Segment Information

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

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

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

The Corporate and Other segment consists of the following corporate items and products/services that do not meet the quantitative threshold for separate segment reporting:


•	investments and related investment income not specifically allocated to our product segments,


•	interest expense,


•	closed blocks of variable annuity, variable universal life insurance and accident and health insurance products,


•	advisory services for the management of investments and other companies,


•	marketing and distribution services for the sale of mutual funds and insurance products not issued by us, and


•	leasing services with affiliates.

We use operating income (a non-GAAP measure), in addition to net income, to measure our performance. Operating income, for the periods presented, consists of net income adjusted to exclude the impact of realized gains and losses on investments and the change in net unrealized gains and losses on derivatives, which can fluctuate greatly from period to period. These fluctuations make it difficult to analyze core operating trends. In addition, for derivatives not designated as hedges, there is a mismatch between the valuation of the asset and liability when deriving net income (loss). Specifically, call options relating to our indexed business are one-year assets while the embedded derivative in the indexed contacts represent the rights of the contract holder to receive index credits over the entire period the indexed annuities are expected to be in force.

Operating income is not a measure used in financial statements prepared in accordance with GAAP, but is a common life insurance industry measure of performance. We use operating income for goal setting, determining short-term incentive compensation and evaluating performance on a basis comparable to that used by many in the investment community.

We analyze our segment results based on pre-tax operating income. Accordingly, income taxes are not allocated to the segments. In addition, operating results are reported net of transactions between the segments. Operating income adjustments are net of amortization of unearned revenue reserves, deferred acquisition costs and value of insurance in force acquired, as well as changes in interest sensitive product reserves and income taxes attributable to these items. While not applicable for the periods reported herein, our operating income policy also calls for adjustments to net income relating to the following:


•	settlements or judgments arising from lawsuits, net of any recoveries from third parties,


•	the cumulative effect of changes in accounting principles and


•	discontinued operations.

Operating income adjustments are net of amortization of unearned revenue reserves, deferred acquisition costs and value of insurance in force acquired, as well as changes in interest sensitive product reserves and income taxes attributable to these items.

In 2016, due to changes in product offerings since the last amendment to our policy for calculating operating income, we refined our calculation of operating income to include offsets relating to changes in interest sensitive product reserves. These offsets, net of tax, increased operating income $0.9 million in 2016. These offsets, net of tax, not taken into account in the computation of operating income for 2015 would have increased operating income $0.1 million and for 2014 would have decreased operating income $0.1 million.



Reconciliation Between Net Income and Operating Income

	Year ended December 31,
	2016			2015			2014
	(Dollars in thousands)
Net income attributable to FBL Financial Group, Inc.	$	107,223		$	113,527		$	109,941
Operating income adjustments:
Realized gains/losses on investments (1)	713			(8,498		)	(1,786		)
Change in net unrealized gains/losses on derivatives (1)	(1,485		)	(141		)	(1,114		)
Operating income	$	106,451		$	104,888		$	107,041



Financial Information Concerning our Operating Segments

	Year ended December 31,
	2016			2015			2014
	(Dollars in thousands)
Pre-tax operating income:
Annuity	$	66,025		$	69,950		$	65,056
Life Insurance	55,977			53,146			51,521
Corporate and Other	14,548			11,668			22,865
Total pre-tax operating income	136,550			134,764			139,442
Income taxes on operating income	(30,099		)	(29,876		)	(32,401		)
Operating income	$	106,451		$	104,888		$	107,041




Operating revenues:
Annuity	$	214,486		$	212,420		$	203,477
Life Insurance	414,446			408,966			390,609
Corporate and Other	92,703			93,632			93,646
	721,635			715,018			687,732
Net realized gains (losses) on investments (1)	(1,771		)	10,482			2,937
Change in net unrealized gains/losses on derivatives (1)	6,550			(2,691		)	2,270
Consolidated revenues	$	726,414		$	722,809		$	692,939

Net investment income:
Annuity	$	210,679		$	209,896		$	201,550
Life Insurance	154,427			152,730			146,349
Corporate and Other	32,514			31,214			31,913
	397,620			393,840			379,812
Change in net unrealized gains/losses on derivatives (1)	6,550			(2,691		)	2,270
Consolidated net investment income	$	404,170		$	391,149		$	382,082

Depreciation and amortization:
Annuity	$	8,253		$	4,548		$	5,709
Life Insurance	15,117			18,831			20,027
Corporate and Other	5,178			8,546			2,895
	28,548			31,925			28,631
Net realized gains (losses) on investments (1)	(673		)	225			189
Change in net unrealized gains/losses on derivatives (1)	562			(332		)	125
Consolidated depreciation and amortization	$	28,437		$	31,818		$	28,945



Operating Segment Assets

	December 31,
	2016		2015
	(Dollars in thousands)
Assets:
Annuity	$	4,452,878	$	4,209,627
Life Insurance	3,256,306		3,112,756
Corporate and Other	1,615,411		1,623,874
	9,324,595		8,946,257
Unrealized gains in accumulated other comprehensive income (2)	241,539		185,747
Consolidated assets	$	9,566,134	$	9,132,004


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


(2)	Amounts are net adjustments for assumed changes in deferred acquisition costs and value of insurance in force acquired and deferred income taxes attributable to these items.

Depreciation and amortization related to property and equipment are allocated to the product segments while the related property, equipment and capitalized software are allocated to the Corporate and Other segment. Depreciation and amortization for the Corporate and Other segment include $4.4 million for 2016, $4.1 million for 2015 and $3.1 million for 2014 relating to leases with affiliates. In the consolidated statements of operations, we record these depreciation amounts net of related lease income from affiliates.

Our investment in equity method investees, the related equity income and interest expense are attributable to the Corporate and Other segment. Expenditures for long-lived assets were not significant during the periods presented above. Goodwill at December 31, 2016 and 2015 was allocated among the segments as follows: Annuity ($3.9 million) and Life Insurance ($6.1 million).

Premiums collected, which is not a measure used in financial statements prepared according to GAAP, include premiums received on life insurance policies and deposits on annuities and universal life-type products. Premiums collected is a common life insurance industry measure of agent productivity. Net premiums collected totaled $689.7 million in 2016, $683.1 million in 2015 and $646.6 million in 2014.

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



Reconciliation of Traditional Life Insurance Premiums, Net of Reinsurance

	Year ended December 31,
	2016			2015			2014
	(Dollars in thousands)
Traditional and universal life insurance premiums collected	$	281,551		$	281,003		$	282,098
Premiums collected on interest sensitive products	(85,622		)	(90,895		)	(98,796		)
Traditional life insurance premiums collected	195,929			190,108			183,302
Change in due premiums and other	985			848			(2		)
Traditional life insurance premiums as included in the Consolidated Statements of Operations.	$	196,914		$	190,956		$	183,300

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



Interest Sensitive Product Charges by Segment

	Year ended December 31,
	2016			2015		2014
	(Dollars in thousands)
Annuity
Surrender charges and other	$	3,803		$	2,524	$	1,927

Life Insurance
Administration charges	$	14,170		$	14,342	$	13,783
Cost of insurance charges	48,111			46,911		45,273
Surrender charges	1,181			919		737
Amortization of policy initiation fees	(24		)	3,371		1,504
Total	$	63,438		$	65,543	$	61,297

Corporate and Other
Administration charges	$	5,547		$	5,809	$	6,212
Cost of insurance charges	29,805			29,760		29,569
Surrender charges	213			346		479
Separate account charges	7,957			8,854		9,157
Amortization of policy initiation fees	1,165			1,748		1,129
Total	$	44,687		$	46,517	$	46,546

Consolidated interest sensitive product charges as included in the Statements of Operations	$	111,928		$	114,584	$	109,770

Amortization of policy initiation fees decreased in 2016, compared to the prior year period, primarily due to the impact of unlocking assumptions used in the calculation of unearned revenue reserves.



Premium Concentration by State

	Year ended December 31,
	2016		2015		2014
Life and annuity collected premiums:
Iowa	25.1	%	26.2	%	25.7	%
Kansas	19.1		18.6		20.8
Oklahoma	8.0		8.9		8.2