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

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

Commission File Number: 1-11917
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FBL FINANCIAL GROUP INC
(Exact name of registrant as specified in its charter)
Iowa42-1411715
(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
(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)
(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X]☒ Yes [ ]☐ No
 
Indicate by check mark whether the registrant has submitted electronically 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 [ X ]Accelerated filer [ ]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 May 1,July 30, 2019
Class A Common Stock, without par value 24,641,53524,648,472
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 MARCH 31,JUNE 30, 2019
TABLE OF CONTENTS


PART I.FINANCIAL INFORMATION 
   
Item 1.Financial Statements (Unaudited) 
 Consolidated Balance Sheets
2
 Consolidated Statements of Operations
4
 Consolidated Statements of Comprehensive Income
5
 Consolidated Statements of Changes in Stockholders’ Equity
5
 Consolidated Statements of Cash Flows
67
 Notes to Consolidated Financial Statements
89
   
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
3234
   
Item 3.Quantitative and Qualitative Disclosures About Market Risk
5054
   
Item 4.Controls and Procedures
5054
   
PART II.OTHER INFORMATION
5055
   
Item 1A.Risk Factors
5055
   
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
5055
   
Item 6.Exhibits
5155
   
SIGNATURES 
5256
    



1

ITEM 1. FINANCIAL STATEMENTS

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

March 31,
2019		 December 31,
2018		June 30,
2019		 December 31,
2018
Assets      
Investments:      
Fixed maturities - available for sale, at fair value (amortized cost: 2019 - $6,873,217; 2018 - $6,856,277)$7,231,584
 $7,033,045
Equity securities at fair value (cost: 2019 - $104,814; 2018 - $93,564)108,525
 92,857
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 loans1,023,655
 1,039,829
1,019,124
 1,039,829
Real estate1,543
 1,543
1,543
 1,543
Policy loans199,230
 197,366
200,246
 197,366
Short-term investments11,515
 15,713
9,521
 15,713
Other investments44,663
 33,765
48,833
 33,765
Total investments8,620,715
 8,414,118
8,869,910
 8,414,118
      
Cash and cash equivalents6,057
 19,035
13,854
 19,035
Securities and indebtedness of related parties64,377
 60,962
68,733
 60,962
Accrued investment income80,102
 74,524
73,683
 74,524
Amounts receivable from affiliates5,735
 3,812
6,330
 3,812
Reinsurance recoverable103,825
 102,386
102,898
 102,386
Deferred acquisition costs373,711
 418,802
314,301
 418,802
Value of insurance in force acquired6,259
 10,385
3,366
 10,385
Current income taxes recoverable3,510
 4,807
2,036
 4,807
Other assets169,756
 163,518
179,408
 163,518
Assets held in separate accounts614,121
 561,281
625,177
 561,281
      
      
      
      
      
      
      
Total assets$10,048,168
 $9,833,630
$10,259,696
 $9,833,630

 


2



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

March 31,
2019		 December 31,
2018		June 30,
2019		 December 31,
2018
Liabilities and stockholders’ equity      
Liabilities:      
Future policy benefits:      
Interest sensitive products$5,426,491
 $5,403,125
$5,471,944
 $5,403,125
Traditional life insurance and accident and health products1,815,340
 1,802,346
1,826,458
 1,802,346
Other policy claims and benefits44,418
 51,298
40,058
 51,298
Supplementary contracts without life contingencies303,771
 303,627
302,685
 303,627
Advance premiums and other deposits264,544
 260,252
258,295
 260,252
Amounts payable to affiliates953
 1,461
3,421
 1,461
Short-term debt payable to non-affiliates4,000
 —
Long-term debt payable to non-affiliates97,000
 97,000
97,000
 97,000
Deferred income taxes103,300
 75,449
134,702
 75,449
Other liabilities110,709
 93,532
102,414
 93,532
Liabilities related to separate accounts614,121
 561,281
625,177
 561,281
Total liabilities8,784,647
 8,649,371
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 shares3,000
 3,000
3,000
 3,000
Class A common stock, without par value - authorized 88,500,000 shares, issued and outstanding 24,640,927 shares in 2019 and 24,707,402 shares in 2018152,444
 152,652
Class 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 2018152,454
 152,652
Class B common stock, without par value - authorized 1,500,000 shares, issued and outstanding 11,413 shares in 2019 and 201872
 72
72
 72
Accumulated other comprehensive income189,166
 91,318
302,793
 91,318
Retained earnings918,718
 937,097
939,143
 937,097
Total FBL Financial Group, Inc. stockholders’ equity1,263,400
 1,184,139
1,397,462
 1,184,139
Noncontrolling interest121
 120
80
 120
Total stockholders’ equity1,263,521
 1,184,259
1,397,542
 1,184,259
Total liabilities and stockholders’ equity$10,048,168
 $9,833,630
$10,259,696
 $9,833,630

See accompanying notes.


3



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

Three months ended March 31,Three months ended June 30, Six months ended June 30,
2019 20182019 2018 2019 2018
Revenues:          
Interest sensitive product charges$31,266
 $30,098
$32,534
 $30,906
 $63,800
 $61,004
Traditional life insurance premiums49,392
 49,497
50,987
 51,091
 100,379
 100,588
Net investment income109,640
 101,022
104,894
 103,974
 214,534
 204,996
Net realized capital gains (losses)10,157
 (1,747)377
 841
 10,534
 (906)
Net other-than-temporary impairment losses recognized in earnings(869) (1,040)—
 —
 (869) (1,040)
Other income3,970
 4,600
4,114
 3,637
 8,084
 8,237
Total revenues203,556
 182,430
192,906
 190,449
 396,462
 372,879
          
Benefits and expenses:          
Interest sensitive product benefits70,596
 61,345
65,223
 62,637
 135,819
 123,982
Traditional life insurance benefits46,675
 45,456
41,960
 43,725
 88,635
 89,181
Policyholder dividends2,534
 2,551
2,564
 2,560
 5,098
 5,111
Underwriting, acquisition and insurance expenses36,189
 39,577
38,948
 37,210
 75,137
 76,787
Interest expense1,212
 1,213
1,212
 1,213
 2,424
 2,426
Other expenses6,250
 5,593
6,635
 5,627
 12,885
 11,220
Total benefits and expenses163,456
 155,735
156,542
 152,972
 319,998
 308,707
40,100
 26,695
36,364
 37,477
 76,464
 64,172
Income taxes(6,276) (3,813)(5,511) (5,831) (11,787) (9,644)
Equity income, net of related income taxes220
 660
1,404
 1,139
 1,624
 1,799
Net income34,044
 23,542
32,257
 32,785
 66,301
 56,327
Net loss (income) attributable to noncontrolling interest(1) 23
Net loss attributable to noncontrolling interest41
 18
 40
 41
Net income attributable to FBL Financial Group, Inc.$34,043
 $23,565
$32,298
 $32,803
 $66,341
 $56,368
          
Earnings per common share$1.37
 $0.94
$1.30
 $1.31
 $2.68
 $2.26
Earnings per common share - assuming dilution$1.37
 $0.94
$1.30
 $1.31
 $2.68
 $2.25

See accompanying notes.


4



FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(Dollars in thousands)
Three months ended March 31,Three months ended June 30, Six months ended June 30,
2019 20182019 2018 2019 2018
Net income$34,044
 $23,542
$32,257
 $32,785
 $66,301
 $56,327
Other comprehensive income (loss) (1)          
Change in net unrealized investment gains/losses97,640
 (93,154)113,416
 (55,797) 211,056
 (148,951)
Change in underfunded status of postretirement benefit plans208
 262
211
 267
 419
 529
Total other comprehensive income (loss), net of tax97,848
 (92,892)113,627
 (55,530) 211,475
 (148,422)
Total comprehensive income (loss), net of tax131,892
 (69,350)145,884
 (22,745) 277,776
 (92,095)
Comprehensive loss (income) attributable to noncontrolling interest(1) 23
Comprehensive loss attributable to noncontrolling interest41
 18
 40
 41
Total comprehensive income (loss) applicable to FBL Financial Group, Inc.$131,891
 $(69,327)$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    
 Series B Preferred Stock Class A and Class B Common Stock Accumulated Other Comprehensive Income Retained Earnings 
Non-
controlling Interest
 Total Stockholders’ Equity
Balance at January 1, 2018$3,000
 $153,661
 $284,983
 $935,423
 $58
 $1,377,125
Cumulative effect of change in accounting principle related to net unrealized gains on equity securities—
 —
 (5,869) 5,869
 —
 —
Net income - three months ended March 31, 2018—
 —
 —
 23,565
 (23) 23,542
Other comprehensive loss—
 —
 (92,892) —
 —
 (92,892)
Stock-based compensation—
 218
 —
 —
 —
 218
Purchase of common stock—
 (612) —
 (6,194) —
 (6,806)
Dividends on preferred stock—
 —
 —
 (38) —
 (38)
Dividends on common stock—
 —
 —
 (48,753) —
 (48,753)
Balance at March 31, 2018$3,000
 $153,267
 $186,222
 $909,872
 $35
 $1,252,396
            
Balance at January 1, 2019$3,000
 $152,724
 $91,318
 $937,097
 $120
 $1,184,259
Cumulative effect of change in accounting principle related to leases—
 —
 —
 595
 —
 595
Net income - three months ended March 31, 2019—
 —
 —
 34,043
 1
 34,044
Other comprehensive income—
 —
 97,848
 —
 —
 97,848
Stock-based compensation—
 202
 —
 —
 —
 202
Purchase of common stock—
 (410) —
 (4,167) —
 (4,577)
Dividends on preferred stock—
 —
 —
 (38) —
 (38)
Dividends on common stock—
 —
 —
 (48,812) —
 (48,812)
Balance at March 31, 2019$3,000
 $152,516
 $189,166
 $918,718
 $121
 $1,263,521
 FBL Financial Group, Inc. Stockholders’ Equity    
 Series B Preferred Stock Class A and Class B Common Stock Accumulated Other Comprehensive Income Retained Earnings 
Non-
controlling Interest
 Total Stockholders’ Equity
Balance at 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—
 —
 389
 (389) —
 —
Net income - three months ended June 30, 2018—
 —
 —
 32,803
 (18) 32,785
Other comprehensive loss—
 —
 (55,530) —
 —
 (55,530)
Stock-based compensation—
 102
 —
 —
 —
 102
Purchase of common stock—
 (183) —
 (1,860) —
 (2,043)
Dividends on preferred stock—
 —
 —
 (37) —
 (37)
Dividends on common stock—
 —
 —
 (11,416) —
 (11,416)
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 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





5

FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Continued)
(Dollars in thousands)

 FBL Financial Group, Inc. Stockholders’ Equity    
 Series B Preferred Stock Class A and Class B Common Stock Accumulated Other Comprehensive Income Retained Earnings 
Non-
controlling Interest
 Total Stockholders’ Equity
Balance at January 1, 2018$3,000
 $153,661
 $284,983
 $935,423
 $58
 $1,377,125
Cumulative effect of change in accounting principle related to net unrealized gains on equity securities—
 —
 (5,480) 5,480
 —
 —
Net income - 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.



5





6



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

Three months ended March 31,Six months ended June 30,
2019 20182019 2018
Operating activities      
Net income$34,044
 $23,542
$66,301
 $56,327
Adjustments to reconcile net income to net cash provided by operating activities:      
Interest credited to account balances38,531
 40,650
80,152
 82,699
Charges for mortality, surrenders and administration(31,201) (29,827)(62,978) (60,081)
Net realized (gains) losses on investments(9,288) 3,042
(9,665) 2,705
Change in fair value of derivatives(29) (534)(1,242) (3,089)
Increase in liabilities for life insurance and other future policy benefits17,507
 18,264
34,593
 38,308
Deferral of acquisition costs(11,739) (11,293)(22,628) (22,244)
Amortization of deferred acquisition costs and value of insurance in force7,774
 10,314
17,176
 20,318
Change in reinsurance recoverable(805) 2,454
742
 5,097
Provision for deferred income taxes1,822
 (3,146)3,020
 (4,190)
Other(1,923) (1,865)(19,850) 11,362
Net cash provided by operating activities44,693
 51,601
85,621
 127,212
      
Investing activities      
Sales, maturities or repayments:      
Fixed maturities - available for sale128,274
 138,254
314,460
 352,051
Equity securities - available for sale5,085
 —
Mortgage loans24,603
 10,383
49,386
 36,861
Derivative instruments2,121
 4,131
7,314
 8,912
Policy loans9,095
 9,133
18,057
 19,030
Securities and indebtedness of related parties1,133
 1,596
4,466
 3,021
Other long-term investments1,210
 938
2,950
 3,524
Acquisitions:      
Fixed maturities - available for sale(128,578) (288,677)(346,440) (529,344)
Equity securities - available for sale(11,069) (1,389)(13,092) (2,283)
Mortgage loans(5,650) (7,186)(25,902) (47,936)
Derivative instruments(4,432) (3,219)(9,766) (7,049)
Policy loans(10,959) (11,148)(20,937) (22,470)
Securities and indebtedness of related parties(4,710) (4,633)(11,476) (8,409)
Other long-term investments(975) (5,531)(2,788) (6,531)
Short-term investments, net change4,198
 (13,068)6,192
 1,866
Purchases and disposals of property and equipment, net(4,049) (1,859)(7,931) (6,067)
Net cash provided by (used in) investing activities212
 (172,275)
Net cash used in investing activities(30,422) (204,824)




67



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

Three months ended March 31,Six months ended June 30,
2019 20182019 2018
Financing activities      
Contract holder account deposits$135,844
 $261,240
$316,988
 $402,751
Contract holder account withdrawals(143,456) (124,978)(311,187) (311,878)
Dividends paid(48,850) (48,791)(60,723) (60,244)
Proceeds from issuance of short-term debt4,000
 —
4,000
 27,000
Repayments of short-term debt(4,000) —
Issuance or repurchase of common stock, net(5,421) (5,840)(5,458) (9,023)
Other financing activities—
 15
Net cash provided by (used in) financing activities(57,883) 81,631
(60,380) 48,621
Decrease in cash and cash equivalents(12,978) (39,043)(5,181) (28,991)
Cash and cash equivalents at beginning of period19,035
 52,696
19,035
 52,696
Cash and cash equivalents at end of period$6,057
 $13,653
$13,854
 $23,705
      
Supplemental disclosures of cash flow information      
Cash (paid) received during the period for:      
Interest$(1,213) $(1,213)$(2,426) $(2,425)
Income taxes—
 (5)(30) (20)

See accompanying notes.


78

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

1. Significant Accounting Policies

Basis of Presentation

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

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

New Accounting Pronouncements

DescriptionDate of adoptionEffect on our consolidated financial statements or other significant matters
Standards adopted:
Leases
In February 2016, the FASB issued a new lease accounting standard, which, for most lessees, results in a gross-up of the balance sheet. Under the new standard, lessees recognize the leased assets on the balance sheet and recognize a corresponding liability for the present value of lease payments over the lease term. The new standard requires the application of judgment and estimates. Also, there are accounting policy elections that may be taken both at transition and for the accounting post-transition, including whether to adopt a short-term lease recognition exemption.
January 1, 2019Upon 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, was recorded to retained earnings and both other assets and other liabilities increased by $7.2 million. We elected the practical expedients provided for under the guidance, but did not use hindsight in determining lease term. We have no finance leases and have elected to treat leases with terms of twelve months or less as short-term leases. The impact to earnings per share due to adopting this guidance for the three and six months ended March 31,June 30, 2019 was less than ($0.01) per share. See Note 65 for additional discussion.
Financial instruments - recognition and measurement
In January 2016, the FASB issued guidance that amended certain aspects of the recognition and measurement of financial instruments. The new guidance primarily affected the accounting for equity securities, which are now carried at fair value with valuation changes recognized in the statement of operations rather than as other comprehensive income. The presentation and disclosure requirements for financial instruments and the methodology for assessing the need for a valuation allowance on deferred tax assets resulting from unrealized losses on available-for-sale fixed maturity securities were also revised under the new guidance. The new standard required the use of a modified retrospective method at adoption.
January 1, 2018Upon adoption, we reclassified $5.9$5.5 million of net unrealized investment gains, net of adjustments to deferred acquisition costs, interest sensitive policy reserves and income taxes, on our equity securities from accumulated other comprehensive income to retained earnings as a cumulative effect adjustment.



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

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


Reclassifications

During the third quarter of 2018, we voluntarily changed our accounting policy for low income housing tax credit investments as discussed in Note 1 to our consolidated financial statements included in Item 8 of our Form 10-K for the fiscal year ended December 31, 2018. The 2018 consolidated financial statements have been reclassified to reflect this accounting change.



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2. Investment Operations

Fixed Maturity Securities

Available-For-Sale Fixed Maturity Securities by Investment CategoryAvailable-For-Sale Fixed Maturity Securities by Investment Category  Available-For-Sale Fixed Maturity Securities by Investment Category  
March 31, 2019June 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$3,259,853
 $213,704
 $(40,981) $3,432,576
 $—
$3,287,380
 $320,359
 $(21,989) $3,585,750
 $—
Residential mortgage-backed584,767
 36,715
 (2,733) 618,749
 3,035
581,099
 49,055
 (775) 629,379
 2,084
Commercial mortgage-backed896,528
 31,393
 (11,217) 916,704
 —
937,041
 67,240
 (526) 1,003,755
 —
Other asset-backed680,507
 17,781
 (3,472) 694,816
 968
671,762
 22,017
 (2,332) 691,447
 740
United States Government and agencies19,555
 1,203
 (45) 20,713
 —
17,029
 1,572
 (16) 18,585
 —
States and political subdivisions1,432,007
 118,037
 (2,018) 1,548,026
 —
1,415,673
 140,791
 (758) 1,555,706
 —
Total fixed maturities$6,873,217
 $418,833
 $(60,466) $7,231,584
 $4,003
$6,909,984
 $601,034
 $(26,396) $7,484,622
 $2,824
 December 31, 2018
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 Non-credit losses on other-than-temporary impairments (1)
 (Dollars in thousands)
Fixed maturities:         
Corporate$3,231,846
 $138,972
 $(90,933) $3,279,885
 $—
Residential mortgage-backed584,133
 29,969
 (7,242) 606,860
 2,823
Commercial mortgage-backed873,672
 24,284
 (19,390) 878,566
 —
Other asset-backed697,332
 15,567
 (5,329) 707,570
 1,143
United States Government and agencies19,673
 996
 (134) 20,535
 —
States and political subdivisions1,449,621
 95,921
 (5,913) 1,539,629
 —
Total fixed maturities$6,856,277
 $305,709
 $(128,941) $7,033,045
 $3,966

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


Available-For-Sale Fixed Maturities by Maturity Date      
March 31, 2019June 30, 2019
Amortized
Cost
 

Fair Value
Amortized
Cost
 

Fair Value
(Dollars in thousands)(Dollars in thousands)
Due in one year or less$106,619
 $107,635
$73,729
 $74,777
Due after one year through five years534,193
 555,588
530,041
 556,513
Due after five years through ten years697,348
 729,149
716,263
 771,586
Due after ten years3,373,255
 3,608,943
3,400,049
 3,757,165
4,711,415
 5,001,315
4,720,082
 5,160,041
Mortgage-backed and other asset-backed2,161,802
 2,230,269
2,189,902
 2,324,581
Total fixed maturities$6,873,217
 $7,231,584
$6,909,984
 $7,484,622




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

Net Unrealized Gains on Investments in Accumulated Other Comprehensive Income
March 31,
2019		 December 31,
2018		June 30,
2019		 December 31,
2018
(Dollars in thousands)(Dollars in thousands)
Net unrealized appreciation on:      
Fixed maturities - available for sale$358,367
 $176,768
$574,638
 $176,768
Adjustments for assumed changes in amortization pattern of:      
Deferred acquisition costs(96,710) (46,732)(158,405) (46,732)
Value of insurance in force acquired(10,469) (6,878)(12,827) (6,878)
Unearned revenue reserve11,297
 5,134
15,127
 5,134
Adjustments for assumed changes in policyholder liabilities(12,240) (1,642)(24,724) (1,642)
Provision for deferred income taxes(52,551) (26,596)(82,699) (26,596)
Net unrealized investment gains$197,694
 $100,054
$311,110
 $100,054


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

Fixed Maturity Securities with Unrealized Losses by Length of TimeFixed Maturity Securities with Unrealized Losses by Length of Time  Fixed Maturity Securities with Unrealized Losses by Length of Time  
 March 31, 2019 June 30, 2019
 Less than one year One year or more Total   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 

Fair Value
 Unrealized Losses 

Fair Value
 Unrealized Losses  Fair Value Unrealized Losses Percent of Total
 (Dollars in thousands)   (Dollars in thousands)  
Fixed maturities:                            
Corporate $211,512
 $(7,452) $445,481
 $(33,529) $656,993
 $(40,981) 67.8% $29,173
 $(738) $252,898
 $(21,251) $282,071
 $(21,989) 83.3%
Residential mortgage-backed 16,335
 (590) 89,982
 (2,143) 106,317
 (2,733) 4.5
 3,857
 (329) 24,215
 (446) 28,072
 (775) 2.9
Commercial mortgage-backed 41,535
 (673) 294,545
 (10,544) 336,080
 (11,217) 18.6
 89
 —
 18,704
 (526) 18,793
 (526) 2.0
Other asset-backed 142,050
 (2,218) 170,790
 (1,254) 312,840
 (3,472) 5.7
 95,239
 (1,401) 93,275
 (931) 188,514
 (2,332) 8.8
United States Government and agencies —
 —
 3,699
 (45) 3,699
 (45) 0.1
 —
 —
 2,982
 (16) 2,982
 (16) 0.1
States and political subdivisions 7,872
 (571) 23,357
 (1,447) 31,229
 (2,018) 3.3
 4,219
 (208) 6,426
 (550) 10,645
 (758) 2.9
Total fixed maturities $419,304
 $(11,504) $1,027,854
 $(48,962) $1,447,158
 $(60,466) 100.0% $132,577
 $(2,676) $398,500
 $(23,720) $531,077
 $(26,396) 100.0%

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


Fixed maturities in the above tables include 412182 securities from 271144 issuers at March 31,June 30, 2019 and 709 securities from 465 issuers at December 31, 2018.


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Unrealized losses decreased during the threesix months ended March 31,June 30, 2019 primarily due to 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 March 31,June 30, 2019. We will continue to monitor the investment portfolio for future changes in issuer facts and circumstances that could result in future impairments beyond those currently identified.

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

Credit Loss Component of Other-Than-Temporary Impairments on Fixed Maturities
Three months ended March 31,Six months ended June 30,
2019
20182019
2018
(Dollars in thousands)(Dollars in thousands)
Balance at beginning of period$(5,963) $(12,392)$(5,963) $(12,392)
Reductions due to investments sold or paid down230
 271
729
 3,369
Reduction for credit loss that no longer has a portion of the OTTI loss recognized in other comprehensive income—
 2,529
—
 2,529
Balance at end of period$(5,733) $(9,592)$(5,234) $(6,494)


The table above sets forth the amount of credit loss impairments on fixed maturities held by the Company as of the dates indicated for which the non-credit portion of the OTTI was recognized in other comprehensive income and corresponding changes in such amounts. Credit loss impairments with no portion of the loss recognized in other comprehensive income, such as securities for which OTTI was measured at fair value, are excluded from the table.
Realized Gains (Losses) - Recorded in Income
          
Three months ended March 31,Three months ended June 30, Six months ended June 30,
2019 20182019 2018 2019 2018
(Dollars in thousands)(Dollars in thousands)
Realized gains (losses) on investments          
Fixed maturities:          
Gross gains$2,994
 $83
$143
 $1,713
 $3,137
 $1,796
Gross losses(304) (1) (304) (1)
Mortgage loans2,778
 —
—
 —
 2,778
 —
Other(4) (13)—
 (5) (4) (18)
5,768
 70
(161) 1,707
 5,607
 1,777
          
Net gains (losses) recognized during the period on equity securities held at the end of the period463
 (866) 4,882
 (2,683)
Net gains recognized during the period on equity securities sold during the period75
 —
 45
 —
Net gains (losses) recognized during the period on equity securities4,419
 (1,817)538
 (866) 4,927
 (2,683)
Less net gains and (losses) recognized during the period on equity securities sold during the period(30) —
Net gains (losses) recognized during the period on equity securities held at the end of the period4,389
 (1,817)
Net realized gains (losses)10,157
 (1,747)377
 841
 10,534
 (906)
          
Impairment losses recognized in earnings:          
Other credit-related(869) (1,040)—
 —
 (869) (1,040)
Net realized gains (losses) on investments recorded in income$9,288
 $(3,042)$377
 $841
 $9,665
 $(1,946)




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Proceeds from sales of fixed maturities totaled $6.7$22.2 million during the threesix months ended March 31,June 30, 2019 and $5.2$56.3 million during the threesix months ended March 31,June 30, 2018.



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

Mortgage Loans

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

Any loan delinquent on contractual payments is considered non-performing. Mortgage loans are placed on non-accrual status if we have concerns regarding the collectability of future payments. Interest income on non-performing loans is generally recognized on a cash basis. Once mortgage loans are classified as non-accrual loans, the resumption of the interest accrual would commence only after all past due interest has been collected or the mortgage loan has been restructured such that the collection of interest is considered likely. At March 31,June 30, 2019 and December 31, 2018, there were no non-performing loans over 90 days past due on contractual payments. At March 31,June 30, 2019, we had committed to provide additional funding for mortgage loans totaling $9.5$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                
 March 31, 2019 December 31, 2018 June 30, 2019 December 31, 2018
Collateral Type Carrying Value Percent of Total Carrying Value Percent of Total Carrying Value Percent of Total Carrying Value Percent of Total
 (Dollars in thousands) (Dollars in thousands)
Office $438,068
 42.8% $443,048
 42.6% $421,867
 41.4% $443,048
 42.6%
Retail 312,276
 30.5
 310,625
 29.9
 317,685
 31.2
 310,625
 29.9
Industrial 198,973
 19.4
 211,138
 20.3
 205,917
 20.2
 211,138
 20.3
Other 74,338
 7.3
 75,018
 7.2
 73,655
 7.2
 75,018
 7.2
Total $1,023,655
 100.0% $1,039,829
 100.0% $1,019,124
 100.0% $1,039,829
 100.0%


Mortgage Loans by Geographic Location within the United StatesMortgage Loans by Geographic Location within the United States  Mortgage Loans by Geographic Location within the United States  
 March 31, 2019 December 31, 2018 June 30, 2019 December 31, 2018
Region of the United States Carrying Value Percent of Total Carrying Value Percent of Total Carrying Value Percent of Total Carrying Value Percent of Total
 (Dollars in thousands) (Dollars in thousands)
South Atlantic $297,927
 29.1% $301,206
 29.0% $304,277
 29.9% $301,206
 29.0%
Pacific 157,713
 15.4
 162,824
 15.7
 156,210
 15.3
 162,824
 15.7
East North Central 120,371
 11.8
 117,768
 11.3
West North Central 127,499
 12.5
 126,320
 12.1
 112,130
 11.0
 126,320
 12.1
East North Central 121,913
 11.9
 117,768
 11.3
Mountain 90,475
 8.8
 101,335
 9.7
 89,531
 8.8
 101,335
 9.7
West South Central 85,003
 8.3
 85,919
 8.3
 85,648
 8.4
 85,919
 8.3
East South Central 75,442
 7.4
 76,098
 7.3
 83,959
 8.2
 76,098
 7.3
Middle Atlantic 34,559
 3.4
 34,843
 3.4
 34,271
 3.4
 34,843
 3.4
New England 33,124
 3.2
 33,516
 3.2
 32,727
 3.2
 33,516
 3.2
Total $1,023,655
 100.0% $1,039,829
 100.0% $1,019,124
 100.0% $1,039,829
 100.0%




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Mortgage Loans by Loan-to-Value Ratio                
 March 31, 2019 December 31, 2018 June 30, 2019 December 31, 2018
Loan-to-Value Ratio 

Carrying Value
 Percent of Total Carrying Value Percent of Total 

Carrying Value
 Percent of Total Carrying Value Percent of Total
 (Dollars in thousands) (Dollars in thousands)
0% - 50% $404,912
 39.6% $409,089
 39.3% $415,111
 40.7% $409,089
 39.3%
51% - 60% 304,608
 29.8
 314,038
 30.2
 298,116
 29.3
 314,038
 30.2
61% - 70% 270,610
 26.4
 264,973
 25.5
 283,310
 27.8
 264,973
 25.5
71% - 80% 37,186
 3.6
 37,418
 3.6
 18,235
 1.8
 37,418
 3.6
81% - 90% 6,339
 0.6
 14,311
 1.4
 4,352
 0.4
 14,311
 1.4
Total $1,023,655
 100.0% $1,039,829
 100.0% $1,019,124
 100.0% $1,039,829
 100.0%


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

Mortgage Loans by Year of Origination                
 March 31, 2019 December 31, 2018 June 30, 2019 December 31, 2018
Year of Origination Carrying Value Percent of Total Carrying Value Percent of Total Carrying Value Percent of Total Carrying Value Percent of Total
 (Dollars in thousands) (Dollars in thousands)
2019 $5,650
 0.6% $—
 —% $25,878
 2.6% $—
 —%
2018 136,693
 13.4
 137,519
 13.2
 135,831
 13.3
 137,519
 13.2
2017 205,744
 20.1
 207,540
 20.0
 203,949
 20.0
 207,540
 20.0
2016 148,175
 14.4
 149,437
 14.4
 146,900
 14.4
 149,437
 14.4
2015 127,800
 12.5
 128,877
 12.4
 126,711
 12.4
 128,877
 12.4
2014 & prior 399,593
 39.0
 416,456
 40.0
 379,855
 37.3
 416,456
 40.0
Total $1,023,655
 100.0% $1,039,829
 100.0% $1,019,124
 100.0% $1,039,829
 100.0%


Impaired Mortgage Loans
March 31, 2019 December 31, 2018June 30, 2019 December 31, 2018
(Dollars in thousands)(Dollars in thousands)
Unpaid principal balance$4,706
 $18,622
$4,681
 $18,622
Less:      
Related allowance(329) (3,107)(329) (3,107)
Carrying value of impaired mortgage loans$4,377
 $15,515
$4,352
 $15,515


Allowance on Mortgage Loans
Three months ended March 31,Six months ended June 30,
2019 20182019 2018
(Dollars in thousands)(Dollars in thousands)
Balance at beginning of period$3,107
 $497
$3,107
 $497
Recoveries(2,778) (50)(2,778) (100)
Balance at end of period$329
 $447
$329
 $397




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Mortgage Loan Modifications

Our commercial mortgage loan portfolio can include loans that have been modified. We assess loan modifications on a loan-by-loan basis to evaluate whether a troubled debt restructuring has occurred. Generally, the types of concessions include: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 threesix months ended March 31,June 30, 2019 or March 31,June 30, 2018.

Variable Interest Entities

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

We have reviewed the circumstances surrounding our investments in VIEs, which consist of (i) limited partnerships or limited liability companies accounted for under the equity method included in securities and indebtedness of related parties and (ii) non-guaranteed federal LIHTC investments included in other assets. In addition, we have reviewed the ownership interest in our VIEs and determined that we do not hold direct majority ownership or have other contractual rights (such as kick out rights) that give us effective control over these entities resulting in us having both the power to direct activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE. The maximum loss exposure relative to our VIEs is limited to the carrying value and any unfunded commitments that exist for each particular VIE. We also have not provided additional support or other guarantees that were not previously contractually required (financial or otherwise) to any of the VIEs as of March 31,June 30, 2019 or December 31, 2018. Based on our analysis, none of our VIEs were required to be consolidated at March 31,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 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 firstsecond quarter of 2019 and $1.8 million for the six months ended June 30, 2019, compared to $0.9 million for the firstsecond quarter of 2018 and $1.9 million for the six months ended June 30, 2018.

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

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





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VIE Investments by Category              
March 31, 2019 December 31, 2018June 30, 2019 December 31, 2018
Carrying Value Maximum Exposure to Loss Carrying Value Maximum Exposure to LossCarrying Value Maximum Exposure to Loss Carrying Value Maximum Exposure to Loss
(Dollars in thousands)(Dollars in thousands)
LIHTC investments$51,156
 $52,657
 $54,037
 $55,597
$48,250
 $49,752
 $54,037
 $55,597
Investment companies44,164
 80,590
 40,236
 79,578
47,840
 94,091
 40,236
 79,578
Real estate limited partnerships8,489
 15,344
 8,945
 15,673
9,415
 15,938
 8,945
 15,673
Other494
 504
 483
 493
493
 493
 483
 493
Total$104,303
 $149,095
 $103,701
 $151,341
$105,998
 $160,274
 $103,701
 $151,341


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


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

Derivative Instruments

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

Derivatives Instruments by Type  
March 31, 2019 December 31, 2018June 30, 2019 December 31, 2018
(Dollars in thousands)(Dollars in thousands)
Assets      
Freestanding derivatives:      
Call options (reported in other investments)$15,741
 $4,745
$19,698
 $4,745
Embedded derivatives:      
Modified coinsurance (reported in reinsurance recoverable)110
 157
824
 157
Interest-only security (reported in fixed maturities)786
 855
676
 855
Total assets$16,637
 $5,757
$21,198
 $5,757
      
Liabilities      
Embedded derivatives:      
Indexed products (reported in liability for future policy benefits)$51,891
 $40,028
$59,375
 $40,028
Modified coinsurance (reported in other liabilities)99
 7,426
193
 7,426
Total liabilities$51,990
 $47,454
$59,568
 $47,454

Derivative Income (Loss)          
Three months ended March 31,Three months ended June 30, Six months ended June 30,
2019 20182019 2018 2019 2018
(Dollars in thousands)(Dollars in thousands)
Change in fair value of free standing derivatives:   
Change in fair value of free-standing derivatives:       
Call options$8,685
 $(1,152)$3,816
 $2,193
 $12,502
 $1,041
Change in fair value of embedded derivatives:          
Modified coinsurance633
 (943)620
 125
 1,253
 (818)
Interest-only security47
 (35)69
 (44) 116
 (79)
Indexed products(9,336) 2,664
(3,294) 281
 (12,629) 2,945
Total income from derivatives$29
 $534
$1,211
 $2,555
 $1,242
 $3,089



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

We are exposed to credit losses in the event of nonperformance of the derivative counterparties. This credit risk is minimized by purchasing such agreements from financial institutions with high credit ratings (currently rated A or better by nationally recognized statistical rating organizations). We have also entered into credit support agreements with the counterparties requiring them to post collateral when net exposures exceed pre-determined thresholds that vary by counterparty. The net amount of such exposure is essentially the market value less collateral held for such agreements with each counterparty. The call options are supported by securities collateral received of $11.9$16.2 million at March 31,June 30, 2019, which is held in a separate custodial account. Subject to certain constraints, we are permitted to sell or re-pledge this collateral, but do not have legal rights to the collateral; accordingly, it has not been recorded on our balance sheet. At March 31,June 30, 2019, none of the collateral had been sold or re-pledged. As of March 31,June 30, 2019, our net derivative exposure was $4.0$3.6 million.



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3. Fair Values

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

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

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

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

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

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

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

Fixed maturities:

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

Level 2 fixed maturities consist of corporate, mortgage- and asset-backed, United States Government agencies, state and political subdivisions and private placement corporate securities with observable market data, and in some circumstances recent trade activity. When quoted prices of identical assets in active markets are not available our first priority is towe obtain prices from third partythird-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 ofusing 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


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


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

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

We follow a “pricing waterfall” policy, which establishes the pricing source preference for a particular security or security type. The order of preference is based on our evaluation of the valuation methods used, the source’s knowledge of the instrument and the reliability of the prices we have received from the source in the past. Our valuation policy dictates that fair values are initially sought from third partythird-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 partythird-party pricing source estimation methodologies to assess whether they will provide a fair value that approximates a market exit price.

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

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

We compare prices between different pricing sources for unusual disparity.

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

Equity securities:

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

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

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

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

Other investments:

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



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Cash, cash equivalents and short-term investments:

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

Reinsurance recoverable:

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

Assets held in separate accounts:

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

Future policy benefits - indexed product embedded derivatives:

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

Other liabilities:

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




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Valuation of our Financial Instruments Measured on a Recurring Basis by Hierarchy Levels
March 31, 2019June 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
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)(Dollars in thousands)
Assets              
Fixed maturities:              
Corporate securities$—
 $3,405,623
 $26,953
 $3,432,576
$—
 $3,566,052
 $19,698
 $3,585,750
Residential mortgage-backed securities—
 618,749
 —
 618,749
—
 627,255
 2,124
 629,379
Commercial mortgage-backed securities—
 908,579
 8,125
 916,704
—
 995,421
 8,334
 1,003,755
Other asset-backed securities—
 687,167
 7,649
 694,816
—
 677,645
 13,802
 691,447
United States Government and agencies7,894
 12,819
 —
 20,713
7,382
 11,203
 —
 18,585
States and political subdivisions—
 1,548,026
 —
 1,548,026
—
 1,555,706
 —
 1,555,706
Total fixed maturities7,894
 7,180,963
 42,727
 7,231,584
7,382
 7,433,282
 43,958
 7,484,622
Non-redeemable preferred stocks—
 80,980
 7,129
 88,109
—
 76,823
 7,048
 83,871
Common stocks (1)16,716
 —
 —
 16,716
16,749
 —
 —
 16,749
Other investments—
 15,741
 —
 15,741
—
 19,698
 —
 19,698
Cash, cash equivalents and short-term investments17,572
 —
 —
 17,572
23,375
 —
 —
 23,375
Reinsurance recoverable—
 109
 —
 109
—
 824
 —
 824
Assets held in separate accounts614,121
 —
 —
 614,121
625,177
 —
 —
 625,177
Total assets$656,303
 $7,277,793
 $49,856
 $7,983,952
$672,683
 $7,530,627
 $51,006
 $8,254,316
              
Liabilities              
Future policy benefits - indexed product embedded derivatives$—
 $—
 $51,891
 $51,891
$—
 $—
 $59,375
 $59,375
Other liabilities—
 99
 —
 99
—
 193
 —
 193
Total liabilities$—
 $99
 $51,891
 $51,990
$—
 $193
 $59,375
 $59,568





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


(1)A private equity fund with a fair value estimate of $3.7$5.4 million at March 31,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 in accordance with fair value reporting guidance. This fund invests in senior secured middle market loans and had unfunded commitments totaling $6.4$4.7 million at March 31,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
March 31, 2019June 30, 2019
Third-party vendors Priced
internally		 Fair ValueThird-party vendors Priced
internally		 Fair Value
(Dollars in thousands)(Dollars in thousands)
Corporate securities$7,782
 $19,171
 $26,953
$—
 $19,698
 $19,698
Residential mortgage-backed securities2,124
 —
 2,124
Commercial mortgage-backed securities8,125
 —
 8,125
8,334
 —
 8,334
Other asset-backed securities5,000
 2,649
 7,649
11,710
 2,092
 13,802
Non-redeemable preferred stocks—
 7,129
 7,129
—
 7,048
 7,048
Total assets$20,907
 $28,949
 $49,856
$22,168
 $28,838
 $51,006
Percent of total41.9% 58.1% 100.0%43.5% 56.5% 100.0%




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


Quantitative Information about Level 3 Fair Value Measurements - Recurring Basis
March 31, 2019June 30, 2019
Fair Value Valuation Technique Unobservable Input Range (Weighted Average)Fair Value Valuation Technique Unobservable Input Range (Weighted Average)
(Dollars in thousands) (Dollars in thousands) 
Assets    
Corporate securities$18,460
 Discounted cash flow Credit spread 1.06% - 5.95% (3.77%)$18,012
 Discounted cash flow Credit spread 1.09% - 6.50% (3.82%)
Commercial mortgage-backed securities8,125
 Discounted cash flow Credit spread 1.30% - 2.25% (1.90%)8,334
 Discounted cash flow Credit spread 1.20% - 2.20% (1.85%)
Non-redeemable preferred stocks7,129
 Discounted cash flow Credit spread 3.40% (3.40%)7,048
 Discounted cash flow Credit spread 2.86% (2.86%)
Total assets$33,714
 $33,394
 
    
Liabilities    
Future policy benefits - indexed product embedded derivatives$51,891
 Discounted cash flow 
Credit risk
Risk margin
 
0.35% - 1.70% (1.05%)
0.15% - 0.40% (0.25%)
$59,375
 Discounted cash flow 
Credit risk
Risk margin
 
0.40% - 1.65% (1.00%)
0.15% - 0.40% (0.25%)


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


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



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Level 3 Financial Instruments Changes in Fair Value - Recurring BasisLevel 3 Financial Instruments Changes in Fair Value - Recurring Basis   Level 3 Financial Instruments Changes in Fair Value - Recurring Basis   
March 31, 2019June 30, 2019
     Realized and unrealized gains (losses), net            Realized and unrealized gains (losses), net       
Balance, December 31, 2018 Purchases Disposals Included in net income Included in other compre-hensive income 
Transfers into
Level 3
 
Transfers
out of
Level 3 (1)
 Amort-ization included in net income Balance, March 31, 2019Balance, 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)(Dollars in thousands)
Assets                                  
Corporate securities$22,011
 $6,000
 $(1,262) $—
 $212
 $—
 $—
 $(8) $26,953
$22,011
 $6,000
 $(2,673) $—
 $376
 $—
 $(6,000) $(16) $19,698
Residential mortgage-backed securities—
 2,124
 —
 —
 —
 —
 —
 —
 2,124
Commercial mortgage-backed securities67,940
 —
 (92) —
 195
 —
 (59,918) —
 8,125
67,940
 —
 (186) —
 498
 —
 (59,918) —
 8,334
Other asset-backed securities3,601
 5,000
 (83) —
 (869) —
 —
 —
 7,649
3,601
 16,710
 (640) —
 (869) —
 (5,000) —
 13,802
Non-redeemable preferred stocks6,862
 —
 —
 —
 267
 —
 —
 —
 7,129
6,862
 —
 —
 —
 186
 —
 —
 —
 7,048
Total assets$100,414
 $11,000
 $(1,437) $—
 $(195) $—
 $(59,918) $(8) $49,856
$100,414
 $24,834
 $(3,499) $—
 $191
 $—
 $(70,918) $(16) $51,006
                                  
Liabilities                                  
Future policy benefits - indexed product embedded derivatives$40,028
 $3,479
 $(1,169) $9,553
 $—
 $—
 $—
 $—
 $51,891
$40,028
 $6,899
 $(3,364) $15,812
 $—
 $—
 $—
 $—
 $59,375


March 31, 2018June 30, 2018
     Realized and unrealized gains (losses), net            Realized and unrealized gains (losses), net       
Balance, December 31, 2017 Purchases Disposals Included in net income Included in other compre-hensive income 
Transfers into
Level 3
 
Transfers
out of
Level 3 (1)
 Amort-ization included in net income 
Balance,
March 31, 2018
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)(Dollars in thousands)
Assets                                  
Corporate securities$33,600
 $—
 $(1,091) $—
 $30
 $—
 $(2,000) $(8) $30,531
$33,600
 $—
 $(7,682) $—
 $(812) $7,082
 $(2,000) $282
 $30,470
Residential mortgage-backed securities9,124
 —
 —
 —
 —
 —
 (9,124) —
 —
9,124
 23,940
 —
 —
 —
 —
 (9,124) —
 23,940
Commercial mortgage-backed securities85,701
 21,875
 (227) —
 (1,838) —
 (13,477) (22) 92,012
85,701
 35,531
 (423) —
 (2,590) —
 (30,826) (26) 87,367
Other asset-backed securities53,480
 8,250
 (2,025) —
 13
 —
 (47,080) —
 12,638
53,480
 20,255
 (2,106) —
 13
 —
 (55,343) —
 16,299
Non-redeemable preferred stocks7,407
 —
 —
 —
 (82) —
 —
 —
 7,325
7,407
 —
 —
 —
 (351) —
 —
 —
 7,056
Total assets$189,312
 $30,125
 $(3,343) $—
 $(1,877) $—
 $(71,681) $(30) $142,506
$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
 $2,254
 $(942) $(366) $—
 $—
 $—
 $—
 $28,720
$27,774
 $5,226
 $(2,476) $2,445
 $—
 $—
 $—
 $—
 $32,969


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

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



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Valuation of our Financial Instruments Not Reported at Fair Value by Hierarchy LevelsValuation of our Financial Instruments Not Reported at Fair Value by Hierarchy Levels  Valuation of our Financial Instruments Not Reported at Fair Value by Hierarchy Levels  
March 31, 2019  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$—
 $—
 $1,044,026
 $1,044,026
 $1,023,655
$—
 $—
 $1,061,562
 $1,061,562
 $1,019,124
Policy loans—
 —
 244,677
 244,677
 199,230
—
 —
 253,802
 253,802
 200,246
Other investments—
 —
 29,958
 29,958
 28,922
—
 —
 29,934
 29,934
 29,135
Total assets$—
 $—
 $1,318,661
 $1,318,661
 $1,251,807
$—
 $—
 $1,345,298
 $1,345,298
 $1,248,505
                  
Liabilities                  
Future policy benefits$—
 $—
 $4,101,370
 $4,101,370
 $4,215,476
$—
 $—
 $4,255,017
 $4,255,017
 $4,237,938
Supplementary contracts without life contingencies—
 —
 305,768
 305,768
 303,771
—
 —
 311,443
 311,443
 302,685
Advance premiums and other deposits—
 —
 256,261
 256,261
 256,261
—
 —
 250,601
 250,601
 250,601
Short-term debt—
 —
 4,000
 4,000
 4,000
Long-term debt—
 —
 71,004
 71,004
 97,000
—
 —
 78,182
 78,182
 97,000
Liabilities related to separate accounts—
 —
 612,681
 612,681
 614,121
—
 —
 623,839
 623,839
 625,177
Total liabilities$—
 $—
 $5,351,084
 $5,351,084
 $5,490,629
$—
 $—
 $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


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 threesix months ended March 31,June 30, 2019 or March 31,June 30, 2018.



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4. Defined Benefit Plan

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

Components of Net Periodic Pension Cost for FBL and Affiliates Combined - Multiemployer Plan
Three months ended March 31,Three months ended June 30, Six months ended June 30,
2019 20182019 2018 2019 2018
(Dollars in thousands)(Dollars in thousands)
Service cost$1,137
 $1,493
$1,137
 $1,493
 $2,274
 $2,986
Interest cost3,318
 3,411
3,319
 3,410
 6,637
 6,821
Expected return on assets(4,707) (5,562)(4,707) (5,562) (9,414) (11,124)
Amortization of prior service cost—
 11
—
 12
 —
 23
Amortization of actuarial loss2,229
 3,127
2,228
 3,127
 4,457
 6,254
Net periodic pension cost$1,977
 $2,480
$1,977
 $2,480
 $3,954
 $4,960
          
FBL Financial Group, Inc. share of net periodic pension costs$633
 $760
$633
 $760
 $1,266
 $1,520

Components of Net Periodic Pension Cost for FBL and Affiliates Combined - Other Plans
Three months ended March 31,Three months ended June 30, Six months ended June 30,
2019 20182019 2018 2019 2018
(Dollars in thousands)(Dollars in thousands)
Service cost$117
 $135
$116
 $134
 $233
 $269
Interest cost248
 240
248
 239
 496
 479
Amortization of actuarial loss266
 338
267
 339
 533
 677
Net periodic pension cost$631
 $713
$631
 $712
 $1,262
 $1,425
          
FBL Financial Group, Inc. share of net periodic pension costs$362
 $418
$363
 $417
 $725
 $835


5. Credit Arrangements

Short-term debt as of March 31, 2019 consists of a $4.0 million short-term advance, collateralized by fixed maturity securities, payable to Federal Home Loan Bank of Des Moines (FHLB.) The advance was taken on March 29, 2019 and was paid off on April 1, 2019, with an interest rate of 2.62%.


6. Commitments and Contingencies

Legal Proceedings

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

Lease Commitments

As discussed in Note 1 to our consolidated financial statements, we adopted new accounting guidance for leases.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.


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Table of Contents

We consider leases with original terms of one year or less to be short-term. We have elected not to carry short-term leases on our consolidated balance sheet. We have no agreements with lease and non-lease components. None of our leases are considered finance leases.
At March 31, 2019 and on

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On the date of adoption, January 1, 2019, we held four long-term leases all of which related to real estate. The net present value of future cash flows for these leases is reported within our consolidated balance sheet in other assets and other liabilities. The carrying value of these leases was $6.8$14.9 million at March 31,June 30, 2019, and $7.2 million on the date of adoption, January 1, 2019.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. ThatDue to substantial leasehold improvements underway on this property, there is reasonable assurance that we will exercise the five-year renewal of the lease has aterm, increasing the carrying value of $5.6our leased asset during the second quarter of 2019 to $13.6 million as of March 31,on June 30, 2019, andcompared to $6.1 million on January 1, 2019. All of theour leases are based on fixed terms which expire from 2021 through 2024, but allow renewal. Two of theour 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 March 31, 2019 was $1.3 million.June 30, 2019.

Future remaining minimum lease payments for the long-term leases discussed above, as of March 31,June 30, 2019, are as follows:
Lease commitments by year  
March 31, 2019June 30, 2019
(Dollars in thousands)(Dollars in thousands)
2019$1,920
$1,303
20202,573
2,608
20212,574
2,610
2022222
2,444
202355
2,278
Thereafter24
6,594
Total minimum lease payments7,368
17,837
Less: Interest(526)(2,894)
Present value of lease liabilities$6,842
$14,943


Commitments for Partnership Investments and Private Corporate Bond Investments

7.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.



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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$4.6for $4.6 million during the threesix months ended March 31,June 30, 2019 and 99,312129,011 shares for $6.8$8.8 million during the threesix months ended March 31,June 30, 2018. Completion of the current program is dependent on market conditions and other factors. There is no guarantee as to the exact timing of any repurchases or the number of shares that we will repurchase. The share repurchase program may be modified or terminated at any time without prior notice. At March 31,June 30, 2019, $36.3 million remains available for repurchase under the active repurchase program.

Dividends          
Three months ended March 31,Three months ended June 30, Six months ended June 30,
2019 20182019 2018 2019 2018
Class A and B common stock:          
Cash dividends per common share$0.48
 $0.46
$0.48
 $0.46
 $0.96
 $0.92
Special cash dividend per common share1.50
 1.50
—
 —
 1.50
 1.50
Total common stock dividends per share$1.98
 $1.96
$0.48
 $0.46
 $2.46
 $2.42
          
Series B preferred stock dividends per share$0.0075
 $0.0075
$0.0075
 $0.0075
 $0.0150
 $0.0150



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Special cash dividends paid to our Class A and Class B common shareholders totaled $37.0 million infor the first quarter ofsix months ended June 30, 2019 and $37.3 million infor the first quarter ofsix months ended June 30, 2018.

Reconciliation of Outstanding Common StockReconciliation of Outstanding Common Stock        Reconciliation of Outstanding Common Stock        
Class A Class B TotalClass A Class B Total
Shares Dollars Shares Dollars Shares DollarsShares Dollars Shares Dollars Shares Dollars
(Dollars in thousands)(Dollars in thousands)
Outstanding at January 1, 201824,919,113
 $153,589
 11,413
 $72
 24,930,526
 $153,661
24,919,113
 $153,589
 11,413
 $72
 24,930,526
 $153,661
Stock-based compensation6,762
 218
 —
 —
 6,762
 218
16,694
 320
 —
 —
 16,694
 320
Purchase of common stock(99,312) (612) —
 —
 (99,312) (612)(129,011) (795) —
 —
 (129,011) (795)
Outstanding at March 31, 201824,826,563
 $153,195
 11,413
 $72
 24,837,976
 $153,267
Outstanding at June 30, 201824,806,796
 $153,114
 11,413
 $72
 24,818,209
 $153,186
                      
Outstanding at January 1, 201924,707,402
 $152,652
 11,413
 $72
 24,718,815
 $152,724
24,707,402
 $152,652
 11,413
 $72
 24,718,815
 $152,724
Stock-based compensation—
 202
 —
 —
 —
 202
7,545
 212
 —
 —
 7,545
 212
Purchase of common stock(66,475) (410) —
 —
 (66,475) (410)(66,475) (410) —
 —
 (66,475) (410)
Outstanding at March 31, 201924,640,927
 $152,444
 11,413
 $72
 24,652,340
 $152,516
Outstanding at June 30, 201924,648,472
 $152,454
 11,413
 $72
 24,659,885
 $152,526



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

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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 reclassifications214,083
 (902) —
 213,181
Reclassification adjustments(2,125) —
 419
 (1,706)
Balance at June 30, 2019$308,879
 $2,231
 $(8,317) $302,793


(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    
 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
 (Dollars in thousands)
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 liabilities143
 —
 —
 143
Other expenses - change in unrecognized postretirement items:      

Net actuarial loss—
 —
 530
 530
Reclassifications before income taxes(2,690) —
 530
 (2,160)
Income taxes565
 —
 (111) 454
Reclassification adjustments$(2,125) $—
 $419
 $(1,706)


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

Net actuarial loss—
 —
 263
 263
Reclassifications before income taxes(2,861) —
 263
 (2,598)
Income taxes601
 —
 (55) 546
Reclassification adjustments$(2,260) $—
 $208
 $(2,052)
Accumulated Other Comprehensive Income Reclassification AdjustmentsAccumulated Other Comprehensive Income Reclassification Adjustments    
Three months ended March 31, 2018Six months ended June 30, 2018
Unrealized Net Investment Gains (Losses) on Available For Sale Securities (1) Accumulated Non-Credit Impairment Losses (1) 
Underfunded Status of Postretirement Benefit
Plans
 TotalUnrealized Net Investment Gains (Losses) on Available-for-Sale Securities (1) Accumulated Non-Credit Impairment Losses (1) 
Underfunded Status of Postretirement Benefit
Plans
 Total
(Dollars in thousands)(Dollars in thousands)
Realized capital gains on sales of fixed maturities$(83) $—
 $—
 $(83)$(1,795) $—
 $—
 $(1,795)
Adjustments for assumed changes in deferred acquisition costs, value of insurance in force acquired, unearned revenue reserve and policyholder liabilities51
 —
 —
 51
(8) —
 —
 (8)
Other expenses - change in unrecognized postretirement items:      

      

Net actuarial loss—
 —
 331
 331
—
 —
 668
 668
Reclassifications before income taxes(32) —
 331
 299
(1,803) —
 668
 (1,135)
Income taxes7
 —
 (69) (62)379
 —
 (139) 240
Reclassification adjustments$(25) $—
 $262
 $237
$(1,424) $—
 $529
 $(895)

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



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8.7. Earnings per Share

Computation of Earnings per Common Share
Three months ended March 31,Three months ended June 30, Six months ended June 30,
2019 20182019 2018 2019 2018
(Dollars in thousands, except per share data)(Dollars in thousands, except per share data)
Numerator:          
Net income attributable to FBL Financial Group, Inc.$34,043
 $23,565
$32,298
 $32,803
 $66,341
 $56,368
Less: Dividends on Series B preferred stock38
 38
37
 37
 75
 75
Income available to common stockholders$34,005
 $23,527
$32,261
 $32,766
 $66,266
 $56,293
          
Denominator:          
Weighted average shares - basic24,765,277
 25,003,691
24,757,090
 24,916,597
 24,761,161
 24,960,391
Effect of dilutive securities - stock-based compensation11,176
 15,818
11,122
 12,903
 11,149
 14,405
Weighted average shares - diluted24,776,453
 25,019,509
24,768,212
 24,929,500
 24,772,310
 24,974,796
          
Earnings per common share$1.37
 $0.94
$1.30
 $1.31
 $2.68
 $2.26
Earnings per common share - assuming dilution$1.37
 $0.94
$1.30
 $1.31
 $2.68
 $2.25

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



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9.8. 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.
Our chief operating decision makers use pre-tax adjusted operating income to evaluate segment performance and allocate resources. Pre-tax adjusted operating income is not a measure used in financial statements prepared in accordance with GAAP, but is a common life insurance industry measure of performance.
Pre-tax adjusted operating income consists of pre-tax net income adjusted to exclude realized gains and losses on investments and the change in fair value of derivatives and equity securities, which can fluctuate greatly from period to period. These fluctuations make it difficult to analyze core operating trends. In addition, for derivatives not designated as hedges, there is a mismatch between the valuation of the asset and liability when deriving net income (loss). Specifically, call options relating to our indexed business are one-year assets while the embedded derivatives in the indexed contracts represent the rights of the contract holder to receive index credits over the entire period the indexed products are expected to be in force. Adjustments to pre-tax net income are net of amortization of unearned revenue reserves, deferred acquisition costs and value of insurance in force acquired, as well as changes in interest sensitive product reserves. While not applicable for the periods reported herein, in determining pre-tax adjusted operating income we will also remove the impact of: settlements or judgments arising from lawsuits, net of any recoveries from third parties; the cumulative effect of changes in accounting principles and discontinued operations.
Segment results are reported net of inter-segment transactions.
Financial Information Concerning our Operating Segments    
      
 Three months ended 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 Insurance18,239
 16,381
 28,331
 27,278
Corporate and Other4,595
 5,434
 8,914
 8,967
Total pre-tax adjusted operating income37,471
 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 Insurance110,938
 109,581
 218,196
 217,308
Corporate and Other23,554
 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





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Financial Information Concerning our Operating Segments   
    
 Three months ended March 31,
 2019 2018
 (Dollars in thousands)
Pre-tax adjusted operating income:   
Annuity$15,662
 $16,582
Life Insurance10,092
 10,897
Corporate and Other4,319
 3,533
Total pre-tax adjusted operating income30,073
 31,012
    
Adjustments to pre-tax adjusted operating income:   
Net realized gains/losses on investments (1)9,152
 (2,814)
Change in fair value of derivatives (1)1,153
 (644)
Pre-tax net income attributable to FBL Financial Group, Inc.40,378
 27,554
Income tax expense(6,276) (3,813)
Tax on equity income(59) (176)
Net income attributable to FBL Financial Group, Inc.$34,043
 $23,565
    
Adjusted operating revenues:   
Annuity$52,682
 $57,435
Life Insurance107,258
 107,727
Corporate and Other23,128
 24,111
 183,068
 189,273
Net realized gains/losses on investments (1)9,289
 (2,971)
Change in fair value of derivatives (1)11,199
 (3,872)
Consolidated revenues$203,556
 $182,430

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



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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 March 31,June 30, 2019 and December 31, 2018 was allocated among the segments as follows: Annuity ($3.9 million) and Life Insurance ($6.1 million).

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

Equity Income by Operating Segment   Equity Income by Operating Segment    
Three months ended March 31,Three months ended June 30, Six months ended June 30,
2019 20182019 2018 2019 2018
(Dollars in thousands)(Dollars in thousands)
Pre-tax equity income:          
Life Insurance$370
 $695
$1,008
 $1,292
 $1,378
 $1,987
Corporate and Other(91) 141
769
 150
 678
 291
279
 836
1,777
 1,442
 2,056
 2,278

 

 
 
 
Income taxes(59) (176)(373) (303) (432) (479)
Equity income, net of related income taxes$220
 $660
$1,404
 $1,139
 $1,624
 $1,799


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 $160.7$152.2 million for the quarter ended March 31,June 30, 2019 and $169.7$171.4 million for the same period in 2018.



Net premiums collected totaled $312.9 million for the six months ended June 30,
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2019 and $341.0 million for the same period in 2018.

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

Reconciliation of Traditional Life Insurance Premiums, Net of Reinsurance   Reconciliation of Traditional Life Insurance Premiums, Net of Reinsurance    
        
Three months ended March 31,Three months ended June 30, Six months ended June 30,
2019 20182019
2018 2019 2018
(Dollars in thousands)(Dollars in thousands)
Traditional and universal life insurance premiums collected$78,001
 $76,263
$79,398
 $77,900
 $157,399
 $154,163
Premiums collected on interest sensitive products(28,379) (26,582)(29,517) (27,849) (57,896) (54,431)
Traditional life insurance premiums collected49,622
 49,681
49,881
 50,051
 99,503
 99,732
Change in due premiums and other(230) (184)1,106
 1,040
 876
 856
Traditional life insurance premiums as included in the Consolidated Statements of Operations$49,392
 $49,497
$50,987
 $51,091
 $100,379
 $100,588


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


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

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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 charges402
 284
 706
 633
Total1,772
 1,217
 3,339
 2,419
        
Life Insurance       
Administration charges4,926
 4,194
 9,593
 8,240
Cost of insurance charges12,813
 12,681
 25,446
 25,218
Surrender charges718
 568
 1,339
 1,249
Amortization of policy initiation fees1,178
 1,636
 2,245
 2,431
Total19,635
 19,079
 38,623
 37,138
        
Corporate and Other       
Administration charges1,232
 1,325
 2,468
 2,641
Cost of insurance charges7,184
 7,195
 14,386
 14,335
Surrender charges37
 20
 61
 43
Separate account charges2,016
 2,165
 3,952
 4,310
Amortization of policy initiation fees245
 397
 252
 794
Total10,714
 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 reserves413
 (492) 719
 (676)
Interest sensitive product charges as included in the Consolidated Statements of Operations$32,534
 $30,906
 $63,800
 $61,004




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

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

Overview

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

We analyze operations by reviewing financial information regarding our primary products that are aggregated in Annuity and Life Insurance product segments. In addition, our Corporate and Other segment includes various support operations, corporate capital and other product lines that are not currently underwritten by the Company. We analyze our segment results based on pre-tax adjusted operating income, which excludes the impact of certain items that are included in pre-tax net income. Pre-tax adjusted operating income is a basis allowed for segment reporting under U.S. generally accounting principles (GAAP). We also analyze operations using adjusted operating income on a post-tax basis. 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 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 firstsecond quarter of 2019 to 2.41%2.00% at March 31,June 30, 2019 from 2.69% at December 31, 2018.
Gross Domestic Product increased at an annual rate of 3.2%2.1% during the firstsecond quarter of 2019 based on recent estimates.
U.S. unemployment was estimated to be 3.8% at the end of the first quarter of 2019.


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U.S. unemployment was estimated to be 3.7% at the end of the second quarter of 2019.
U.S. net farm income is forecast to increase 10.0% in 2019 and farm real estate value is estimated to increase 1.8% during the first quarter of 2019 according to recent U.S. Department of Agriculture estimates.
The impact to our customer base from tariffs recently imposed as well as proposed on the general U.S. and farm economies.
The long-term impact of the enactment of the Tax Cuts and Jobs Act of 2017 on the general U.S. economy, business initiatives and consumer demand for our insurance products.
The Securities and Exchange Commission recently adopted new regulations impacting certain securities products and services. See Part II, Item 1A for further information.

The interest rate environment continues to impact our investment yields as well as the interest we credit on our interest sensitive products. The 10-year U.S. Treasury yield trended lower in the firstsecond quarter and finished at 2.41%2.00%, 2869 basis points lower than year-end 2018. We experienced an increase in the fair value of our fixed maturity security portfolio during the firstsecond quarter of 2019 primarily due to a decrease in market yields. Average corporate credit spreads tightened during the firstsecond quarter of 2019 by approximately 334 basis points as yields remain historically low. Low crediting rates pose challenges to maintaining attractive annuity and universal life products, although our rates are comparable to other insurance companies, allowing us to maintain our competitive position within the market. See the segment discussion and “Financial Condition” section that follows for additional information regarding the impact of low market interest rates on our business.



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

Three months ended March 31,Three months ended June 30, Six months ended June 30,
2019 2018 Change2019 2018 Change 2019 2018 Change
(Dollars in thousands, except per share data)(Dollars in thousands, except per share data)
Net income attributable to FBL Financial Group, Inc.$34,043
 $23,565
 44 %$32,298
 $32,803
 (2)% $66,341
 $56,368
 18 %
Net income adjustments:                
Net realized gains/losses on investments (1)(7,230) 2,223
 (425)%(289) (694) (58)% (7,519) 1,529
 (592)%
Change in fair value of derivatives (1)(911) 509
 (279)%(272) (194) 40 % (1,183) 315
 (476)%
Adjusted operating income (2)$25,902
 $26,297
 (2)%$31,737
 $31,915
 (1)% $57,639
 $58,212
 (1)%
                
Pre-tax adjusted operating income:                
Annuity segment$15,662
 $16,582
 (6)%$14,637
 $15,998
 (9)% $30,299
 $32,580
 (7)%
Life Insurance segment10,092
 10,897
 (7)%18,239
 16,381
 11 % 28,331
 27,278
 4 %
Corporate and Other segment4,319
 3,533
 22 %4,595
 5,434
 (15)% 8,914
 8,967
 (1)%
Total pre-tax adjusted operating income30,073
 31,012
 (3)%37,471
 37,813
 (1)% 67,544
 68,825
 (2)%
Income taxes on adjusted operating income(4,171) (4,715) (12)%(5,734) (5,898) (3)% (9,905) (10,613) (7)%
Adjusted operating income (2)$25,902
 $26,297
 (2)%$31,737
 $31,915
 (1)% $57,639
 $58,212
 (1)%
    
          
Earnings per common share - assuming dilution$1.37
 $0.94
 46 %$1.30
 $1.31
 (1)% $2.68
 $2.25
 19 %
Adjusted operating income per common share - assuming dilution (2)1.04
 1.05
 (1)%1.28
 1.28
 — % 2.32
 2.33
 — %
Effective tax rate on adjusted operating income14% 15% 
15% 16% 
 15% 15% 
Average invested assets, at amortized cost (3)$8,292,919
 $8,191,122
 1 %    
 $8,307,155
 $8,227,072
 1 %
Annualized yield on average invested assets (3)4.97% 5.21% 
      5.00% 5.18% 

(1)Amounts are net of adjustments, as applicable, to amortization of unearned revenue reserves, deferred acquisition costs and value of insurance in force acquired, as well as changes in interest sensitive product reserves and income taxes attributable to these items.
(2)Adjusted operating income is a non-GAAP measure of earnings, see the Overview section above for additional information.
(3)Average invested assets and annualized yield, including investments held as securities and indebtedness of related parties.

Net income and pre-tax adjusted operating income decreased in the second quarter of 2019, compared to the prior year period, primarily due to less spread income earned from lower yields on invested assets and increased expenses, partially offset by a decrease in death benefits and the positive impact of market performance on our indexed products and variable business. Net income increased in the first quarter ofsix 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 werefor the six month period, compared to the prior year period, was negatively impacted by less investment-related income, less spread income earned from lower yields on invested assets, less other investment-related income and an increase in death benefits,increased expenses, partially offset by the positive impact of market performance on our indexed products and variable business. See the discussion that follows for details regarding pre-tax adjusted operating income by segment.



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Annuity Segment                
Three months ended March 31,Three months ended June 30, Six months ended June 30,
2019 2018 Change2019 2018 Change 2019 2018 Change
(Dollars in thousands)(Dollars in thousands)
Adjusted operating revenues:                
Interest sensitive product charges$1,567
 $1,202
 30 %$1,772
 $1,217
 46 % $3,339
 $2,419
 38 %
Net investment income51,115
 56,233
 (9)%52,491
 55,198
 (5)% 103,606
 111,431
 (7)%
Total adjusted operating revenues52,682
 57,435
 (8)%54,263
 56,415
 (4)% 106,945
 113,850
 (6)%
                
Adjusted operating benefits and expenses:                
Interest sensitive product benefits28,070
 31,286
 (10)%30,450
 31,393
 (3)% 58,520
 62,679
 (7)%
Underwriting, acquisition and insurance expenses:                
Commissions net of deferrals514
 504
 2 %482
 518
 (7)% 996
 1,022
 (3)%
Amortization of deferred acquisition costs2,679
 3,065
 (13)%2,917
 3,070
 (5)% 5,596
 6,135
 (9)%
Amortization of value of insurance in force163
 172
 (5)%163
 172
 (5)% 326
 344
 (5)%
Other underwriting expenses5,594
 5,826
 (4)%5,614
 5,264
 7 % 11,208
 11,090
 1 %
Total underwriting, acquisition and insurance expenses8,950
 9,567
 (6)%9,176
 9,024
 2 % 18,126
 18,591
 (3)%
Total adjusted operating benefits and expenses37,020
 40,853
 (9)%39,626
 40,417
 (2)% 76,646
 81,270
 (6)%
Pre-tax adjusted operating income$15,662
 $16,582
 (6)%$14,637
 $15,998
 (9)% $30,299
 $32,580
 (7)%

Other data                
Annuity premiums collected, direct (1)$69,506
 $78,810
 (12)%$59,652
 $79,838
 (25)% $129,158
 $158,648
 (19)%
Policy liabilities and accruals, end of period4,379,558
 4,462,979
 (2)%      4,400,928
 4,422,265
 — %
Average invested assets, at amortized cost4,481,499
 4,505,251
 (1)%      4,486,038
 4,523,314
 (1)%
Other investment-related income included in net investment income (2)1,039
 2,657
 (61)%507
 1,233
 (59)% 1,546
 3,890
 (60)%
Average individual annuity account value3,179,153
 3,106,259
 2 %      3,180,894
 3,123,772
 2 %
                
Earned spread on individual annuity products:                
Weighted average yield on cash and invested assets4.76% 5.03%        4.75% 4.92%  
Weighted average crediting rate2.53% 2.46%        2.56% 2.48%  
Spread2.23% 2.57%        2.19% 2.44%  
                
Individual annuity withdrawal rate5.6% 5.4%        5.5% 5.2%  


(1)Premiums collected is a non-GAAP measure of sales production, see Note 98 to our consolidated financial statements for additional information.
(2)Includes prepayment fee income and adjustments to the amortization of premium or discounts from changes in our payment speed assumptions.

Pre-tax adjusted operating income for the Annuity segment decreased in the firstsecond quarter of 2019 and the six months ended June 30, 2019, compared to the prior year period,periods, primarily due to less other investment-related income and reduced spread income earned from lower yields on invested assets and lower other investment-related income, partially offset by the impact of favorable market performance on reserves associated with guaranteed living withdrawal benefits.benefits and increases in interest sensitive product charges due to growth in our indexed annuity business in force.



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The average aggregate account value for individual annuity contracts in force increased in the first quarter ofsix months ended June 30, 2019, compared to the prior year period, due to continued sales and the crediting of interest. Premiums collected were lower in the firstsecond quarter of 2019 and the six months ended June 30, 2019, compared to the prior year period,periods, due to decreased sales of indexed annuity products, partially offset by increased sales ofand fixed rate deferred annuity products. Individual fixed rate deferred annuity collected premiums were $39.4$30.3 million in the firstsecond quarter of 2019 compared to $38.4and $69.7 million in the firstsix months ended June 30, 2019, compared to $39.0 million in the second quarter of 2018 and $77.4 million in the six months ended June 30, 2018. Indexed annuity collected premiums were $28.3$28.4 million in the firstsecond quarter of 2019 compared to $37.7and $56.7 million in the firstsix 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 revenuesbenefits, invested assets and benefits. The decrease was driven by a decrease in outstanding funding agreements with FHLB which totaled $437.2 million at March 31, 2019 and $530.3 million at March 31, 2018.net investment income.



34
TableInterest sensitive product charges increased for the quarter and six month periods ending June 30, 2019, compared to the prior year periods, primarily due to growth in our indexed annuity business in force resulting from the introduction of Contents
a flexible premium indexed annuity product in the third quarter of 2017, which includes certain product fees beginning at the end of the contract year.

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

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


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Life Insurance Segment                
Three months ended March 31,Three months ended June 30, Six months ended June 30,
2019 2018 Change2019 2018 Change 2019 2018 Change
(Dollars in thousands)(Dollars in thousands)
Adjusted operating revenues:                
Interest sensitive product charges and other income$18,875
 $17,980
 5 %$19,497
 $18,726
 4 % $38,372
 $36,706
 5 %
Traditional life insurance premiums49,392
 49,497
 — %50,987
 51,091
 — % 100,379
 100,588
 — %
Net investment income38,991
 40,250
 (3)%40,454
 39,764
 2 % 79,445
 80,014
 (1)%
Total adjusted operating revenues107,258
 107,727
 — %110,938
 109,581
 1 % 218,196
 217,308
 — %
                
Adjusted operating benefits and expenses:    
          
Interest sensitive product benefits:    
          
Interest and index credits8,051
 8,393
 (4)%9,018
 9,093
 (1)% 17,069
 17,486
 (2)%
Death benefits and other14,466
 15,241
 (5)%13,892
 14,709
 (6)% 28,358
 29,950
 (5)%
Total interest sensitive product benefits22,517
 23,634
 (5)%22,910
 23,802
 (4)% 45,427
 47,436
 (4)%
Traditional life insurance benefits:    
          
Death benefits24,416
 23,735
 3 %20,577
 19,297
 7 % 44,993
 43,032
 5 %
Surrender and other benefits9,723
 10,144
 (4)%10,092
 10,392
 (3)% 19,815
 20,536
 (4)%
Increase in traditional life future policy benefits12,534
 11,578
 8 %11,291
 14,022
 (19)% 23,825
 25,600
 (7)%
Total traditional life insurance benefits46,673
 45,457
 3 %41,960
 43,711
 (4)% 88,633
 89,168
 (1)%
Distributions to participating policyholders2,534
 2,551
 (1)%2,564
 2,560
 — % 5,098
 5,111
 — %
Underwriting, acquisition and insurance expenses:    
          
Commission expense, net of deferrals4,639
 4,923
 (6)%5,179
 4,715
 10 % 9,818
 9,638
 2 %
Amortization of deferred acquisition costs4,799
 4,436
 8 %4,344
 4,498
 (3)% 9,143
 8,934
 2 %
Amortization of value of insurance in force372
 373
 — %372
 373
 — % 744
 746
 — %
Other underwriting expenses16,002
 16,151
 (1)%16,378
 14,833
 10 % 32,380
 30,984
 5 %
Total underwriting, acquisition and insurance expenses25,812
 25,883
 — %26,273
 24,419
 8 % 52,085
 50,302
 4 %
Total adjusted operating benefits and expenses97,536
 97,525
 — %93,707
 94,492
 (1)% 191,243
 192,017
 — %
9,722
 10,202
 (5)%17,231
 15,089
 14 % 26,953
 25,291
 7 %
Equity income, before tax370
 695
 (47)%1,008
 1,292
 (22)% 1,378
 1,987
 (31)%
Pre-tax adjusted operating income$10,092
 $10,897
 (7)%$18,239
 $16,381
 11 % $28,331
 $27,278
 4 %



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Life Insurance Segment - continued                
Three months ended March 31,Three months ended June 30, Six months ended June 30,
2019 2018 Change2019 2018 Change 2019 2018 Change
(Dollars in thousands)(Dollars in thousands)
Other data                
Life premiums collected, net of reinsurance (1)$78,001
 $76,263
 2 %$79,398
 $77,900
 2 % $157,399
 $154,163
 2 %
Policy liabilities and accruals, end of period3,015,751
 2,918,284
 3 %    
 3,032,835
 2,942,046
 3 %
Life insurance in force, end of period60,240,261
 58,543,298
 3 %    
 60,708,865
 59,008,306
 3 %
Average invested assets, at amortized cost (2)3,107,575
 2,979,404
 4 %    
 3,122,408
 2,999,681
 4 %
Other investment-related income included in net investment income (3)330
 1,498
 (78)%953
 374
 155 % 1,283
 1,872
 (31)%
Average interest sensitive life account value869,476
 844,559
 3 %    
 872,635
 848,459
 3 %
                
Interest sensitive life insurance spread:                
Weighted average yield on cash and invested assets (2)5.21% 5.33%        5.27% 5.35%  
Weighted average crediting rate3.68% 3.64%        3.72% 3.68%  
Spread1.53% 1.69%        1.55% 1.67%  
                
Life insurance lapse and surrender rates4.6% 4.9%        4.7% 4.8%  
Death benefits, net of reinsurance and reserves released$26,672
 $26,479
 1 %$19,867 $22,384 (11)% $46,539
 $48,863
 (5)%

(1)Premiums collected is a non-GAAP measure of sales production, see Note 98 to our consolidated financial statements for additional information.
(2)Average invested assets and weighted average yield including investments held as securities and indebtedness of related parties.
(3)Includes prepayment fee income and adjustments to the amortization of premium or discounts from changes in our payment speed assumptions.

Pre-tax adjusted operating income for the Life Insurance segment decreasedincreased in the firstsecond quarter of 2019 and the six months ended June 30, 2019, compared to the prior year period,periods, primarily due to less other investment-related income, partially offset bydecreases in death benefits, net of reinsurance and reserves released and the impact of an increase in the volume of business in force.force, partially offset by an increase in expenses.

Continued growth in our business in force contributescontributed to the increase in revenues and benefits.expenses. Increases in expenses in the quarter and six months ended June 30, 2019, compared to the prior year periods, were also due to additional expenses associated with system enhancements.

Amortization of deferred acquisition costs was lower during the second quarter of 2019, but higher during the first quarter ofsix months ended June 30, 2019, compared to the prior year period,periods, due to changes in actual and expected profits on the underlying business.

Death benefits, net of reinsurance and reserves released, decreased in the second quarter of 2019 and the six months ended June 30, 2019, compared to the prior year periods, primarily due to a decrease in the average claim amount, net of reinsurance and reserves released, in the second quarter of 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.



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The weighted average yield on cash and invested assets for interest sensitive life insurance products decreased in the first quarter ofsix months ended June 30, 2019, compared to the prior year period, due to lower yields on new investment acquisitions from premium receipts and reinvestment of the proceeds from maturing investments, and lesspartially offset by an increase in other investment-related income. See the “Financial Condition” section for additional information regarding the yields obtained on investment acquisitions. Weighted average crediting rates on our interest sensitive life insurance products increased due to increased amortization on our call options supporting our indexed universal life product.
 
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 income8,588
 8,777
 (2)% 17,228
 17,188
 — %
Other income4,252
 3,990
 7 % 8,335
 8,669
 (4)%
Total adjusted operating revenues23,554
 23,869
 (1)% 46,682
 47,980
 (3)%
            
Adjusted operating benefits and expenses:           
Interest sensitive product benefits8,858
 7,714
 15 % 19,223
 17,056
 13 %
Underwriting, acquisition and insurance expenses:           
Commission expense, net of deferrals746
 667
 12 % 1,450
 1,347
 8 %
Amortization of deferred acquisition costs905
 1,876
 (52)% (62) 4,388
 (101)%
Other underwriting expenses1,413
 1,506
 (6)% 2,566
 2,908
 (12)%
Total underwriting, acquisition and insurance expenses3,064
 4,049
 (24)% 3,954
 8,643
 (54)%
Interest expense1,212
 1,213
 — % 2,424
 2,426
 — %
Other expenses6,635
 5,627
 18 % 12,885
 11,220
 15 %
Total adjusted operating benefits and expenses19,769
 18,603
 6 % 38,486
 39,345
 (2)%
 3,785
 5,266
 (28)% 8,196
 8,635
 (5)%
Net loss attributable to noncontrolling interest41
 18
 128 % 40
 41
 (2)%
Equity income, before tax769
 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 released5,453
 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 reserve600
 (255) (335)% 2,800
 (1,115) (351)%


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Corporate and Other Segment     
 Three months ended March 31,
 2019 2018 Change
 (Dollars in thousands)
Adjusted operating revenues:     
Interest sensitive product charges$10,405
 $11,021
 (6)%
Net investment income8,640
 8,411
 3 %
Other income4,083
 4,679
 (13)%
Total adjusted operating revenues23,128
 24,111
 (4)%
      
Adjusted operating benefits and expenses:     
Interest sensitive product benefits10,365
 9,342
 11 %
Underwriting, acquisition and insurance expenses:     
Commission expense, net of deferrals704
 680
 4 %
Amortization of deferred acquisition costs(967) 2,512
 (138)%
Other underwriting expenses1,153
 1,402
 (18)%
Total underwriting, acquisition and insurance expenses890
 4,594
 (81)%
Interest expense1,212
 1,213
 — %
Other expenses6,250
 5,593
 12 %
Total adjusted operating benefits and expenses18,717
 20,742
 (10)%
 4,411
 3,369
 31 %
Net (income) loss attributable to noncontrolling interest(1) 23
 (104)%
Equity (loss) income, before tax(91) 141
 (165)%
Pre-tax adjusted operating income$4,319
 $3,533
 22 %
Other data     
Average invested assets, at amortized cost (1)$703,846
 $706,468
 — %
Other investment-related income included in net investment income (2)121
 137
 (12)%
Average interest sensitive life account value361,872
 360,586
 — %
Death benefits, net of reinsurance and reserves released7,069
 5,939
 19 %
Estimated impact on pre-tax adjusted operating income from separate account performance on amortization of deferred acquisition costs, deferred sales inducements and unearned revenue reserve2,200
 (700) (414)%

(1)Average invested assets including investments held as securities and indebtedness of related parties.
(2)Includes prepayment fee income and adjustments to the amortization of premium or discounts from changes in our payment speed assumptions.

Pre-tax adjusted operating income increaseddecreased for the Corporate and Other segment in the firstsecond quarter of 2019 and the six months ended June 30, 2019, compared to the prior year period,periods, primarily due to increases in death benefits and expenses, partially offset by a decrease in amortization of deferred acquisition costs resulting from the impact of favorable market performance on our variable business, partially offset by increases in death benefits and expenses.business.

Death benefits, net of reinsurance and reserves released, increased in the firstsecond quarter of 2019 and the six months ended June 30, 2019, compared to the prior year period, primarilyperiods, due to an increaseincreases in the average size and number of claims.

Other income and other expenses includesinclude fees and expenses from sales of brokered products and operating results of our non-insurance subsidiaries, which include management, advisory, marketing and distribution services and leasing activities.
Other expenses increased in the firstsecond quarter of 2019 and six months ended June 30, 2019, compared to the prior year period,periods, 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. See the Equity Income discussion that follows, and Note 98 to our consolidated financial statements, for additional information regarding these investments.
        


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Equity Income

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

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

Equity income, net of related taxes, for the firstsecond quarter of 2019 was $0.2$1.4 million compared with $0.7$1.1 million for the firstsecond 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.

Income Taxes on Adjusted Operating Income

The effective tax rate on adjusted operating income was 13.9%15.3% for the firstsecond quarter of 2019 and 14.7% for the six months ended June 30, 2019, compared with 15.2%15.6% for the firstsecond quarter of 2018 and 15.4% for the six months ended June 30, 2018. The effective tax rates differ from the federal statutory rate of 21% primarily due to the impact of LIHTC investments and tax-exempt investment income.



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Components of income taxes   Components of income taxes    
Three months ended March 31,Three months ended June 30, Six months ended June 30,
2019 20182019 2018 2019 2018
(Dollars in thousands)(Dollars in thousands)
Income tax expense$(6,276) $(3,813)$(5,511) $(5,831) $(11,787) $(9,644)
Tax on equity income(59) (176)(373) (303) (432) (479)
Income tax offset on net income adjustments2,164
 (726)150
 236
 2,314
 (490)
Income taxes on adjusted operating income$(4,171) $(4,715)$(5,734) $(5,898) $(9,905) $(10,613)
          
Income taxes on adjusted operating income before benefits of LIHTC investments$(5,076) $(5,642)$(6,633) $(6,824) $(11,709) $(12,466)
Amounts related to LIHTC investments905
 927
899
 926
 1,804
 1,853
Income taxes on adjusted operating income$(4,171) $(4,715)$(5,734) $(5,898) $(9,905) $(10,613)

Impact of Adjustments to Net Income Attributable to FBL   Impact of Adjustments to Net Income Attributable to FBL    
        
Three months ended March 31,Three months ended June 30, Six months ended June 30,
2019 20182019 2018 2019 2018
(Dollars in thousands)(Dollars in thousands)
Realized gains (losses) on investments and change in fair value of equity securities and derivatives$10,846
 $(3,995)$444
 $1,357
 $11,290
 $(2,638)
Offsets: (1)          
Change in amortization(256) 338
(48) (226) (304) 112
Reserve change on interest sensitive products(285) 199
315
 (7) 30
 192
Income tax(2,164) 726
(150) (236) (2,314) 490
Net impact of adjustments to net income$8,141
 $(2,732)$561
 $888
 $8,702
 $(1,844)
Net impact per common share - basic and assuming dilution$0.33
 $(0.11)$0.02
 $0.03
 $0.36
 $(0.08)

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



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Realized Gains (Losses) on Investments          
Three months ended March 31,Three months ended June 30, Six months ended June 30,
2019 20182019 2018 2019 2018
(Dollars in thousands)(Dollars in thousands)
Realized gains (losses) on investments:          
Realized gains$5,772
 $83
$218
 $1,713
 $5,990
 $1,796
Realized losses(34) (13)(304) (6) (338) (19)
Change in unrealized gains/losses on equity securities4,419
 (1,817)463
 (866) 4,882
 (2,683)
Total other-than-temporary impairment charges(869) (1,040)—
 —
 (869) (1,040)
Net realized investment gains (losses)$9,288
 $(2,787)$377
 $841
 $9,665
 $(1,946)

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 March 31,June 30, 2019 and December 31, 2018.



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Investment Credit Impairment Losses Recognized in Net Income   Investment Credit Impairment Losses Recognized in Net Income
Three months ended March 31,Three months ended June 30, Six months ended June 30,
2019
20182019
2018 2019 2018
(Dollars in thousands)(Dollars in thousands)
Corporate securities:          
Financial$—
 $26
$—
 $—
 $—
 $26
Energy—
 1,014
—
 —
 —
 1,014
Other asset-backed869
 —
—
 —
 869
  
Total other-than-temporary impairment losses reported in net income$869
 $1,040
$—
 $—
 $869
 $1,040

Other-than-temporary credit impairment losses for the threesix months ended March 31,June 30, 2019 include an asset-backed bond due to a decline in expected cash flows. Other-than-temporary credit impairment losses for the threesix months ended March 31,June 30, 2018 included a previously impaired energy sector bond due to the commencement of bankruptcy proceedings.


Financial Condition

Investments

Our investment portfolio increased 2.5%5.4% to $8,620.78,869.9 million at March 31,June 30, 2019 compared to $8,414.1 million at December 31, 2018. The portfolio increase is primarily due to $181.6$397.9 million of net unrealized appreciation of fixed maturities. Additional details regarding securities in an unrealized gain or loss position at March 31,June 30, 2019 are included in the discussion that follows and in Note 2 to our consolidated financial statements. Details regarding investment impairments are discussed above in the “Realized Gains (Losses) on Investments” section under “Results of Operations.”
 
We manage the investment portfolio to optimize risk-adjusted yield within the context of prudent asset-liability management. We evaluate multiple cash flow testing scenarios as part of this process. The Company’s investment policy calls for investing primarily in high quality fixed maturities and commercial mortgage loans.



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Table of Contents

Fixed Maturity Acquisitions Selected Information        
 Three months ended March 31, Six months ended June 30,
 2019 2018 2019 2018
 (Dollars in thousands) (Dollars in thousands)
Cost of acquisitions:        
Corporate $75,567
 $48,683
 $192,180
 $86,494
Mortgage- and asset-backed 57,951
 189,771
 152,187
 366,866
Tax-exempt municipals 8,060
 33,750
 18,692
 60,600
Total $141,578
 $272,204
 $363,059
 $513,960
Effective annual yield 4.33% 3.89% 4.18% 4.05%
Credit quality        
NAIC 1 designation 74.3% 85.6% 65.3% 84.6%
NAIC 2 designation 25.7% 14.4% 34.7% 15.4%
Weighted-average life in years 15.0
 16.0 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 threesix months ended March 31,June 30, 2019 and March 31,June 30, 2018 were acquired with the proceeds from advances on our funding agreements with the FHLB. The securities acquired to support these funding agreements often carry a lower average yield than securities acquired to support our other insurance products, due to the shorter maturity and relatively low interest rate paid on those advances. In addition, certain municipal securities acquired are exempt


44
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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 4.42%4.24% during the threesix months ended March 31,June 30, 2019 and was 3.97%4.13% during the threesix months ended March 31,June 30, 2018.

Investment Portfolio Summary
              
March 31, 2019 December 31, 2018June 30, 2019 December 31, 2018
Carrying Value Percent Carrying Value PercentCarrying Value Percent Carrying Value Percent
(Dollars in thousands)(Dollars in thousands)
Fixed maturities - available for sale:              
Public$5,512,264
 63.9% $5,367,590
 63.8%$5,721,967
 64.5% $5,367,590
 63.8%
144A private placement1,522,247
 17.7
 1,477,550
 17.6
1,560,078
 17.6
 1,477,550
 17.6
Private placement197,073
 2.3
 187,905
 2.2
202,577
 2.3
 187,905
 2.2
Total fixed maturities - available for sale7,231,584
 83.9
 7,033,045
 83.6
7,484,622
 84.4
 7,033,045
 83.6
Equity securities108,525
 1.3
 92,857
 1.1
106,021
 1.2
 92,857
 1.1
Mortgage loans1,023,655
 11.9
 1,039,829
 12.4
1,019,124
 11.5
 1,039,829
 12.4
Real estate1,543
 —
 1,543
 —
1,543
 —
 1,543
 —
Policy loans199,230
 2.3
 197,366
 2.3
200,246
 2.3
 197,366
 2.3
Short-term investments11,515
 0.1
 15,713
 0.2
9,521
 0.1
 15,713
 0.2
Other investments44,663
 0.5
 33,765
 0.4
48,833
 0.5
 33,765
 0.4
Total investments$8,620,715
 100.0% $8,414,118
 100.0%$8,869,910
 100.0% $8,414,118
 100.0%

As of March 31,June 30, 2019, 97.397.7% (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 (NAIC designations 3 through 6). As of March 31,June 30, 2019, no single non-investment grade holding exceeded 0.2% of total investments.



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Table of Contents

Credit Quality by NAIC Designation and Equivalent Rating
 March 31, 2019 December 31, 2018 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 $4,939,251
 68.3% $4,802,497
 68.3% AAA, AA, A $5,089,917
 68.0% $4,802,497
 68.3%
2 BBB 2,100,462
 29.0
 2,063,069
 29.3
 BBB 2,224,368
 29.7
 2,063,069
 29.3
 Total investment grade 7,039,713
 97.3
 6,865,566
 97.6
 Total investment grade 7,314,285
 97.7
 6,865,566
 97.6
3 BB 121,325
 1.7
 105,544
 1.5
 BB 118,700
 1.6
 105,544
 1.5
4 B 50,009
 0.7
 48,051
 0.7
 B 46,803
 0.6
 48,051
 0.7
5 CCC 11,466
 0.2
 9,640
 0.1
 CCC 4,827
 0.1
 9,640
 0.1
6 In or near default 9,071
 0.1
 4,244
 0.1
 In or near default 7
 —
 4,244
 0.1
 Total below investment grade 191,871
 2.7
 167,479
 2.4
 Total below investment grade 170,337
 2.3
 167,479
 2.4
 Total fixed maturities - available for sale $7,231,584
 100.0% $7,033,045
 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 maturities by contractual maturity date.
Gross Unrealized Gains and Gross Unrealized Losses by Internal Industry Classification
 March 31, 2019
 Total Carrying Value Carrying Value of Securities
with Gross Unrealized Gains		 Gross Unrealized Gains 
Carrying Value of Securities
with Gross Unrealized Losses
 Gross Unrealized Losses
 (Dollars in thousands)
Corporate securities:         
Basic industrial$331,507
 $261,110
 $17,273
 $70,397
 $(3,133)
Capital goods252,936
 179,799
 11,872
 73,137
 (2,369)
Communications137,686
 111,916
 8,921
 25,770
 (2,146)
Consumer cyclical119,234
 106,500
 5,899
 12,734
 (1,208)
Consumer non-cyclical538,302
 343,974
 23,800
 194,328
 (16,337)
Energy404,739
 332,634
 23,371
 72,105
 (7,942)
Finance632,748
 522,635
 32,934
 110,113
 (4,023)
Transportation106,348
 93,348
 5,301
 13,000
 (1,111)
Utilities744,403
 675,517
 75,760
 68,886
 (2,193)
Other164,673
 148,150
 8,573
 16,523
 (519)
Total corporate securities3,432,576
 2,775,583
 213,704
 656,993
 (40,981)
Mortgage- and asset-backed securities2,230,269
 1,475,032
 85,889
 755,237
 (17,422)
United States Government and agencies20,713
 17,014
 1,203
 3,699
 (45)
States and political subdivisions1,548,026
 1,516,797
 118,037
 31,229
 (2,018)
Total$7,231,584
 $5,784,426
 $418,833
 $1,447,158
 $(60,466)



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

Gross Unrealized Gains and Gross Unrealized Losses by Internal Industry Classification
 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
 (Dollars in thousands)
Corporate securities:         
Basic industrial$342,720
 $307,173
 $25,157
 $35,547
 $(1,319)
Capital goods281,101
 257,517
 20,495
 23,584
 (316)
Communications139,377
 121,426
 13,456
 17,951
 (562)
Consumer cyclical136,994
 123,518
 9,088
 13,476
 (436)
Consumer non-cyclical577,479
 477,414
 44,810
 100,065
 (7,545)
Energy408,248
 370,359
 33,306
 37,889
 (8,586)
Finance656,430
 636,203
 48,924
 20,227
 (2,119)
Transportation111,171
 105,506
 8,521
 5,665
 (530)
Utilities760,344
 737,563
 103,206
 22,781
 (487)
Other171,886
 167,000
 13,396
 4,886
 (89)
Total corporate securities3,585,750
 3,303,679
 320,359
 282,071
 (21,989)
Mortgage- and asset-backed securities2,324,581
 2,089,202
 138,312
 235,379
 (3,633)
United States Government and agencies18,585
 15,603
 1,572
 2,982
 (16)
States and political subdivisions1,555,706
 1,545,061
 140,791
 10,645
 (758)
Total$7,484,622
 $6,953,545
 $601,034
 $531,077
 $(26,396)

Credit Quality of Available-for-Sale Fixed Maturities with Unrealized Losses
    March 31, 2019
NAIC Designation Equivalent Rating Carrying Value of Securities with Gross Unrealized Losses Percent of Total Gross Unrealized Losses Percent of Total
    (Dollars in thousands)
1 AAA, AA, A $803,920
 55.5% $(18,923) 31.3%
2 BBB 539,618
 37.3
 (23,424) 38.7
  Total investment grade 1,343,538
 92.8
 (42,347) 70.0
3 BB 60,328
 4.2
 (8,251) 13.6
4 B 26,033
 1.8
 (9,115) 15.1
5 CCC 8,489
 0.6
 (401) 0.7
6 In or near default 8,770
 0.6
 (352) 0.6
  Total below investment grade 103,620
 7.2
 (18,119) 30.0
  Total $1,447,158
 100.0% $(60,466) 100.0%
 December 31, 2018
 Total Carrying Value Carrying Value of Securities
with Gross Unrealized Gains		 Gross Unrealized Gains 
Carrying Value of Securities
with Gross Unrealized Losses
 Gross Unrealized Losses
 (Dollars in thousands)
Corporate securities:         
Basic industrial$321,192
 $194,019
 $9,990
 $127,173
 $(8,376)
Capital goods248,385
 123,157
 6,933
 125,228
 (7,208)
Communications131,364
 75,687
 5,098
 55,677
 (4,705)
Consumer cyclical105,882
 74,866
 3,627
 31,016
 (1,782)
Consumer non-cyclical497,789
 224,674
 12,441
 273,115
 (29,469)
Energy384,982
 227,770
 11,460
 157,212
 (17,063)
Finance602,159
 392,188
 22,124
 209,971
 (10,298)
Transportation96,579
 61,034
 3,049
 35,545
 (2,135)
Utilities733,604
 565,250
 60,399
 168,354
 (7,483)
Other157,949
 98,683
 3,851
 59,266
 (2,414)
Total corporate securities3,279,885
 2,037,328
 138,972
 1,242,557
 (90,933)
Mortgage- and asset-backed securities2,192,996
 1,076,388
 69,820
 1,116,608
 (31,961)
United States Government and agencies20,535
 14,061
 996
 6,474
 (134)
States and political subdivisions1,539,629
 1,378,005
 95,921
 161,624
 (5,913)
Total$7,033,045
 $4,505,782
 $305,709
 $2,527,263
 $(128,941)




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Credit Quality of Available-for-Sale Fixed Maturities with Unrealized Losses
 December 31, 2018 June 30, 2019
NAIC Designation Equivalent Rating Carrying Value of Securities with Gross Unrealized Losses Percent of Total Gross Unrealized Losses Percent of Total Equivalent Rating Carrying Value of Securities with Gross Unrealized Losses Percent of Total Gross Unrealized Losses Percent of Total
 (Dollars in thousands) (Dollars in thousands)
1 AAA, AA, A $1,500,626
 59.4% $(45,593) 35.3% AAA, AA, A $247,743
 46.6% $(3,643) 13.8%
2 BBB 903,855
 35.7
 (61,615) 47.8
 BBB 195,842
 36.9
 (6,745) 25.6
 Total investment grade 2,404,481
 95.1
 (107,208) 83.1
 Total investment grade 443,585
 83.5
 (10,388) 39.4
3 BB 90,883
 3.6
 (10,056) 7.8
 BB 54,856
 10.3
 (7,700) 29.1
4 B 26,212
 1.1
 (10,887) 8.5
 B 30,212
 5.7
 (8,290) 31.4
5 CCC 5,679
 0.2
 (790) 0.6
 CCC 2,417
 0.5
 (18) 0.1
6 In or near default 8
 —
 —
 —
 In or near default 7
 —
 —
 —
 Total below investment grade 122,782
 4.9
 (21,733) 16.9
 Total below investment grade 87,492
 16.5
 (16,008) 60.6
 Total $2,527,263
 100.0% $(128,941) 100.0% Total $531,077
 100.0% $(26,396) 100.0%

Available-For-Sale Fixed Maturities with Unrealized Losses by Length of Time
 March 31, 2019
 Amortized Cost Gross Unrealized Losses
 
Fair Value
is Less than 75% of Cost
 
Fair Value is
75% or Greater
than Cost
 Fair Value is Less than 75% of Cost 
Fair Value is
75% or Greater
than Cost
 (Dollars in thousands)
Three months or less$—
 $23,998
 $—
 $(136)
Greater than three months to six months—
 96,397
 —
 (1,490)
Greater than six months to nine months—
 87,318
 —
 (3,043)
Greater than nine months to twelve months—
 223,095
 —
 (6,835)
Greater than twelve months21,769
 1,055,047
 (7,406) (41,556)
Total$21,769
 $1,485,855
 $(7,406) $(53,060)
    December 31, 2018
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 TimeAvailable-For-Sale Fixed Maturities with Unrealized Losses by Length of Time
December 31, 2018June 30, 2019
Amortized Cost Gross Unrealized LossesAmortized 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
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)(Dollars in thousands)
Three months or less$—
 $329,067
 $—
 $(7,081)$—
 $32,615
 $—
 $(240)
Greater than three months to six months—
 362,426
 —
 (10,386)—
 2,005
 —
 (5)
Greater than six months to nine months—
 514,023
 —
 (21,352)—
 63,916
 —
 (930)
Greater than nine months to twelve months—
 799,994
 —
 (43,191)—
 36,717
 —
 (1,501)
Greater than twelve months24,809
 625,885
 (9,547) (37,384)31,759
 390,461
 (10,539) (13,181)
Total$24,809
 $2,631,395
 $(9,547) $(119,394)$31,759
 $525,714
 $(10,539) $(15,857)



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Available-For-Sale Fixed Maturities with Unrealized Losses by Maturity Date
 March 31, 2019 December 31, 2018
 Carrying Value of Securities with Gross Unrealized Losses 
Gross
Unrealized
Losses
 Carrying Value of Securities with Gross Unrealized Losses 
Gross
Unrealized
Losses
 (Dollars in thousands)
Due in one year or less$498
 $(2) $496
 $(4)
Due after one year through five years36,450
 (1,765) 86,795
 (3,286)
Due after five years through ten years146,922
 (6,906) 299,532
 (14,667)
Due after ten years508,051
 (34,371) 1,023,832
 (79,023)
 691,921
 (43,044) 1,410,655
 (96,980)
Mortgage- and asset-backed755,237
 (17,422) 1,116,608
 (31,961)
Total$1,447,158
 $(60,466) $2,527,263
 $(128,941)
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 months24,809
 625,885
 (9,547) (37,384)
Total$24,809
 $2,631,395
 $(9,547) $(119,394)

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 years11,673
 (1,646) 86,795
 (3,286)
Due after five years through ten years56,340
 (3,116) 299,532
 (14,667)
Due after ten years226,191
 (17,996) 1,023,832
 (79,023)
 295,698
 (22,763) 1,410,655
 (96,980)
Mortgage- and asset-backed235,379
 (3,633) 1,116,608
 (31,961)
Total$531,077
 $(26,396) $2,527,263
 $(128,941)

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

Mortgage- and Asset-Backed Securities

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

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

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

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

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



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Mortgage- and Asset-Backed Securities by Collateral Type
 June 30, 2019 December 31, 2018
 Amortized Cost Carrying Value 
Percent
of Fixed Maturities
 Amortized Cost Carrying Value 
Percent
of Fixed Maturities
 (Dollars in thousands)
Government agency$224,204
 $241,490
 3.2% $227,545
 $232,658
 3.3%
Prime284,109
 303,974
 4.1
 279,856
 287,073
 4.1
Alt-A74,816
 88,453
 1.2
 81,668
 95,396
 1.4
Subprime139,211
 151,323
 2.0
 143,441
 152,907
 2.1
Commercial mortgage937,041
 1,003,755
 13.4
 873,672
 878,566
 12.5
Non-mortgage530,521
 535,586
 7.2
 548,955
 546,396
 7.8
Total$2,189,902
 $2,324,581
 31.1% $2,155,137
 $2,192,996
 31.2%

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

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

Residential Mortgage-Backed Securities by NAIC Designation and Origination YearResidential Mortgage-Backed Securities by NAIC Designation and Origination Year  Residential Mortgage-Backed Securities by NAIC Designation and Origination Year  
 March 31, 2019 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 $69,191
 $70,450
 $68,796
 $88,297
 $437,016
 $447,422
 $575,003
 $606,169
 $66,502
 $68,643
 $67,575
 $87,369
 $438,512
 $462,976
 $572,589
 $618,988
2 —
 —
 1,047
 1,012
 —
 —
 1,047
 1,012
3 —
 —
 480
 472
 —
 —
 480
 472
 —
 —
 445
 —
 —
 438
 445
 438
4 —
 —
 7,910
 10,760
 —
 —
 7,910
 10,760
 —
 —
 7,756
 9,628
 —
 —
 7,756
 9,628
5 302
 318
 —
 —
 —
 —
 302
 318
6 8
 8
 —
 —
 —
 —
 8
 8
 7
 7
 —
 —
 —
 —
 7
 7
Total $69,518
 $70,786
 $78,233
 $100,541
 $437,016
 $447,422
 $584,767
 $618,749
 $66,811
 $68,968
 $75,776
 $96,997
 $438,512
 $463,414
 $581,099
 $629,379

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



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Table of Contents

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

Commercial Mortgage-Backed Securities by NAIC Designation and Origination Year  
  March 31, 2019
  2004 & Prior 2005 to 2008 2009 & After Total
NAIC Designation Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 
Amortized
Cost
 
Carrying
Value
  (Dollars in thousands)
1 $8,297
 $8,919
 $113,288
 $126,780
 $739,238
 $743,760
 $860,823
 $879,459
2 —
 —
 35,705
 37,245
 —
 —
 35,705
 37,245
Total (1) $8,297
 $8,919
 $148,993
 $164,025
 $739,238
 $743,760
 $896,528
 $916,704



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Table of Contents
Commercial Mortgage-Backed Securities by NAIC Designation and Origination Year  
  June 30, 2019
  2004 & Prior 2005 to 2008 2009 & After Total
NAIC Designation Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 Amortized
Cost		 
Carrying
Value
 
Amortized
Cost
 
Carrying
Value
  (Dollars in thousands)
1 $8,162
 $9,008
 $112,537
 $130,047
 $780,738
 $826,421
 $901,437
 $965,476
2 —
 —
 35,604
 38,279
 —
 —
 35,604
 38,279
Total (1) $8,162
 $9,008
 $148,141
 $168,326
 $780,738
 $826,421
 $937,041
 $1,003,755

Commercial Mortgage-Backed Securities by NAIC Designation and Origination Year  
 December 31, 2018 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 $8,415
 $9,029
 $113,526
 $124,885
 $715,899
 $708,447
 $837,840
 $842,361
 $8,415
 $9,029
 $113,526
 $124,885
 $715,899
 $708,447
 $837,840
 $842,361
2 —
 —
 35,832
 36,205
 —
 —
 35,832
 36,205
 —
 —
 35,832
 36,205
 —
 —
 35,832
 36,205
Total (1) $8,415
 $9,029
 $149,358
 $161,090
 $715,899
 $708,447
 $873,672
 $878,566
 $8,415
 $9,029
 $149,358
 $161,090
 $715,899
 $708,447
 $873,672
 $878,566

(1)The CMBS portfolio included government agency-backed securities with a carrying value of $733.0$811.4 million at March 31,June 30, 2019 and $693.3 million at December 31, 2018. Also included in the CMBS are military housing bonds totaling $159.9$164.6 million at March 31,June 30, 2019 and $156.7 million at December 31, 2018. These bonds are used to fund the construction of multi-family homes on United States military bases. The bonds are backed by a first mortgage lien on residential military housing projects.

The other asset-backed securities are backed by both residential and non-residential collateral. The collateral for residential asset-backed securities primarily consists of second lien fixed-rate home equity loans. The cash flows of these securities are less subject to prepayment risk than residential mortgage-backed securities as the borrowers are less likely to refinance than those with only a first lien mortgage. The collateral for non-residential asset-backed securities primarily includes securities backed by credit card receivables, auto dealer receivables, auto installment loans, aircraft leases, middle market and syndicated business loans, timeshare receivables and trade and account receivables. The majority of these securities are high quality, short-duration assets with limited cash flow variability.
Other Asset-Backed Securities by NAIC Designation and Origination YearOther Asset-Backed Securities by NAIC Designation and Origination Year  Other Asset-Backed Securities by NAIC Designation and Origination Year  
 March 31, 2019 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 $8,997
 $8,756
 $141,103
 $154,699
 $397,964
 $396,693
 $548,064
 $560,148
 $8,779
 $8,626
 $138,706
 $153,863
 $398,348
 $399,493
 $545,833
 $561,982
2 1,546
 1,649
 1,791
 1,852
 123,149
 124,840
 126,486
 128,341
 1,503
 1,633
 1,704
 1,776
 117,353
 120,394
 120,560
 123,803
3 —
 —
 —
 —
 3,131
 3,509
 3,131
 3,509
 —
 —
 —
 —
 3,105
 3,402
 3,105
 3,402
4 176
 168
 —
 —
 —
 —
 176
 168
 172
 168
 —
 —
 —
 —
 172
 168
5 —
 —
 —
 —
 2,650
 2,650
 2,650
 2,650
 —
 —
 —
 —
 2,092
 2,092
 2,092
 2,092
Total $10,719
 $10,573
 $142,894
 $156,551
 $526,894
 $527,692
 $680,507
 $694,816
 $10,454
 $10,427
 $140,410
 $155,639
 $520,898
 $525,381
 $671,762
 $691,447


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Other Asset-Backed Securities by NAIC Designation and Origination YearOther Asset-Backed Securities by NAIC Designation and Origination Year  
 December 31, 2018 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 $9,314
 $9,038
 $141,728
 $154,747
 $415,228
 $412,078
 $566,270
 $575,863
 $9,314
 $9,038
 $141,728
 $154,747
 $415,228
 $412,078
 $566,270
 $575,863
2 1,586
 1,693
 1,890
 1,943
 121,796
 122,300
 125,272
 125,936
 1,586
 1,693
 1,890
 1,943
 121,796
 122,300
 125,272
 125,936
3 —
 —
 313
 303
 1,697
 1,697
 2,010
 2,000
 —
 —
 313
 303
 1,697
 1,697
 2,010
 2,000
4 179
 170
 —
 —
 —
 —
 179
 170
 179
 170
 —
 —
 —
 —
 179
 170
5 —
 —
 —
 —
 3,601
 3,601
 3,601
 3,601
 —
 —
 —
 —
 3,601
 3,601
 3,601
 3,601
Total $11,079
 $10,901
 $143,931
 $156,993
 $542,322
 $539,676
 $697,332
 $707,570
 $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 $1,548.0$1,555.7 million, or 21.4%20.8% of total fixed maturities, at March 31,June 30, 2019, and $1,539.6 million, or 21.9% of total fixed maturities at December 31, 2018 and include investments in general obligation, revenue and municipal housing bonds. Our investment strategy is to utilize municipal bonds in addition to corporate bonds, as we believe they provide additional diversification and have historically low default rates compared with similarly rated corporate bonds. We evaluate the credit strength of the underlying issues on both a quantitative and qualitative basis, excluding insurance, prior to acquisition. The majority of the municipal bonds we hold are investment grade credits without consideration of insurance. Our municipal bonds are well diversified by type and geography with the top exposure being water and sewer


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revenue bonds.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 1.4%1.3% of our total fixed maturities at March 31,June 30, 2019. As of March 31,June 30, 2019, our Illinois-related portfolio holdings were rated investment grade and were trading at 110.2%113.6% of amortized cost. Our municipal bond exposure had an average rating of Aa2/AA and our holdings were trading at 108.1% of amortized cost at March 31, 2019.


Mortgage Loans

Mortgage loans totaled $1,023.71,019.1 million at March 31,June 30, 2019 and $1,039.8 million at December 31, 2018. Our mortgage loans are diversified as to property type, location and loan size, and are collateralized by the related properties. The total number of commercial mortgage loans outstanding was 207210 at March 31,June 30, 2019 and 208 at December 31, 2018. In the first threesix months of 2019, one new loans ranged from $1.6 million to $9.2 million in size, with an average loan in the amountsize of $5.7$5.2 million, was funded with aan average loan term of 2319 years and aan average net yield of 4.97%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 2.2%1.7% that are interest-only loans as of March 31,June 30, 2019. At March 31,June 30, 2019, the average loan-to-value of the current outstanding principal balance using the most recent appraised value was 52.9%52.4% and the weighted average debt service coverage ratio was 1.61.7 based on the results of our 20172018 annual study. See Note 2 to our consolidated financial statements for further discussion regarding our mortgage loans.



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Other Assets and Liabilities
March 31,
2019		 December 31,
2018		 Percentage changeJune 30,
2019		 December 31,
2018		 Percentage change
Selected other assets:          
Cash and cash equivalents6,057
 19,035
 (68.2)%13,854
 19,035
 (27.2)%
Reinsurance recoverable103,825
 102,386
 1.4 %102,898
 102,386
 0.5 %
Deferred acquisition costs373,711
 418,802
 (10.8)%314,301
 418,802
 (25.0)%
Other assets169,756
 163,518
 3.8 %179,408
 163,518
 9.7 %
Assets held in separate accounts614,121
 561,281
 9.4 %625,177
 561,281
 11.4 %
Selected other liabilities:          
Future policy benefits7,241,831
 7,205,471
 0.5 %7,298,402
 7,205,471
 1.3 %
Other policyholder funds612,733
 615,177
 (0.4)%601,038
 615,177
 (2.3)%
Deferred income taxes103,300
 75,449
 36.9 %134,702
 75,449
 78.5 %
Other liabilities110,709
 93,532
 18.4 %102,414
 93,532
 9.5 %
Liabilities held in separate accounts614,121
 561,281
 9.4 %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 decreased compared to the prior year primarily due to a $50.0$111.7 million increase in the impact of the change in net unrealized appreciation on fixed maturity securities during the period. Other assets increased primarily due to revaluation of our leased asset related to our home office building as discussed in Note 5 to our consolidated financial statements. Assets and liabilities held in separate accounts increased due to market performance on the underlying investment portfolios.

Future policy benefits increased primarily due to an increase in the volume of annuity and life business in force. Deferred income taxes increased primarily due to the tax impact of the change in unrealized appreciation/depreciation on investments. Other liabilities increased due to an increase in unsettled security trades.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 2019, which included a special cash dividend of $1.50 per share on Class A and Class B common stock and an increase in our regular quarterly dividend by 4.3% to $0.48 per share.



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 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’ equity1,394,462
 1,181,139
 18.1%
      
Book value per share$56.55
 $47.78
 18.4%
Less: Per share impact of accumulated other comprehensive income12.28
 3.69
 232.8%
Book value per share, excluding accumulated other comprehensive income (1)$44.27
 $44.09
 0.4%

 March 31,
2019		 December 31,
2018		 Percentage change
 (dollars in thousands, except per share data)  
Total FBL Financial Group, Inc. stockholders’ equity$1,263,400
 $1,184,139
 6.7 %
Common stockholders’ equity1,260,400
 1,181,139
 6.7 %
      
Book value per share$51.13
 $47.78
 7.0 %
Less: Per share impact of accumulated other comprehensive income7.68
 3.69
 108.1 %
Book value per share, excluding accumulated other comprehensive income$43.45
 $44.09
 (1.5)%
(1)Book value per share excluding accumulated other comprehensive income is a non-GAAP financial measure. Since accumulated other comprehensive income fluctuates from quarter to quarter due to unrealized changes in the fair value of investments caused principally by changes in market interest rates, we believe this non-GAAP financial measure provides useful supplemental information.

Our stockholders’ equity increased compared to the prior year primarily due to the change in unrealized appreciation of fixed maturity securities during the period and net income, partially offset by dividends paid. 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, FBL Financial Group believes this non-GAAP financial measure provides useful supplemental information.


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Liquidity and Capital Resources

Cash Flows

During the first threesix months of 2019, our operating activities generated cash flows totaling $44.7$85.6 million, consisting of net income of $34.0$66.3 million adjusted for non-cash operating revenues and expenses netting to $10.7$19.3 million. We used cash of $0.2$30.4 million in our investing activities during the 2019 period. The primary uses were $166.4$430.4 million of investment acquisitions, mostly in fixed maturity securities, partially offset by $166.4$401.7 million in sales, maturities and repayments of investments. Our financing activities used cash of $57.9$60.4 million during the 2019 period. The primary financing source was $135.8$317.0 million in receipts from interest sensitive products credited to policyholder account balances, which was offset by $143.5$311.2 million for return of policyholder account balances on interest sensitive products and $48.9$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 investment income and dividends from subsidiaries, if declared and paid. Revenue sources for the parent company during the threesix months ended March 31,June 30, 2019 included management fees from subsidiaries and affiliates totaling $2.1$4.2 million and dividends of $50.0$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 three-monthsix-month period ended March 31June 30 totaling $11.9$23.7 million in 2019 and $11.5$22.9 million in 2018. In addition, we paid a special $1.50 per common share cash dividend in March 2019 and March 2018 totaling $37.0 million and $37.3 million, respectively. It is anticipated that quarterly cash dividend requirements for 2019 will be $0.0075 per Series B preferred share and $0.48 per common share. The level of commonCommon stock dividendsdividend 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 $35.6$23.7 million for the remainder of 2019. The parent company expects to have sufficient resources and cash flows to meet its interest and dividend payments throughout 2019. The parent company had available cash and investments totaling $34.7$38.8 million at March 31,June 30, 2019. The parent company expects to rely on available cash resources, dividends from Farm Bureau Life and management fee income to make dividend payments to its stockholders, interest payments on its debt and to fund any capital initiatives such as stock repurchases. In addition, our parent company and Farm Bureau Life have entered into a reciprocal line of credit arrangement, which provides additional liquidity for either entity up to $20.0 million. We had no material commitments for capital expenditures as of March 31,June 30, 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


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of Directors. At March 31,June 30, 2019, $36.3 million remains available for repurchase under the current Class A common stock repurchase program. Under this program, we repurchased 66,475 shares for $4.6 million during the threesix months ended March 31,June 30, 2019. Completion of this program is dependent on market conditions and other factors. There is no guarantee as to the exact timing of any repurchases or the number of shares that we will repurchase. The share repurchase program may be modified or terminated at any time without prior notice.

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

Farm Bureau Life’s cash inflows primarily consist of premiums; deposits to policyholder account balances; income from investments; sales, maturities and calls of investments; and repayments of investment principal. Farm Bureau Life’s cash outflows are primarily related to withdrawals of policyholder account balances, investment purchases, payment of policy acquisition costs, policyholder benefits, income taxes, current operating expenses and dividends. Life insurance companies generally produce a positive cash flow that may be measured by the degree to which cash inflows are adequate to meet benefit obligations to policyholders and normal operating expenses as they are incurred. The remaining cash flow is generally used to increase the asset base to provide funds to meet the need for future policy benefit payments and for writing new business. Continuing operations and financing activities from Farm Bureau Life relating to interest sensitive products provided funds totaling $45.3$96.1 million for the threesix months ended March 31,June 30, 2019 and $196.4$222.6 million for the prior year period.



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Farm Bureau Life’s ability to pay dividends to the parent company is limited by law to earned profits (statutory unassigned surplus) as of the date the dividend is paid, as determined in accordance with accounting practices prescribed by insurance regulatory authorities of the State of Iowa. At December 31, 2018, Farm Bureau Life’s statutory unassigned surplus was $503.7 million. There are certain additional limits on the amount of dividends that may be paid within a year without approval of the Insurance Division, Department of Commerce of the State of Iowa as discussed in Note 7 to our consolidated financial statements included in Item 8 of our 2018 Form 10-K. During the remainder of 2019, the maximum amount legally available for distribution to the parent company without further regulatory approval is $50.8$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; however, these estimates may differ from actual results. As of March 31,June 30, 2019, Farm Bureau Life’s statutory total adjusted capital is estimated at $677.2$693.2 million, resulting in aan RBC ratio of 517%553%, based on company action level capital of $131.0$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, 2018.



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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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


ITEM 4. CONTROLS AND PROCEDURES

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


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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 March 31,June 30, 2019, there have been no changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

In June 2019, the Securities and Exchange Commission adopted new regulations impacting securities products and services. These regulations, including Regulation Best Interest and the Customer Relationship Summary requirement, will require us to make additional disclosures to customers and 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, 2018.


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

(c) Issuer Repurchases of Equity Securities

The following table sets forthWe had no issuer purchasesrepurchases of equity securities for the quarter ended March 31,June 30, 2019.
Period  (a) Total Number of Shares (or Units) Purchased (b) Average Price Paid per Share (or Unit) (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
January 1, 2019 through January 31, 2019 57,726
 $68.81
 57,726 $36,927,457
February 1, 2019 through February 28, 2019 8,749
 69.26
 8,749 $36,321,488
March 1, 2019 through March 31, 2019 —
 —
 — $36,321,488
Total 66,475
 $68.87
    



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


ITEM 6. EXHIBITS

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


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SIGNATURES

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


Date: May 2,August 1, 2019                


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



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