10-K 1 fbl10k2014.htm 10-K FBL 10K 2014

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark one)
[X]
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the fiscal year ended December 31, 2014
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
(Exact name of registrant as specified in its charter)
Iowa
 
42-1411715
(State of incorporation)
 
(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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Class A common stock, without par value
 
New York Stock Exchange
 
 
 
Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

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. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ]
Accelerated filer [X]
Non-accelerated filer [ ]
Smaller reporting company [ ]

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

As of June 30, 2014, the aggregate market value of the registrant's Class A and Class B Common Stock held by non-affiliates of the registrant was $443,655,280 based on the closing sale price as reported on the New York Stock Exchange.

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 March 2, 2015
Class A Common Stock, without par value
 
24,746,862
Class B Common Stock, without par value
 
11,413
DOCUMENTS INCORPORATED BY REFERENCE
Document
 
Parts Into Which Incorporated
Proxy statement for annual shareholders meeting on May 21, 2015
 
Part III




























(This page has been left blank intentionally.)



FBL FINANCIAL GROUP, INC.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2014
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 






















(This page has been left blank intentionally.)




Cautionary Statement Regarding Forward Looking Information

This Form 10-K 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. The risks and uncertainties that may affect the operations, performance, development and results of our business include but are not limited to the following.

Changing interest rates, market volatility and general economic conditions affect the risks and the returns on both our products and our investment portfolio.
Difficult conditions in the financial markets and the economy may materially adversely affect our business and results of operations.
Adverse financial market conditions may significantly affect our liquidity, access to capital and cost of capital.
Our valuation of fixed maturity securities may include methodologies, estimations and assumptions that are subject to differing interpretations and could result in changes to investment valuations that may materially adversely affect our results of operations or financial condition.
Our investment portfolio is subject to credit quality risks that may diminish the value of our invested assets and affect our profitability and reported book value per share.
We face competition from companies having greater financial resources, more advanced technology systems, broader arrays of products, higher ratings and stronger financial performance, which may impair our ability to retain existing customers, attract new customers and maintain our profitability and financial strength.
As a holding company, we depend on our subsidiaries for funds to meet our obligations, but our life insurance subsidiaries' ability to make distributions to us is limited by law, and could be affected by minimum risk-based capital requirements.
A significant ratings downgrade may have a material adverse effect on our business.
All segments of our business are highly regulated and these regulations or changes in them could affect our profitability.
An inability to access Federal Home Loan Bank funding could adversely affect our profitability.
Actual experience which differs from our assumptions regarding future persistency, mortality and interest rates used in pricing our products and calculating reserve amounts and deferred acquisition costs could have a material adverse impact on our financial results.
We may be required to accelerate the amortization of deferred acquisition costs, which could adversely affect our results of operations or financial condition.
Our earnings are influenced by our claims experience, which is difficult to estimate for future periods. If our future claims experience does not match our pricing assumptions or past results, our earnings could be materially adversely affected.
Our reinsurance program involves risks because we remain liable with respect to the liabilities ceded to reinsurers if the reinsurers fail to meet the obligations assumed by them.
Our business is highly dependent on our relationships with Farm Bureau organizations and could be adversely affected if those relationships became impaired.
Our relationship with Farm Bureau organizations could result in conflicts of interests.
Changes in federal tax laws may affect sales of our products and profitability.
Our ability to maintain competitive costs is dependent upon the level of new sales and persistency of existing business.
If we are unable to attract and retain agents, sales of our products and services may be reduced.
Attracting and retaining employees who are key to our business is critical to our growth and success.
Success of our business depends in part on effective information technology systems and on continuing to develop and implement improvements.
Cyber attacks, system security risks, data protection breaches and other technology failures could adversely affect our business and results of operations.
We face risks relating to litigation, including the costs of such litigation, management distraction and the potential for damage awards, which may adversely impact our business.

See Part 1A, Risk Factors, for additional information.


1


PART I

ITEM 1. BUSINESS

General

FBL Financial Group, Inc. (we or the Company) sells individual life insurance and annuity products principally under the consumer brand name Farm Bureau Financial Services. This brand identity is represented by the distribution channel of our subsidiary Farm Bureau Life Insurance Company (Farm Bureau Life). In addition, in the state of Colorado, we offer life and annuity products through Greenfields Life Insurance Company (Greenfields Life). As of December 31, 2014, these distribution channels consisted of 1,795 exclusive agents and agency managers, who sell our products in the Midwestern and Western sections of the United States.

The Company was incorporated in Iowa in October 1993. Its life insurance subsidiary, Farm Bureau Life, began operations in 1945 and Greenfields Life, a subsidiary of Farm Bureau Life, was launched in 2013. Several other subsidiaries support various functional areas and affiliates by providing investment advisory and marketing and distribution services. In addition, we manage all aspects of two Farm Bureau affiliated property-casualty insurance companies (Farm Bureau Property & Casualty Insurance Company and Western Agricultural Insurance Company) which operate predominately in eight states in the Midwest and West.

FBL Financial Group, Inc. Business and Distribution Channels

FBL Financial Group, Inc.
COMPANY
Farm Bureau Life
Insurance Company
 
Greenfields Life
    Insurance Company
 
Farm Bureau Property & Casualty Insurance Company and Western Agricultural
Insurance Company
RELATIONSHIP
Wholly-owned subsidiary
 
Subsidiary of
Farm Bureau Life
(Wholly-owned)
 
Managed by FBL Financial Group. Underwriting results do not impact FBL Financial Group's results
BRAND
 
 
DISTRIBUTION
1,786 exclusive
Farm Bureau agents
and agency managers
 
New company in 2013;
9 exclusive agents and
agency managers
 
1,141 exclusive Farm Bureau agents and agency managers (included under the
1,786 Farm Bureau Life
agents)
PRODUCTS
A comprehensive line of life insurance, annuity and investment products
 
A comprehensive line of life insurance, annuity and investment products
 
A full line of personal and commercial property-casualty insurance products
TERRITORY
14 Midwestern and
 Western states
 
Colorado
 
Arizona, Iowa, Kansas, Minnesota, Nebraska, New Mexico, South Dakota and Utah

Investor information, including electronic versions of periodic reports filed on Forms 10-K, 10-Q and 8-K, and proxy material, are available free of charge through the Investor Relations section of our website at www.fblfinancial.com. These documents are posted to our website immediately after they are filed. Also available on our website are many corporate governance documents including codes of ethics, board committee charters, corporate governance guidelines, director profiles and more. Product information may be found on our consumer websites, www.fbfs.com and www.greenfieldslife.com.


2


Business Strategy

Our core business strategies leverage areas where we have competitive advantages. Our exclusive agent distribution channel enables deep customer engagement and long-term customer relationships. We benefit from close ties to the unique needs of the agricultural market and affinity with the Farm Bureau brand, and our cross-sell culture results in industry leading cross-sell rates.

Our agents are multi-line agents who sell both property-casualty insurance products and life insurance and investment products. Having multi-line agents enhances our ability to develop a more comprehensive relationship with our customers and increases our ability to cross-sell our life insurance and annuity products to the pool of Farm Bureau property-casualty customers.

Our multi-line exclusive agent distribution channel is our foundation and we are defined by our service to the Farm Bureau niche marketplace. We capitalize on the Farm Bureau brand to grow our business and build upon our agricultural and rural market leadership. We focus on needs-based selling and have a broad portfolio of life insurance and annuity products so that we have products available to satisfy the needs of our agents and customers.

Because of their multi-line nature, our agents focus on cross-selling life insurance products to customers who already own a property-casualty policy issued by our property-casualty company partners. For example, in the eight-state region where we manage the affiliated property-casualty insurance companies and related field force (Arizona, Iowa, Kansas, Minnesota, Nebraska, New Mexico, South Dakota and Utah), 24% of our property-casualty policyholders also own a Farm Bureau Life annuity or life product. We are considered among the best-in-industry in cross-sell rates. This percentage is and has historically been higher than the industry average for multi-line exclusive agents, which is 12% according to the most recent research by the Life Insurance and Market Research Association (LIMRA). We believe there is further opportunity for growth from cross-selling as 71% of Farm Bureau members in the eight-state region have a Farm Bureau property-casualty insurance product, while only 21% of Farm Bureau members in the eight-state region have a life insurance product with us.

We provide our agents with sales materials, the necessary training and a high level of sales support. In addition, throughout our marketing territory, certain agents are life and investment specialists who work as a resource to help their fellow agents with cross-selling techniques and client needs analysis.

Our sales model is designed so that our agents act like entrepreneurial business owners with a retail financial services business. Under this model our agents have sales and service associates who assist them and provide a variety of support for insurance sales and clients.

This business strategy and sales model results in deep customer engagement and long-term customer relationships. Our agents are often viewed as the go-to person for all the insurance needs of their customers. As a result, while we underwrite the majority of the products available for sale by our agents, we broker products sold by other carriers when we do not have the expertise, ratings or scale to compete efficiently in the marketplace. Examples of brokered products include variable products, long-term care insurance, health insurance and last survivor life policies. We earn fees from the sale of brokered products, a portion of which is passed on to the agents as commissions for the underlying sales.

Our growth has been augmented by our long and successful history of being a consolidator among Farm Bureau affiliated insurance companies. This has allowed us to grow to the operation we are today. While we believe further consolidation makes sense, this is a long-term strategy. By focusing on maintaining solid relationships with the leaders of these companies and Farm Bureau organizations, we are prepared to react when opportunities arise.

Marketing and Distribution

Market Area

Sales through our distribution channels are currently conducted in 15 states which we characterize as follows: multi-line states (we own the Farm Bureau affiliated life company and manage the Farm Bureau affiliated property-casualty companies) - Arizona, Iowa, Kansas, Minnesota, Nebraska, New Mexico, South Dakota and Utah; and life partner states (we own the Farm Bureau affiliated life company but non-owned/non-managed Farm Bureau affiliated property-casualty companies manage the exclusive multi-line agents) - Colorado, Idaho, Montana, North Dakota, Oklahoma, Wisconsin and Wyoming.


3


Our target market is Farm Bureau members and "Middle America." We traditionally have been very strong in rural and small town markets and also have a presence in many small and mid-metro markets. This target market represents a relatively financially conservative and stable customer base. The financial needs of our target market tend to focus on security, insurance needs and retirement savings.

Affiliation with Farm Bureau

Many of our customers are members of Farm Bureau organizations affiliated with the American Farm Bureau Federation (American Farm Bureau). The American Farm Bureau is the nation's largest grassroots farm and ranch organization and has a current membership of 6.0 million member families. In order to market insurance products in a given state using the "Farm Bureau" and "FB" designations, related trademarks and service marks, a company must have an agreement with the state's Farm Bureau organization. Generally, these marketing rights have only been granted to companies owned by or closely affiliated with Farm Bureau organizations. For each of the states in our Farm Bureau marketing territory, we have the right to use the "Farm Bureau" name and "FB" logo for marketing life insurance and investment products.

All of the state Farm Bureau organizations in our marketing area are associated with the American Farm Bureau. The primary goal of the American Farm Bureau is to be the unified national voice of agriculture, working through its grassroots organization to enhance and strengthen the lives of rural Americans and to build strong, prosperous agricultural communities. There are currently Farm Bureau organizations in all 50 states and Puerto Rico, each with their own distinctive mission and goals. Within each state, Farm Bureau is organized at the county level. Farm Bureau programs include policy development, government relations activities, leadership development and training, communications, market education classes, commodity conferences and young farmer activities. Member services provided by Farm Bureau vary by state but often include programs such as risk management, alternative energy development and guidance on enhancing profitability. Other benefits of membership include newspaper and magazine subscriptions, as well as savings in areas such as health care, entertainment and automobile rebates. In addition, members have access to accidental death insurance, banking services, credit card programs, computerized farm accounting services, electronic information networks, feeder cattle procurement services, health care insurance, property-casualty insurance and financial services.

The American Farm Bureau may terminate our right to use the "Farm Bureau" and "FB" designations in our states (i) in the event of a material breach of the trademark license that we do not cure within 60 days, (ii) immediately in the event of termination by the American Farm Bureau of the state Farm Bureau's membership in the American Farm Bureau or (iii) in the event of a material breach of the state Farm Bureau organization's membership agreement with the American Farm Bureau, including by reason of the failure of the state Farm Bureau to cause us to adhere to the American Farm Bureau's policies.

We have royalty agreements with each state Farm Bureau organization in our Farm Bureau marketing territory giving us the right to use the Farm Bureau and FB designations in that particular state. Each state Farm Bureau organization in our Farm Bureau territory could terminate our right to use the Farm Bureau designations in that particular state without cause at the conclusion of the royalty agreements. The royalties paid to a particular state Farm Bureau organization are based on the sale of our products in the respective state. For 2014, royalty expense totaled approximately $2.2 million.

Our relationship with Farm Bureau provides a number of advantages. Farm Bureau organizations in our marketing territory tend to be well known and long established, have active memberships and provide a number of member benefits other than financial services. The strength of these organizations provides enhanced prestige and brand awareness for our products and increased access to Farm Bureau members, which results in a competitive advantage for us.

Our life insurance and investment products are available for sale to both members and non-members. Property-casualty products sold by the property-casualty insurance companies affiliated with Farm Bureau are available for sale to Farm Bureau members. Annual Farm Bureau memberships in our marketing territory average $60 and are available to individuals, families, partnerships or corporations.

We have service agreements with all of our property-casualty company partners in our marketing area, pursuant to which the property-casualty companies provide certain services, which include recruiting and training the shared agency force that sells both property-casualty products for that company and life products for us. The service agreements have expiration dates through December 31, 2022. In 2014, we paid $9.3 million for the services provided under these agreements.

Our Advisory Committee, which consists of executives of the property-casualty insurance company partners in our marketing territory, assists us in our relationships with the property-casualty organizations and the Farm Bureau organization leaders in their respective states. The Advisory Committee meets on a regular basis to coordinate efforts and issues involving the agency

4


force and other matters. The Advisory Committee is an important contributor to our success in marketing products through our distribution system.

Royalty and property-casualty agreements vary in term and expiration date as shown below.

Royalty and Property-Casualty Service Agreements by State
 
 
State
Property-Casualty Service Agreement Expiration Date
 
Royalty Agreement
Expiration Date
 
Percent of 2014
First Year
Premiums Collected
Iowa
December 31, 2015
 
December 31, 2033
 
25.6
%
Kansas
December 31, 2015
 
December 31, 2033
 
19.7

Oklahoma
December 31, 2022
 
December 31, 2022
 
8.2

Nebraska
December 31, 2015
 
December 31, 2033
 
7.5

Wyoming
December 31, 2021
 
December 31, 2021
 
5.7

Minnesota
December 31, 2015
 
December 31, 2033
 
4.9

Idaho
December 31, 2021
 
December 31, 2021
 
4.8

Arizona
December 31, 2015
 
December 31, 2033
 
4.5

Montana
December 31, 2021
 
December 31, 2021
 
4.4

Utah
December 31, 2015
 
December 31, 2033
 
4.2

Wisconsin
December 31, 2020
 
December 31, 2020
 
3.3

New Mexico
December 31, 2015
 
December 31, 2033
 
2.6

South Dakota
December 31, 2015
 
December 31, 2033
 
2.0

North Dakota
December 31, 2021
 
December 31, 2021
 
0.9

Colorado
December 31, 2021
 
Not Applicable
 
0.5

Other
Not Applicable
 
Not Applicable
 
1.2

 
 
 
 
 
100.0
%

Agency Force

Our agency force is one of our most important competitive advantages. Our priority is to ensure that we have best-in-class distribution systems and support, including agent recruiting and retention, training and leadership. Our agents are independent contractors and exclusive agents. We have a written contract with each member of our agency force. The contract covers a number of topics including privacy, compensation payments and reserving our ownership of customer lists.

In the multi-line states where we manage the Farm Bureau affiliated property-casualty companies, our agents are supervised by agency managers employed by the property-casualty companies which are under our direction. There are 1,141 agents and managers in our multi-line states. These agents market a full range of our life insurance and annuity products. They also market products for the property-casualty companies that we manage. These agents are supported by 1,269 sales associates who assist them and provide a variety of support in the sales process. We are responsible for product and sales training for all lines of business in our multi-line states.

In our life partner states, our life insurance and annuity products are marketed by agents that we share with our property-casualty company partners in that state. There are 654 agents and managers in our life partner states. These agents market our life and annuity products and market the property-casualty products of that state's affiliated property-casualty company. We are responsible for training the agency force in life insurance products and sales methods in our life partner states.

Sales activities of our agents focus on personal contact and on cross-selling life and annuity products to the existing property-casualty customers. The Farm Bureau name recognition and access to Farm Bureau membership leads to additional customers, cross-selling of additional insurance products and increased retention.


5


The focus of agency managers is to recruit, train, supervise and retain agents to achieve high production levels of profitable business. Managers receive overwrite commissions on each agent's life insurance commissions which vary according to that agent's productivity level and persistency of business. In addition, there is a variable component to agency manager compensation which rewards the attainment of life-related sales goals.

We structure our agents' life products compensation system to encourage production and persistency. Agents receive commissions for new life insurance and annuity sales and service fees on premium payments in subsequent years. Production bonuses are paid based on the premium level of new life business written in the prior 12 months and the persistency of the business written by the agent. Persistency is a common measure used in life insurance, which measures the quality and the consistent payment of premiums, and is included in calculating the bonus to either increase or decrease (or even eliminate) the agent's production bonus. We are willing to pay added incentives for higher volumes of business only as long as the business is profitable. Production bonuses allow agents to increase their compensation significantly.

We have a variety of incentives and recognition programs to focus agents on production of quality life insurance business. Some recognition programs and incentives are jointly conducted with the property-casualty companies. These programs provide significant incentives for the most productive agents. Approximately 13% of our agents and agency managers qualify for our annual incentive trip. Agent recruiting, training, financing and compensation programs are designed to develop a productive agent for the long term.

In order to further strengthen our distribution, current efforts are focused on making sure we have the systems and technology solutions in place to support our agents' sales and service processes. In addition, in order to increase an agent's opportunity for success, we have changed how we train new agents. In 2014 we introduced a reserve agent program in which the agent completes a training program that can take up to three months and achieves certain production minimums on a part-time basis before being contracted as a full-time agent. This program gives us and the agent an opportunity to assess whether the candidate is expected to have a successful long-term career as our agent. Our four-year agency force retention rate for 2014 was approximately 33%.

Business Segments

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.

See Note 13 to our consolidated financial statements included in Item 8 and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Segment Information" included in Item 7 for additional information regarding our financial results by operating segment. Included in the following discussion of our segments are details regarding premiums. We use premiums collected to measure the productivity of our exclusive agents. Premiums collected is not a measure used in financial statements prepared according to U.S. generally accepted accounting principles (GAAP). Note 13 to our consolidated financial statements also includes a discussion of the most comparable GAAP financial measures and, as applicable, a reconciliation to such GAAP measures.

Annuity Segment

We sell a variety of traditional annuity products through our exclusive agency force. The Annuity segment primarily consists of fixed rate and indexed annuities and supplementary contracts (some of which involve life contingencies). Traditional annuities provide for tax-deferred savings and supplementary contracts provide for the systematic repayment of funds that accumulate interest.


6


Premiums Collected - Annuity Segment
 
 
 
 
 
 
 
 
 
 
 
 
Year ended December 31,
 
2014
 
2013
 
2012
 
(Dollars in thousands)
First year - individual
$
104,713

 
$
115,815

 
$
164,235

Renewal - individual
105,742

 
111,562

 
138,191

Index
78,795

 
23,364

 
1,995

Group
8,781

 
8,725

 
11,923

Total Annuity
$
298,031

 
$
259,466

 
$
316,344


Annuity premiums collected increased in 2014 primarily due to growing sales of our index annuity product, which was introduced in 2012. With the exception of index annuity sales, we intentionally decreased the amount of annuity sales beginning in 2012 by suspending sales of certain products and reducing agent commission rates on certain products where it was difficult to achieve profitability targets during this period of low market interest rates. We have placed renewed emphasis on sales of products with low guaranteed crediting rates. The amount of traditional annuity premiums collected is highly dependent upon the relationship between the current crediting rates on our products and the perceived security of our products compared to those of competing products. Average crediting rates on our individual deferred annuity contracts were 2.91% in 2014, 2.97% in 2013 and 3.15% in 2012. Traditional annuity premiums collected in our Farm Bureau market territory in 2014 were concentrated primarily in the states of Iowa (28%), Kansas (27%) and Wyoming (7%).

Fixed Rate Annuities

We offer annuities that are marketed to individuals in anticipation of retirement. We offer traditional annuities in the form of flexible premium deferred annuities (FPDA) that allow policyholders to make contributions over a number of periods. For traditional annuity products, policyholder account balances are credited interest at rates that we determine. The annuitant may elect to take the proceeds of the annuity either in a single payment or in a series of payments for life, for a fixed number of years, for a fixed amount, or a combination of these options.

In addition to FPDAs, we also market single premium deferred annuities (SPDA) and single premium immediate annuity (SPIA) products which feature a single premium paid when the contract is issued. Benefit payments and the surrender charge structure on SPDA contracts are similar to other fixed rate annuities. Benefit payments on SPIAs begin immediately after the issuance of the contract. Sales of the single premium fixed rate annuities are currently suspended due to the low interest rate environment.

Approximately 37% of our existing individual traditional annuity business, based on account balances, is held in qualified retirement plans. For the deferred annuity products, to further encourage persistency, a surrender charge is imposed against the policyholder's account balance for early termination of the annuity contract within a specified period after its effective date. The surrender charge structure varies by product, but typically starts at 6% to 10% and decreases 1% per year until it reaches 0%.
 
We invest the premiums we receive from fixed rate annuities. The assets reside in our general account. Acquisition costs are paid from the general account as they arise. The difference between the yield we earn on our investment portfolio and the interest we credit on our fixed rate annuities is known as the spread. The spread is a major driver of the profitability for all of our traditional annuity products.

Withdrawal Rates

Withdrawal rates (excluding death benefits) for our individual deferred annuities were 4.6% for 2014, 5.1% for 2013 and 4.8% for 2012. We believe the competitive environment, due to the low level of market interest rates discussed above, has favorably impacted the level of withdrawal rates in these periods.

Interest Crediting Policy

We have a rate setting committee that meets monthly, or more frequently if required, to review and establish current period interest rates based upon existing and anticipated investment opportunities. This applies to new sales and to annuity products

7


after an initial guaranteed period. We examine earnings on assets by portfolio. We then establish rates based on each product's target spread and competitive market conditions at the time. Most of our annuity contracts have guaranteed minimum crediting rates. These rates range from 1.00% to 5.50%, with a weighted average guaranteed crediting rate of 2.43% at December 31, 2014 and 2.55% at December 31, 2013. The weighted average interest rate guarantees on annuity contracts issued during 2014 was 1.00%.

Index Annuities

Our agency force began selling our new index annuity product in late 2012. With an index annuity, the policyholder may choose from a traditional fixed rate strategy or an index strategy, with the underlying index being the S&P 500®. The product requires crediting of interest and a reset of the index annually. The computation of the index credit is based upon either a point-to-point calculation (i.e., the gain in the index from the beginning of the contract year to the next reset date) or a monthly averaging of the index during the period, subject to a cap. This product allows contract holders to transfer funds among the index accounts and a traditional fixed rate strategy at the end of each reset period. It automatically includes a guaranteed lifetime withdrawal benefit rider. If activated by the policyholder, the rider provides a minimum amount that is available for withdrawal at specified withdrawal rates even if the accumulated value goes to zero. There is an additional annual charge for the activated rider.

The index annuity contract value is equal to the premiums paid plus interest credited to the fixed portion of the contract and index credits on the indexed portion of the contract, less partial withdrawals taken from the contract.

The minimum guaranteed contract values are equal to 87.5% of the premium collected plus interest credited at an annual rate of 1.0% compounded annually.

We purchase one-year call options on the S&P 500 to fund the index credits due to the index annuity contract holders. On the respective anniversary dates of the index annuity contracts, the index used to compute the index credits is reset, and subsequently new call options are purchased to fund the next index credit. The cost of the options is managed through the terms of the index annuities, which permit changes to caps, subject to minimum guarantees.

We invest index premiums and the investments reside in our general account. We then purchase call options and pay acquisition costs from the general account. With respect to that portion of the index account value allocated to an index crediting strategy, our spread is measured as the difference between the aggregate yield on the relevant portion of our invested assets, less the aggregate option costs and the costs associated with minimum guarantees. If the minimum guaranteed value of an index product exceeds the index value (computed on a cumulative basis over the life of the contract), the general account earnings are available to satisfy the minimum guarantees. If there were little or no gains in the entire series of options purchased over the life of an index annuity, we would incur expenses for credited interest over and above our option costs. In addition, if we are not successful in matching the terms of call options purchased with the terms of the index annuities, index credits could exceed call option proceeds. This would cause our spreads to tighten and reduce our profits.

Interest Crediting Rates Compared to Guarantees - Annuity Segment
 
 
 
Liabilities at
 
December 31, 2014
 
(Dollars in thousands)
Fixed rate annuities:
 
Greater than or equal to 100 basis points over guarantee
$
661,480

50 basis points to 99 basis points over guarantee
194,662

1 basis point to 49 basis points over guarantee
109,962

At guaranteed rate
1,723,452

Index annuities
131,518

Non-discretionary rate setting products
549,035

Total interest sensitive product liabilities
$
3,370,109



8


In Force - Annuity Segment
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
 
2014
 
2013
 
2012
 
(Dollars in thousands)
Number of contracts
52,938

 
53,252

 
53,757

Interest sensitive reserves
$
3,370,109

 
$
3,172,598

 
$
3,048,797

Other insurance reserves
372,244

 
376,879

 
383,340


Life Insurance Segment

We sell a variety of traditional and universal life insurance products through our exclusive agency force. 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.

Premiums Collected - Life Insurance Segment
 
 
 
 
 
 
 
For the year ended December 31,
 
2014
 
2013
 
2012
 
(Dollars in thousands)
Universal life:
 
 
 
 
 
First year
$
36,446

 
$
70,470

 
$
30,217

Renewal
63,684

 
57,693

 
51,325

Total
100,130

 
128,163

 
81,542

Participating whole life:
 
 
 
 
 
First year
11,264

 
11,909

 
11,202

Renewal
97,483

 
96,532

 
96,738

Total
108,747

 
108,441

 
107,940

Term life and other:
 
 
 
 
 
First year
11,282

 
11,352

 
11,242

Renewal
86,103

 
79,941

 
74,292

Total
97,385

 
91,293

 
85,534

Total Life Insurance
306,262

 
327,897

 
275,016

Reinsurance ceded
(24,164
)
 
(20,423
)
 
(19,307
)
Total Life Insurance, net of reinsurance
$
282,098

 
$
307,474

 
$
255,709


Life premiums collected were lower in 2014 and higher in 2013, compared to the prior years, primarily due to universal life sales. Changes in our universal life product in late 2013 contributed to lower sales in 2014, while our emphasis on universal life insurance product sales as well as the strong farm and energy subsectors of the economy in our marketplace contributed to the increase in sales in 2013. Life insurance premiums collected in our market territory in 2014 were concentrated primarily in the states of Iowa (24%), Kansas (15%) and Oklahoma (9%).

Traditional Life Insurance

We offer traditional participating whole life insurance products. Participating whole life insurance provides benefits for the life of the insured. It provides level premiums and a level death benefit and requires payments in excess of mortality costs in early years to offset increasing mortality costs in later years. Under the terms of these policies, policyholders have a right to participate in our surplus to the extent determined by Farm Bureau Life, generally through annual dividends. Participating

9


business accounted for 33% of life receipts from policyholders during 2014 and represented 12% of life insurance in force at December 31, 2014.

We also market non-participating term insurance policies that provide life insurance protection for a specified period. Term insurance is mortality based and generally has no cash value. However, we also offer a return of premium term product, which returns a percentage of premiums after a set number of years. For a portion of our business, we may change the premium scales at any time but may not increase rates above guaranteed levels.

Universal Life Insurance

Our universal life policies provide permanent life insurance protection with a flexible or fixed premium structure which allows the customer to pre-fund future insurance costs and accumulate savings on a tax-deferred basis. Premiums received, less policy assessments for administration expenses and mortality costs, are credited to the policyholder's account balance. Interest is credited to the cash value at rates that we periodically set.

Underwriting

We follow formal underwriting standards and procedures designed to properly assess and quantify life insurance risks before issuing policies to individuals. To implement these procedures, we employ an underwriting staff of 12 underwriters who have an average of 26 years of experience in the insurance industry. Our underwriters review each application, which is prepared under the supervision of our agents, and any required medical records. We generally employ blood, oral fluid or urine testing (including HIV antibody testing) to provide additional information whenever the applicant is age 18 or older and the face amount is $100,000 or greater. Based on the results of these tests, we may adjust the mortality charge or decline coverage completely. We also have an automated process for handling term policies for ages 18 to 60 with face amounts of $20,000 to $100,000. We use our automated underwriting guidelines to evaluate the medical history provided by the applicant and information received from three service providers. Based on the evaluation against our automated underwriting guidelines, we may adjust the mortality charge or decline coverage. Generally, tobacco use by a life insurance applicant within the preceding one-year period results in a substantially higher mortality charge. In accordance with industry practice, material misrepresentation on a policy application can result in the cancellation of the policy upon the return of any premiums paid.

Interest Crediting and Participating Dividend Policy

The interest crediting policy for our life insurance products is the same as for our traditional annuity products in the Annuity segment. See "Interest Crediting Policy" under the Annuity Segment discussion. We pay dividends, credit interest and determine other nonguaranteed elements on the individual insurance policies depending on the type of product. Some elements, such as dividends, are generally declared for a year at a time. Interest rates and other nonguaranteed elements are determined based on experience as it emerges and with regard to competitive factors. Weighted average contractual credited rates on our universal life contracts were 3.99% in 2014, 4.11% in 2013 and 4.14% in 2012. Our universal life contracts have guaranteed minimum crediting rates that range from 3.00% to 4.50%, with a weighted average guaranteed crediting rate of 3.70% at December 31, 2014 and 3.72% at December 31, 2013.
Interest Crediting Rates of Interest Sensitive Life Products Compared to Guarantees - Life Insurance Segment
 
 
 
Liabilities at
 
December 31, 2014
 
(Dollars in thousands)
Discretionary rate setting products with minimum guarantees:
 
Greater than or equal to 100 basis points over guarantee
$
128,244

At guaranteed rate
651,489

Non-discretionary rate setting products
56,413

Total interest sensitive product liabilities
$
836,146


Policyholder dividends are currently being paid and will continue to be paid as declared on participating policies. Policyholder dividend scales are generally established annually and are based on the performance of assets supporting these policies, the

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mortality experience of the policies and expense levels. Other factors, such as changes in tax law, may be considered as well. Our participating business does not have minimum guaranteed dividend rates.

In Force - Life Insurance Segment
 
 
 
 
 
 
 
December 31,
 
2014
 
2013
 
2012
 
(Dollars in thousands, except face amounts in millions)
Number of policies - traditional life
362,519

 
358,924

 
355,519

Number of policies - universal life
62,020

 
61,250

 
59,833

Face amounts - traditional life
$
45,295

 
$
42,866

 
$
40,333

Face amounts - universal life
6,436

 
6,190

 
5,807

Traditional insurance reserves
1,750,822

 
1,679,942

 
1,615,088

Interest sensitive reserves
836,146

 
777,571

 
686,067

 
Corporate and Other Segment

The Corporate and Other segment includes (i) advisory services for the management of investments and other companies; (ii) marketing and distribution services for the sale of mutual funds and insurance products not issued by us; (iii) leasing services with affiliates; (iv) closed blocks of variable annuity, variable life and accident and health products; (v) interest expense and (vi) investments and related investment income not specifically allocated to our product segments.

During 2010 we discontinued underwriting new sales of variable products. We decided to discontinue underwriting these products due to the challenge of achieving the scale necessary to generate acceptable returns and be competitive in this product line over time. The existing in force business remains on our books and we continue to administer this business.
Variable premiums collected from prior sales were $66.1 million in 2014, $68.3 million in 2013 and $73.8 million in 2012. During 2010, we began selling variable products underwritten by another insurance company with variable product expertise. We earn fees from the sale of these brokered products, which are reported as other income, and we are not responsible for administering this business. A portion of these revenues is passed on to our agents as commissions for the underlying sales.

Reinsurance

We reinsure a portion of our life insurance exposure with unaffiliated insurance companies under traditional indemnity reinsurance agreements. New sales of life products are reinsured above prescribed limits and do not require the reinsurer's prior approval within certain guidelines. We do not use financial or surplus relief reinsurance. We enter into indemnity reinsurance arrangements to assist in diversifying our risks and to limit our maximum loss on risks that exceed our policy retention limits. Our maximum retention limit on an insured life ranges up to $1.5 million depending on when the policy was issued.

Reinsurance contracts do not fully discharge our obligation to pay claims on the reinsured business. As the ceding insurer, we remain responsible for policy claims to the extent the reinsurer fails to pay claims. No reinsurer of business ceded by us has failed to pay any material policy claims (either individually or in the aggregate) with respect to our ceded business. We continually evaluate the financial strength of our reinsurers and monitor concentrations of credit risk. If for any reason reinsurance coverages would need to be replaced, we believe that replacement coverages from financially responsible reinsurers would be available.


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Primary Reinsurers as of December 31, 2014
Reinsurer
A.M. Best
Rating
 
Amount of
In Force Ceded
 
Reserve Credit
 
 
 
(Dollars in millions)
Swiss Re Life & Health America Inc.
A+
 
$
5,968.3

 
$
21.5

RGA Reinsurance Company
A+
 
4,168.4

 
26.6

SCOR Global Life USA Reinsurance Company
A
 
2,512.3

 
10.5

All other (11 reinsurers)*
A- to A++
 
1,188.5

 
6.9

Total
 
 
$
13,837.5

 
$
65.5


*
All other includes Scottish Re, which is not rated by A.M. Best. New business with Scottish Re was terminated in early 2007, following difficulties at that company and related ratings downgrades. As of December 31, 2014, $315.3 million of in force was ceded to Scottish Re. Scottish Re continues to meet its reinsurance obligation with us in a normal fashion.

In addition, we have an annual 100% quota share accidental death reinsurance agreement. Coverage includes all acts of terrorism including those of a nuclear, chemical or biological origin. Coverage is subject to an annual aggregate retention by us of $13.9 million.

Ratings and Competition

Financial strength ratings are an important factor in establishing the competitive position of insurance companies. Insurer financial strength ratings represent the opinions of rating agencies regarding the ability of an insurance company to meet its financial obligations to policyholders and contract holders. Credit ratings represent the opinions of rating agencies regarding an issuer's ability to repay its indebtedness. Ratings are subject to revision or withdrawal at any time by the rating agency, and therefore, no assurance can be given that a rating will be maintained.

As of the date of this filing, Farm Bureau Life's A.M. Best financial strength rating is "A" (Excellent) with a stable outlook and FBL Financial Group's A.M. Best issuer credit rating is "a" with a stable outlook.

A.M. Best has 16 financial strength ratings assigned to insurance companies, which currently range from A++ (Superior) to S (Suspended). A.M. Best's long-term credit ratings range from aaa (exceptional) to d (in default). A + or - may be appended to ratings from aa to ccc to indicate relative position within a category. A rating of bbb- or above is considered investment grade. As of the date of this filing, A.M. Best has the life/annuity industry on a stable rating outlook.

We operate in a highly competitive industry. Insurers compete based primarily upon price, service level and the financial strength of the company. The operating results of companies in the insurance industry historically have been subject to significant fluctuations due to competition, economic conditions, interest rates, investment performance, maintenance of insurance ratings from rating agencies and other factors. We believe our ability to compete with other insurance companies is dependent upon, among other things, our ability to attract and retain agents to market our insurance products, our ability to develop competitive and profitable products and our ability to maintain good or better ratings from rating agencies. In connection with the development and sale of our products, we encounter significant competition from other insurance companies and other financial institutions, such as banks and broker/dealers, many of which have financial resources substantially greater than ours.

Regulation

All segments of our business are highly regulated. See "Item 1A. Risk Factors."

Employees

At December 31, 2014, we had 1,628 employees. A majority of our employees, including the executive officers, also provide services to Farm Bureau Property & Casualty Insurance Company and other affiliates pursuant to management agreements. None of our employees are members of a collective bargaining unit.


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ITEM 1A. RISK FACTORS

Risk Factors

The performance of our company is subject to a variety of risks which 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.

Changing interest rates, market volatility and general economic conditions affect the risks and the returns on both our products and our investment portfolio.

The fair value of our investments and our investment performance, including yields and realization of gains or losses, may vary depending on economic and market conditions. The shape of the yield curve and the level of interest rates can impact the profitability of our products. Interest rate risk is our primary market risk exposure. Substantial and sustained increases and decreases in market interest rates can materially affect the profitability of our products, the fair value of our investments and the reported value of stockholders' equity.
A key component of our financial results is the spread earned (the investment yield we earn less the crediting rates we pay to our policyholders). A narrowing of spreads would adversely affect operating results. Although we have the right to adjust interest crediting rates on a portion of our business in force, changes to crediting rates may not be sufficient to maintain targeted investment spreads in all economic and market environments. Our ability to lower crediting rates is subject to contractual minimum crediting rate floors. In addition, competition and other factors, including the potential for increases in surrenders and withdrawals, may limit our ability to adjust or maintain crediting rates at levels necessary to avoid the narrowing of spreads under certain market conditions.
See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Risks of Financial Instruments" for further discussion of our interest rate risk exposure and information regarding our asset-liability management program.
Difficult conditions in the financial markets and the economy may materially adversely affect our business and results of operations.

Our results of operations are materially affected by conditions in the economy and financial markets. Below-average global growth and low market interest rates continue to challenge the life insurance and annuity industries. While the U.S. economy continues to expand at a favorable pace, growth is slowing across much of the rest of the global economy. In the financial markets, strong liquidity, strong corporate profitability and modest economic growth continue to support fundamental credit quality. However, challenging economic conditions outside of the U.S. and strong demand for U.S. assets have restrained interest rates broadly, challenging growth in investment income and resulting in declining portfolio investment yields across the insurance industry.
Our business benefits from moderate to strong economic expansion. Conversely, a lackluster economic recovery 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. In addition, a significant portion of our customer base operates in the agricultural industry; accordingly, fluctuation in commodity prices, federal subsidies and the value of farm land may impact our customers' demand for our insurance and investment products. We also may experience a higher incidence of claims, lapses or surrenders of policies following such fluctuations. We cannot predict whether or when such actions may occur, or what impact such actions could have on our business, results of operations, cash flows or financial condition.
Adverse financial market conditions may significantly affect our liquidity, access to capital and cost of capital.
Capital requirements depend on factors including Farm Bureau Life's accumulated statutory earnings, statutory capital and surplus, the rate of sales growth of our products, aggregate reserve levels and the levels of credit risk and/or interest rate risk in our invested assets. In order to support these capital requirements, we may need to increase or maintain Farm Bureau Life's statutory capital and surplus through additional financings, which could include debt, equity or other transactions.
Adverse capital market conditions may affect the availability and cost of borrowed funds and could impact our ability to refinance existing borrowings, thereby ultimately impacting our profitability and ability to support or grow our businesses.

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Without sufficient capital, we could be forced to curtail certain of our operations, and our business could suffer. Actions we might take to access financing may in turn cause rating agencies to reevaluate our ratings.
We manage our capital level to be consistent with statutory and rating agency requirements. As of December 31, 2014, we estimate that Farm Bureau Life has sufficient capital to meet our rating objectives. However, this capital may not be sufficient if significant future losses are incurred and access to additional capital is limited.

Our valuation of fixed maturity securities may include methodologies, estimations and assumptions that are subject to differing interpretations and could result in changes to investment valuations that may materially adversely affect our results of operations or financial condition.
During periods of market disruption, it may be difficult to value certain securities if trading becomes less frequent and/or market data becomes less observable. There may be certain asset classes that were in active markets with significant observable data that become illiquid due to the financial environment or market conditions.
Certain market sectors may become dislocated following periods of volatile and illiquid market conditions, increasing the difficulty in valuing certain instruments, as trading becomes less frequent and/or market data less observable. As a result, certain valuations may require greater estimation and judgment as well as more complex valuation methods. These values may not ultimately be realizable in a market transaction, and such values may change rapidly as market conditions change and valuation assumptions are modified.
The decision on whether to record an other-than-temporary impairment is determined in part by our assessment of the financial condition and prospects of a particular issuer, projections of future cash flows and recoverability of the particular security as well as an evaluation of our intent to sell and whether it is more likely than not that we would be required to sell prior to recovery. Our conclusions regarding the recoverability of a particular security's fair value may ultimately prove to be incorrect as facts and circumstances change.
Our investment portfolio is subject to credit quality risks that may diminish the value of our invested assets and affect our profitability and reported book value per share.

Particularly in the event of a major downturn in economic activity, we are subject to the risk that issuers of fixed maturity securities, other debt securities and commercial mortgage borrowers, will default on principal and interest payments. As of December 31, 2014, we held $6.6 billion of fixed income securities, $0.3 billion of which represented below-investment grade holdings. Of these below-investment grade holdings, 95.7% were acquired as investment grade holdings but, as of December 31, 2014, had been downgraded to below investment grade. An increase in defaults on our fixed maturity securities and commercial mortgage loan portfolios could harm our financial strength and reduce our profitability.

Although we seek to diversify the investment portfolio across multiple asset classes, industries and geographies, the concentration of our investment portfolio in any particular industry, group of related industries or geographic sector could have an adverse effect on our investment portfolios and, consequently, on our results of operations and financial position.

We face competition from companies having greater financial resources, more advanced technology systems, broader arrays of products, higher ratings and stronger financial performance, which may impair our ability to retain existing customers, attract new customers and maintain our profitability and financial strength.
See "Item 1. Business - Ratings and Competition" for information regarding risks relating to competition.
As a holding company, we depend on our subsidiaries for funds to meet our obligations, but our life insurance subsidiaries' ability to make distributions to us is limited by law, and could be affected by minimum risk-based capital requirements.
As a holding company, we rely on dividends from subsidiaries to assist in meeting our obligations. The ability of our subsidiaries to pay dividends or to make other cash payments in the future may materially affect our ability to satisfy our parent company payment obligations, including debt service and dividends on our common stock.
The amount of dividends we have available to pay our common shareholders is limited to a certain extent by the amount of dividends our primary operating subsidiary, Farm Bureau Life, is able to pay to its parent, FBL Financial Group, Inc. Farm Bureau Life's ability to pay dividends to FBL Financial Group, Inc., its parent, 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, 2014, Farm Bureau Life’s statutory unassigned surplus

14


was $418.5 million. During 2015, the maximum amount available for distribution to FBL Financial Group, Inc. from Farm Bureau Life without regulatory approval is $97.8 million. There are certain additional limits to the amount of dividend that may be paid within a year without approval of the Insurance Division, Department of Commerce of the State of Iowa (the Iowa Insurance Division) as discussed in Note 7 to our consolidated financial statements included in Item 8.
 
In addition, Farm Bureau Life is subject to the risk-based capital (RBC) requirement of the National Association of Insurance Commissioners (NAIC) set forth in the Risk-Based Capital for Insurers Model Act (the Model Act). The main purpose of the Model Act is to provide insurance regulators a method of measuring the minimum amount of capital appropriate for an insurance company to support its overall business operations in consideration of its size and risk profile. U.S. insurers and reinsurers are required to report the results of their RBC calculations as part of the statutory annual statements filed with state insurance regulatory authorities. State laws specify regulatory actions if an insurer's risk-based capital ratio, a measure of solvency, falls below certain levels. The NAIC has a standard formula for annually assessing RBC based on various risk factors related to an insurance company's capital and surplus, including insurance, business, asset and interest rate risks. The insurance regulators impose regulatory actions when a company's total adjusted capital is equal to or lower than 200% of its authorized control level risk-based capital. The severity of regulatory actions increase until the point where regulators assume control of an insurance company when its total adjusted capital is equal to or less than 70% of its authorized control level risk-based capital.

Failure to maintain adequate capital levels could lead to ratings downgrades and liquidity issues which could adversely affect our business and financial condition.

A significant ratings downgrade may have a material adverse effect on our business.
Ratings are an important factor in establishing the competitive position of insurance companies. If our ratings were lowered, our ability to access reinsurance and market products to new customers could be harmed and existing policyholders might cancel their policies or withdraw the cash values of their policies. These events, in turn, could have a material adverse effect on our financial results and liquidity. Our ratings reflect the agency's opinions as to our financial strength, operating performance and ability to meet obligations to Farm Bureau Life's policyholders. There is no assurance that a rating will remain in effect for any given period of time or that a rating will not be reduced, suspended or withdrawn entirely by the rating agency, if in the rating agency's judgment, circumstances so warrant. See "Item 1. Business - Ratings and Competition" for a summary of our current ratings.
All segments of our business are highly regulated and these regulations or changes in them could affect our profitability.
We are subject to statutes and regulations in various states in which our life subsidiaries operate. Insurance regulation is different in each state, but is similar in that it is intended to provide safeguards for policyholders, agents, insurance companies and their holding companies. State insurance regulators oversee matters relating to the business of life insurance and annuities, such as sales practices, policy forms, claims practices, types and amounts of investments, reserve adequacy, insurer solvency, minimum amounts of capital and surplus, transactions with related parties, changes in control and payment of dividends. They continually examine existing laws and regulations, and may recommend or make changes as they see appropriate. Our variable insurance products, investment advisors, broker/dealer and certain licensed agents are also subject to regulation by the Securities and Exchange Commission (SEC), state securities regulators (in each state where they are authorized to do business) and the Financial Industry Regulatory Authority (FINRA). Our companies are subject to various state corporate statutes, as well as federal statutes and regulations dealing with such matters as taxes, retirement benefits, compliance and fraud and statutes that deal with the companies as employers.

15


As noted above, through adoption by law in states where we do business, our life subsidiaries are subject to the NAIC's RBC requirements. These guidelines are used by state insurance regulators as an early warning tool to identify deteriorating or weakly capitalized insurance companies for the purpose of initiating regulatory action. Our life subsidiaries also may be required, under solvency or guarantee laws of most states in which they do business, to pay assessments up to certain prescribed limits to fund policyholder losses or liabilities for insolvent insurance companies.

Although the federal government does not directly regulate the business of insurance, our company is subject to the same federal laws as other corporations, including, but not limited to pension regulation, discrimination, financial services regulation, securities regulation and federal taxation. Any one of these regulatory schemes can significantly affect the insurance business. In addition, various forms of direct and indirect federal regulation of insurance have been proposed from time to time, including proposals for the establishment of an optional federal charter for insurance companies. The Dodd-Frank Act of 2010 established the Federal Insurance Office (FIO) within the Department of Treasury to collect information about the insurance industry, recommend prudential standards and represent the U.S. in dealings with foreign insurance regulators. We continue to monitor the activities of the FIO, NAIC and the state insurance regulators.

As part of the Dodd-Frank Act, many key rules have yet to be formalized, some of which might have an impact on insurers. The regulatory framework at the state and federal level applicable to our insurance products is evolving and could affect the design of our products and our ability to sell certain products. Any changes in these laws and regulations could materially and adversely affect our business, financial condition or results of operations.

Our investment management subsidiary is an SEC-registered investment adviser. This entity manages the investment portfolios for a few non-affiliated organizations, as well as oversees financial advisory services provided by our agent force. Our registered separate accounts are themselves highly regulated under the Investment Company Act.

In addition, our broker-dealer subsidiary is registered with the SEC and is subject to regulation under the Exchange Act and various state securities laws, and is a member of and subject to regulation by FINRA. Registered representatives sell variable products and mutual funds through our affiliated broker/dealer and are regulated by FINRA and state securities regulators.

Our financial statements are prepared in accordance with U.S. generally accepted accounting principles. From time to time, we are required to adopt new or revised accounting standards. It is possible that future accounting standards we are required to adopt could change the current accounting treatment that we apply to our consolidated financial statements and that such changes could have a material adverse effect on our financial condition and results of operations. This includes the current work by accounting standards setting bodies on a project evaluating the accounting for insurance contracts. While the scope of this project was scaled back in 2014, it is uncertain what the outcome of the project will be or when it will be completed. The impact of accounting pronouncements that have been issued but not yet implemented is discussed in Note 1 to our consolidated financial statements included in Item 8.

An inability to access Federal Home Loan Bank (FHLB) funding could adversely affect our profitability.

The Federal Housing Finance Agency (FHFA) in 2014 proposed a rule that would revise the requirements to apply for and retain membership in any of the Federal Home Loan Banks. This proposed rule followed an Advance Notice of Proposed Rulemaking issued by FHFA in 2010 regarding possible changes to the requirements applicable to FHLB members. The proposed rule would establish a quantitative test requiring members to hold, on an ongoing basis, a certain percentage of assets in home mortgage loans. Currently FHLB members must demonstrate that they originate or purchase long-term home mortgage loans only at the time of application for FHLB membership, without specifying a particular level of activity. If a quantitative asset test is ultimately adopted by FHFA, then depending on the level of home mortgage loan assets required by such a test, our eligibility for continued FHLB membership may be jeopardized, impacting our FHLB borrowing capacity. Any event that adversely affects FHLB lending to us could have an adverse effect on our profitability.

Actual experience which differs from our assumptions regarding future persistency, mortality and interest rates used in pricing our products and calculating reserve amounts and deferred acquisition costs could have a material adverse impact on our financial results.
The process of pricing products and calculating reserve amounts and deferred acquisition costs for an insurance organization involves the use of a number of assumptions including those related to persistency (how long a contract stays with the company), mortality (the relative incidence of death in a given time) and interest rates (the rates expected to be paid or received on financial instruments, including insurance or investment contracts). Actual results could differ significantly from those

16


assumed. Actual experience which differs from one or more of these assumptions could have a material adverse impact on our results of operations.
We may be required to accelerate the amortization of deferred acquisition costs, which could adversely affect our results of operations or financial condition.
Deferred acquisition costs (DAC) include certain direct costs of successfully acquiring new insurance business, including commissions and other expenses related to the production of new business, to the extent recoverable from future policy revenues and gross profits. Bonus interest credited to contracts during the first policy year is also included. We amortize these costs over the expected lives of the contracts. We test the DAC recorded on our consolidated balance sheet to determine if these amounts are recoverable under current assumptions. In addition, we regularly review the estimates and assumptions underlying DAC for those products for which we amortize DAC in proportion to gross profits. Given changes in facts and circumstances, these tests and reviews could lead to reductions in DAC that could have an adverse effect on the results of our operations and our financial condition. Increases in actual or expected future withdrawals or surrenders and investment losses, which are more likely in a severe economic recession, would result in an acceleration of DAC amortization. In addition, significant or sustained equity and bond market declines could result in an acceleration of DAC amortization related to variable annuity and variable universal life contracts.

Our earnings are influenced by our claims experience, which is difficult to estimate for future periods. If our future claims experience does not match our pricing assumptions or past results, our earnings could be materially adversely affected.

Our earnings are significantly influenced by the claims paid under our insurance contracts and will vary from period to period depending upon the amount of claims incurred. There is only limited predictability of claims experience within any given quarter or year. The liability that we have established for future insurance and annuity policy benefits is based on assumptions concerning a number of factors, including interest rates, expected claims, persistency and expenses. In the event our future experience does not match our pricing assumptions or our past results, our operating results could be materially adversely affected.
Our reinsurance program involves risks because we remain liable with respect to the liabilities ceded to reinsurers if the reinsurers fail to meet the obligations assumed by them.
We reinsure a portion of our life insurance exposure with unaffiliated insurance companies under traditional indemnity reinsurance agreements. New sales of life products are reinsured above prescribed limits and do not require the reinsurer's prior approval within certain guidelines. We enter into indemnity reinsurance arrangements to assist in diversifying our risks and to limit our maximum loss on risks that exceed our policy retention limits. Our maximum retention limit on an insured life ranges up to $1.5 million depending upon when the policy was issued.
Indemnity reinsurance does not fully discharge our obligation to pay claims on the reinsured business. As the ceding insurer, we remain responsible for policy claims to the extent the reinsurer fails to pay claims. Should any reinsurer fail to meet the obligations assumed under such reinsurance, we remain liable, and payment of these obligations could result in losses.
Our business is highly dependent on our relationships with Farm Bureau organizations and could be adversely affected if those relationships became impaired.
Farm Bureau Life's business relies significantly upon the maintenance of our right to use the Farm Bureau and FB trade names and related trademarks and service marks which are controlled by the American Farm Bureau and state Farm Bureau organizations. See discussion under "Item 1. Business - Marketing and Distribution - Affiliation with Farm Bureau" for information regarding these relationships and circumstances under which our access to the Farm Bureau membership base and use of the Farm Bureau and FB designations could be terminated. The loss of the right to use these designations in a key state or states could have a material adverse effect on operating results.
Our relationship with Farm Bureau organizations could result in conflicts of interests.
Our business and operations are interrelated to a degree with that of the American Farm Bureau, its affiliates, and state Farm Bureau organizations. The overlap of the business, including service of certain common executive officers and directors of the Company and the state Farm Bureau organizations, may give rise to conflicts of interest among these parties. Conflicts could arise, for example, with respect to business dealings among the parties, the use of a common agency force, the sharing of employees, space and other services and facilities under intercompany agreements, and the allocation of business opportunities between them. Conflicts of interest could also arise between the Company and the various state Farm Bureau organizations in

17


our life-only states, some of whose presidents serve as directors of the Company, and which control their state affiliated property-casualty insurance company, with respect to the use of the common agency force.
Changes in federal tax laws may affect sales of our products and profitability.
The annuity and life insurance products that we market generally offer income tax advantages to policyholders as compared to other savings instruments, such as certificates of deposit and taxable bonds. Current federal income tax law allows for the deferral of income tax on the earnings during the accumulation period of certain annuity or insurance policies, as opposed to the current taxation of other savings instruments. In addition, life insurance death benefits are generally exempt from the income tax. Legislation eliminating this tax deferral or tax exemption, or changes to reduce the taxation of competing products, could adversely affect our financial position and results of operations.
Congress has from time to time considered legislation that would increase the amount of income tax expense incurred by insurance companies, including proposals to reduce the deduction for dividends received on assets held in separate accounts to support variable products. Reduction or elimination of federal tax credits for low-income housing and disallowing deductions for certain executive compensation have also been discussed as a potential means to reduce federal budget deficits. To the extent legislation were enacted that includes any of these items, we would incur additional income tax expense, thereby reducing earnings. Additionally, the amount of tax currently due could be accelerated significantly by provisions modifying the tax treatment of life insurance reserves, policy acquisition costs, depreciation and market discount on bonds. The likelihood of enactment of any of these proposals and any adverse consequences they may cause us is highly uncertain.
Our ability to maintain competitive costs is dependent upon the level of new sales and persistency of existing business.
Maintaining competitive costs depends upon numerous factors, including the level of new sales, persistency of existing business and expense management. A decrease in sales or persistency without a corresponding reduction in expenses could affect our business and results of operations.
If we are unable to attract and retain agents, sales of our products and services may be reduced.
We compete to attract and retain exclusive agents for Farm Bureau Life. Intense competition exists for persons with demonstrated ability. We compete primarily on the basis of our reputation, products, compensation, support services, rating agency ratings and financial position. Sales and our results of operations and financial condition could be materially adversely affected if we are unsuccessful in attracting and retaining agents.
Attracting and retaining employees who are key to our business is critical to our growth and success.
The success of our business and the ability to reach goals is dependent, to a large extent, on our ability to attract and retain key employees. Competition is intense in the job market for certain positions, such as actuaries and other insurance professionals with demonstrated ability, particularly with our headquarters being located in central Iowa, a hub of insurance company home offices, where we compete with other insurance and financial institutions.
Our employees are not subject to employment contracts, except for a retention agreement with our Chief Executive Officer. There can be no certainty regarding the length of time any of our named executive officers will remain with us. Our inability to retain our key employees, or attract and retain additional qualified employees, could materially adversely affect our sales, results of operations and financial condition.
Success of our business depends in part on effective information technology systems and on continuing to develop and implement improvements.
Our business is dependent upon effective technology for interacting with employees, agents, policyholders, vendors, agents, third parties and investors. It is crucial to our business to reach a large number of people and secure, store and provide sizable amounts of information. If we do not maintain adequate systems to reflect technological advancements, we could experience adverse consequences including inadequate pricing, underwriting and reserving decisions, regulatory problems, security breaches or litigation exposure. This could adversely affect our relationships and ability to do business with our clients and make it difficult to attract new customers.
Our business strategy involves providing customers with easy-to-use products and systems to meet their needs, and our information systems require an ongoing commitment of resources to maintain current standards. We are continuously enhancing and updating our systems to keep pace with changes in information processing technology, evolving industry and regulatory standards, threats and customer demands. Our success is dependent on protecting, maintaining and enhancing the effectiveness

18


of existing systems, as well as continuing to buy or build information systems that support our business processes in a cost-effective manner.
Cyber attacks, system security risks, data protection breaches and other technology failures could adversely affect our business and results of operations.
A technology failure could occur and potentially disrupt our business, damage our reputation and adversely affect our profitability. Our information technology systems have been, and will likely continue to be, subject to computer viruses or other malicious codes, unauthorized access or cyber attacks. The administrative and technical controls and other preventive actions we take to reduce the risk of cyber incidents and protect our information technology systems may be insufficient to prevent physical and electronic break-ins, cyber attacks or other security breaches to our computer systems. In addition, disruptions or breaches could occur as a result of natural disasters, man-made disasters, epidemic/pandemic, industrial accident, blackout, criminal activity, technological changes or events, terrorism or other unanticipated events beyond our control. While the company has obtained insurance and has implemented a variety of preventative security measures such as risk management, information protection, disaster recovery and business continuity plans, no predictions of specific scenarios can be made. Unanticipated problems with our systems or recovery plans could have a material adverse impact on our ability to conduct business, our results and financial position.
We face risks relating to litigation, including the costs of such litigation, management distraction and the potential for damage awards, which may adversely impact our business.
We are occasionally involved in litigation, both as a defendant and as a plaintiff. In addition, state regulators such as the Iowa Insurance Division, and federal regulators such as the SEC, FINRA, the Department of Labor and the Internal Revenue Service, are entitled to make inquiries and conduct examinations or investigations concerning our compliance with, among other things, insurance laws, securities laws, tax laws, the Employee Retirement Income Security Act of 1974 and laws governing the activities of broker-dealers. Companies in the life insurance and annuity business have faced litigation, including class action lawsuits, alleging improper product design, improper sales practices and similar claims. Moreover, we are subject to the risks of errors and misconduct by our exclusive agents, such as fraud, non-compliance with policies and recommending transactions that are not suitable. While we are currently not a party to any lawsuit that we believe will have a material adverse effect on our business, financial condition or results of operations, there can be no assurance that such litigation, or any future litigation, will not have such an effect, whether financially, through distraction of our management or otherwise.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our principal operations are conducted from property leased from a subsidiary of the Iowa Farm Bureau Federation under a 10 year operating lease that expires in 2021, with automatic five-year extensions unless terminated by one of the parties at least six months prior to the expiration date. Currently, the property leased primarily consists of approximately 154,000 square feet of a 400,000 square foot office building in West Des Moines, Iowa. We consider the current facilities to be adequate for the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

Information required for Item 3 is incorporated by reference from the discussion in Note 10 to our consolidated financial statements included in Item 8.

ITEM 4. MINE AND SAFETY DISCLOSURES

None.


19


PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Stock Market and Dividend Information

The Class A common stock of FBL Financial Group, Inc. is traded on the New York Stock Exchange under the symbol FFG. The following table sets forth the cash dividends per common share and the high and low prices of FBL Financial Group Class A common stock as reported in the consolidated transaction reporting system for each quarter of 2014 and 2013.

Class A Common Stock Data (per share)
1st Qtr.
 
2nd Qtr.
 
3rd Qtr.
 
4th Qtr.
2014
 
 
 
 
 
 
 
High
$
44.85

 
$
47.27

 
$
47.65

 
$
58.72

Low
36.22

 
41.87

 
42.28

 
43.76

Dividends declared and paid
0.35

 
0.35

 
0.35

 
0.35

2013
 
 
 
 
 
 
 
High
$
39.16

 
$
43.51

 
$
46.28

 
$
46.82

Low
33.25

 
37.31

 
42.58

 
42.49

Dividends declared and paid
0.11

 
0.11

 
2.15

 
0.15


Special Dividend

On August 21, 2013, the Board of Directors approved a special cash dividend on Class A common stock of $2.00 per share, which was paid on September 13, 2013, to shareholders of record as of September 6, 2013. The aggregate dividend was $51.4 million.

Tender Offer of Class B Shares

There is no established market for purchasing our Class B common stock, although it is convertible upon demand into Class A common stock on a share for share basis. As part of a comprehensive capital management program, the Board of Directors authorized the repurchase of Class B common shares through a tender offer for 99 percent of all Class B shares outstanding. The tender offer was conditioned upon all the Class B shareholders either tendering their shares or converting their shares to Class A common stock. The tender price of $45.33 was based upon the average of the closing price of FBL’s Class A common stock for the seven consecutive business days preceding the tender closing date of September 25, 2013. All Class B shareholders participated with 1,023,948 Class B common shares repurchased for $46.4 million and 105,930 Class B common shares converted to Class A common stock.

Other Information

As of January 21, 2015, there were approximately 6,200 holders of Class A common stock and 21 holders of record of Class B common stock.

Class B common stockholders receive dividends at the same rate as that declared on Class A common stock. We intend to declare regular quarterly cash dividends in the future, subject to the discretion of the Board of Directors, which depends in part upon general business conditions, legal restrictions and other factors the Board of Directors deems relevant. It is anticipated that the quarterly dividend rate for 2015 will increase to $0.40 per share and a special dividend of $2.00 per common share will be paid in the first quarter of 2015.

For restrictions on dividends, see "Management's Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources" included in Item 7.


20


Comparison of Five-Year Total Return

 
Period Ending
 
12/31/2009
 
12/31/2010
 
12/31/2011
 
12/31/2012

 
12/31/2013
 
12/31/2014
FBL Financial Group, Inc.
$
100.00

 
$
156.37

 
$
187.30

 
$
190.75

 
$
264.43

 
$
353.00

S&P 500 Index
100.00

 
115.06

 
117.49

 
136.30

 
180.44

 
205.14

S&P 500 Life & Health Insurance Index
100.00

 
125.25

 
99.31

 
113.80

 
186.04

 
189.66


Source: SNL Financial LC

The performance graph shows a comparison of the cumulative total return over the past five years of our Class A common stock, the S&P 500 Index and the S&P 500 Life and Health Insurance Index. The graph plots the changes in value of an initial $100 investment, assuming reinvestment of dividends.


21


Issuer Purchases of Equity Securities

The following table sets forth issuer purchases of equity securities for the quarter ended December 31, 2014.

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
October 1, 2014 through October 31, 2014
 
33,930

 
$
44.78

 
33,930
 
$42,701,501
November 1, 2014 through November 30, 2014
 

 

 
 
$42,701,501
December 1, 2014 through December 31, 2014
 

 

 
 
$42,701,501
Total
 
33,930

 
$
44.78

 
 
 
 

Activity in this table represents Class A common shares repurchased by the Company in connection with the repurchase plan announced on February 20, 2014, which will expire on March 31, 2016. The plan authorizes us to make up to $50.0 million in 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.
 


22


ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

 
As of or for the year ended December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
 
(Dollars in thousands, except per share data)
Consolidated Statement of Income Data
 
 
 
 
 
 
 
 
 
Interest sensitive product charges
$
109,770

 
$
111,575

 
$
101,410

 
$
97,103

 
$
93,881

Traditional life insurance premiums
183,300

 
180,944

 
175,086

 
168,519

 
162,056

Net investment income
382,082

 
370,651

 
361,324

 
343,310

 
324,540

Realized gains (losses) on investments
2,938

 
13,555

 
452

 
(8,296
)
 
11,576

Total revenues
692,939

 
691,231

 
655,540

 
618,337

 
606,342

 
 
 
 
 
 
 
 
 
 
Income from continuing operations
109,869

 
108,393

 
82,796

 
52,209

 
80,993

Income (loss) from discontinued operations

 

 
(2,939
)
 
(11,464
)
 
34,587

Net income
$
109,869

 
$
108,393

 
$
79,857

 
$
40,745

 
$
115,580

 
 
 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
4.42

 
$
4.25

 
$
3.01

 
$
1.69

 
$
2.66

Income (loss) from discontinued operations

 

 
(0.11
)
 
(0.37
)
 
1.14

Earnings per common share
$
4.42

 
$
4.25

 
$
2.90

 
$
1.32

 
$
3.80

Earnings per common share - assuming dilution:
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
4.39

 
$
4.21

 
$
2.97

 
$
1.67

 
$
2.63

Income (loss) from discontinued operations

 

 
(0.10
)
 
(0.37
)
 
1.13

Earnings per common share - assuming dilution
$
4.39

 
$
4.21

 
$
2.87

 
$
1.30

 
$
3.76

 
 
 
 
 
 
 
 
 
 
Cash dividends (1)
$
1.4000

 
$
2.5200

 
$
0.4000

 
$
0.2875

 
$
0.2500

Weighted average common shares outstanding - assuming dilution
25,016,244

 
25,774,415

 
27,838,548

 
31,215,023

 
30,718,616

 
 
 
 
 
 
 
 
 
 
Consolidated Balance Sheet Data
 
 
 
 
 
 
 
 
 
Total investments
$
7,680,970

 
$
7,040,002

 
$
7,160,650

 
$
6,397,195

 
$
5,853,341

Assets held in separate accounts
683,033

 
693,955

 
618,809

 
603,903

 
675,586

Total assets
9,064,408

 
8,461,323

 
8,417,726

 
8,109,368

 
15,177,657

Long-term debt
97,000

 
97,000

 
147,000

 
146,968

 
271,168

Total liabilities
7,811,526

 
7,416,532

 
7,205,479

 
6,906,939

 
14,132,931

Total stockholders' equity (2)
1,252,882

 
1,044,791

 
1,212,247

 
1,202,429

 
1,044,725

Book value per common share (2)
50.57

 
42.08

 
47.47

 
39.13

 
33.66


Notes to Selected Consolidated Financial Data
(1)
Dividends in 2013 include a special $2.00 per share cash dividend to Class A and B common shareholders.
(2)
Amounts are impacted by accumulated other comprehensive income totaling $258.4 million in 2014, $119.1 million in 2013, $289.9 million in 2012, $177.8 million in 2011, and $51.6 million in 2010. These amounts are net of deferred income taxes and other adjustments for assumed changes in deferred acquisition costs, unearned revenue reserve, value of insurance in force acquired and policyholder liabilities.


23


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

When reading the following Management's Discussion and Analysis of Financial Condition and Results of Operations, please refer to our consolidated financial statements and related notes included in Item 8, "Financial Statements and Supplementary Data," of this report. Unless noted otherwise, all references to FBL Financial Group, Inc. (we or the Company) include all of its direct and indirect subsidiaries, including its insurance subsidiaries Farm Bureau Life Insurance Company (Farm Bureau Life) and Greenfields Life Insurance Company (Greenfields Life).

In this discussion and analysis, we explain our consolidated results of operations, financial condition and where appropriate, factors that management believes may affect future performance, including:

our revenues and expenses in the periods presented,
changes in revenues and expenses between periods,
sources of earnings and changes in stockholders' equity,
impact of these items on our overall financial condition and
expected sources and uses of cash.

We have organized our discussion and analysis as follows:

First, we discuss our business and drivers of profitability.
We then describe the business environment in which we operate including factors that affect operating results.
We highlight significant events that are important to understanding our results of operations and financial condition.
We then review the results of operations beginning with an overview of the total Company results, followed by a more detailed review of those results by operating segment.
Finally, we discuss critical accounting policies and recently issued accounting standards. The critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management's most difficult or complex judgment.

Overview and Profitability

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 operating income, which excludes the impact of certain items that are included in net income. See Note 13 to our consolidated financial statements included in Item 8 for further information regarding how we define our segments and operating income.

We also include within our analysis “premiums collected,” which is not a measure used in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP), but is a common industry measure of agent productivity. See Note 13 to our consolidated financial statements included in Item 8 for further information regarding this measure and its relationship to GAAP revenues.

On December 30, 2011, we completed the sale of our wholly-owned subsidiary, EquiTrust Life Insurance Company (EquiTrust Life). As a result of the sale, certain lines of business are considered discontinued operations, and unless otherwise indicated, have been removed from the discussion that follows. See Note 15 to our consolidated financial statements included in Item 8 for additional information related to the sale.



24


Our profitability is primarily a factor of:

The volume of our life insurance and annuity business in force, which is driven by the level of our sales and the persistency of the business written.
The amount of spread (excess of net investment income earned over interest credited) we earn on contract holders' general account balances.
Our ability to price our life insurance products to earn acceptable margins over the cost of providing benefits and the expenses of acquiring and administering the products. Competitive conditions, mortality experience, persistency, investment results and our ability to maintain expenses in accordance with pricing assumptions drive our margins on the life products. On many products, we have the ability to mitigate adverse experience through adjustments to credited interest rates, policyholder dividends or cost of insurance charges.
Our ability to manage our investment portfolio to maximize investment returns while providing adequate liquidity for obligations to policyholders and minimizing the risk of defaults or impairments of invested assets.
Our ability to manage the level of our operating expenses.
Actual experience and changes in assumptions for expected surrender and withdrawal rates, mortality and spreads used in the amortization of deferred acquisition costs.

Our profitability is also impacted by changes in accounting guidance that impact the timing of profit recognition. See Note 1 to our consolidated financial statements included in Item 8 for details on pending accounting pronouncements. In addition to guidance that has been adopted, the accounting standards setting bodies are currently working on other projects that could impact the timing of profit emergence including the accounting for insurance contracts, financial instruments and leases. It is uncertain what the outcome of these or other projects will be or when they will be completed.

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 environmental factors which may impact our business include, but are not limited to, the following:

Gross Domestic Product increased approximately 2.6% during 2014 based on early estimates.
U.S. unemployment was estimated to be 5.6% through December 2014.
U.S. net farm income is forecast to decrease 24.6% and farm real estate value is forecast to increase 2.9% during 2014.
The U.S. 10 Year Treasury yield declined during 2014 from 3.04% at December 31, 2013 to 2.17% at December 31, 2014.
Continued uncertainty as to actions the United States Congress will take to address the national debt, including potential actions to change the tax advantages of life insurance.

The low market interest rate environment continues to impact our investment yields as well as the interest we credit on our interest sensitive products. Interest rates remained low during 2014, as the benchmark 10 year U.S. Treasury yield declined during the year, offsetting moderate increases in overall credit spreads and placing further strain on available investment yields. Our average investment portfolio yield declined during 2014 as yields on new acquisitions were generally lower than the average portfolio yield. As a result we proactively reduced customer crediting rates on certain annuity and universal life products. Low crediting rates pose challenges to maintaining attractive annuity and universal life products, although our rates are comparable to other insurance companies, allowing us to maintain our competitive position within the market. We continue to reassess the future profitability of our interest sensitive products as future profit expectations impact the valuation of deferred policy acquisition costs. During 2014 we unlocked our profitability assumptions to reflect the expectation of lower earned spread rates, primarily driven by the expected continuation of low market interest rates. We have, however, experienced an increase in the fair value of our fixed maturity security portfolio during 2014 due to declining market yields. See the segment discussion and “Financial Condition” section that follows for additional information regarding the impact of low market interest rates on our business.

 

25


Results of Operations for the Three Years Ended December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
Year ended December 31,
 
Change over prior year
 
2014
 
2013
 
2012
 
2014
 
2013
 
(Dollars in thousands, except per share data)
 
 
 
 
Pre-tax operating income:
 
 
 
 
 
 
 
 
 
Annuity segment
$
65,056

 
$
63,592

 
$
55,910

 
2
 %
 
14
 %
Life Insurance segment
51,521

 
48,814

 
43,741

 
6
 %
 
12
 %
Corporate and Other segment
22,865

 
22,172

 
16,856

 
3
 %
 
32
 %
Total pre-tax operating income
139,442

 
134,578

 
116,507

 
4
 %
 
16
 %
Income taxes on operating income
(32,401
)
 
(33,985
)
 
(33,748
)
 
(5
)%
 
1
 %
Operating income
107,041

 
100,593

 
82,759

 
6
 %
 
22
 %
 
 
 
 
 
 
 
 
 
 
Realized gains/losses on investments (1)
1,786

 
8,206

 
(477
)
 
(78
)%
 
(1,820
)%
Change in net unrealized gains/losses on derivatives (1)
1,114

 
(241
)
 
619

 
(562
)%
 
(139
)%
Loss on debt redemption (1)

 

 
(22
)
 
NA
 
NA
Net impact of discontinued operations (1)

 

 
(2,939
)
 
NA
 
NA
Net income attributable to FBL Financial Group, Inc.
$
109,941

 
$
108,558

 
$
79,940

 
1
 %
 
36
 %
 
 
 
 
 
 
 
 
 
 
Operating income per common share - assuming dilution
$
4.27

 
$
3.90

 
$
2.97

 
9
 %
 
31
 %
 
 
 
 
 
 
 
 
 
 
Earnings per common share - assuming dilution:
 
 
 
 
 
 
 
 
 
Continuing operations
$
4.39

 
$
4.21

 
$
2.97

 
 
 
 
Discontinued operations

 

 
(0.10
)
 
 
 
 
Earnings per common share - assuming dilution
$
4.39

 
$
4.21

 
$
2.87

 
4
 %
 
47
 %
 
 
 
 
 
 
 
 
 
 
Effective tax rate on operating income
23
%
 
25
%
 
29
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average invested assets, at amortized cost
$
6,932,914

 
$
6,723,601

 
$
6,343,284

 
3
 %
 
6
 %
Annualized yield on average invested assets
5.61
%
 
5.74
%
 
5.87
%
 
 
 
 
Impact on operating income of unlocking deferred acquisition costs, value of insurance in force acquired and unearned revenue reserve, net of tax
$
(1,206
)
 
$
231

 
$
(3,413
)
 
(622
)%
 
(107
)%

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

Our operating income increased in 2014, compared to 2013, primarily due to the impact of an increase in the volume of business in force, higher investment fee income and lower expenses, partially offset by the impact of unlocking assumptions used in the calculation of amortization of deferred acquisition costs and the value of insurance in force. Operating income increased in 2013, compared to 2012, primarily due to the impact of an increase in the volume of business in force, higher corporate segment net investment income and the impact of unlocking. These increases were partially offset by an increase in death benefits in 2013.

Net income increased in 2014, compared to 2013, primarily due to the increase in operating income and was largely offset by a decrease in net realized gains from investment sales. Net income increased in 2013, compared to 2012, due to increases in operating income and realized gains from investment sales, and a reduction in losses from discontinued operations. See the discussion that follows for details regarding operating income by segment.

Earnings per share from continuing operations and operating income per common share benefited from the repurchase of Class A common shares, primarily in 2012, as well as a tender offer for Class B common shares completed in the third quarter of 2013. Details regarding the share repurchases are included in Note 7 to the consolidated financial statements included in Item 8.

26


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

Annuity Segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year ended December 31,
 
Change over prior year
 
2014
 
2013
 
2012
 
2014
 
2013
 
(Dollars in thousands)
 
 
 
 
Operating revenues:
 
 
 
 
 
 
 
 
 
Interest sensitive product charges and other income
$
1,927

 
$
1,236

 
$
790

 
56
 %
 
56
 %
Net investment income
201,550

 
196,303

 
191,211

 
3
 %
 
3
 %
Total operating revenues
203,477

 
197,539

 
192,001

 
3
 %
 
3
 %
 
 
 
 
 
 
 
 
 
 
Benefits and expenses:
 
 
 
 
 
 
 
 
 
Interest sensitive product benefits
105,669

 
102,308

 
102,961

 
3
 %
 
(1
)%
Underwriting, acquisition and insurance expenses:
 
 
 
 
 
 
 
 
 
Commissions net of deferrals
2,039

 
2,554

 
2,504

 
(20
)%
 
2
 %
Amortization of deferred acquisition costs
10,477

 
9,422

 
9,327

 
11
 %
 
1
 %
Amortization of value of insurance in force
2,314

 
907

 
2,473

 
155
 %
 
(63
)%
Other underwriting expenses
17,922

 
18,756

 
18,826

 
(4
)%
 
 %
Total underwriting, acquisition and insurance expenses
32,752

 
31,639

 
33,130

 
4
 %
 
(5
)%
Total benefits and expenses
138,421

 
133,947

 
136,091

 
3
 %
 
(2
)%
Pre-tax operating income
$
65,056

 
$
63,592

 
$
55,910

 
2
 %
 
14
 %
Other data
 
 
 
 
 
 
 
 
 
Annuity premiums collected, direct
$
298,031

 
$
259,466

 
$
316,344

 
15
 %
 
(18
)%
Policy liabilities and accruals, end of period
3,742,353

 
3,549,477

 
3,432,137

 
5
 %
 
3
 %
Average invested assets, at amortized cost
3,751,062

 
3,576,316

 
3,435,090

 
5
 %
 
4
 %
Investment fee income included in net investment income (1)
6,047

 
5,544

 
4,355

 
9
 %
 
27
 %
Average individual annuity account value
2,534,411

 
2,399,395

 
2,260,801

 
6
 %
 
6
 %
 
 
 
 
 
 
 
 
 
 
Earned spread on individual annuity products:
 
 
 
 
 
 
 
 
 
Weighted average yield on cash and invested assets
5.67
%
 
5.83
%
 
6.06
%
 
 
 
 
Weighted average interest crediting rate
2.88
%
 
2.95
%
 
3.15
%
 
 
 
 
Spread
2.79
%
 
2.88
%
 
2.91
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individual annuity withdrawal rate
4.6
%
 
5.1
%
 
4.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impact on pre-tax income of unlocking deferred acquisition costs and value of insurance in force acquired
$
(1,448
)
 
$
1,436

 
$
234

 
(201
)%
 
514
 %

(1)
Includes prepayment fee income and net discount of accretion on mortgage and asset-backed securities resulting from changing payment speed assumptions at the end of the period.

Pre-tax operating income for the Annuity segment increased in 2014 and 2013 compared to prior periods. The increase in 2014 was primarily due to higher spread income earned from an increase in the volume of business in force, partially offset by the impact of unlocking and a decrease in the earned spread rate. The increase in 2013 was primarily due to higher spread income earned from an increase in the volume of business in force, higher investment fee income and the impact of unlocking.

27


Amortization of deferred acquisition costs and the value of insurance in force changed over the three-year period due to changes in actual profits on the underlying business and the impact of unlocking. Unlocking, for each period, represented changes in our projected earned spread, withdrawal and mortality assumptions. During 2014 and 2012, we incurred additional amortization through unlocking as a result of our analysis of the impact of the low interest rate environment on projected investment and spread income.

The average aggregate account value for individual annuity contracts in force increased in 2014 and 2013, compared to the prior periods, due to continued sales and the crediting of interest. Premiums collected increased in 2014 compared to 2013 primarily due to increased sales of indexed annuity products. Indexed annuity collected premiums were $78.8 million in 2014, $23.4 million in 2013 and $2.0 million in 2012. Total annuity premiums collected were lower in 2013 compared to 2012 as we decreased our emphasis on fixed rate deferred annuity sales due to the low interest rate environment.

The Annuity segment also includes advances on our funding agreements with the Federal Home Loan Bank of Des Moines (FHLB). Outstanding funding agreements totaled $362.9 million at December 31, 2014, $322.3 million at December 31, 2013 and $328.5 million at December 31, 2012.
The weighted average yield on cash and invested assets for individual annuities decreased in 2014 and 2013, compared to the prior periods, primarily due to lower yields on new investment acquisitions from premium receipts and reinvestment of the proceeds from maturing investments, compared with the average existing portfolio yield, partially offset by continued higher investment fee income. See the "Financial Condition" section which follows for additional information regarding the yields obtained on investment acquisitions. Weighted average interest crediting rates on our individual annuity products decreased due to crediting rate actions taken in response to the declining portfolio yield.

Life Insurance Segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year ended December 31,
 
Change over prior year
 
2014
 
2013
 
2012
 
2014
 
2013
 
(Dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating revenues:
 
 
 
 
 
 
 
 
 
Interest sensitive product charges and other income
$
60,960

 
$
63,871

 
$
54,691

 
(5
)%
 
17
 %
Traditional life insurance premiums
183,300

 
180,944

 
175,086

 
1
 %
 
3
 %
Net investment income
146,349

 
140,510

 
138,076

 
4
 %
 
2
 %
Total operating revenues
390,609

 
385,325

 
367,853

 
1
 %
 
5
 %
 
 
 
 
 
 
 
 
 
 
Benefits and expenses:
 
 
 
 
 
 
 
 
 
Interest sensitive product benefits:
 
 
 
 
 
 
 
 
 
Interest credited
32,488

 
31,329

 
29,252

 
4
 %
 
7
 %
Death benefits and other
43,481

 
40,070

 
33,324

 
9
 %
 
20
 %
Total interest sensitive product benefits
75,969

 
71,399

 
62,576

 
6
 %
 
14
 %
Traditional life insurance benefits:
 
 
 
 
 
 
 
 
 
Death benefits
68,987

 
70,705

 
67,331

 
(2
)%
 
5
 %
Surrender and other benefits
30,577

 
35,118

 
36,554

 
(13
)%
 
(4
)%
Increase in traditional life future policy benefits
63,308

 
54,639

 
52,395

 
16
 %
 
4
 %
Total traditional life insurance benefits
162,872

 
160,462

 
156,280

 
2
 %
 
3
 %
Distributions to participating policyholders
12,012

 
13,319

 
14,275

 
(10
)%
 
(7
)%
Underwriting, acquisition and insurance expenses:
 
 
 
 
 
 
 
 
 
Commission expense, net of deferrals
17,454

 
20,995

 
17,476

 
(17
)%
 
20
 %
Amortization of deferred acquisition costs
15,594

 
15,760

 
21,216

 
(1
)%
 
(26
)%
Amortization of value of insurance in force
1,179

 
1,593

 
2,984

 
(26
)%
 
(47
)%
Other underwriting expenses
54,008

 
52,983

 
49,305

 
2
 %
 
7
 %
Total underwriting, acquisition and insurance expenses
88,235

 
91,331

 
90,981

 
(3
)%
 
 %
Total benefits and expenses
339,088

 
336,511

 
324,112

 
1
 %
 
4
 %
Pre-tax operating income
$
51,521

 
$
48,814

 
$
43,741

 
6
 %
 
12
 %

28


Life Insurance Segment - continued
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year ended December 31,
 
Change over prior year
 
2014
 
2013
 
2012
 
2014
 
2013
 
(Dollars in thousands)
 
 
 
 
Other data
 
 
 
 
 
 
 
 
 
Life premiums collected, net of reinsurance
$
282,098

 
$
307,474

 
$
255,709

 
(8
)%
 
20
 %
Policy liabilities and accruals, end of period
2,575,786

 
2,454,556

 
2,301,155

 
5
 %
 
7
 %
Life insurance in force, end of period
51,730,819

 
49,055,900

 
46,139,999

 
5
 %
 
6
 %
Average invested assets, at amortized cost
2,549,750

 
2,396,368

 
2,258,593

 
6
 %
 
6
 %
Investment fee income included in net investment income (1)
1,696

 
1,854

 
2,831

 
(9
)%
 
(35
)%
Average interest sensitive life account value
760,755

 
703,538

 
650,821

 
8
 %
 
8
 %
 
 
 
 
 
 
 
 
 
 
Interest sensitive life insurance spread:
 
 
 
 
 
 
 
 
 
Weighted average yield on cash and invested assets
5.86
%
 
6.04
%
 
6.36
%
 
 
 
 
Weighted average interest crediting rate
3.99
%
 
4.11
%
 
4.14
%
 
 
 
 
Spread
1.87
%
 
1.93
%
 
2.22
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Life insurance lapse and surrender rates
5.4
%
 
5.5
%
 
6.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Death benefits, net of reinsurance and reserves released
$
73,521

 
$
72,824

 
$
65,624

 
1
 %
 
11
 %
Impact on pre-tax income of unlocking deferred acquisition costs, value of insurance in force acquired and unearned revenue reserve
4

 
(595
)
 
(3,762
)
 
(101
)%
 
(84
)%

(1)
Includes prepayment fee income and net discount accretion on mortgage and asset-backed securities resulting from changing payment speed assumptions at the end of the period.

Pre-tax operating income for the Life Insurance segment increased in 2014 and 2013 compared to prior periods. The increase in 2014 was primarily due to an increase in the volume of business in force and the impact of unlocking. The increase in 2013 was primarily due to an increase in the volume of business in force and the impact of unlocking, partially offset by increased death benefits.

Comparability between periods was also impacted by the correction of an immaterial error which increased pre-tax earnings by $2.8 million in 2013. This correction was related to a reclassification of certain product loads from deferred revenue to earned income and increased interest sensitive product charges $6.3 million, changes in reserves classified with interest sensitive death benefits $2.5 million and amortization of deferred acquisition costs $1.0 million.

Premiums collected were lower in 2014 and higher in 2013, compared to the prior periods, primarily due to changes in universal life sales. Universal life collected premiums were $100.1 million in 2014, $128.2 million in 2013 and $81.5 million in 2012. The changes in sales activity also contributed to the changes in non-deferrable commission expenses. Continued growth in our business in force contributes to the increase in revenues and expenses.

Unlocking of deferred acquisition costs, value of insurance in force and unearned revenue reserve resulted in increases in 2014 and 2013 operating income compared to prior periods. Unlocking for each year reflected changes in projected earned spreads, policy lapses and mortality assumptions. During 2014 and 2012, we incurred additional amortization through unlocking as a result of our analysis of the impact of the low interest rate environment on projected investment and spread income.

Death benefits, net of reinsurance and reserves released during 2014, remained level compared with 2013. The increase in 2013 compared to 2012 was primarily due to an increase in the average size of claims.

The weighted average yield on cash and invested assets for interest sensitive life insurance products decreased in 2014 and 2013 compared to prior periods due to lower yields on new investment acquisitions from premium receipts and reinvestment of

29


the proceeds from maturing investments, compared with the average existing portfolio yield and continued decreases in investment fee income. See the "Financial Condition" section which follows for additional information regarding the yields obtained on investment acquisitions. Weighted average interest crediting rates on our interest sensitive life insurance products were impacted by crediting rate decreases taken on various products in 2014, 2013 and 2012 in response to the declining portfolio yield, partially offset by sales of products with higher crediting rates.

Corporate and Other Segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year ended December 31,
 
Change over prior year
 
2014
 
2013
 
2012
 
2014
 
2013
 
(Dollars in thousands)
 
 
 
 
Operating revenues:
 
 
 
 
 
 
 
 
 
Interest sensitive product charges
$
46,547

 
$
46,093

 
$
45,722

 
1
 %
 
1
 %
Net investment income
31,913

 
35,843

 
30,259

 
(11
)%
 
18
 %
Other income
15,186

 
14,839

 
17,462

 
2
 %
 
(15
)%
Total operating revenues
93,646

 
96,775

 
93,443

 
(3
)%
 
4
 %
 
 
 
 
 
 
 
 
 
 
Benefits and expenses:
 
 
 
 
 
 
 
 
 
Interest sensitive product benefits
29,470

 
30,183

 
30,721

 
(2
)%
 
(2
)%
Underwriting, acquisition and insurance expenses:
 
 
 
 
 
 
 
 
 
Commission expense, net of deferrals
3,363

 
3,861

 
3,732

 
(13
)%
 
3
 %
Amortization of deferred acquisition costs
6,929

 
5,170

 
5,326

 
34
 %
 
(3
)%
Other underwriting expenses
6,669

 
6,638

 
6,850

 
 %
 
(3
)%
Total underwriting, acquisition and insurance expenses
16,961

 
15,669

 
15,908

 
8
 %
 
(2
)%
Interest expense
4,707

 
6,863

 
7,952

 
(31
)%
 
(14
)%
Other expenses
16,445

 
18,414

 
20,513

 
(11
)%
 
(10
)%
Total benefits and expenses
67,583

 
71,129

 
75,094

 
(5
)%
 
(5
)%
 
26,063

 
25,646

 
18,349

 
2
 %
 
40
 %
Net loss attributable to noncontrolling interest
72

 
165

 
83

 
(56
)%
 
99
 %
Equity loss, before tax
(3,270
)
 
(3,639
)
 
(1,576
)
 
(10
)%
 
131
 %
Pre-tax operating income
$
22,865

 
$
22,172

 
$
16,856

 
3
 %
 
32
 %
 
 
 
 
 
 
 
 
 
 
Other data
 
 
 
 
 
 
 
 
 
Average invested assets, at amortized cost
$
632,102