared to the prior year period, was also impacted by an increase in matured endowment benefits.2019.

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 98 to our consolidated financial statements, for additional information regarding these investments.

Table of Contents

The weighted average yield on cash and invested assets for interest sensitive life insurance products decreased in the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~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, partially offset by an increase in other investment-related income. See the “Financial Condition” section for additional information regarding the yields obtained on investment acquisitions. Weighted average crediting rates on our interest sensitive life insurance products ~~decreased~~increased 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.



Corporate and Other Segment
	Three months ended June 30,						Six months ended June 30,
	2019		2018		Change		2019			2018		Change
	(Dollars in thousands)
Adjusted operating revenues:
Interest sensitive product charges	$	10,714	$	11,102	(3	)%	$	21,119		$	22,123	(5	)%
Net investment income	8,588		8,777		(2	)%	17,228			17,188		—	%
Other income	4,252		3,990		7	%	8,335			8,669		(4	)%
Total adjusted operating revenues	23,554		23,869		(1	)%	46,682			47,980		(3	)%

Adjusted operating benefits and expenses:
Interest sensitive product benefits	8,858		7,714		15	%	19,223			17,056		13	%
Underwriting, acquisition and insurance expenses:
Commission expense, net of deferrals	746		667		12	%	1,450			1,347		8	%
Amortization of deferred acquisition costs	905		1,876		(52	)%	(62		)	4,388		(101	)%
Other underwriting expenses	1,413		1,506		(6	)%	2,566			2,908		(12	)%
Total underwriting, acquisition and insurance expenses	3,064		4,049		(24	)%	3,954			8,643		(54	)%
Interest expense	1,212		1,213		—	%	2,424			2,426		—	%
Other expenses	6,635		5,627		18	%	12,885			11,220		15	%
Total adjusted operating benefits and expenses	19,769		18,603		6	%	38,486			39,345		(2	)%
	3,785		5,266		(28	)%	8,196			8,635		(5	)%
Net loss attributable to noncontrolling interest	41		18		128	%	40			41		(2	)%
Equity income, before tax	769		150		413	%	678			291		133	%
Pre-tax adjusted operating income	$	4,595	$	5,434	(15	)%	$	8,914		$	8,967	(1	)%



Other data
Average invested assets, at amortized cost (1)								$	698,709	$	704,077		(1	)%
Other investment-related income included in net investment income (2)	$	367	$	149		146	%	488		286			71	%
Average interest sensitive life account value								361,570		359,978			—	%
Death benefits, net of reinsurance and reserves released	5,453		4,321			26	%	12,522		10,260			22	%
Estimated impact on pre-tax adjusted operating income from separate account performance on amortization of deferred acquisition costs, deferred sales inducements and unearned revenue reserve	600		(255		)	(335	)%	2,800		(1,115		)	(351	)%

Table of Contents

Corporate and Other Segment
Three months ended September 30, Nine months ended September 30,
2018 2017 Change 2018 2017 Change
(Dollars in thousands)
Non-GAAP operating revenues:
Interest sensitive product charges $ 10,494
$ 10,393
1 % $ 32,617
$ 32,265
1 %
Net investment income 8,349
8,719
(4 )% 25,537
26,130
(2 )%
Other income 3,936
3,589
10 % 12,605
12,076
4 %
Total non-GAAP operating revenues 22,779
22,701
— % 70,759
70,471
— %

Non-GAAP operating benefits and expenses:
Interest sensitive product benefits 8,465
11,697
(28 )% 25,521
29,650
(14 )%
Underwriting, acquisition and insurance expenses:
Commission expense, net of deferrals 684
705
(3 )% 2,031
2,238
(9 )%
Amortization of deferred acquisition costs (1,148 ) (2,276 ) (50 )% 3,240
(416 ) (879 )%
Other underwriting expenses 1,698
2,045
(17 )% 4,606
4,864
(5 )%
Total underwriting, acquisition and insurance expenses 1,234
474
160 % 9,877
6,686
48 %
Interest expense 1,212
1,213
— % 3,638
3,638
— %
Other expenses 5,061
4,971
2 % 16,281
13,862
17 %
Total non-GAAP operating benefits and expenses 15,972
18,355
(13 )% 55,317
53,836
3 %
6,807
4,346
57 % 15,442
16,635
(7 )%
Net loss (income) attributable to noncontrolling interest (25 ) 9
(378 )% 16
(20 ) (180 )%
Equity income, before tax (1) 1,217
201
505 % 1,508
1,041
45 %
Pre-tax non-GAAP operating income (1) (2) $ 7,999
$ 4,556
76 % $ 16,966
$ 17,656
(4 )%

Other data
Average invested assets, at amortized cost (1) (3)
$ 702,439
$ 679,943
3 %
Other investment-related income included in net investment income (4) $ 101
$ 408
(75 )% 387
875
(56 )%
Average interest sensitive life account value
361,598
362,439
— %
Death benefits, net of reinsurance and reserves released 5,290
7,760
(32 )% 15,550
19,324
(20 )%
Estimated impact on pre-tax non-GAAP operating income from separate account performance on amortization of deferred acquisition costs (2) 300
370
(19 )% (815 ) 1,631
(150 )%


(1)	~~Prior period amounts have been adjusted to reflect the accounting change for LIHTC investments. See Note 1 to our consolidated financial statements for additional information.~~


~~(2)~~	~~See Note 9 to our consolidated financial statements for further information on non-GAAP operating income.~~


~~(3)~~	Average invested assets including investments held as securities and indebtedness of related parties.


~~(4)~~(2)	Includes prepayment fee income and adjustments to the amortization of premium or discounts from changes in our payment speed assumptions.

Pre-tax ~~non-GAAP~~adjusted operating income ~~increased~~decreased for the Corporate and Other segment in the ~~third~~second quarter of ~~2018,~~2019 and the six months ended June 30, 2019, compared to the prior year ~~period,~~periods, primarily due to ~~decreases~~increases in death benefits and increases in pre-tax income on equity method investments. Pre-tax non-GAAP operating income decreased for the nine months ended September 30, 2018, compared to the prior year period, primarily due to increasesexpenses, partially offset by a decrease in amortization of deferred acquisition costs resulting from the impact of favorable market performance on our variable ~~business and expenses, partially offset by decreases in death benefits.~~business.

Death benefits, net of reinsurance and reserves released, ~~decreased~~increased in the ~~third~~second quarter of ~~2018~~2019 and the ~~nine~~six months ended ~~September~~June 30, ~~2018, compared to the prior year periods, primarily due to a decrease in the number of claims reported.~~

~~Table of Contents~~

~~Amortization of deferred acquisition costs changed during the third quarter of 2018 and the nine months ended September 30, 2018,~~2019, compared to the prior year periods, due to increases in the ~~impact~~average size and number of unlocking and market performance on our variable business. Unlocking generally reflects changes in projected earned spreads, separate account performance and withdrawal and mortality assumptions. The impact of unlocking on pre-tax operating income for the quarter and nine months ended September 30, 2018 and 2017 was as follows:claims.

Impact of Unlocking on Pre-tax Non-GAAP Operating Income

Three months ended September 30, Nine months ended September 30,
2018 2017 2018 2017
(Dollars in thousands)
Amortization of unearned revenue reserve reported in interest sensitive product charges $ (667 ) $ (579 ) $ (667 ) $ (579 )
Amortization of deferred sales inducements reported in interest sensitive product benefits 76
98
76
98
Amortization of deferred acquisition costs 2,382
3,194
2,382
3,194
Changes in reserves reported in interest sensitive products benefits —
(799 ) —
(799 )
Increase to pre-tax non-GAAP operating income (1) $ 1,791
$ 1,914
$ 1,791
$ 1,914


~~(1)~~	~~Pre-tax operating income is a non-GAAP measure of earnings, see Note 9 to our consolidated financial statements.~~

Other income and other expenses ~~includes~~include fees and expenses from sales of brokered products and operating results of our non-insurance subsidiaries, which include management, advisory, marketing and distribution services and leasing activities.

~~Increases~~ Other expenses increased in ~~other expenses,~~the second quarter of 2019 and six months ended June 30, 2019, compared to the prior year periods, ~~included $0.9 million for the third quarter of 2018 and $2.3 million for the nine months ended September 30, 2018 in expenses~~primarily due to costs associated with expanding our wealth management offerings. Other income included a one-time benefit of $0.7 million in the 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 income, before tax, consists of our proportionate share of gains and losses attributable to our relative ownership interest in these investments. Equity income increased in the quarter and nine-months ended September 30, 2018, compared to the prior year periods, due to income earned on equity investments in two real-estate partnerships that realized gains from the sale of parcels of real-estate. See the Equity Income discussion that follows, and Note 98 to our consolidated financial statements, for additional information regarding these investments.

Equity Income

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

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

Equity income, net of related taxes, for the second quarter of 2019 was $1.4 million compared with $1.1 million for the second quarter of 2018, and $1.6 million for the six months ended June 30, 2019 compared with $1.8 million for the six months ended June 30, 2018. See Note 2 to our consolidated financial statements for further information.

Results from our LIHTC investments are no longer included in equity income. See Note 1 for further discussion on this accounting change. Equity income, net of related taxes, was $1.6 million for the third quarter of 2018 compared with $0.5 million for the third quarter of 2017 and $3.4 million for the nine months ended September 30, 2018 compared with $2.6 million for the nine months ended September 30, 2017.

~~Table of Contents~~

Income Taxes on ~~Non-GAAP~~Adjusted Operating Income

The effective tax rate on ~~non-GAAP~~adjusted operating income was ~~16.4%~~15.3% for the ~~third~~second quarter of 2019 and 14.7% for the six months ended June 30, 2019, compared with 15.6% for the second quarter of 2018 and ~~15.8%~~15.4% for the ~~nine~~six months ended ~~September~~June 30, 2018, compared with 27.5% for the third quarter of 2017 and 28.4% for the nine months ended September 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% 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 LIHTC investments andtax-exempt investment income.

~~As discussed in Note 1, the entire impact~~

Table of ~~LIHTC investments is now included in income tax and prior periods have been adjusted to reflect this change.~~Contents

Income taxes
Three months ended September 30, Nine months ended September 30,
2018 2017 2018 2017
(Dollars in thousands)
Income tax benefit (expense) $ (4,818 ) $ (9,880 ) $ (14,462 ) $ (32,017 )
Tax on equity income (435 ) (262 ) (914 ) (1,415 )
Net income adjustments:
Impact of change in federal tax rate (1) (617 ) —
(617 ) —
Income tax offset on net income adjustments (394 ) 727
(884 ) 1,221
Income taxes on non-GAAP operating income $ (6,264 ) (9,415 ) $ (16,877 ) $ (32,211 )

Income taxes on non-GAAP operating income before benefits of LIHTC investments $ (7,148 ) (10,755 ) $ (19,614 ) $ (36,038 )
Amounts related to LIHTC investments 884
1,340
2,737
3,827
Income taxes on non-GAAP operating income $ (6,264 ) (9,415 ) $ (16,877 ) $ (32,211 )



Components of income taxes
	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
	(Dollars in thousands)
Income tax expense	$	(5,511	)	$	(5,831	)	$	(11,787	)	$	(9,644	)
Tax on equity income	(373		)	(303		)	(432		)	(479		)
Income tax offset on net income adjustments	150			236			2,314			(490		)
Income taxes on adjusted operating income	$	(5,734	)	$	(5,898	)	$	(9,905	)	$	(10,613	)

Income taxes on adjusted operating income before benefits of LIHTC investments	$	(6,633	)	$	(6,824	)	$	(11,709	)	$	(12,466	)
Amounts related to LIHTC investments	899			926			1,804			1,853
Income taxes on adjusted operating income	$	(5,734	)	$	(5,898	)	$	(9,905	)	$	(10,613	)



Impact of Adjustments to Net Income Attributable to FBL

	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
	(Dollars in thousands)
Realized gains (losses) on investments and change in fair value of equity securities and derivatives	$	444		$	1,357		$	11,290		$	(2,638	)
Offsets: (1)
Change in amortization	(48		)	(226		)	(304		)	112
Reserve change on interest sensitive products	315			(7		)	30			192
Income tax	(150		)	(236		)	(2,314		)	490
Net impact of adjustments to net income	$	561		$	888		$	8,702		$	(1,844	)
Net impact per common share - basic and assuming dilution	$	0.02		$	0.03		$	0.36		$	(0.08	)


(1)	Amount represents a change in the provisional estimate of the impact of the Tax Act on our deferred tax assets and liabilities as of December 31, 2017. See Note 5 to our consolidated financial statements for additional information.

Impact of Adjustments to Net Income Attributable to FBL

Three months ended September 30, Nine months ended September 30,
2018 2017 2018 2017
(Dollars in thousands)
Initial impact of the Tax Act (1) $ 617
$ —
$ 617
$ —
Realized gains (losses) on investments and change in net unrealized gains/losses on equity securities and derivatives (2,658 ) 1,911
(5,296 ) 2,421
Offsets: (2)
Change in amortization 725
(20 ) 837
455
Reserve change on interest sensitive products 60
187
252
615
Income tax 394
(727 ) 884
(1,221 )
Net impact of adjustments to net income $ (862 ) $ 1,351
$ (2,706 ) $ 2,270
Net impact per common share - basic $ (0.04 ) $ 0.05
$ (0.10 ) $ 0.09
Net impact per common share - assuming dilution $ (0.04 ) $ 0.05
$ (0.10 ) $ 0.09


~~(1)~~	Amount represents a change in the provisional estimate of the impact of the Tax Act on our deferred tax assets and liabilities as of December 31, 2017. See Note 5 to our consolidated financial statements for additional information.


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

~~Table of Contents~~



Realized Gains (Losses) on Investments
	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
	(Dollars in thousands)
Realized gains (losses) on investments:
Realized gains	$	218		$	1,713		$	5,990		$	1,796
Realized losses	(304		)	(6		)	(338		)	(19		)
Change in unrealized gains/losses on equity securities	463			(866		)	4,882			(2,683		)
Total other-than-temporary impairment charges	—			—			(869		)	(1,040		)
Net realized investment gains (losses)	$	377		$	841		$	9,665		$	(1,946	)

Realized Gains (Losses) on Investments
Three months ended September 30, Nine months ended September 30,
2018 2017 2018 2017
(Dollars in thousands)
Realized gains (losses) on investments:
Realized gains on sales $ 25
$ 221
$ 1,821
$ 1,770
Realized losses on sales (2 ) (140 ) (21 ) (1,171 )
Change in unrealized gains/losses on equity securities (732 ) —
(3,415 ) —
Total other-than-temporary impairment charges (50 ) (67 ) (1,090 ) (133 )
Net realized investment gains (losses) $ (759 ) $ 14
$ (2,705 ) $ 466

The level of realized gains (losses) is subject to fluctuation from period to period due to movements in credit spreads and prevailing interest rates, changes in the economic environment, the timing of the sales of the investments generating the realized gains and losses, as well as the timing of other than temporary impairment charges, recovery of allowances and unrealized gains and losses on equity securities. See “Financial Condition - Investments” and Note 2 to our consolidated financial statements for details regarding our unrealized gains and losses on available-for-sale securities at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018.

Table of Contents

																	Investment Credit Impairment Losses Recognized in Net Income
	Three months ended September 30,				Nine months ended September 30,				Three months ended June 30,				Six months ended June 30,
	2018		2017		2018		2017		2019		2018		2019		2018
	(Dollars in thousands)								(Dollars in thousands)
Corporate securities:
Financial	$	—	$	—	$	26	$	—	$	—	$	—	$	—	$	26
Energy	—		—		1,014		—		—		—		—		1,014
Residential mortgage-backed	—		17		—		83
Securities and indebtedness of related parties	50		50		50		50
Other asset-backed									—		—		869
Total other-than-temporary impairment losses reported in net income	$	50	$	67	$	1,090	$	133	$	—	$	—	$	869	$	1,040

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

Financial Condition

Investments

Our investment portfolio ~~decreased~~ ~~1.5%~~increased 5.4% to $~~8,490.0~~8,869.9 million at ~~September~~June 30, ~~2018~~2019 compared to $~~8,620.2~~8,414.1 million at December 31, ~~2017.~~2018. The portfolio ~~decrease~~increase is primarily due to ~~a decline of $361.3~~$397.9 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 ~~September~~June 30, ~~2018~~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 securities~~maturities and commercial mortgage loans.

~~Table of Contents~~


Fixed Maturity Acquisitions Selected Information
	Nine months ended September 30,						Six months ended June 30,
	2018			2017			2019			2018
	(Dollars in thousands)						(Dollars in thousands)
Cost of acquisitions:
Corporate	$	102,235		$	116,985		$	192,180		$	86,494
Mortgage- and asset-backed	424,531			319,545			152,187			366,866
United States Government and agencies	—			748
Tax-exempt municipals	91,741			17,566			18,692			60,600
Taxable municipals	—			17,144
Total	$	618,507		$	471,988		$	363,059		$	513,960
Effective annual yield	4.06		%	3.97		%	4.18		%	4.05		%
Credit quality
NAIC 1 designation	84.7		%	70.8		%	65.3		%	84.6		%
NAIC 2 designation	15.3		%	29.2		%	34.7		%	15.4		%
Weighted-average life in years	14.0			13.0			16.0			14.0

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

A portion of the securities acquired during the ~~nine~~six months ended ~~September~~June 30, 2019 and June 30, 2018 ~~and September 30, 2017~~ were ~~obtained~~acquired with the proceeds from advances on our funding agreements with the FHLB. The securities acquired to support these funding agreements often carry a lower average yield than securities acquired to support our other insurance products, due to the shorter maturity and relatively low interest rate paid on those advances. In addition, certain municipal securities acquired are exempt

Table of Contents

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 ~~4.16%~~4.24% during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and was ~~3.99%~~4.13% during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018.


Investment Portfolio Summary
	September 30, 2018				December 31, 2017				June 30, 2019				December 31, 2018
	Carrying Value		Percent		Carrying Value		Percent		Carrying Value		Percent		Carrying Value		Percent
	(Dollars in thousands)								(Dollars in thousands)
Fixed maturities - available for sale:
Public	$	5,382,863	63.4	%	$	5,510,658	63.9	%	$	5,721,967	64.5	%	$	5,367,590	63.8	%
144A private placement	1,521,719		17.9		1,547,097		18.0		1,560,078		17.6		1,477,550		17.6
Private placement	194,443		2.3		234,212		2.7		202,577		2.3		187,905		2.2
Total fixed maturities - available for sale	7,099,025		83.6		7,291,967		84.6		7,484,622		84.4		7,033,045		83.6
Equity securities	103,896		1.2		104,145		1.2		106,021		1.2		92,857		1.1
Mortgage loans	1,015,618		12.0		971,812		11.3		1,019,124		11.5		1,039,829		12.4
Real estate	1,543		—		1,543		—		1,543		—		1,543		—
Policy loans	195,723		2.3		191,398		2.2		200,246		2.3		197,366		2.3
Short-term investments	25,569		0.3		17,007		0.5		9,521		0.1		15,713		0.2
Other investments	48,636		0.6		42,371		0.2		48,833		0.5		33,765		0.4
Total investments	$	8,490,010	100.0	%	$	8,620,243	100.0	%	$	8,869,910	100.0	%	$	8,414,118	100.0	%

As of ~~September~~June 30, ~~2018~~2019, ~~97.2~~97.7% (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

~~Table of Contents~~

~~(NAIC~~ (NAIC designations 3 through 6). As of ~~September~~June 30, ~~2018~~2019, no single non-investment grade holding exceeded 0.2% of total investments.

																			Credit Quality by NAIC Designation and Equivalent Rating
		September 30, 2018				December 31, 2017					June 30, 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	$	4,826,709	68.0	%	$	4,771,407	65.4	%	AAA, AA, A	$	5,089,917	68.0	%	$	4,802,497	68.3	%
2	BBB	2,072,159		29.2		2,267,892		31.1		BBB	2,224,368		29.7		2,063,069		29.3
	Total investment grade	6,898,868		97.2		7,039,299		96.5		Total investment grade	7,314,285		97.7		6,865,566		97.6
3	BB	131,637		1.8		174,660		2.4		BB	118,700		1.6		105,544		1.5
4	B	58,151		0.8		57,970		0.8		B	46,803		0.6		48,051		0.7
5	CCC	6,376		0.1		13,111		0.2		CCC	4,827		0.1		9,640		0.1
6	In or near default	3,993		0.1		6,927		0.1		In or near default	7		—		4,244		0.1
	Total below investment grade	200,157		2.8		252,668		3.5		Total below investment grade	170,337		2.3		167,479		2.4
	Total fixed maturities - available for sale	$	7,099,025	100.0	%	$	7,291,967	100.0	%	Total fixed maturities - available for sale	$	7,484,622	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 securities~~maturities by contractual maturity date.

Table of Contents

																							Gross Unrealized Gains and Gross Unrealized Losses by Internal Industry Classification
	September 30, 2018											June 30, 2019
	Total Carrying Value		Carrying Value of Securities with Gross Unrealized Gains		Gross Unrealized Gains		Carrying Value of Securities with Gross Unrealized Losses		Gross Unrealized Losses			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)											(Dollars in thousands)
Corporate securities:
Basic industrial	$	324,920	$	217,342	$	12,140	$	107,578	$	(5,171	)	$	342,720	$	307,173	$	25,157	$	35,547	$	(1,319	)
Capital goods	250,172		124,235		7,118		125,937		(5,070		)	281,101		257,517		20,495		23,584		(316		)
Communications	129,948		77,290		5,697		52,658		(3,783		)	139,377		121,426		13,456		17,951		(562		)
Consumer cyclical	107,384		75,084		3,622		32,300		(1,397		)	136,994		123,518		9,088		13,476		(436		)
Consumer non-cyclical	495,749		218,532		13,062		277,217		(18,869		)	577,479		477,414		44,810		100,065		(7,545		)
Energy	400,194		255,985		15,422		144,209		(9,005		)	408,248		370,359		33,306		37,889		(8,586		)
Finance	620,325		415,337		22,339		204,988		(8,251		)	656,430		636,203		48,924		20,227		(2,119		)
Transportation	94,210		64,340		3,006		29,870		(1,166		)	111,171		105,506		8,521		5,665		(530		)
Utilities	730,065		557,937		60,308		172,128		(6,525		)	760,344		737,563		103,206		22,781		(487		)
Other	160,566		119,681		5,289		40,885		(1,272		)	171,886		167,000		13,396		4,886		(89		)
Total corporate securities	3,313,533		2,125,763		148,003		1,187,770		(60,509		)	3,585,750		3,303,679		320,359		282,071		(21,989		)
Mortgage- and asset-backed securities	2,232,268		881,597		59,234		1,350,671		(50,780		)	2,324,581		2,089,202		138,312		235,379		(3,633		)
United States Government and agencies	20,233		13,921		816		6,312		(295		)	18,585		15,603		1,572		2,982		(16		)
States and political subdivisions	1,532,991		1,297,911		87,208		235,080		(10,268		)	1,555,706		1,545,061		140,791		10,645		(758		)
Total	$	7,099,025	$	4,319,192	$	295,261	$	2,779,833	$	(121,852	)	$	7,484,622	$	6,953,545	$	601,034	$	531,077	$	(26,396	)



	December 31, 2018
	Total Carrying Value		Carrying Value of Securities with Gross Unrealized Gains		Gross Unrealized Gains		Carrying Value of Securities with Gross Unrealized Losses		Gross Unrealized Losses
	(Dollars in thousands)
Corporate securities:
Basic industrial	$	321,192	$	194,019	$	9,990	$	127,173	$	(8,376	)
Capital goods	248,385		123,157		6,933		125,228		(7,208		)
Communications	131,364		75,687		5,098		55,677		(4,705		)
Consumer cyclical	105,882		74,866		3,627		31,016		(1,782		)
Consumer non-cyclical	497,789		224,674		12,441		273,115		(29,469		)
Energy	384,982		227,770		11,460		157,212		(17,063		)
Finance	602,159		392,188		22,124		209,971		(10,298		)
Transportation	96,579		61,034		3,049		35,545		(2,135		)
Utilities	733,604		565,250		60,399		168,354		(7,483		)
Other	157,949		98,683		3,851		59,266		(2,414		)
Total corporate securities	3,279,885		2,037,328		138,972		1,242,557		(90,933		)
Mortgage- and asset-backed securities	2,192,996		1,076,388		69,820		1,116,608		(31,961		)
United States Government and agencies	20,535		14,061		996		6,474		(134		)
States and political subdivisions	1,539,629		1,378,005		95,921		161,624		(5,913		)
Total	$	7,033,045	$	4,505,782	$	305,709	$	2,527,263	$	(128,941	)

Table of Contents



Credit Quality of Available-for-Sale Fixed Maturities with Unrealized Losses
		June 30, 2019
NAIC Designation	Equivalent Rating	Carrying Value of Securities with Gross Unrealized Losses		Percent of Total		Gross Unrealized Losses			Percent of Total
		(Dollars in thousands)
1	AAA, AA, A	$	247,743	46.6	%	$	(3,643	)	13.8	%
2	BBB	195,842		36.9		(6,745		)	25.6
	Total investment grade	443,585		83.5		(10,388		)	39.4
3	BB	54,856		10.3		(7,700		)	29.1
4	B	30,212		5.7		(8,290		)	31.4
5	CCC	2,417		0.5		(18		)	0.1
6	In or near default	7		—		—			—
	Total below investment grade	87,492		16.5		(16,008		)	60.6
	Total	$	531,077	100.0	%	$	(26,396	)	100.0	%



		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
	June 30, 2019
	Amortized Cost				Gross Unrealized Losses
	Fair Value is Less than 75% of Cost		Fair Value is 75% or Greater than Cost		Fair Value is Less than 75% of Cost			Fair Value is 75% or Greater than Cost
	(Dollars in thousands)
Three months or less	$	—	$	32,615	$	—		$	(240	)
Greater than three months to six months	—		2,005		—			(5		)
Greater than six months to nine months	—		63,916		—			(930		)
Greater than nine months to twelve months	—		36,717		—			(1,501		)
Greater than twelve months	31,759		390,461		(10,539		)	(13,181		)
Total	$	31,759	$	525,714	$	(10,539	)	$	(15,857	)

Table of Contents

Gross Unrealized Gains and Gross Unrealized Losses by Internal Industry Classification

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 goods 279,281
271,346
21,624
7,935
(139 )
Communications 151,763
133,263
12,364
18,500
(862 )
Consumer cyclical 128,618
117,370
9,118
11,248
(516 )
Consumer non-cyclical 521,128
461,205
41,221
59,923
(4,684 )
Energy 462,437
409,768
34,028
52,669
(5,950 )
Finance 695,604
633,513
50,908
62,091
(1,143 )
Transportation 103,049
93,921
7,978
9,128
(141 )
Utilities 814,238
796,782
108,914
17,456
(1,909 )
Other 178,802
165,971
13,295
12,831
(132 )
Total corporate securities 3,688,271
3,419,432
329,299
268,839
(15,955 )
Mortgage- and asset-backed securities 2,055,090
1,549,187
88,999
505,903
(9,727 )
United States Government and agencies 24,905
17,343
1,606
7,562
(79 )
States and political subdivisions 1,523,701
1,497,292
141,813
26,409
(1,239 )
Total $ 7,291,967
$ 6,483,254
$ 561,717
$ 808,713
$ (27,000 )



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

At September 30, 2018, our largest unrealized loss is in the consumer non-cyclical sector. Within this sector two companies represent 14.3% of the unrealized loss. One company is a grocery store chain representing $1.5 million of the unrealized loss while the other company is a consumer products company representing $1.2 million of the unrealized loss.

Credit Quality of Available-for-Sale Fixed Maturities with Unrealized Losses
September 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 $ 1,803,514
64.9 % $ (69,701 ) 57.2 %
2 BBB 851,956
30.6
(39,690 ) 32.6
Total investment grade 2,655,470
95.5
(109,391 ) 89.8
3 BB 91,215
3.3
(6,023 ) 4.9
4 B 31,201
1.1
(6,410 ) 5.3
5 CCC 1,938
0.1
(28 ) —
6 In or near default 9
—
—
—
Total below investment grade 124,363
4.5
(12,461 ) 10.2
Total $ 2,779,833
100.0 % $ (121,852 ) 100.0 %



Available-For-Sale Fixed Maturities with Unrealized Losses by Maturity Date
	June 30, 2019					December 31, 2018
	Carrying Value of Securities with Gross Unrealized Losses		Gross Unrealized Losses			Carrying Value of Securities with Gross Unrealized Losses		Gross Unrealized Losses
	(Dollars in thousands)
Due in one year or less	$	1,494	$	(5	)	$	496	$	(4	)
Due after one year through five years	11,673		(1,646		)	86,795		(3,286		)
Due after five years through ten years	56,340		(3,116		)	299,532		(14,667		)
Due after ten years	226,191		(17,996		)	1,023,832		(79,023		)
	295,698		(22,763		)	1,410,655		(96,980		)
Mortgage- and asset-backed	235,379		(3,633		)	1,116,608		(31,961		)
Total	$	531,077	$	(26,396	)	$	2,527,263	$	(128,941	)

~~Table of Contents~~

Credit Quality of Available-for-Sale Fixed Maturities with Unrealized Losses
December 31, 2017
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
September 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 $ —
$ 721,821
$ —
$ (10,047 )
Greater than three months to six months —
609,165
—
(18,103 )
Greater than six months to nine months —
878,428
—
(46,131 )
Greater than nine months to twelve months —
222,092
—
(11,207 )
Greater than twelve months 9,878
460,301
(2,532 ) (33,832 )
Total $ 9,878
$ 2,891,807
$ (2,532 ) $ (119,320 )

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 months 16,747
328,438
(4,798 ) (14,957 )
Total $ 16,747
$ 818,966
$ (4,798 ) $ (22,202 )

~~Table of Contents~~

Available-For-Sale Fixed Maturities with Unrealized Losses by Maturity Date
September 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 $ —
$ —
$ 872
$ (2 )
Due after one year through five years 74,697
(2,046 ) 25,857
(1,052 )
Due after five years through ten years 297,037
(11,856 ) 107,198
(3,657 )
Due after ten years 1,057,428
(57,170 ) 168,883
(12,562 )
1,429,162
(71,072 ) 302,810
(17,273 )
Mortgage- and asset-backed 1,350,671
(50,780 ) 505,903
(9,727 )
Total $ 2,779,833
$ (121,852 ) $ 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, ~~2017~~2018 for more detail on accounting for the amortization of premium and accrual of discount on mortgage-backed and asset-backed securities.

Our direct exposure to the Alt-A home equity and subprime first-lien sectors is limited to investments in structured securities collateralized by senior tranches of residential mortgage loans. We also have a partnership interest in one fund at ~~September~~June 30, ~~2018~~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 ~~$2.3~~$1.7 million at ~~September~~June 30, ~~2018~~2019 and ~~$3.0~~$2.0 million at December 31, ~~2017~~2018. We do not own any direct investments in subprime lenders.

Table of Contents

																									Mortgage- and Asset-Backed Securities by Collateral Type
	September 30, 2018						December 31, 2017						June 30, 2019						December 31, 2018
	Amortized Cost		Carrying Value		Percent of Fixed Maturities		Amortized Cost		Carrying Value		Percent of Fixed Maturities		Amortized Cost		Carrying Value		Percent of Fixed Maturities		Amortized Cost		Carrying Value		Percent of Fixed Maturities
	(Dollars in thousands)												(Dollars in thousands)
Government agency	$	230,347	$	228,713	3.2	%	$	220,385	$	230,792	3.2	%	$	224,204	$	241,490	3.2	%	$	227,545	$	232,658	3.3	%
Prime	282,386		286,824		4.0		181,397		194,081		2.7		284,109		303,974		4.1		279,856		287,073		4.1
Alt-A	85,406		101,201		1.4		98,100		111,993		1.5		74,816		88,453		1.2		81,668		95,396		1.4
Subprime	143,705		154,802		2.2		139,826		149,469		2.0		139,211		151,323		2.0		143,441		152,907		2.1
Commercial mortgage	883,023		864,674		12.2		674,076		705,307		9.7		937,041		1,003,755		13.4		873,672		878,566		12.5
Non-mortgage	598,947		596,054		8.4		662,034		663,448		9.1		530,521		535,586		7.2		548,955		546,396		7.8
Total	$	2,223,814	$	2,232,268	31.4	%	$	1,975,818	$	2,055,090	28.2	%	$	2,189,902	$	2,324,581	31.1	%	$	2,155,137	$	2,192,996	31.2	%

~~Table of Contents~~

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

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


Residential Mortgage-Backed Securities by NAIC Designation and Origination Year	Residential Mortgage-Backed Securities by NAIC Designation and Origination Year																	Residential Mortgage-Backed Securities by NAIC Designation and Origination Year
		September 30, 2018																	June 30, 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		$	76,151	$	78,215	$	74,172	$	94,817	$	432,847	$	422,471	$	583,170	$	595,503		$	66,502	$	68,643	$	67,575	$	87,369	$	438,512	$	462,976	$	572,589	$	618,988
3		—		—		613		609		—		—		613		609			—		—		445		—		—		438		445		438
4		393		402		8,191		10,946		—		—		8,584		11,348			—		—		7,756		9,628		—		—		7,756		9,628
5																			302		318		—		—		—		—		302		318
6		9		9		—		—		—		—		9		9			7		7		—		—		—		—		7		7
Total		$	76,553	$	78,626	$	82,976	$	106,372	$	432,847	$	422,471	$	592,376	$	607,469		$	66,811	$	68,968	$	75,776	$	96,997	$	438,512	$	463,414	$	581,099	$	629,379


	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

Table of Contents

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


Commercial Mortgage-Backed Securities by NAIC Designation and Origination Year	Commercial Mortgage-Backed Securities by NAIC Designation and Origination Year																	Commercial Mortgage-Backed Securities by NAIC Designation and Origination Year
		September 30, 2018																	June 30, 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		$	8,541	$	8,997	$	114,256	$	123,391	$	724,296	$	696,549	$	847,093	$	828,937		$	8,162	$	9,008	$	112,537	$	130,047	$	780,738	$	826,421	$	901,437	$	965,476
2		—		—		35,930		35,737		—		—		35,930		35,737			—		—		35,604		38,279		—		—		35,604		38,279
Total (1)		$	8,541	$	8,997	$	150,186	$	159,128	$	724,296	$	696,549	$	883,023	$	864,674		$	8,162	$	9,008	$	148,141	$	168,326	$	780,738	$	826,421	$	937,041	$	1,003,755

~~Table of Contents~~


Commercial 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 ~~$681.5~~$811.4 million at ~~September~~June 30, ~~2018~~2019 and ~~$515.7~~$693.3 million at December 31, ~~2017.~~2018. Also included in the CMBS are military housing bonds totaling ~~$154.7~~$164.6 million at ~~September~~June 30, ~~2018~~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	Other Asset-Backed Securities by NAIC Designation and Origination Year																	Other Asset-Backed Securities by NAIC Designation and Origination Year
		September 30, 2018																	June 30, 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		$	9,612	$	9,349	$	142,530	$	157,112	$	462,332	$	459,976	$	614,474	$	626,437		$	8,779	$	8,626	$	138,706	$	153,863	$	398,348	$	399,493	$	545,833	$	561,982
2		1,618		1,708		1,975		2,017		104,068		104,055		107,661		107,780			1,503		1,633		1,704		1,776		117,353		120,394		120,560		123,803
3		—		—		344		336		21,975		21,620		22,319		21,956			—		—		—		—		3,105		3,402		3,105		3,402
4		182		173		—		—		—		—		182		173			172		168		—		—		—		—		172		168
5		—		—		—		—		3,779		3,779		3,779		3,779			—		—		—		—		2,092		2,092		2,092		2,092
Total		$	11,412	$	11,230	$	144,849	$	159,465	$	592,154	$	589,430	$	748,415	$	760,125		$	10,454	$	10,427	$	140,410	$	155,639	$	520,898	$	525,381	$	671,762	$	691,447

Table of Contents


Other Asset-Backed Securities by NAIC Designation and Origination Year																	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 ~~$1,533.0~~$1,555.7 million, or ~~21.6%~~20.8% of total fixed maturities, at ~~September~~June 30, ~~2018~~2019, and ~~$1,523.7~~$1,539.6 million, or ~~20.9%~~21.9% of total fixed maturities at December 31, ~~2017~~2018 and include investments in general obligation, revenue and municipal housing bonds. Our investment strategy is to utilize municipal bonds in addition to corporate bonds, as we believe they provide additional diversification and have historically low default rates compared with similarly rated corporate bonds. We evaluate the credit strength of the underlying issues on both a quantitative and qualitative basis, excluding insurance, prior to acquisition. The majority of the municipal bonds we hold are investment grade credits without consideration

~~Table of Contents~~

of insurance. Our municipal bonds are well diversified by type and geography with the top exposure being water and sewer revenue bonds. Our municipal bond holdings were trading at 108.6% of amortized cost at June 30, 2019. We do not hold any Puerto Rico-related bonds. Exposure to the state of Illinois and municipalities within the state accounted for ~~1.5%~~1.3% of our total fixed maturities at ~~September~~June 30, ~~2018~~2019. As of ~~September~~June 30, ~~2018~~2019, our Illinois-related portfolio holdings were rated investment grade and were trading at ~~107.0%~~113.6% of amortized cost. ~~Our municipal bond exposure had an average rating of Aa2/AA and our holdings were trading at 105.3% of amortized cost at September 30, 2018.~~

~~Equity Securities~~

~~Equity securities totaled $103.9 million at September 30, 2018 and $104.1 million at December 31, 2017. 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 $~~1,015.6~~1,019.1 million at ~~September~~June 30, ~~2018~~2019 and $~~971.8~~1,039.8 million at December 31, ~~2017~~2018. Our mortgage loans are diversified as to property type, location and loan size, and are collateralized by the related properties. The total number of commercial mortgage loans outstanding was ~~202~~210 at ~~September~~June 30, ~~2018~~2019 and ~~190~~208 at December 31, ~~2017~~2018. In the first ~~nine~~six months of ~~2018,~~2019, new loans ranged from ~~$1.4~~$1.6 million to ~~$10.5~~$9.2 million in size, with an average loan size of ~~$5.0~~$5.2 million, an average loan term of 1619 years and an average net yield of 4.73%. Our mortgage lending policies establish limits on the amount that can be loaned to one borrower and require diversification by geographic location and collateral type. The majority of our mortgage loans amortize principal, with ~~1.3%~~1.7% that are interest-only loans as of ~~September~~June 30, ~~2018~~2019. At ~~September~~June 30, ~~2018~~2019, the average loan-to-value of the current outstanding principal balance using the most recent appraised value was ~~53.4%~~52.4% and the weighted average debt service coverage ratio was 1.7 based on the results of our ~~2017~~2018 annual study. See Note 2 to our consolidated financial statements for further discussion regarding our mortgage loans.

Table of Contents

Other Assets and Liabilities



	June 30, 2019	December 31, 2018	Percentage change
Selected other assets:
Cash and cash equivalents	13,854	19,035	(27.2	)%
Reinsurance recoverable	102,898	102,386	0.5	%
Deferred acquisition costs	314,301	418,802	(25.0	)%
Other assets	179,408	163,518	9.7	%
Assets held in separate accounts	625,177	561,281	11.4	%
Selected other liabilities:
Future policy benefits	7,298,402	7,205,471	1.3	%
Other policyholder funds	601,038	615,177	(2.3	)%
Deferred income taxes	134,702	75,449	78.5	%
Other liabilities	102,414	93,532	9.5	%
Liabilities held in separate accounts	625,177	561,281	11.4	%

Cash and cash equivalents decreased primarily due to normal fluctuations in timing of payments made and received. Deferred acquisition costs ~~increased 36.2% to $412.0 million at September 30, 2018,~~decreased compared to ~~December 31, 2017,~~the prior year primarily due to a ~~$100.3~~$111.7 million ~~decrease~~increase in the impact of the change in net unrealized appreciation on fixed maturity securities during the period. ~~Securities and indebtedness of related parties~~Other assets increased ~~24.5% to $60.0 million due to acquisitions. Cash and cash equivalents decreased 72.6% to $14.4 million~~ primarily due to ~~normal fluctuations~~revaluation of our leased asset related to our home office building as discussed in ~~timing of payments made~~Note 5 to our consolidated financial statements. Assets and ~~received.~~liabilities held in separate accounts increased due to market performance on the underlying investment portfolios.

Future policy benefits increased ~~2.7% to $7,241.2 million at September 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 40.2% to $78.0 million~~increased primarily due to the tax impact of the change in unrealized appreciation/depreciation on investments. Other liabilities increased due to an increase in unsettled security trades and lease obligations related to our home office building as discussed above, partially offset by decreases in amounts for expenses and commissions.

Stockholders’ Equity

As discussed in Note 76 to our consolidated financial statements, stockholders’ equity was impacted by capital deployment actions during the first quarter of ~~2018,~~2019, which included a special cash dividend of $1.50 per share on Class A and Class B common stock and an increase in our regular quarterly dividend by ~~4.5%~~4.3% to ~~$0.46~~$0.48 per share.



	June 30, 2019		December 31, 2018		Percentage change
	(dollars in thousands, except per share data)
Total FBL Financial Group, Inc. stockholders’ equity	$	1,397,462	$	1,184,139	18.0	%
Common stockholders’ equity	1,394,462		1,181,139		18.1	%

Book value per share	$	56.55	$	47.78	18.4	%
Less: Per share impact of accumulated other comprehensive income	12.28		3.69		232.8	%
Book value per share, excluding accumulated other comprehensive income (1)	$	44.27	$	44.09	0.4	%


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

Our stockholders’ equity ~~decreased 13.3% to $1,193.7 million at September 30, 2018,~~increased compared to ~~$1,377.1 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.~~dividends paid.

At ~~September 30, 2018, our common stockholders’ equity was~~ ~~$1,190.7 million, or~~ ~~$47.98per share, compared to~~ ~~$1,374.1 million, or~~ ~~$55.12~~ ~~per share, at~~ ~~December 31, 2017. Included in stockholders’ equity per common share is~~ ~~$3.59~~ at ~~September 30, 2018~~ ~~and~~ ~~$11.44~~ at ~~December 31, 2017~~ ~~attributable to accumulated other comprehensive income.~~

5352

Table of Contents

Liquidity and Capital Resources

Cash Flows

During the first ~~nine~~six months of ~~2018,~~2019, our operating activities generated cash flows totaling ~~$176.8~~$85.6 million, consisting of net income of ~~$87.4~~$66.3 million adjusted for non-cash operating revenues and expenses netting to ~~$89.4~~$19.3 million. We used cash of ~~$235.9~~$30.4 million in our investing activities during the ~~2018~~2019 period. The primary uses were ~~$777.2~~$430.4 million of investment acquisitions, mostly in fixed maturity securities, partially offset by ~~$558.3~~$401.7 million in sales, maturities and repayments of investments. Our financing activities ~~provided~~used cash of ~~$20.8~~$60.4 million during the ~~2018~~2019 period. The primary financing source was ~~$525.2~~$317.0 million in receipts from interest sensitive products credited to policyholder account balances, which was ~~partially~~ offset by ~~$423.7~~$311.2 million for return of policyholder account balances on interest sensitive products and ~~$71.7~~$60.7 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 ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 included management fees from subsidiaries and affiliates totaling ~~$6.2~~$4.2 million and dividends of ~~$79.5~~$63.5 million. Cash outflows are principally for salaries, taxes and other expenses related to providing management services, dividends on outstanding stock, stock repurchases and interest on our parent company debt.

We paid regular cash dividends on our common and preferred stock during the ~~nine-month~~six-month period ended ~~September~~June 30 totaling ~~$34.4~~$23.7 million in ~~2018~~2019 and ~~$33.0~~$22.9 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 ~~2018~~2019 will be $0.0075 per Series B preferred share and ~~$0.46~~$0.48 per common share. ~~The level of common~~Common stock ~~dividends~~dividend rates are analyzed quarterly and are dependent upon our capital and liquidity positions. In addition, alternative uses of excess capital may impact future dividend levels. Assuming these quarterly dividend rates, the common and preferred dividends would total approximately ~~$11.5~~$23.7 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 available cash and investments totaling ~~$50.3~~$38.8million at ~~September~~June 30, ~~2018.~~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 ~~September~~June 30, ~~2018.~~2019.

As discussed in Note 76 to our consolidated financial statements, we have periodically taken advantage of opportunities to repurchase our outstanding Class A common stock through Class A common stock repurchase programs approved by our Board of Directors. At ~~September~~June 30, ~~2018, $48.0~~2019, $36.3 million remains available for repurchase under the current Class A common stock repurchase program. Under ~~these programs,~~this program, we repurchased ~~129,011~~66,475 shares for ~~$8.8~~$4.6 million during the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. Completion of this program is dependent on market conditions and other factors. There is no guarantee as to the exact timing of any repurchases or the number of shares that we will repurchase. The share repurchase program may be modified or terminated at any time without prior notice.

Interest payments on our debt totaled ~~$3.6~~$2.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~September~~June 30, ~~2017.~~2018. Interest payments on our debt outstanding at ~~September~~June 30, ~~2018~~2019 are estimated to be ~~$1.2~~$2.4 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 ~~$283.4~~$96.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~$191.8~~$222.6 million for the prior year period.

5453

Table of Contents

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 7 to our consolidated financial statements included in Item 8 of our ~~2017~~2018 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 ~~$31.1~~$38.3 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. These~~quarterly; however, these estimates may differ from actual results. As of ~~September~~June 30, ~~2018,~~2019, Farm Bureau Life’s statutory total adjusted capital is estimated at ~~$699.2~~$693.2 million, resulting in aan RBC ratio of ~~554%~~553%, based on company action level capital of ~~$126.2~~$125.4 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.

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, ~~2017~~2018.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risks of Financial Instruments

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

~~Table of Contents~~

communicated to the issuer’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Table of Contents

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

PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

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

The performance of our company is subject to a variety of risks that you should review. Occurrence of these risks could materially affect our business, results of operations or financial condition, cause the trading price of our common stock to decline materially or cause our actual results to differ materially from those expected or those expressed in any forward looking statements made by or on behalf of the Company. Please refer to Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017.~~2018.

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

We had no issuer repurchases of equity securities for the quarter ended ~~September~~June 30, ~~2018.~~2019. We have ~~$48.0~~$36.3 million available under the repurchase program announced on March 1, 2018, which will expire March 31, 2022. The program authorizes us to make repurchases of Class A common stock in the open market or through privately negotiated transactions, with the timing and terms of the purchases to be determined by management based on market conditions. Completion of the program is dependent on market conditions and other factors. There is no guarantee as to the exact timing of any repurchases or the number of shares, if any, that we will repurchase. The share repurchase program may be modified or terminated at any time without prior notice.

~~Table of Contents~~

ITEM 6. EXHIBITS

(a) Exhibits:



~~18.1+~~	~~Ernst & Young, LLP Preferability Letter~~
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~~iXBRL (Inline eXtensible Business Reporting Language) from FBL Financial Group, Inc.’s Quarterly Report on Form 10-Q for the ~~quarterly~~ period ended ~~September~~June 30, ~~2018~~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.

5755

Table of Contents

SIGNATURES

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

Date: ~~November~~August 1, ~~2018~~2019



	FBL FINANCIAL GROUP, INC.


	By	/s/ James P. Brannen
		James P. Brannen
		Chief Executive Officer (Principal Executive Officer)

	By	/s/ Donald J. Seibel
		Donald J. Seibel
		Chief Financial Officer and Treasurer (Principal Financial Officer)

	By	/s/ Anthony J. Aldridge
		Anthony J. Aldridge
		Chief Accounting Officer (Principal Accounting Officer)

5856



Consolidated Balance Sheet Impact
	December 31, 2017
	As Originally Reported		As Adjusted		Effect of Change
	(Dollars in thousands)
Assets
Securities and indebtedness of related parties	$	130,240	$	47,823	$	(82,417	)
Current income taxes recoverable	3,269		6,764		3,495
Other assets	112,054		177,764		65,710
Total assets					$	(13,212	)

Liabilities and stockholders’ equity
Deferred income taxes	$	131,912	$	130,425	$	(1,487	)
Retained earnings	947,148		935,423		(11,725		)
Total liabilities and stockholders’ equity					$	(13,212	)



Consolidated Statements of Operations Impact
	Three months ended September 30, 2017									Nine months ended September 30, 2017
	As Originally Reported			As Adjusted			Effect of Change			As Originally Reported			As Adjusted			Effect of Change
	(Dollars in thousands)
Income taxes	$	(11,220	)	$	(9,880	)	$	1,340		$	(35,844	)	$	(32,017	)	$	3,827
Equity income (loss), net of related income taxes	2,804			487			(2,317		)	8,959			2,629			(6,330		)
Net income (loss) attributable to FBL Financial Group, Inc.							$	(977	)							$	(2,503	)

Earnings (loss) per common share - basic and assuming dilution							$	(0.04	)							$	(0.10	)



LIHTC Investment Commitments by Year
	September 30, 2018
	(Dollars in thousands)
2018	$	341
2019	248
2020-2025	996
Total	$	1,585



	September 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, September 30, 2017
	(Dollars in thousands)
Assets
Corporate securities	$	59,119	$	3,000	$	(11,251	)		$	84	$	(1,015	)	$	13,440	$	(22,877	)	$	(30	)	$	40,470
Residential mortgage-backed securities	—		23,331		—				—		(1		)	—		(21,326		)	1			2,005
Commercial mortgage-backed securities	81,434		12,114		(613		)		—		6,850			—		(20,267		)	(63		)	79,455
Other asset-backed securities	54,368		81,867		(8,286		)		—		614			13,353		(48,392		)	(21		)	93,503
Non-redeemable preferred stocks	7,411		—		—				—		243			—		—			—			7,654
Total assets	$	202,332	$	120,312	$	(20,150	)		$	84	$	6,691		$	26,793	$	(112,862	)	$	(113	)	$	223,087

Liabilities
Future policy benefits - indexed product embedded derivatives	$	15,778	$	4,893	$	(1,405	)		$	4,808	$	—		$	—	$	—		$	—		$	24,074



Other data
Annuity premiums collected, direct (2)	$	56,333	$	58,133	(3	)%	$	214,981		$	216,135		(1	)%
Policy liabilities and accruals, end of period							4,441,277			4,243,232			5	%
Average invested assets, at amortized cost							4,533,009			4,336,465			5	%
Other investment-related income included in net investment income (3)	854		953		(10	)%	4,744			4,068			17	%
Average individual annuity account value							3,124,364			3,020,747			3	%

Earned spread on individual annuity products:
Weighted average yield on cash and invested assets							4.91		%	5.15		%
Weighted average crediting rate							2.50		%	2.62		%
Spread							2.41		%	2.53		%

Individual annuity withdrawal rate							5.3		%	4.1		%



Other data
Average invested assets, at amortized cost (1) (3)							$	702,439		$	679,943	3	%
Other investment-related income included in net investment income (4)	$	101	$	408	(75	)%	387			875		(56	)%
Average interest sensitive life account value							361,598			362,439		—	%
Death benefits, net of reinsurance and reserves released	5,290		7,760		(32	)%	15,550			19,324		(20	)%
Estimated impact on pre-tax non-GAAP operating income from separate account performance on amortization of deferred acquisition costs (2)	300		370		(19	)%	(815		)	1,631		(150	)%