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Section 1: 8-K (8-K)

Document


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
 
FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of report (date of earliest event reported): November 1, 2018

FBL Financial Group, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
Iowa
1-11917
42-1411715
(State of incorporation)
(Commission File Number)
(I.R.S. Employer Identification No.)
 
 
 
5400 University Avenue, West Des Moines, Iowa
50266-5997
(Address of principal executive offices)
 
(Zip Code)
(515) 225-5400
(Registrant's telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of registrant under any of the following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a.12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))






Item 2.02. Results of Operations and Financial Condition

On November 1, 2018, FBL Financial Group, Inc. issued a news release reporting its financial results for the three months ended September 30, 2018 and a related financial supplement. The news release is furnished as Exhibit 99.1 hereto and the Financial Supplement is furnished as Exhibit 99.2 hereto.

The information contained in this Form 8-K including the exhibits attached hereto, shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits

(d) Exhibits.

Exhibit No.        Description

99.1            News release of FBL Financial Group, Inc. dated November 1, 2018

99.2            Financial Supplement of FBL Financial Group, Inc. for the quarter ended September 30,
2018

SIGNATURE

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 hereunto duly authorized.

Date: November 1, 2018                    FBL FINANCIAL GROUP, INC.

By    /s/ Donald J. Seibel
Donald J. Seibel
Chief Financial Officer


EXHIBIT INDEX

Exhibit No:    Description
Exhibit 99.1 News release of FBL Financial Group, Inc. dated November 1, 2018
Exhibit 99.2 Financial Supplement of FBL Financial Group, Inc. for the quarter ended September 30, 2018




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Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit












FOR IMMEDIATE RELEASE
CONTACT:
Thursday, November 1, 2018
Kathleen Till Stange, V.P. Corporate & Investor Relations
 
(515) 226-6780, Kathleen.TillStange@FBLFinancial.com

FBL Financial Group Reports Third Quarter 2018 Results

West Des Moines, Iowa, November 1, 2018 -

Financial Highlights
(Dollars in thousands, except per share data)
 
Three months ended September 30,
 
2018
 
2017
Net income attributable to FBL Financial Group
$
31,010

 
$
26,127

Non-GAAP operating income(1)  
31,872

 
24,776

Earnings per common share (assuming dilution):
 
 
 
Net income
1.24

 
1.04

Non-GAAP operating income(1) 
1.28

 
0.99

    

FBL Financial Group, Inc. (NYSE: FFG) today reported net income attributable to FBL Financial Group for the third quarter of 2018 of $31.0 million, or $1.24 per diluted common share, compared to $26.1 million, or $1.04 per diluted common share, for the third quarter of 2017. Non-GAAP operating income(1) totaled $31.9 million, or $1.28 per common share, for the third quarter of 2018, compared to $24.8 million, or $0.99 per common share, for the third quarter of 2017. Third quarter 2018 earnings per share reflects:
A growing book of profitable business
The benefit of other investment-related income of $0.03 per share
Unfavorable mortality results in the Life Segment
A decrease in the reserve for guaranteed living withdrawal benefits in the Annuity Segment
The negative impact of $0.01 per share from unlocking assumptions used in the calculation of deferred acquisition costs, unearned revenue reserves and certain reserves on interest sensitive products
A lower effective tax rate due to the Tax Cuts and Jobs Act of 2017

Non-GAAP operating income differs from the GAAP measure, net income attributable to FBL Financial Group, in that it excludes the initial impact of changes in federal statutory income tax rates and tax laws, realized gains and losses on investments, and the change in net unrealized gains and losses on derivatives




and equity securities. For further information on this non-GAAP financial measure, please refer to Note (1) and the reconciliation provided within this release.

"FBL Financial Group delivered another quarter of outstanding financial results with third quarter net income of $1.24 per share and record third quarter non-GAAP operating income of $1.28 per share,” said James P. Brannen, Chief Executive Officer of FBL Financial Group, Inc. "These results reflect steady and profitable growth in our book of business combined with lower taxes and successful execution of our strategies to emphasize life insurance sales, manage expenses and maintain a strong capital position. Our exclusive Farm Bureau agency force and FBL employees remain focused on the fundamentals to provide an excellent customer experience."

Accounting Policy Change. During the third quarter of 2018, FBL Financial Group voluntarily changed its accounting policy for low income housing tax credit (LIHTC) investments from the equity method to the proportional amortization method. FBL Financial Group believes the proportional amortization method is preferable because it better reflects the economics of an investment that is made for the primary purpose of receiving tax credits and other tax benefits and is consistent with the accounting method used by most life insurance companies that have disclosed their accounting policies for LIHTC investments. In addition to a change in the timing of the recognition of income or loss on LIHTC investments, income/expense from LIHTC investments is now reflected in the "Income taxes" line instead of the "Equity income" line on the consolidated statements of operations. Prior period results were adjusted to reflect this change in accounting policy.

Product Revenues Increase from 2017. Premiums and product charges for the third quarter of 2018 totaled $79.3 million compared to $75.1 million in the third quarter of 2017. Interest sensitive product charges increased 11 percent while traditional life insurance premiums increased two percent during the quarter. Premiums collected(2) in the third quarter of 2018 totaled $141.7 million compared to $141.6 million in the third quarter of 2017. Annuity premiums collected decreased three percent and life insurance premiums collected increased four percent.

Investment Income of $106 Million in Third Quarter. Net investment income in the third quarter of 2018 totaled $105.8 million, compared to $103.0 million in the third quarter of 2017. This increase reflects an increase in average invested assets partially offset by lower investment yields. The annualized yield earned on average invested assets, with securities at amortized cost, including investments held as securities and indebtedness of related parties, was 5.16 percent for the nine months ended September 30, 2018, compared to 5.30 percent for the nine months ended September 30, 2017. At September 30, 2018, 97 percent of the fixed maturity securities in FBL Financial Group's investment portfolio were investment grade debt securities.

Benefits and Expenses. Benefits and expenses totaled $153.9 million in the third quarter of 2018, compared to $146.0 million in the third quarter of 2017. Death benefits, net of reinsurance and reserves released, totaled $29.4 million in the third quarter of 2018, compared to $29.1 million in the third quarter of 2017. By its nature, mortality experience can fluctuate from quarter to quarter.

Unlocking. During the third quarter of 2018, FBL Financial Group unlocked the assumptions used in the calculation of deferred acquisition costs, unearned revenue reserves and certain reserves on interest sensitive products. This unlocking resulted in a pre-tax unfavorable impact of $0.3 million, or $0.01 per share after-tax.





Net Realized Losses in the Third Quarter. In the third quarter of 2018, FBL Financial Group recognized net realized losses on investments of $0.7 million. This is primarily attributable to unrealized losses on equity securities.

Stock Repurchases. During the third quarter of 2018, FBL Financial Group did not repurchase any of its Class A or Class B common stock. FBL Financial Group has $48.0 million remaining under its current stock repurchase program.

Capital and Book Value. As of September 30, 2018, the book value per share of FBL Financial Group common stock totaled $47.98, compared to $55.12 at December 31, 2017. Book value per share, excluding accumulated other comprehensive income(3), totaled $44.39 at September 30, 2018, compared to $43.68 at December 31, 2017. The September 30, 2018 company action level risk based capital ratio of FBL Financial Group's wholly owned subsidiary, Farm Bureau Life Insurance Company, was approximately 554 percent.

Further Financial Information. Further information on FBL Financial Group's financial results, including results by segment, may be found in FBL Financial Group's financial supplement, available on its website, www.fblfinancial.com.

Conference Call. FBL Financial Group will hold a conference call with investors tomorrow, November 2, 2018, at 11:00 a.m. Eastern Time. The call will be webcast and a replay will be available on FBL Financial Group's website.

Certain statements in this release concerning FBL Financial Group's prospects for the future are forward-looking statements intended to qualify for the “safe harbor” from liability established by the Private Securities Litigation Reform Act. These statements generally can be identified by their context, including terms such as “believes,” “anticipates,” “expects,” or similar words. These statements involve certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statement. These risks and uncertainties are detailed in FBL Financial Group's reports filed with the Securities and Exchange Commission and include, but are not limited to, changes in interest rates, difficult conditions in financial markets and the economy, lack of liquidity and access to capital, investment valuations, competitive factors, a decrease in ratings, changes in laws and regulations, differences between actual claims experience and underwriting assumptions, relationships with Farm Bureau organizations, the ability to attract and retain sales agents and adverse results from litigation. These forward-looking statements are based on assumptions which FBL Financial Group believes to be reasonable; however, no assurance can be given that the assumptions will prove to be correct. FBL Financial Group undertakes no obligation to update any forward-looking statements.

FBL Financial Group is a holding company whose purpose is to protect livelihoods and futures. Operating under the consumer brand name Farm Bureau Financial Services, it offers a broad range of life insurance and annuity products distributed by multiline exclusive Farm Bureau agents. In addition, FBL Financial Group manages all aspects of two Farm Bureau affiliated property-casualty insurance companies for a management fee. Headquartered in West Des Moines, Iowa, FBL Financial Group is traded on the New York Stock Exchange under the symbol FFG. For more information, please visit www.fblfinancial.com and www.fbfs.com.

- FINANCIAL INFORMATION AND NOTES FOLLOW -




FBL Financial Group, Inc.
Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share data)

 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Interest sensitive product charges
$
31,161

 
$
28,004

 
$
92,165

 
$
86,661

Traditional life insurance premiums
48,124

 
47,087

 
148,712

 
145,783

Net investment income
105,757

 
102,950

 
310,753

 
307,852

Net realized capital gains (losses)
(709
)
 
81

 
(1,615
)
 
599

Net other-than-temporary impairment losses recognized in earnings
(50
)
 
(67
)
 
(1,090
)
 
(133
)
Other income
3,828

 
3,501

 
12,065

 
11,711

Total revenues
188,111

 
181,556

 
560,990

 
552,473

 
 
 
 
 
 
 
 
Benefits and expenses:
 
 
 
 
 
 
 
Interest sensitive product benefits
70,145

 
67,206

 
194,127

 
188,217

Traditional life insurance benefits
44,168

 
42,633

 
133,349

 
128,197

Policyholder dividends
2,480

 
2,487

 
7,591

 
7,597

Underwriting, acquisition and insurance expenses
30,834

 
27,535

 
107,621

 
98,229

Interest expense
1,212

 
1,213

 
3,638

 
3,638

Other expenses
5,061

 
4,971

 
16,281

 
13,862

Total benefits and expenses
153,900

 
146,045

 
462,607

 
439,740

 
34,211

 
35,511

 
98,383

 
112,733

Income taxes
(4,818
)
 
(9,880
)
 
(14,462
)
 
(32,017
)
Equity income, net of related income taxes
1,642

 
487

 
3,441

 
2,629

Net income
31,035

 
26,118

 
87,362

 
83,345

Net loss (income) attributable to noncontrolling interest
(25
)
 
9

 
16

 
(20
)
Net income attributable to FBL Financial Group, Inc.
$
31,010

 
$
26,127

 
$
87,378

 
$
83,325

 
 
 
 
 
 
 
 
Earnings per common share - assuming dilution
$
1.24

 
$
1.04

 
$
3.50

 
$
3.32

 
 
 
 
 
 
 
 
Weighted average common shares
24,918,725

 
25,037,020

 
24,946,752

 
25,036,258

Effect of dilutive securities
11,076

 
17,530

 
13,317

 
19,703

Weighted average common shares - diluted
24,929,801

 
25,054,550

 
24,960,069

 
25,055,961

 
 
 
 
 
 
 
 





(1) Reconciliation of Net Income Attributable to FBL Financial Group to Non-GAAP Operating Income - Unaudited

In addition to net income, FBL Financial Group has consistently utilized non-GAAP operating income, a financial measure common in the life insurance industry that is not prepared in accordance with U.S. generally accepted accounting principles (GAAP), as a primary economic measure to evaluate its financial performance. Non-GAAP operating income equals net income attributable to FBL Financial Group adjusted to exclude the initial impact of changes in federal statutory income tax rates and tax laws, realized gains and losses on investments, and the change in net unrealized gains and losses on 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 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. This non-GAAP measure is used for goal setting, determining short-term incentive compensation and evaluating performance on a basis comparable to that used by many in the investment community. FBL Financial Group believes the combined presentation and evaluation of non-GAAP operating income, together with net income, provides information that may enhance an investor's understanding of FBL Financial Group's underlying results and profitability. A reconciliation is provided in the following table:
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
 
(Dollars in thousands,
except per share data)
Net income attributable to FBL Financial Group
$
31,010

 
$
26,127

 
$
87,378

 
$
83,325

Adjustments:
 
 
 
 
 
 
 
Initial impact of the Tax Act(a)
(617
)
 

 
(617
)
 

Net realized gains/losses on investments(b) (c)
603

 
38

 
2,132

 
(196
)
Change in net unrealized gains/losses on derivatives(b)
876

 
(1,389
)
 
1,191

 
(2,074
)
Non-GAAP operating income
$
31,872

 
$
24,776

 
$
90,084

 
$
81,055

 
 
 
 
 
 
 
 
Non-GAAP operating income per common share - assuming dilution
$
1.28

 
$
0.99

 
$
3.60

 
$
3.23

 
 
 
 
 
(a) Amount represents a change in the provisional estimate of the impact of the Tax Act on deferred tax assets and liabilities as of December 31, 2017.
(b) Net of adjustments, as applicable, to amortization of unearned revenue reserves, deferred acquisition costs, value of insurance in force acquired, interest sensitive policy reserves and income taxes attributable to these items.
(c) Beginning in 2018, the change in net unrealized gains/losses on equity securities is included as an adjustment to net income.

(2) Premiums Collected - Net statutory premiums collected is a non-GAAP measure and includes premiums collected from annuities and universal life-type products. It is a useful metric for investors as it is a measure of sales production.
For GAAP reporting, these premiums received are not reported as revenues.

(3) Reconciliation of Book Value Per Share Excluding Accumulated Other Comprehensive Income - Unaudited
 
September 30,
2018
 
December 31,
2017
Book value per share
$
47.98

 
$
55.12

Less: Per share impact of accumulated other comprehensive income
3.59

 
11.44

Book value per share, excluding accumulated other comprehensive income
$
44.39

 
$
43.68


Book value per share excluding accumulated other comprehensive income is a non-GAAP financial measure. Accumulated other comprehensive income totaled $89 million at September 30, 2018 and $285.0 million at December 31, 2017. 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.




FBL Financial Group, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)

 
September 30,
2018
 
December 31,
2017
Assets
 
 
 
Investments
$
8,490,010

 
$
8,620,243

Cash and cash equivalents
14,425

 
52,696

Deferred acquisition costs
412,046

 
302,611

Other assets
436,941

 
425,888

Assets held in separate accounts
651,797

 
651,963

Total assets
$
10,005,219

 
$
10,053,401

 
 
 
 
Liabilities and stockholders' equity
 
 
 
Liabilities
 
 
 
Future policy benefits
$
7,241,185

 
$
7,050,465

Other policy funds, claims and benefits
630,907

 
634,128

Debt
97,000

 
97,000

Other liabilities
190,532

 
242,720

Liabilities related to separate accounts
651,797

 
651,963

Total liabilities
8,811,421

 
8,676,276

 
 
 
 
Stockholders' equity
 
 
 
FBL Financial Group, Inc. stockholders' equity:
 
 
 
Preferred stock
3,000

 
3,000

Class A common stock
153,160

 
153,589

Class B common stock
72

 
72

Accumulated other comprehensive income
88,961

 
284,983

Retained earnings
948,530

 
935,423

Total FBL Financial Group, Inc. stockholders' equity
1,193,723

 
1,377,067

Noncontrolling interest
75

 
58

Total stockholders' equity
1,193,798

 
1,377,125

Total liabilities and stockholders' equity
$
10,005,219

 
$
10,053,401

 
 
 
 
Common shares outstanding
24,818,209

 
24,930,526


####






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Section 3: EX-99.2 (EXHIBIT 99.2)

Exhibit




FBL FINANCIAL GROUP, INC.
INVESTOR SUPPLEMENT
2018 Third Quarter



395600728_invsuppcover19.jpg



395600728_fblfgrgb960px.jpg








 
 
Corporate Headquarters
FBL Financial Group, Inc.
 
5400 University Avenue
 
West Des Moines, Iowa 50266-5997
 
(515) 225-5400
Financial Inquiries
For more information contact:
 
Kathleen Till Stange
 
Vice President Corporate & Investor Relations
 
Kathleen.TillStange@FBLFinancial.com
 
(515) 226-6780
Internet Information
FBL Financial Group, Inc.
 
www.fblfinancial.com
Stock Symbol
NYSE: FFG
Transfer Agent
American Stock Transfer & Trust Company, LLC
 
6201 15th Avenue
 
Brooklyn, NY 11219
 
http://www.astfinancial.com
 
 


















FBL Financial Group, Inc.
 
 
Financial Supplement (Unaudited)
 
 
September 30, 2018
 
 
Table of Contents/Notes
 
 
 
 
 
Consolidated Financial Statements:
 
 
Consolidated Balance Sheets
 
Consolidated Statements of Comprehensive Income
 
Consolidated Statements of Comprehensive Income, last five quarters
 
Net Income to Non-GAAP Operating Income Reconciliation and Pre-tax Non-GAAP Operating Income by Segment, last five quarters
 
Financial Information by Segment:
 
 
Segment Information
 
Statements of Pre-tax Non-GAAP Operating Income, last five quarters:
 
 
Annuity Segment
 
Life Insurance Segment
 
Corporate and Other Segment
 
Deferred Acquisition Costs by Segment
 
Impact of Unlocking on Pre-tax Non-GAAP Operating Income
 
Collected Premiums, last five quarters
 
Other Information
 

NOTE 1: During the third quarter of 2018, we voluntarily changed our accounting policy for low income housing tax credit (LIHTC) investments. The accounting change is applied retrospectively to our financial statements and all prior financial information in this exhibit has been adjusted to reflect this change. For further details on the accounting change, see Note 1 to our consolidated financial statements in our Form 10-Q for the quarter ended September 30, 2018.

NOTE 2: In addition to net income as determined using U.S. Generally Accepted Accounting Principles (GAAP), we have consistently used non-GAAP operating income (a measure of earnings not recognized under GAAP), a financial measure common in the life insurance industry, as a primary economic measure to evaluate our financial performance. Non-GAAP operating income for the periods presented consists of net income adjusted to exclude the initial impact of changes in federal statutory income tax rates and tax laws, realized gains and losses on investments and the change in net unrealized gains and losses on derivatives and equity securities.

We use non-GAAP operating income, in addition to net income, to measure our performance since realized gains and losses on investments and the change in net unrealized gains and losses on derivatives and equities can fluctuate greatly from quarter to quarter. These fluctuations make it difficult to analyze core operating trends. A view of our non-GAAP operating performance without the impact of these items enhances the analysis of our results. We use non-GAAP operating income for goal setting, determining short-term incentive compensation and evaluating performance on a basis comparable to that used by many in the investment community.

NOTE 3: Certain financial information presented herein may not add due to rounding.

1




FBL Financial Group, Inc.
Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)

 
September 30,
2018
 
December 31,
2017
Assets
 
 
 
Investments:
 
 
 
Fixed maturities - available for sale, at fair value (amortized cost: 2018 - $6,925,616; 2017 - $6,757,250)
$
7,099,025

 
$
7,291,967

Equity securities - available for sale, at fair value (cost: 2018 - $99,882; 2017 - $96,715)
103,896

 
104,145

Mortgage loans
1,015,618

 
971,812

Real estate
1,543

 
1,543

Policy loans
195,723

 
191,398

Short-term investments
25,569

 
17,007

Other investments
48,636

 
42,371

Total investments
8,490,010

 
8,620,243

 
 
 
 
Cash and cash equivalents
14,425

 
52,696

Securities and indebtedness of related parties
59,546

 
47,823

Accrued investment income
81,199

 
76,468

Amounts receivable from affiliates
7,617

 
3,561

Reinsurance recoverable
104,550

 
108,948

Deferred acquisition costs
412,046

 
302,611

Value of insurance in force acquired
10,821

 
4,560

Current income taxes recoverable
1,454

 
6,764

Other assets
171,754

 
177,764

Assets held in separate accounts
651,797

 
651,963

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
$
10,005,219

 
$
10,053,401




2




FBL Financial Group, Inc.
Consolidated Balance Sheets (Continued)
(Dollars in thousands)

 
September 30,
2018
 
December 31,
2017
Liabilities and stockholders' equity
 
 
 
Liabilities:
 
 
 
Future policy benefits:
 
 
 
Interest sensitive products
$
5,451,535

 
$
5,299,961

Traditional life insurance and accident and health products
1,789,650

 
1,750,504

Other policy claims and benefits
51,820

 
44,475

Supplementary contracts without life contingencies
310,152

 
322,630

Advance premiums and other deposits
268,935

 
267,023

Amounts payable to affiliates
1,379

 
1,164

Long-term debt payable to non-affiliates
97,000

 
97,000

Deferred income taxes
77,958

 
130,425

Other liabilities
111,195

 
111,131

Liabilities related to separate accounts
651,797

 
651,963

Total liabilities
8,811,421

 
8,676,276

 
 
 
 
Stockholders' equity:
 
 
 
FBL Financial Group, Inc. stockholders' equity:
 
 
 
Preferred stock, without par value, at liquidation value - authorized 10,000,000 shares, issued and outstanding 5,000,000 Series B shares
3,000

 
3,000

Class A common stock, without par value - authorized 88,500,000 shares, issued and outstanding 24,806,796 in 2018 and 24,919,113 shares in 2017
153,160

 
153,589

Class B common stock, without par value - authorized 1,500,000 shares, issued and outstanding 11,413 shares in 2018 and 2017
72

 
72

Accumulated other comprehensive income
88,961

 
284,983

Retained earnings
948,530

 
935,423

Total FBL Financial Group, Inc. stockholders' equity
1,193,723

 
1,377,067

Noncontrolling interest
75

 
58

Total stockholders' equity
1,193,798

 
1,377,125

Total liabilities and stockholders' equity
$
10,005,219

 
$
10,053,401




3




FBL Financial Group, Inc.
Consolidated Statements of Comprehensive Income (Unaudited)
(Dollars in thousands, except per share data)

 
Three months ended September 30,
 
Nine months ended September 30,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Interest sensitive product charges
$
31,161

 
$
28,004

 
$
92,165

 
$
86,661

Traditional life insurance premiums
48,124

 
47,087

 
148,712

 
145,783

Net investment income
105,757

 
102,950

 
310,753

 
307,852

Net realized capital gains (losses)
(709
)
 
81

 
(1,615
)
 
599

Net other-than-temporary impairment losses recognized in earnings
(50
)
 
(67
)
 
(1,090
)
 
(133
)
Other income
3,828

 
3,501

 
12,065

 
11,711

Total revenues
188,111

 
181,556

 
560,990

 
552,473

 
 
 
 
 
 
 
 
Benefits and expenses:
 
 
 
 
 
 
 
Interest sensitive product benefits
70,145

 
67,206

 
194,127

 
188,217

Traditional life insurance benefits
44,168

 
42,633

 
133,349

 
128,197

Policyholder dividends
2,480

 
2,487

 
7,591

 
7,597

Underwriting, acquisition and insurance expenses
30,834

 
27,535

 
107,621

 
98,229

Interest expense
1,212

 
1,213

 
3,638

 
3,638

Other expenses
5,061

 
4,971

 
16,281

 
13,862

Total benefits and expenses
153,900

 
146,045

 
462,607

 
439,740

 
34,211

 
35,511

 
98,383

 
112,733

Income tax expense
(4,818
)
 
(9,880
)
 
(14,462
)
 
(32,017
)
Equity income, net of related income taxes
1,642

 
487

 
3,441

 
2,629

Net income
31,035

 
26,118

 
87,362

 
83,345

Net loss (income) attributable to noncontrolling interest
(25
)
 
9

 
16

 
(20
)
Net income attributable to FBL Financial Group, Inc.
$
31,010

 
$
26,127

 
$
87,378

 
$
83,325

 
 
 
 
 
 
 
 
Comprehensive income (loss) attributable to FBL Financial Group, Inc.
$
(11,110
)
 
$
37,639

 
$
(103,164
)
 
$
157,639

 
 
 
 
 
 
 
 
Earnings per common share
$
1.24

 
$
1.04

 
$
3.50

 
$
3.32

Earnings per common share - assuming dilution
$
1.24

 
$
1.04

 
$
3.50

 
$
3.32

 
 
 
 
 
 
 
 
Cash dividends per common share
$
0.46

 
$
0.44

 
$
1.38

 
$
1.32

Special cash dividend per common share
$

 
$

 
$
1.50

 
$
1.50



4




FBL Financial Group, Inc.
Consolidated Statements of Comprehensive Income (Unaudited) - Quarterly
(Dollars in thousands, except per share data)

 
Q3 2017
 
Q4 2017
 
Q1 2018
 
Q2 2018
 
Q3 2018
Revenues:
 
 
 
 
 
 
 
 
 
Interest sensitive product charges
$
28,004

 
$
26,275

 
$
30,098

 
$
30,906

 
$
31,161

Traditional life insurance premiums
47,087

 
49,547

 
49,497

 
51,091

 
48,124

Net investment income
102,950

 
107,347

 
101,022

 
103,974

 
105,757

Net realized capital gains (losses)
81

 

 
(1,747
)
 
841

 
(709
)
Net other-than-temporary impairment losses recognized in earnings
(67
)
 
(1,420
)
 
(1,040
)
 

 
(50
)
Other income
3,501

 
3,689

 
4,600

 
3,637

 
3,828

Total revenues
181,556

 
185,438

 
182,430

 
190,449

 
188,111

 
 
 
 
 
 
 
 
 
 
Benefits and expenses:
 
 
 
 
 
 
 
 
 
Interest sensitive product benefits
67,206

 
63,661

 
61,345

 
62,637

 
70,145

Traditional life insurance benefits
42,633

 
44,826

 
45,456

 
43,725

 
44,168

Policyholder dividends
2,487

 
2,543

 
2,551

 
2,560

 
2,480

Underwriting, acquisition and insurance expenses
27,535

 
36,649

 
39,577

 
37,210

 
30,834

Interest expense
1,213

 
1,212

 
1,213

 
1,213

 
1,212

Other expenses
4,971

 
4,520

 
5,593

 
5,627

 
5,061

Total benefits and expenses
146,045

 
153,411

 
155,735

 
152,972

 
153,900

 
35,511

 
32,027

 
26,695

 
37,477

 
34,211

Income tax benefit (expense)
(9,880
)
 
72,000

 
(3,813
)
 
(5,831
)
 
(4,818
)
Equity income (loss), net of related income taxes
487

 
(39
)
 
660

 
1,139

 
1,642

Net income
26,118

 
103,988

 
23,542

 
32,785

 
31,035

Net loss (income) attributable to noncontrolling interest
9

 
(8
)
 
23

 
18

 
(25
)
Net income attributable to FBL Financial Group, Inc.
$
26,127

 
$
103,980

 
$
23,565

 
$
32,803

 
$
31,010

 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss) attributable to FBL Financial Group, Inc.
$
37,639

 
$
116,868

 
$
(69,327
)
 
$
(22,727
)
 
$
(11,110
)
 
 
 
 
 
 
 
 
 
 
Earnings per common share
$
1.04

 
$
4.15

 
$
0.94

 
$
1.31

 
$
1.24

Earnings per common share - assuming dilution
$
1.04

 
$
4.15

 
$
0.94

 
$
1.31

 
$
1.24

 
 
 
 
 
 
 
 
 
 
Cash dividends per common share
$
0.44

 
$
0.44

 
$
0.46

 
$
0.46

 
$
0.46

Special cash dividend per common share
$

 
$

 
$
1.50

 
$

 
$

 
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding (in thousands):
 
 
 
 
 
 
 
 
 
Basic
25,037

 
25,039

 
25,004

 
24,917

 
24,919

Effect of dilutive securities
18

 
18

 
16

 
13

 
11

Diluted
25,055

 
25,057

 
25,020

 
24,930

 
24,930



5




FBL Financial Group, Inc.
Net Income to Non-GAAP Operating Income Reconciliation and Pre-tax Non-GAAP Operating Income by Segment
(Dollars in thousands, except per share data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q3 2017
 
Q4 2017
 
Q1 2018
 
Q2 2018
 
Q3 2018
 
 
 
 
 
 
 
 
 
 
Net income attributable to FBL Financial Group, Inc.
$
26,127

 
$
103,980

 
$
23,565

 
$
32,803

 
$
31,010

Net income adjustments:
 
 
 
 
 
 
 
 
 
Impact of change in federal tax rate (1)

 
(81,157
)
 

 

 
(617
)
Realized gains/losses on investments (2)(3)
38

 
656

 
2,223

 
(694
)
 
603

Change in net unrealized gains/losses on derivatives (2)
(1,389
)
 
(476
)
 
509

 
(194
)
 
876

Non-GAAP operating income
$
24,776

 
$
23,003

 
$
26,297

 
$
31,915

 
$
31,872

 
 
 
 
 
 
 
 
 
 
Non-GAAP operating income per common share - assuming dilution
$0.99
 
$0.92
 
$1.05
 
$1.28
 
$1.28
 
 
 
 
 
 
 
 
 
 
Non-GAAP operating return on equity, excluding AOCI - last twelve months
10.3%
 
10.0%
 
10.0%
 
9.7%
 
10.5%
Non-GAAP operating return on equity, including AOCI - last twelve months
8.5%
 
8.3%
 
8.3%
 
8.1%
 
9.0%
 
 
 
 
 
 
 
 
 
 
 
Q3 2017
 
Q4 2017
 
Q1 2018
 
Q2 2018
 
Q3 2018
Impact of Adjustments on FBL Net Income
 
 
 
 
 
 
 
 
 
Initial impact of the Tax Act (1)
$

 
$
81,157

 
$

 
$

 
$
617

Realized gains (losses) on investments and change in net unrealized gains/losses on equity securities and derivatives
1,911

 
(791
)
 
(3,995
)
 
1,357

 
(2,658
)
Offsets: (4)
 
 
 
 
 
 
 
 
 
Change in amortization
(20
)
 
(90
)
 
338

 
(226
)
 
725

Reserve change on interest sensitive products
187

 
79

 
199

 
(7
)
 
60

Income tax
(727
)
 
622

 
726

 
(236
)
 
394

Net impact of net income adjustments
$
1,351

 
$
80,977

 
$
(2,732
)
 
$
888

 
$
(862
)
 
 
 
 
 
 
 
 
 
 
 
Q3 2017
 
Q4 2017
 
Q1 2018
 
Q2 2018
 
Q3 2018
Pre-tax non-GAAP operating income by segment:
 
 
 
 
 
 
 
 
 
Annuity segment
$
17,015

 
$
17,211

 
$
16,582

 
$
15,998

 
$
18,179

Life Insurance segment
12,620

 
9,856

 
10,897

 
16,381

 
11,958

Corporate and Other segment
4,556

 
5,694

 
3,533

 
5,434

 
7,999

Total pre-tax non-GAAP operating income
34,191

 
32,761

 
31,012

 
37,813

 
38,136

Income taxes on non-GAAP operating income
(9,415
)
 
(9,758
)
 
(4,715
)
 
(5,898
)
 
(6,264
)
Non-GAAP operating income
$
24,776

 
$
23,003

 
$
26,297

 
$
31,915

 
$
31,872


(1)
During the third quarter of 2018, we adjusted the provisional estimate of the impact of the Tax Act on our deferred tax assets and liabilities as of December 31, 2017. See Note 5 to our consolidated financial statements in Form 10-Q for the quarter ended September 30, 2018 for additional information.
(2) Amounts are net of offsets related to changes in amortization of unearned revenue reserves, deferred sales inducements and deferred acquisition costs, as well as changes in interest sensitive product reserves and income taxes attributable to these items.
(3)
Beginning in 2018, amount includes changes in net unrealized gains/losses on equity securities.
(4) The items excluded from non-GAAP 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.

6




FBL Financial Group, Inc.
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.

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

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

The Corporate and Other segment consists of the following corporate items and products/services that do not meet the quantitative threshold for separate segment reporting:
 
investments and related investment income not specifically allocated to our product segments;
 
interest expense;
 
closed blocks of variable annuity, variable universal life insurance and accident and health insurance products;
 
advisory services for the management of investments and other companies;
 
marketing and distribution services for the sale of mutual funds and insurance products not issued by us; and
 
leasing services, primarily with affiliates.

We analyze our segment results based on pre-tax non-GAAP operating income. Accordingly, income taxes are not allocated to the segments. In addition, non-GAAP operating results are reported net of transactions between the segments.

7




FBL Financial Group, Inc.
Statements of Pre-tax Non-GAAP Operating Income
Annuity Segment
 
 
 
 
 
 
 
 
 
 
 
Q3 2017
 
Q4 2017
 
Q1 2018
 
Q2 2018
 
Q3 2018
Pre-tax Non-GAAP Operating Income
 
(Dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP operating revenues:
 
 
 
 
 
 
 
 
 
Interest sensitive product charges
$
1,115

 
$
1,032

 
$
1,202

 
$
1,217

 
$
1,280

Net investment income
53,878

 
56,275

 
56,233

 
55,198

 
54,144

Total non-GAAP operating revenues
54,993

 
57,307

 
57,435

 
56,415

 
55,424

 
 
 
 
 
 
 
 
 
 
Non-GAAP operating benefits and expenses:
 
 
 
 
 
 
 
 
 
Interest sensitive product benefits
31,385

 
31,096

 
31,286

 
31,393

 
29,037

Underwriting, acquisition and insurance expenses:
 
 
 
 
 
 
 
 
 
Commission expense, net of deferrals
537

 
611

 
504

 
518

 
374

Amortization of deferred acquisition costs
505

 
2,690

 
3,065

 
3,070

 
2,319

Amortization of value of insurance in force acquired
169

 
169

 
172

 
172

 
165

Other underwriting expenses
5,382

 
5,530

 
5,826

 
5,264

 
5,350

Total underwriting, acquisition and insurance expenses
6,593

 
9,000

 
9,567

 
9,024

 
8,208

Total non-GAAP operating benefits and expenses
37,978

 
40,096

 
40,853

 
40,417

 
37,245

Pre-tax non-GAAP operating income
$
17,015

 
$
17,211

 
$
16,582

 
$
15,998

 
$
18,179

 
 
 
 
 
 
 
 
 
 
Selected balance sheet data, securities at amortized cost:
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
Investments
$
4,382,218

 
$
4,470,721

 
$
4,586,256

 
$
4,576,410

 
$
4,596,422

Deferred acquisition costs
91,802

 
92,116

 
92,400

 
92,377

 
92,442

Value of insurance in force acquired
3,695

 
3,526

 
3,354

 
3,182

 
3,017

 
 
 
 
 
 
 
 
 
 
Liabilities and equity:
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Interest sensitive product reserves
$
3,884,541

 
$
3,963,187

 
$
4,110,232

 
$
4,075,995

 
$
4,096,314

Other insurance reserves
358,691

 
355,877

 
352,747

 
346,270

 
344,963

Allocated equity, excluding AOCI
267,324

 
272,101

 
272,242

 
269,758

 
270,918

 
 
 
 
 
 
 
 
 
 
Other data:
 
 
 
 
 
 
 
 
 
Number of direct contracts
53,218

 
53,250

 
52,991

 
53,184

 
52,925

 
 
 
 
 
 
 
 
 
 
Portfolio yield net of assumed defaults
4.58
%
 
4.50
%
 
4.47
%
 
4.44
%
 
4.43
%
Credited rate
2.63

 
2.56

 
2.56

 
2.56

 
2.57

Spread on individual annuities at end of quarter (1)
1.95
%
 
1.94
%
 
1.91
%
 
1.88
%
 
1.86
%
 
 
 
 
 
 
 
 
 
 
Interest sensitive reserve activity:
 
 
 
 
 
 
 
 
 
Individual annuity reserve:
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
3,057,952

 
$
3,082,310

 
$
3,109,789

 
$
3,134,862

 
$
3,171,359

Deposits
55,383

 
66,097

 
76,067

 
76,725

 
53,584

Withdrawals, surrenders and death benefits
(45,450
)
 
(49,428
)
 
(60,623
)
 
(53,788
)
 
(62,234
)
Net flows
9,933

 
16,669

 
15,444

 
22,937

 
(8,650
)
 
 
 
 
 
 
 
 
 
 
Policyholder interest
21,041

 
20,817

 
20,363

 
20,787

 
20,524

Annuitizations and other
(6,616
)
 
(10,007
)
 
(10,734
)
 
(7,227
)
 
(6,352
)
Balance, end of period
3,082,310

 
3,109,789

 
3,134,862

 
3,171,359

 
3,176,881

Other interest sensitive reserves
802,231

 
853,398

 
975,370

 
904,636

 
919,433

Total interest sensitive product reserves
$
3,884,541

 
$
3,963,187

 
$
4,110,232

 
$
4,075,995

 
$
4,096,314


(1)
Point-in-time spread at the balance sheet date used by management for decision making, which differs from the spread earned during the reporting period disclosed in the Form 10Q or 10K.

8




FBL Financial Group, Inc.
Statements of Pre-tax Non-GAAP Operating Income
Life Insurance Segment
 
 
 
 
 
 
 
 
 
 
 
Q3 2017
 
Q4 2017
 
Q1 2018
 
Q2 2018
 
Q3 2018
Pre-tax Non-GAAP Operating Income
 
(Dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP operating revenues:
 
 
 
 
 
 
 
 
 
Interest sensitive product charges
$
16,633

 
$
14,230

 
$
18,059

 
$
19,079

 
$
18,876

Traditional life insurance premiums
47,087

 
49,547

 
49,497

 
51,091

 
48,124

Net investment income
38,995

 
41,118

 
40,250

 
39,764

 
39,654

Other income
(88
)
 
(140
)
 
(79
)
 
(353
)
 
(108
)
Total non-GAAP operating revenues
102,627

 
104,755

 
107,727

 
109,581

 
106,546

 
 
 
 
 
 
 
 
 
 
Non-GAAP operating benefits and expenses:
 
 
 
 
 
 
 
 
 
Interest sensitive product benefits:
 
 
 
 
 
 
 
 
 
Interest and index credits
8,289

 
9,506

 
8,393

 
9,093

 
8,697

Death benefits and other
16,569

 
13,204

 
15,241

 
14,709

 
18,475

Total interest sensitive product benefits
24,858

 
22,710

 
23,634

 
23,802

 
27,172

Traditional life insurance benefits:
 
 
 
 
 
 
 
 
 
Death benefits
21,530

 
23,707

 
23,735

 
19,297

 
21,888

Surrender and other benefits
7,409

 
8,642

 
10,144

 
10,392

 
8,110

Increase in traditional life future policy benefits
13,694

 
12,477

 
11,578

 
14,022

 
14,170

Total traditional life insurance benefits
42,633

 
44,826

 
45,457

 
43,711

 
44,168

Policyholder dividends
2,487

 
2,543

 
2,551

 
2,560

 
2,480

Underwriting, acquisition and insurance expenses:
 
 
 
 
 
 
 
 
 
Commission expense, net of deferrals
4,544

 
4,919

 
4,923

 
4,715

 
4,200

Amortization of deferred acquisition costs
1,122

 
4,816

 
4,436

 
4,498

 
2,148

Amortization of value of insurance in force acquired
375

 
375

 
373

 
373

 
373

Other underwriting expenses
14,536

 
14,448

 
16,151

 
14,833

 
14,907

Total underwriting, acquisition and insurance expenses
20,577

 
24,558

 
25,883

 
24,419

 
21,628

Total non-GAAP operating benefits and expenses
90,555

 
94,637

 
97,525

 
94,492

 
95,448

 
$
12,072

 
$
10,118

 
$
10,202

 
$
15,089

 
$
11,098

Equity income (loss), before tax
548

 
(262
)
 
695

 
1,292

 
860

Pre-tax non-GAAP operating income
$
12,620

 
$
9,856

 
$
10,897

 
$
16,381

 
$
11,958

 
 
 
 
 
 
 
 
 
 
Selected balance sheet data, securities at amortized cost:
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
Investments
$
2,942,395

 
$
2,935,517

 
$
2,967,238

 
$
3,006,593

 
$
3,031,624

Deferred acquisition costs
282,116

 
287,421

 
291,212

 
294,365

 
298,368

Value of insurance in force acquired
16,279

 
15,904

 
15,531

 
15,157

 
14,784

 
 
 
 
 
 
 
 
 
 
Liabilities and equity:
 
 
 
 
 
 
 
 
 
Liabilities: (1)
 
 
 
 
 
 
 
 
 
Interest sensitive reserves
$
930,850

 
$
944,690

 
$
953,635

 
$
966,032

 
$
979,858

Other insurance reserves
1,933,051

 
1,951,565

 
1,964,649

 
1,976,014

 
1,995,675

Allocated equity, excluding AOCI
391,464

 
396,571

 
439,031

 
442,808

 
450,927


 

9




FBL Financial Group, Inc.
Statements of Pre-tax Non-GAAP Operating Income
Life Insurance Segment (Continued)
 
 
 
 
 
 
 
 
 
 
 
Q3 2017
 
Q4 2017
 
Q1 2018
 
Q2 2018
 
Q3 2018
 
 
(Dollars in thousands)
 
Other data:
 
 
 
 
 
 
 
 
 
Number of direct policies - traditional life
364,445

 
365,382

 
364,757

 
364,339

 
364,412

Number of direct policies - universal life
65,301

 
66,382

 
66,939

 
67,466

 
67,951

Direct face amounts - traditional life
$
50,435,353

 
$
50,841,581

 
$
51,159,302

 
$
51,524,879

 
$
51,833,952

Direct face amounts - universal life
$
7,124,265

 
$
7,275,994

 
$
7,383,996

 
$
7,483,427

 
$
7,539,216

 
 
 
 
 
 
 
 
 
 
Portfolio yield net of assumed defaults
5.12
%
 
5.07
%
 
5.04
%
 
4.99
%
 
4.98
%
Credited rate
3.74

 
3.69

 
3.70

 
3.73

 
3.76

Spread on universal life at end of quarter (2)
1.38
%
 
1.38
%
 
1.34
%
 
1.26
%
 
1.22
%
 
 
 
 
 
 
 
 
 
 
Interest sensitive reserve activity: (1)
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$