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, 1998
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
FBL FINANCIAL GROUP, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Iowa 42-1411715
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5400 University Avenue, West Des Moines, Iowa 50266
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (515) 225-5400
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 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 such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. [x] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 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 of this Form 10-K. [x] Yes [ ] No
Aggregate market value of Class A Common Stock held by non-affiliates of the
registrant (computed as of March 4, 1999): $294,669,003
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: 31,523,668 shares of Class A
Common Stock and 1,192,990 shares of Class B Common Stock as of March 4, 1999.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's definitive
proxy statement for the annual meeting of shareholders to be held May 18, 1999
are incorporated by reference into Part III of this Form 10-K.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
FBL Financial Group, Inc. (the Company or FBL) sells universal life, variable
universal life, traditional life and disability income insurance and traditional
and variable annuity products. These products are principally marketed through a
core distribution force consisting of approximately 1,600 exclusive Farm Bureau
agents in 14 midwestern and western states. FBL Financial Group was incorporated
in Iowa in October 1993 and its principal insurance subsidiaries include Farm
Bureau Life Insurance Company (Farm Bureau Life), Western Farm Bureau Life
Insurance Company (Western Life) and EquiTrust Life Insurance Company
(EquiTrust).
Variable universal life and variable annuity products are also marketed in other
states through alliances with other Farm Bureau insurance companies, which are
not affiliated with the Company. In addition, beginning in 1998, the Company
started marketing variable products to non-Farm Bureau members through its
strategic alliances with a life insurance company and a regional broker-dealer.
With respect to the insurance company alliances, FBL shares in the risks, costs
and operating results of these variable product alliances through reinsurance
arrangements. Production from these alliances was minimal in 1998, as these
operations were in the start-up phase throughout most of the year.
BUSINESS STRATEGY
FBL Financial Group has a three-pronged growth strategy which consists of (1)
internal growth within its traditional Farm Bureau distribution network in 14
midwestern and western states, (2) alliances and consolidations with other Farm
Bureau companies and (3) alternative distribution - opportunities beyond the
boundaries of the Farm Bureau network. The Company's growth strategies are
detailed below:
GROWTH STRATEGY #1 - INTERNAL GROWTH WITHIN THE TRADITIONAL FARM BUREAU
DISTRIBUTION NETWORK. The Company's main focus is to grow its core business,
which comes through its Farm Bureau distribution network in 14 states, through
cross-selling opportunities, new products and competitive product features. FBL
has significant opportunity to increase its sales through cross selling life
insurance products to Farm Bureau members who already own a property-casualty
policy offered by the property-casualty companies managed by the Company or
another Farm Bureau affiliated property-casualty company. For example, in the
four-state region consisting of Iowa, Minnesota, South Dakota and Utah,
approximately 27% of Farm Bureau members own at least one of the Company's life
products, 63% own at least one Farm Bureau property-casualty product and
approximately 20% own both, providing significant opportunity for cross selling.
Cross selling and other opportunities have been enhanced through the
introduction of new products including a new preferred term product and
structured settlement annuities during 1998 and a single premium deferred
annuity, single premium immediate annuity and last survivor whole life policy
during 1997. Also, in the spring of 1999, FBL will introduce several new
variable product features, including new outside investment options from
Fidelity(R)* and T. Rowe Price, dollar cost averaging, systematic withdrawals,
automatic re-balancing and several other items for the benefit of the
policyholder.
GROWTH STRATEGY #2 - ALLIANCES AND CONSOLIDATIONS WITH OTHERS IN THE FARM BUREAU
ORGANIZATION. As the only Farm Bureau organization with variable product
expertise, variable product alliances within the Farm Bureau network give FBL
additional growth and economies of scale while sharing its expertise and
expanding relationships within the Farm Bureau network. In 1998, FBL announced
variable product alliances with Country Life Insurance Company of Illinois and
United Farm Family Life Insurance Company of Indiana. In February of 1999, FBL
signed a letter of intent for a variable annuity alliance with Southern Farm
Bureau Life Insurance Company of Mississippi. These organizations join Kansas
Farm Bureau Life as alliance partners within the Farm Bureau network. FBL's
variable products are now available through five of the nine Farm Bureau
affiliated life insurance groups. Management believes that additional
opportunities exist in the cultivation of new business alliances within the
national Farm Bureau organization. These alliances can range from marketing
agreements to sell the Company's variable products to the consolidation of
resources through acquisition. Management believes the Company's position as a
publicly traded Farm Bureau affiliated insurance company increases its
attractiveness as a merger partner.
* Fidelity(R) is a registered trademark of FMR Corp.
1
<PAGE>
GROWTH STRATEGY #3 - ALTERNATIVE DISTRIBUTION - OPPORTUNITIES BEYOND THE
BOUNDARIES OF THE FARM BUREAU NETWORK. FBL is also focusing on creating
alliances with entities outside the Farm Bureau organization to complement its
solid foundation of serving Farm Bureau members. FBL is looking to leverage its
expertise in designing, registering and marketing variable products through
unaffiliated companies that do not have the expertise or systems to underwrite
variable products. Management believes alliances with these types of entities is
an efficient means to leverage the Company's insurance product expertise and
expand its distribution channels. In September of 1998, FBL announced a variable
product strategic alliance with National Travelers Life Company. National
Travelers Life joins American Equity Investment Life Holding Company and Berthel
Fisher & Company as alternative distribution alliance partners. Alliances of
this nature will continue to be sought to broaden the Company's distribution
system and target the needs of new market segments.
During 1997, FBL acquired EquiTrust, a life insurance company currently licensed
in 39 states, to underwrite life insurance and annuity products outside the Farm
Bureau network. Variable product sales generated by the alliance partners are
underwritten by either EquiTrust or the alliance partner. With respect to the
insurance company alliances, the risks, costs and profits of the business are
shared, generally on an equal basis, through reinsurance arrangements. For all
the alliance partners, EquiTrust performs various administrative processing and
other services with respect to the variable business written.
SEGMENT INFORMATION
In general, the Company is organized by the types of products and services it
offers for sale. The Company's principal and only reportable operating segment
is its life insurance segment. Life operations have been aggregated into the
same segment due to the similarity of the products, including the underlying
economic characteristics, the method of distribution and the regulatory
environment. The Company also has several other operating segments that do not
meet the quantitative threshold for separate segment reporting. A summary of
these segments, along with the related source of revenues, is as follows:
SEGMENT SOURCE OF REVENUES
Investment advisory........... Fee income from the management of investments
Marketing and distribution.... Commissions and distribution fee income from
the sale of mutual funds and insurance
products not issued by the Company
Leasing....................... Income from operating leases
Corporate..................... Fees from management and administrative
services
See Note 15 of Notes to Consolidated Financial Statements for additional
information regarding the financial results of the Company by operating segment.
On March 31, 1998, the Company sold its wholly-owned subsidiary, Utah Farm
Bureau Insurance Company (Utah Insurance), to Farm Bureau Mutual Insurance
Company (Farm Bureau Mutual), an affiliate. As a result of the sale, the Company
no longer has property-casualty operations. See Note 14 of Notes to Consolidated
Financial Statements for additional information regarding this segment.
MARKETING
MARKET AREA
The Company's sales are principally conducted in the following 14 state core
marketing region: multi-line (FBL owns the life company and manages the
property-casualty company) states - Arizona, Iowa, Minnesota, New Mexico, South
Dakota and Utah; and life only (FBL owns the life company only) states -
Colorado, Idaho, Montana, Nebraska, North Dakota, Oklahoma, Wisconsin and
Wyoming. Additionally, FBL's Farm Bureau variable alliance partners market to
Farm Bureau members in an additional 18 states and FBL's alternative
distribution alliance partners market to non-Farm Bureau members throughout the
United States.
The Company's core target market consists primarily of farmers, ranchers, rural
and suburban residents and related individuals and businesses. Management
believes that this target market represents a relatively financially
conservative and stable customer base, which is generally familiar with Farm
Bureau and the benefits of Farm
2
<PAGE>
Bureau membership. Many of the Company's customers are self-employed individuals
who are responsible for providing for their own insurance needs. Their financial
planning needs tend to focus on security, primary insurance needs and retirement
savings.
AFFILIATION WITH FARM BUREAU
Many of the Company's customers are members of Farm Bureau organizations
affiliated with the American Farm Bureau Federation, the nation's largest grass
roots farm and ranch organization with 4.9 million member families. In order to
market insurance products in a given state using the "Farm Bureau" and "FB"
designations and related trademarks and service marks, a company must have
permission from the state's Farm Bureau Federation. Historically, these
marketing rights have only been granted to companies owned by or closely
affiliated with Farm Bureau Federations. For each of the 14 states in the
Company's core market territory, the Company has the exclusive right to use the
"Farm Bureau" name and "FB" logo for marketing the products it sells in that
state.
The American Farm Bureau Federation has the right to terminate the Company's
right to use the "Farm Bureau" and "FB" designations as to all states (i) in the
event of a material breach of the trademark license not cured by the Company
within 60 days, (ii) immediately in the event of termination by the American
Farm Bureau of the Iowa Farm Bureau's membership in the American Farm Bureau or
(iii) in the event of a material breach of the Iowa Farm Bureau Federation's
membership agreement with the American Farm Bureau Federation, including by
reason of the failure of the Iowa Farm Bureau Federation to cause the Company to
adhere to the American Farm Bureau Federation's policies. Each state Farm Bureau
federation in the Company's trade territory could terminate the right of the
Company to use the Farm Bureau designations in that particular state without
cause on 60 days' notice. Management believes that the occurrence of any such
termination is highly unlikely.
Management believes its relationship with Farm Bureau provides a number of
advantages. Farm Bureau organizations in the Company's current territory tend to
be well known and long established, have active memberships and provide a number
of benefits other than financial services. Management believes the strength of
these organizations provides enhanced prestige and brand awareness for the
Company's products and increased access to Farm Bureau members. Additionally,
Farm Bureau members provide a financially conservative and stable target market
which has resulted in persistency for the Company's products that exceeds
industry averages.
The Company's life insurance products are currently available for sale to both
members and non-members. Property-casualty products sold by the
property-casualty insurance companies affiliated with Farm Bureau are generally
only available for sale to Farm Bureau members. Annual Farm Bureau memberships
generally cost $24 to $130 and are available to individuals and families who are
farmers and ranchers, and to the general public as well.
To facilitate the Company's working relationship with state Farm Bureau
organizations, the Presidents of the 14 state Farm Bureau federations in the
Company's core market territory serve on the Company's Board of Directors.
Pursuant to a royalty agreement with the Company, each state Farm Bureau
federation or its assignee benefits from its relationship with the Company
through receipt of royalties on the sale of the Company's products in the state.
For 1998, total royalties paid to Farm Bureau organizations were approximately
$1.7 million. The President of the Kansas Farm Bureau federation also serves on
the Company's Board of Directors.
The Company has marketing agreements with all of the Farm Bureau
property-casualty companies in its core marketing area, both affiliated and
non-affiliated, pursuant to which the property-casualty companies develop and
manage their common agency force for a fee in the nature of an overwrite
commission based on first year life insurance premiums and annuity deposits. The
overwrite commissions are generally equal to one-third of the first year
commissions paid to the agent by the Company. Overwrite commissions paid by the
Company for 1998 totaled $4.5 million.
The Company is assisted in its relationships with the property-casualty
organizations by an Advisory Committee, consisting of certain executives of Farm
Bureau property-casualty insurance companies in the Company's market territory.
The Advisory Committee meets on a regular basis to coordinate efforts and issues
relating to the agency force and other related matters. Management views the
Advisory Committee as an important contributor to the Company's success in
marketing its products through the Farm Bureau system.
3
<PAGE>
All of the state Farm Bureau federations in the Company's current marketing area
are associated with the American Farm Bureau Federation. The primary goal of the
American Farm Bureau Federation is to improve net farm income and the quality of
life of farmers, ranchers and other rural residents through education and
representation with respect to public policy issues. There are currently Farm
Bureau federations in all 50 states and Puerto Rico. Within each state, Farm
Bureau is generally organized at the county level. Farm Bureau programs
generally include policy development, state and national lobbying activities,
leadership development, speaker corps, media relations, crime prevention,
marketing clubs, women's activities, young farmers activities, promotion and
education and commodity promotion activities. Member services provided by Farm
Bureau vary state by state but generally include newspapers and magazines, theft
and arson rewards, eye care programs, vehicle purchase and leasing programs,
accidental death insurance, credit card programs, computerized farm accounting
services, electronic information networks, feeder cattle procurement services,
health care insurance and financial planning services.
EXCLUSIVE AGENCY FORCE - CORE MARKET TERRITORY
The Company's life insurance, annuities, disability income insurance and mutual
funds are currently marketed throughout its core market territory by an
exclusive Farm Bureau force of approximately 1,600 agents and agency managers.
The Company has a written contract with each member of the agency force. The
contracts specify and limit the authority of the agents to solicit insurance
applications on behalf of the Company; describe the nature of the independent
contractor relationship between the Company and the agent; define the agent as
an exclusive agent limited to selling insurance of the types sold on behalf of
the Company, only for the Company and Farm Bureau affiliated insurance
companies; allow either party to immediately terminate the contract; specify the
compensation payable to the agents; reserve ownership of customer lists to the
Company; and set forth all other terms and conditions of the relationship.
Sales activities of the Company's agents focus on personal contact and on cross
selling the multiple lines of products available through Farm Bureau affiliated
companies. Agents' offices are generally located in or serve as the Farm Bureau
office for their community. Management believes that Farm Bureau name
recognition and access to Farm Bureau membership leads to additional customers
and cross selling of additional insurance products.
The Company's agents are independent contractors and exclusive agents of the
Company. In the states where FBL manages the Farm Bureau affiliated
property-casualty company, FBL's agents are supervised by agency managers and
assistant managers employed by the property-casualty companies which are under
the direction of the Company. There are approximately 750 agents and managers in
FBL's multi-line states, all of whom market a full range of FBL's life insurance
and most of whom market the Company sponsored mutual funds. These agents and
agency managers also market property-casualty products for the property-casualty
companies managed by FBL.
In the life only states, the Company's life insurance products and its sponsored
mutual funds are marketed through agents of the property-casualty company
affiliated with the Farm Bureau Federation in each state. These agents market
the Company's life and mutual fund products on an exclusive basis and market the
property-casualty products of such affiliated property-casualty companies. The
agents are under the management of such Farm Bureau affiliated property-casualty
companies. Agents as well as agency managers in the life only states are
independent contractors of the Company. Average life production per agent in the
life only states has historically been less than average life production per
agent in the multi-line states. Management believes that average life production
in these states will increase, over time, as the agents continue to benefit from
the Company's ongoing training programs and marketing support.
Approximately 97% of the agents in the multi-line states are licensed with the
National Association of Securities Dealers (NASD) to sell the Company's variable
life and annuity products and sponsored mutual funds. FBL continues to emphasize
the training of agents for NASD licensing in its life only territories, where
approximately 70% of the agents are NASD licensed.
The Company is responsible for product and sales training for all lines of
business in the multi-line states, and for training the agency force in life
insurance products and sales methods in the life only states.
The Company structures its 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 volume of new life business
written in the prior 12
4
<PAGE>
months and on premium payments in the first three years subsequent to when new
business is written. Production bonuses allow agents to increase their
compensation significantly. Persistency is a common measure of the quality of
life business and is included in calculating the bonus to either increase or
decrease (or even eliminate) the production bonuses earned, because the Company
is willing to pay added incentives for higher volumes of business only as long
as the business is profitable. In 1998, approximately 44% of agent compensation
in the multi-line states was derived from the sale of life and annuity products.
The focus of agency managers is to recruit and train agents to achieve high
production levels of profitable business. Agency managers receive overwrite
commissions on each agent's life insurance commissions which vary according to
that agent's productivity level and persistency of business. During the first
three years of an agent's relationship with the Company, the agent's manager
receives additional overwrite commissions to encourage early agent development.
Farm Bureau Life and Western Life have a variety of incentives and recognitions
to focus agents on production of quality life insurance business. Some
recognitions are jointly conducted with the property-casualty companies.
Management believes that these programs provide significant incentives for the
most productive agents. Approximately 10% of the agents qualify for the
Company's annual incentive trip.
Agents recruiting, training and financing programs are designed to develop a
productive agent for the long term. The one-year agency force retention rate for
1998 in the multi-line states was approximately 84%. Management believes
retention of agents is enhanced because of their ability to sell both life and
property-casualty insurance products, as well as mutual funds.
AGENCY FORCE - ALLIANCE PARTNERS
The Company's Farm Bureau alliance partners have approximately 5,900 exclusive
agents that are dedicated to selling Farm Bureau products. The Company's other
alliance partners have over 14,000 independent agents and registered
representatives that have access to outside variable products and are not
limited solely to the variable products jointly developed with FBL. While many
of the alliance partners' agents are not currently licensed for the sale of
variable life insurance and variable annuity products, the alliance partners are
promoting the licensing of existing agents and the recruitment of agents that
are licensed.
FBL's variable product alliance partners are responsible for managing and
training their own agency force. FBL provides each partner with assistance on
how to train their agents in the sale of variable products.
PRODUCTS CURRENTLY UNDERWRITTEN
The Company is currently engaged in selling a varied portfolio of insurance
products including variable, interest sensitive and traditional permanent life
insurance, term life, variable and traditional annuities and disability income
insurance primarily to individuals in the rural and suburban areas of its market
territory.
VARIABLE UNIVERSAL LIFE INSURANCE. Variable universal life insurance is the
Company's lead life insurance product. The variable universal life policy
provides permanent life insurance protection with a flexible 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. The policyholder has the ability to direct cash value of the
policy to an assortment of variable sub-accounts and, in turn, assumes the
investment risk passed through by those funds. Variable universal life
policyholders can also elect a declared interest option under which the cash
values are credited with interest as declared by the Company. For 1998, variable
universal life represented 22% of first year direct life insurance premiums
collected in the life-only states, 76% of the Company's first year direct life
premiums collected in the multi-line states and 60% of the Company's total first
year direct life insurance premiums collected.
A majority of the variable sub-accounts are managed by the Company for an
additional fee. Variable products sold through the alliance partners have
sub-accounts that are managed by outside investment advisors in addition to
sub-accounts managed by the Company. In May 1999, the investment options for new
and existing variable products in the core 14 state market territory will be
expanded to include sub-accounts managed by outside investment advisors. See
"Variable Sub-Accounts and Mutual Funds."
5
<PAGE>
UNIVERSAL LIFE INSURANCE. The Company offers a universal life policy which is
similar in design to the variable universal life policy, but without the
additional investment options for the cash value. Interest is credited to the
cash value at rates periodically set by the Company. Agents need not be
registered with the NASD to offer this product. The Company markets a last
survivor universal life policy designed especially for the estate planning
market.
TRADITIONAL LIFE INSURANCE. The Company offers 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 charges in early years to
offset increasing mortality costs in later years. Under the terms of these
policies, policyholders have a right to participate in the surplus of the
Company to the extent determined by the Board of Directors, generally through
annual participating policy dividends. For 1998, participating life policies
represented 13% of first year life insurance collected premiums. The Company has
a substantial book of in-force participating policies with persistency which has
historically exceeded industry averages.
The Company currently markets non-participating term insurance policies that
provide life insurance protection for a specified period. Term insurance is
mortality based and generally has no accumulation values. The Company may change
the premium scales at any time but may not increase rates above guaranteed
levels. In the past, the Company sold participating term insurance, but has
discontinued such sales.
ANNUITIES. The Company offers annuities which are generally marketed to
individuals in anticipation of retirement. The Company offers variable and
traditional annuities principally in the form of flexible premium deferred
annuities which allow policyholders to make contributions over a number of
periods. For traditional annuity products, policyholder account balances are
credited interest at rates determined by the Company. For variable annuities,
policyholders have the right to direct the cash value of the policy into an
assortment of sub-accounts, thereby assuming the investment risk passed through
by those sub-accounts. Approximately 60% of the Company's existing individual
annuity business based on account balances is held in qualified retirement
plans. To further encourage persistency, a surrender charge against the
policyholders' account balance is imposed for early termination of the annuity
contract within a specified period after its effective date.
The sub-account options for variable annuity contracts are the same as those
available for variable universal life policies. The sub-account options for
variable annuities are also expanding in May 1999. See "Variable Sub-Accounts
and Mutual Funds."
In addition to flexible premium deferred annuities, the Company markets single
premium immediate annuity (SPIA) and single premium deferred annuity (SPDA)
products. These products feature a single premium paid when the contract is
issued and interest crediting similar to other traditional annuities. Benefit
payments on SPIA contracts begin immediately after the issuance of the contract
and, for SPDA, are similar to the Company's other traditional annuity products.
DISABILITY INCOME INSURANCE. The Company writes a number of individual
disability policies. This type of policy provides for payment of benefits in the
event of a disabling accident or illness. Disability benefits reimburse the
policyholder for a specified dollar amount payable over a specific time period
or for the duration of the disability. Disability is defined as the inability to
pursue the policyholder's own occupation for the first two years after
disability, and the inability to pursue any occupation thereafter. The risks
insured are similar to those insured in a medical expense policy but the claim
costs are much more predictable. Since the policies are guaranteed renewable
rather than noncancellable, the Company may change the premium scale at any time
based on claim costs incurred, subject to regulatory approval. Some disability
income products offer flexibility in coverage amounts as financial needs change.
6
<PAGE>
The following table sets forth the first year and renewal premiums collected for
the Company's life, annuity and accident and health products for the periods
indicated:
COLLECTED PREMIUMS BY PRODUCT TYPE
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Direct life premiums collected:
Universal life
First year ........................ $ 2,857 $ 3,522 $ 4,398 $ 2,452 $ 2,321
Renewal ........................... 42,263 44,969 46,493 47,901 49,171
----------- ----------- ----------- ----------- -----------
Total ........................... 45,120 48,491 50,891 50,353 51,492
Variable universal life
First year - core distribution .... 15,272 12,427 9,244 7,689 11,603
First year - alliance partners .... 98 -- -- -- --
Renewal ........................... 22,423 19,156 16,715 13,625 10,054
Internal rollover ................. 18,032 7,824 2,726 1,328 2,392
----------- ----------- ----------- ----------- -----------
Total ........................... 55,825 39,407 28,685 22,642 24,049
Participating whole life
First year ........................ 3,226 3,646 6,105 7,390 9,245
Renewal ........................... 61,867 61,660 58,818 54,743 51,058
----------- ----------- ----------- ----------- -----------
Total ........................... 65,093 65,306 64,923 62,133 60,303
Other
First year ........................ 4,151 3,802 3,409 3,242 3,137
Renewal ........................... 16,676 15,513 14,646 13,891 13,622
----------- ----------- ----------- ----------- -----------
Total ........................... 20,827 19,315 18,055 17,133 16,759
----------- ----------- ----------- ----------- -----------
Total direct life ........... 186,865 172,519 162,554 152,261 152,603
Reinsurance ceded ....................... (4,632) (4,681) (4,521) (4,190) (3,891)
----------- ----------- ----------- ----------- -----------
Total life, net of reinsurance .......... 182,233 167,838 158,033 148,071 148,712
Direct annuity premiums collected:
Traditional annuities:
Individual ........................ 51,775 54,002 59,111 64,557 69,652
Group ............................. 1,022 7,241 16,502 6,253 5,502
Reinsurance assumed ............... 22,034 -- -- -- --
----------- ----------- ----------- ----------- -----------
Total traditional annuities . 74,831 61,243 75,613 70,810 75,154
Variable annuities:
First year - core distribution .... 24,891 23,773 14,638 5,426 12,852
First year - alliance partners .... 490 -- -- -- --
Renewal ........................... 4,616 3,641 1,424 393 --
Internal rollover ................. 11,469 6,240 855 143 540
----------- ----------- ----------- ----------- -----------
Total variable annuities .... 41,466 33,654 16,917 5,962 13,392
----------- ----------- ----------- ----------- -----------
Total annuities ......................... 116,297 94,897 92,530 76,772 88,546
Accident and health premiums collected,
net of reinsurance ................... 11,717 11,370 10,558 10,023 (4,530)
----------- ----------- ----------- ----------- -----------
Total collected premiums, net of
reinsurance .......................... $ 310,247 $ 274,105 $ 261,121 $ 234,866 $ 232,728
=========== =========== =========== =========== ===========
</TABLE>
During the five years in the period ended December 31, 1998, the Company has
emphasized the marketing of its variable products. This marketing emphasis,
coupled with the popularity of variable products and a program to encourage the
rollover of universal life policies to variable universal life policies, has
resulted in a shift in premiums during the period from traditional and interest
sensitive products to variable products.
During 1998, the Company assumed a block of individual deferred annuity policies
through a 100% coinsurance agreement. Premiums related to this block of business
totaled $22.0 million.
7
<PAGE>
The negative accident and health premiums collected during 1994 is due to the
Company's exit from the medical insurance business in that year. Accident and
health premiums collected since 1994 represent collections on the Company's
disability income block of business.
LIFE INSURANCE AND ANNUITIES IN FORCE
The following table sets forth information regarding life insurance and
annuities in force at the end of each period presented:
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT FACE AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Life insurance
Universal
Number of direct policies ............ 114,317 109,558 107,817 105,256 103,623
Policyholder account balances ........ $ 576,392 $ 565,291 $ 540,116 $ 503,877 $ 467,773
Direct face amounts .................. 9,549 8,830 8,476 8,096 7,841
Traditional
Number of direct policies ............ 265,407 267,476 266,599 267,452 267,590
Future policy benefits ............... $ 691,047 $ 672,885 $ 645,684 $ 617,376 $ 597,961
Direct face amounts .................. 10,117 9,551 8,719 8,113 7,380
Total life
Number of direct policies ............ 379,724 377,034 374,416 372,708 371,213
Direct face amounts .................. $ 19,666 $ 18,381 $ 17,195 $ 16,209 $ 15,221
Deposit administration funds -
Policyholder account balances ........... $ 127,128 $ 77,254 $ 54,028 $ 48,109 $ 37,565
Annuities
Number of direct policies ............... 48,785 49,912 50,255 49,575 48,409
Policyholder account balances ........... $ 770,081 $ 808,740 $ 808,221 $ 779,827 $ 731,254
Future policy benefits .................. 122,870 127,509 123,646 110,412 108,115
Liabilities related to separate accounts .. 190,111 138,409 79,043 44,789 28,043
</TABLE>
Substantially all of the deposit funds relate to the funding of the Iowa Farm
Bureau and Affiliated Companies' retirement plans. In 1998, the funding vehicle
for a portion ($48.0 million) of the Iowa Farm Bureau and Affiliated Companies'
retirement plans was changed from group annuities to deposit administration
funds.
The Company has experienced low lapse rates compared to the life insurance
industry, as indicated in the following table:
<TABLE>
<CAPTION>
LAPSE RATES FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Company life insurance lapse rates......... 7.2 % 7.0 % 7.5 % 7.9 % 7.2 %
Industry life insurance lapse rates........ (A) 8.5 8.5 8.8 8.9
</TABLE>
- --------------
(A) The industry lapse rate for 1998 is not available as of the filing date
of this Form 10-K.
8
<PAGE>
UNDERWRITING
The Company has adopted and follows detailed, uniform underwriting standards and
procedures designed to properly assess and quantify life insurance risks before
issuing policies to individuals. To implement these procedures, the Company
employs a professional underwriting staff of twelve underwriters who have an
average of 22 years of experience in the insurance industry. The Company's
underwriters review each applicant's written application, which is prepared
under the supervision of the Company's agents, and any required medical records.
The Company employs blood and urine testing (including HIV antibody testing) to
provide additional information on applications of over $100,000 face amount.
Based on the results of these tests, the Company may adjust the mortality charge
or decline coverage completely. Any tobacco use by a life insurance applicant
within the preceding one year results in a substantially higher mortality
charge. In accordance with industry practice, material misrepresentation on a
policy application can result in the cancellation by the Company of the policy
upon the return of any premiums paid.
REINSURANCE
The Company reinsures portions of its life insurance exposure with unaffiliated
insurance companies under traditional indemnity reinsurance agreements. New
insurance sales are reinsured above prescribed limits and do not require the
reinsurer's prior approval within certain guidelines. These treaties are
automatically renewed and nonterminable for the first 10 years with regard to
cessions already made and are terminable after 90 days with regard to future
cessions. After 10 years, the Company has the right to terminate and can
generally discontinue the reinsurance on a block of business. This is normally
done to increase the Company's retention on older business to the same level as
current cessions.
Generally, the Company enters into indemnity reinsurance arrangements to assist
in diversifying its risks and to limit its maximum loss on risks that exceed the
Company's policy retention limits. The retention limits are $500,000 for Farm
Bureau Life, $250,000 for Western Life and $100,000 for EquiTrust. Farm Bureau
Life assumes EquiTrust exposures in excess of $100,000, up to a Company total of
$600,000. Indemnity reinsurance does not fully discharge the Company's
obligation to pay claims on the reinsured business. The Company, as the ceding
insurer, remains responsible for policy claims to the extent the reinsurer fails
to pay such claims. No reinsurer of business ceded by the Company has failed to
pay any material policy claims (either individually or in the aggregate) with
respect to such ceded business. The Company continually monitors the financial
strength of its reinsurers. If for any reason such reinsurance coverages would
need to be replaced, the Company believes that replacement coverages from
financially responsible reinsurers would be available. A summary of the
Company's primary reinsurers as of December 31, 1998 is as follows:
AMOUNT OF IN
REINSURER A.M. BEST RATING FORCE CEDED
---------------- ---------------
(DOLLARS IN
MILLIONS)
Lincoln National Life Insurance Company...... A $ 492.6
Business Men's Assurance Company............. A 304.4
The Cologne Life Reinsurance Company......... A+ 219.4
All other.................................... 282.3
---------------
Total.................................... $ 1,298.7
===============
POLICY RESERVES
The policy liabilities reflected in the consolidated financial statements are
calculated in accordance with generally accepted accounting principles (GAAP).
Liabilities for universal life and annuity policies consist of the premiums and
considerations received plus accumulated credited interest, less accumulated
policyholder assessments and benefits. For traditional policies, liabilities for
future policy benefits have been provided based on the net level premium method,
including assumptions as to interest, mortality and other assumptions underlying
the guaranteed policy cash values. See Note 1 of Notes to Consolidated Financial
Statements for additional information regarding policy liability assumptions
under GAAP.
9
<PAGE>
INTEREST CREDITING AND PARTICIPATING DIVIDEND POLICY
The Company has an asset/liability management 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 universal life insurance and annuity products after any
initial guaranteed period. Earnings on assets are examined by portfolio.
Interest rates are then established based on each product's required interest
spread and competitive market conditions at the time.
The Company pays dividends, credits interest and determines other nonguaranteed
elements on their 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.
Policyholder dividends are currently being paid and will continue to be paid as
declared on traditional participating whole life business, some term business,
and the participating annuity policies. Policyholder dividend scales are
generally established annually and are based on the performance of assets
supporting these policies, the mortality experience of the policies, and expense
levels. Other factors, such as changes in tax law, may be considered as well.
Average credited rates on the Company's universal life contracts were 5.94%,
6.18% and 6.39% and average credited rates on annuity contracts were 5.83%,
6.18% and 6.35% for 1998, 1997 and 1996, respectively.
RATINGS
Ratings are an important factor in establishing the competitive position of
insurance companies. Farm Bureau Life is rated "A+(Superior)" by A.M. Best, A.M.
Best's second highest rating of 13 ratings assigned to solvent insurance
companies, which currently range from "A++(Superior)" to "D(Very Vulnerable)."
Farm Bureau Life has maintained its existing "A+(Superior)" rating since A.M.
Best first began using this rating methodology. Western Life is rated "A
(Excellent)" and EquiTrust is rated "A- (Excellent)" by A.M. Best. A.M. Best
ratings consider the claims paying ability of the rated Company and are not a
rating of the investment worthiness of the rated Company.
VARIABLE SUB-ACCOUNTS AND MUTUAL FUNDS
The Company sponsors the EquiTrust Series Fund, Inc. (the Series Fund), formerly
known as FBL Series Fund, Inc., and EquiTrust Variable Insurance Series Fund
(the Insurance Series Fund), formerly known as FBL Variable Insurance Series
Fund, (collectively, the EquiTrust Funds) which are open-end, diversified series
management investment companies. The Series Fund is available to the general
public. The Variable Insurance Series Fund offers its shares, without a sales
charge, only to the separate accounts of participating insurance companies as
the investment medium for variable annuity contracts or variable life insurance
policies issued by the participating insurance companies. The Company currently
uses only the Variable Insurance Series Fund to provide variable annuity and
variable universal life insurance sub-accounts to its customers. These Funds
each currently issue shares in six investment series (a Portfolio or
collectively the Portfolios) with distinct investment objectives: (1) long-term
capital appreciation by investing in equity securities which have a potential to
earn a high return on capital or are undervalued by the market place; (2) as
high a level of current income as is consistent with investment in a portfolio
of debt securities deemed to be of high grade; (3) as high a level of current
income as is consistent with investment in a portfolio of fixed-income
securities rated in the lower categories of established rating services; (4)
high total investment return of income and capital appreciation by investing in
growth common stocks, high grade debt securities and preferred stocks and high
quality short-term money market instruments; (5) high current income consistent
with liquidity and stability of principal, and (6) an unmanaged index fund,
which seeks growth of capital and income by investing primarily in common stocks
of designated well-capitalized, established companies. The net assets of the
equity, managed and money market portfolios at December 31, 1998 aggregated
$349.2 million and the net assets of the bond portfolios on that date were $53.1
million.
Variable products sold through the alliance partners have sub-accounts that are
managed by outside investment advisors in addition to sub-accounts managed by
the Company. In addition, in May 1999, the investment options for new and
existing variable products in the core 14 state market territory will be
expanded to include sub-accounts managed by outside investment advisors. The
Company will receive an administrative service fee from the outside
10
<PAGE>
investment advisors ranging from 4 basis points to 25 basis points (annualized)
of the sub-account values, generally once the sub-accounts meet a predetermined
asset threshold.
EquiTrust Investment Management Services, Inc. (the Advisor), a subsidiary of
the Company formerly known as FBL Investment Advisory Services, Inc., receives
an annual fee based on the average daily net assets of each EquiTrust Portfolio
that ranges from 0.25% to 0.60% for the Series Fund and from 0.20% to 0.45% for
the Variable Insurance Series Fund. The Advisor also serves as distributor and
principal underwriter for the EquiTrust Funds. The Advisor receives from the
Series Fund a 0.50% annual distribution services fee, a 0.25% annual
administration services fee and a 0.05% accounting fee, and receives directly
any contingent deferred sales charge paid on the early redemption of shares.
EquiTrust Marketing Services, LLC, another subsidiary of the Company formerly
known as FBL Marketing Services, Inc., serves as the principal dealer for the
Series Fund and receives commissions and service fees.
The Company also sponsors a money market fund, EquiTrust Money Market Fund, Inc.
(Money Market Fund), formerly known as FBL Money Market Fund, Inc., which is a
no-load open-end diversified management investment company with an investment
objective of maximum current income consistent with liquidity and stability of
principal. The Advisor acts as the investment advisor, manager and principal
underwriter of the Money Market Fund and receives an annual management fee,
accrued daily and payable monthly, on a graduated basis commencing at 0.25%, and
certain other fees. The net assets of the Money Market Fund were $29.0 million
at December 31, 1998.
EquiTrust Series Fund, Inc. and EquiTrust Money Market Fund, Inc. are offered
through registered representatives of EquiTrust Marketing Services, LLC. For
more complete information including fees, charges and other expenses, obtain a
prospectus from EquiTrust Marketing Services, LLC, 5400 University Avenue, West
Des Moines, Iowa 50266. Read the prospectus before you invest or pay money.
COMPETITION
The Company operates in a highly competitive industry. The operating results of
companies in the insurance industry have been historically subject to
significant fluctuations due to competition, economic conditions, interest
rates, investment performance, maintenance of its insurance ratings from rating
agencies such as A.M. Best and other factors. Management believes the Company's
ability to compete with other insurance companies is dependent upon, among other
things, its ability to attract and retain agents to market its insurance
products, its ability to develop competitive and profitable products and its
maintenance of high ratings from A.M. Best. In connection with the development
and sale of its products, the Company encounters significant competition from
other insurance companies, and other financial institutions, such as banks, many
of whom have financial resources substantially greater than those of the
Company.
REGULATION
The Company's insurance subsidiaries are subject to government regulation in
each of the states in which they conduct business. Such regulatory authority is
vested in state agencies having broad administrative power dealing with all
aspects of the insurance business, including rates, policy forms and capital
adequacy, and is concerned primarily with the protection of policyholders rather
than stockholders. The Company's variable insurance products, mutual funds,
investment advisor and certain licensed broker-dealers and agents are also
subject to regulation by the Securities and Exchange Commission, the NASD, and
state agencies.
Increased scrutiny has been placed upon the insurance regulatory framework, and
certain state legislatures have considered or enacted laws that alter, and in
many cases increase, state authority to regulate insurance companies and
insurance holding company systems. In light of recent legislative developments,
the National Association of Insurance Commissioners (NAIC) and state insurance
regulators continue to reexamine existing laws and regulations, specifically
focusing on insurance company investments and solvency issues, risk-adjusted
capital guidelines, interpretations of existing laws, the development of new
laws, the implementation of nonstatutory guidelines and the circumstances under
which dividends may be paid. Management does not believe the adoption in any of
its operating states of any of the current NAIC initiatives will have a material
adverse impact on the Company; however, the Company cannot predict the form of
any future proposals or regulation.
11
<PAGE>
IMPACT OF YEAR 2000
See Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" (page 20), for disclosures regarding the impact of the
Year 2000 on the Company's operations.
EMPLOYEES
At March 1, 1999, the Company had approximately 1,200 employees. Many employees
and the executive officers of the Company also provide services to Farm Bureau
Mutual and other affiliates of the Company pursuant to management agreements.
None of the employees are members of a collective bargaining unit. Management
believes that relations with its employees are good.
ITEM 2. PROPERTIES
The principal operations of the Company and its subsidiaries are conducted from
property leased from the Iowa Farm Bureau Federation under a 15 year operating
lease which expires in 2013. The property leased currently consists of
approximately 140,000 square feet of a 400,000 square foot office building
located at 5400 University Avenue, West Des Moines, Iowa 50266. Effective in the
fourth quarter of 1999, it is expected that the Company's lease will be extended
to include up to 60,000 additional square feet of this building.
The Company also leases office space totaling approximately 16,000 square feet
for a service center in Denver, Colorado. This space is in facilities owned by
Colorado Farm Bureau Mutual Insurance Company, a related party.
Management considers the current facilities to be adequate for the foreseeable
needs of the Company.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to lawsuits arising in the normal course of business. The
Company believes the resolution of these lawsuits will not have a material
adverse effect on its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
12
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
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 for each quarter of 1998 and 1997. All per share amounts
reflect the two-for-one common stock split which occurred on April 17, 1998.
<TABLE>
<CAPTION>
COMMON STOCK DATA (PER SHARE) 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
1998
High............................................... $ 26 5/16 $ 30 11/16 $ 28 5/8 $ 26 3/8
Low................................................ 17 5/8 24 3/4 19 11/16 18 1/16
Dividends declared and paid........................ $ 0.075 $ 0.075 $ 0.075 $ 0.075
1997
High............................................... $ 13 3/16 $ 19 $ 19 1/2 $ 20 3/4
Low................................................ 11 1/2 12 1/8 15 7/16 17 15/16
Dividends declared and paid........................ $ 0.050 $ 0.050 $ 0.050 $ 0.050
</TABLE>
There is no established public trading market for the Company's Class B common
stock. As of March 1, 1999, there were approximately 3,300 holders of Class A
common stock, including participants holding securities under the name of a
broker (i.e., in "street name"), and 27 holders of Class B common stock.
The Company intends 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 the quarterly dividend rate during
1999 will be $0.0825 per common share.
For restrictions on dividends, see Management's Discussion and Analysis of
Financial Condition (page 26) and Note 10 to the consolidated financial
statements (page 58).
13
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Interest sensitive product charges .......... $ 52,157 $ 47,979 $ 43,654 $ 43,722 $ 42,734
Traditional life insurance and accident and
health premiums ........................... 93,473 92,528 92,780 85,611 70,266
Net investment income ....................... 228,067 220,366 208,265 221,525 177,310
Realized gains (losses) on investments ...... (4,878) 40,953 52,760 5,860 9,429
Total revenues .............................. 389,621 421,351 413,373 377,719 323,062
Income from continuing operations .......... 52,675 75,128 84,049 58,189 34,732
Income (loss) from discontinued operations . 287 699 (1,165) 1,439 855
Gain on sale of discontinued operations .... 978 -- -- -- 6,479
Net income ................................. 53,940 75,827 82,844 59,628 42,066
Net income applicable to common stock ...... 53,790 73,656 80,634 59,628 42,066
Per common share:
Income from continuing operations ........ 1.56 2.01 1.90 1.23 0.74
Income from continuing operations -
assuming dilution ...................... 1.52 1.97 1.89 1.23 0.74
Earnings ................................. 1.60 2.03 1.87 1.26 0.90
Earnings - assuming dilution ............. 1.56 1.99 1.86 1.26 0.90
Cash dividends ........................... 0.30 0.20 0.04 -- --
Weighted average commons shares
outstanding - assuming dilution .......... 34,400,513 36,971,236 43,270,392 47,182,200 46,788,520
CONSOLIDATED BALANCE SHEET DATA:
Total investments .......................... $ 3,031,436 $ 2,940,911 $ 2,829,517 $ 2,620,132 $ 2,314,428
Assets held in separate accounts ........... 190,111 138,409 79,043 44,789 28,043
Total assets ............................... 3,650,960 3,601,526 3,368,192 3,093,582 2,795,266
Long-term debt ............................. 71 24,577 24,581 12,604 18,519
Company-obligated mandatorily redeemable
preferred stock of subsidiary trust ...... 97,000 97,000 -- -- --
Total liabilities .......................... 2,965,869 2,894,708 2,724,867 2,524,781 2,359,945
Total stockholders' equity ................. 583,588 605,315 638,522 564,298 430,743
Book value per common share ................ 17.75 16.77 14.28 11.83 9.18
Book value per common share excluding
unrealized appreciation (depreciation)
(1) ...................................... 16.14 15.36 13.75 11.12 9.82
OTHER DATA (UNAUDITED):
Adjusted operating income applicable to
common stock (2) ......................... $ 55,998 $ 46,977 $ 42,495 $ 41,648 $ 29,780
Adjusted operating income per common
share - assuming dilution (2) ............ 1.63 1.27 0.98 0.88 0.64
Statutory capital and surplus (3) .......... 376,929 360,782 344,965 288,302 250,709
Net statutory premiums collected (4) ....... 310,247 274,105 261,121 234,866 232,728
Life insurance in force .................... 18,367,078 17,132,235 16,113,121 15,254,669 14,296,709
</TABLE>
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(1) Excludes the effect of reporting certain fixed maturity securities at
fair value.
(2) Adjusted operating income equals net income adjusted to eliminate certain
items which management believes are not indicative of operating trends
because they are unusual and/or nonrecurring in nature, including the
impact of realized gains (losses) on investments, gain on sale of
discontinued operations and net income (loss) from a venture capital
investment company subsidiary. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
(3) Statutory data has been derived from the annual statements of the
Company's insurance subsidiaries, as filed with insurance regulatory
authorities and prepared in accordance with statutory accounting
practices.
(4) Net statutory premiums include premiums collected from annuities and
universal life-type products. For GAAP reporting, such premiums received
are not reported as revenues. Amounts include internal rollover premiums
to variable universal life or variable annuity contracts totaling $29.5
million in 1998, $14.1 million in 1997, $3.6 million in 1996, $1.5
million in 1995 and $2.9 million in 1994.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING ANALYSIS OF THE CONSOLIDATED RESULTS OF OPERATIONS AND FINANCIAL
CONDITION OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE WITHIN THIS DOCUMENT.
UNLESS NOTED OTHERWISE, ALL REFERENCES TO THE COMPANY INCLUDE ALL OF ITS DIRECT
AND INDIRECT SUBSIDIARIES, INCLUDING ITS PRIMARY LIFE INSURANCE SUBSIDIARIES,
FARM BUREAU LIFE INSURANCE COMPANY (FARM BUREAU LIFE), WESTERN FARM BUREAU LIFE
INSURANCE COMPANY (WESTERN LIFE) AND EQUITRUST LIFE INSURANCE COMPANY
(EQUITRUST) (COLLECTIVELY, THE LIFE COMPANIES).
OVERVIEW
The Company sells universal life, variable universal life, traditional life and
disability income insurance and traditional and variable annuity products. These
products are principally marketed through a core distribution force consisting
of approximately 1,600 exclusive Farm Bureau agents in 14 midwestern and western
states. Variable universal life and variable annuity products are also marketed
in other states through alliances with unaffiliated Farm Bureau companies. In
addition, beginning in 1998, the Company started marketing variable products
through alliances with a life insurance company and a regional broker-dealer not
affiliated with Farm Bureau. Production from these alliances was minimal in
1998, as these operations were in the start-up phase throughout most of the
year. Several subsidiaries support various functional areas of the Life
Companies and other affiliates, by providing investment advisory, marketing and
distribution, and leasing services.
In accordance with generally accepted accounting principles, premiums and
considerations received for interest sensitive products such as universal life
insurance and ordinary annuities are reflected as increases in liabilities for
policyholder account balances and not as revenues. Revenues reported for
interest sensitive products consist of policy charges for the cost of insurance,
administration charges, amortization of policy initiation fees and surrender
charges assessed against policyholder account balances. Surrender benefits paid
relating to these products are reflected as decreases in liabilities for
policyholder account balances and not as expenses. The Life Companies receive
investment income earned from the funds deposited into account balances, a
portion of which is passed through to the policyholders in the form of interest
credited. Amounts for interest credited to policyholder account balances and
benefit claims in excess of policyholder account balances are reported as
expenses in the consolidated financial statements.
Premium revenues reported for traditional life and disability income insurance
products are recognized as revenues when due. Future policy benefits are
recognized as expenses over the life of the policy by means of the provision for
future policy benefits.
For variable universal life and variable annuities, premiums received are not
reported as revenues. Similar to universal life and ordinary annuities, revenues
reported consist of fee income and product charges collected from the
policyholders. Expenses related to these products include benefit claims
incurred in excess of policyholder account balances.
The costs related to acquiring new business, including certain costs of issuing
policies and certain other variable selling expenses (principally commissions),
defined as deferred policy acquisition costs, are capitalized and amortized into
expense. For nonparticipating traditional life and accident and health insurance
products, these costs are amortized over the premium paying period of the
related policies, in proportion to the ratio of annual premium revenues to total
anticipated premium revenues. Such anticipated premium revenues are estimated
using the same assumptions used for computing liabilities for future policy
benefits. For participating traditional life insurance and interest sensitive
products, these costs are amortized generally in proportion to expected gross
profits from surrender charges and investment, mortality, and expense margins.
This amortization is adjusted when the Life Companies revise their estimate of
current or future gross profits or margins. For example, deferred policy
acquisition costs are amortized earlier than originally estimated when policy
terminations are higher than originally estimated or when investments backing
the related policyholder liabilities are sold at a gain prior to their
anticipated maturity. Death and other policyholder benefits reflect exposure to
mortality risk and fluctuate from year to year based on the level of claims
incurred under insurance retention limits. The profitability of the Life
Companies is primarily affected by expense levels, interest spreads (i.e., the
difference between interest earned on investments and interest credited to
policyholders), persistency and fluctuations in mortality and other policyholder
benefits. The Company has the ability to mitigate adverse experience through
adjustments to credited interest rates, policyholder dividends or cost of
insurance charges.
15
<PAGE>
On March 17, 1998, the Company's Board of Directors approved a two-for-one
common stock split payable in the form of a 100% stock dividend to stockholders
of record as of April 6, 1998. The additional shares were distributed April 17,
1998. All references to the number of common shares and per share amounts in
this report have been restated to reflect the effect of the stock dividend.
On March 31, 1998, the Company sold its wholly-owned subsidiary, Utah Farm
Bureau Insurance Company (Utah Insurance), to Farm Bureau Mutual Insurance
Company (Farm Bureau Mutual), an affiliate. As a result of the sale, which was
approved by the Company's Board of Directors on March 17, 1998, the Company no
longer has property-casualty operations. Results of the property-casualty
operations have been reported separately as "discontinued" and applicable
amounts for 1997 and 1996 have been restated.
The Company's revenues and income from continuing operations are primarily
derived from its life insurance segment. Revenues and expenses of the Company's
other segments, which consist of investment advisory, marketing and
distribution, leasing and management operations, are principally recorded in the
other income and other expense line items on the Consolidated Statements of
Income. See Note 15 of the Notes to Consolidated Financial Statements (page 61)
for additional information regarding segment information.
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1998
Net income applicable to common stock totaled $53.8 million in 1998, $73.7
million in 1997 and $80.6 million in 1996. The decreases in net income are
attributable primarily to the impact of realized gains and losses on
investments. Adjusted operating income applicable to common stock, which does
not include the impact of realized gains and losses on investments and other
items that management believes are not indicative of operating trends, totaled
$56.0 million in 1998, $47.0 million in 1997 and $42.5 million in 1996. The
following is a reconciliation of net income to adjusted operating income.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income applicable to common stock........................ $ 53,790 $ 73,656 $ 80,634
Adjustments:
Net realized losses (gains) on investments................ 3,186 (25,956) (34,992)
Gain on disposal of property-casualty operations.......... (978) -- --
Net income from FBL Ventures.............................. -- (723) (3,147)
------------ ------------ ------------
Adjusted operating income applicable to common stock......... $ 55,998 $ 46,977 $ 42,495
============ ============ ============
Earnings per common share - assuming dilution................ $ 1.56 $ 1.99 $ 1.86
============ ============ ============
Adjusted operating earnings per common share -
assuming dilution......................................... $ 1.63 $ 1.27 $ 0.98
============ ============ ============
</TABLE>
The adjustment for realized gains and losses on investments noted in the table
above is net of adjustments for that portion of amortization of deferred policy
acquisition costs, unearned revenue reserve, value of insurance in force
acquired and income taxes attributable to such gains and losses. FBL Ventures
was a wholly owned investment company subsidiary which invested in start-up and
mezzanine level venture capital investments in various sectors. FBL Ventures was
dissolved on June 30, 1997.
The change in earnings per common share from year to year is positively impacted
by a decrease in the weighted average common shares outstanding during the three
year period ended December 31, 1998. Weighted average common shares outstanding
totaled 34.4 million in 1998, 37.0 million in 1997 and 43.3 million in 1996.
These decreases are the result of acquisitions of common stock by the Company
during 1998 and 1997, and the exchange of common stock for preferred stock in
1996.
16
<PAGE>
A summary of the Company's premiums and product charges is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1998 1997 1996
------------ ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Premiums and product charges:
Interest sensitive product charges................................ $ 52,157 $ 47,979 $ 43,654
Traditional life insurance and accident and health premiums....... 93,473 92,528 92,780
------------ ------------- -------------
Total.......................................................... $ 145,630 $ 140,507 $ 136,434
============ ============= =============
</TABLE>
INTEREST SENSITIVE PRODUCT CHARGES increased 8.7% in 1998, to $52.2 million, and
9.9% in 1997, to $48.0 million. These increases are due primarily to increased
cost of insurance charges resulting from an increase in the volume and age of
business in force. In addition, mortality and expense charges have increased as
a result of growth in variable product account balances.
TRADITIONAL LIFE INSURANCE AND ACCIDENT AND HEALTH PREMIUMS increased 1.0% in
1998, to $93.5 million, and decreased 0.3% in 1997, to $92.5 million. Management
believes the relatively flat sales of traditional life insurance products is the
result of a marketing emphasis placed on the sale of variable universal life
insurance contracts. Premiums collected on variable universal life insurance
products increased 19.7% to $37.8 million in 1998 and increased 21.7% to $31.6
million in 1997.
NET INVESTMENT INCOME increased 3.5% in 1998, to $228.1 million, and 5.8% in
1997, to $220.4 million. These increases are attributable to increases in
invested assets and the yield earned on those investments. Average invested
assets totaled $2,895.5 million in 1998, $2,855.7 million in 1997 and $2,701.6
million in 1996. The annualized yield earned on average invested assets was
7.88% in 1998 compared to 7.72% in 1997 and 7.71% in 1996. Despite a general
decline in market interest rates during 1998 and 1997, yield on invested assets
increased due principally to an increase in fee income and discount accretion
associated with bond calls and prepayments on mortgage loans and mortgage-backed
securities. Fee income from mortgage loan prepayments and bond calls totaled
$9.8 million in 1998, $3.1 million in 1997 and $1.3 million in 1996. This
revenue is not expected to be a consistently recurring source of income for the
Company. In addition, investment income increased because of the sale in 1997
and 1996 of equity securities which generate little current income and the
reinvestment of the proceeds in fixed maturity securities. Partially offsetting
the increase in net investment income was a $1.1 million decrease in 1998 and
$1.8 million decrease in 1997 in investment income from FBL Ventures.
REALIZED GAINS (LOSSES) ON INVESTMENTS decreased 111.9% in 1998, to a loss of
$4.9 million, and 22.4% in 1997, to a gain of $41.0 million. Net realized gains
in 1997 and 1996 resulted primarily from the sale of equity securities. Realized
gains (losses) include writedowns of investments that became
other-than-temporarily impaired totaling $9.4 million in 1998, $23.8 million in
1997 and $1.4 million in 1996. These writedowns are the result of sustained
operating losses, unsuccessful efforts to raise capital and various other
operational or economic factors that became evident in the respective years. The
level of realized gains (losses) is subject to fluctuation from year to year
depending on the prevailing interest rate and economic environment and the
timing of the sale of investments.
OTHER INCOME increased 6.5% in 1998, to $20.8 million, and 22.7% in 1997, to
$19.5 million. These increases are attributable to an increase in the level of
leasing, investment advisory and other financial services provided to affiliates
and third parties. In addition, during 1997 the Company increased the investment
advisory rate charged for certain types of investments. The increases for 1998
are partially offset by a $2.4 million decrease in rental income due to the
exchange of home office properties on March 30, 1998. See "Exchange of Home
Office Properties."
17
<PAGE>
A summary of the Company's policy benefits is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1998 1997 1996
------------ ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Policy benefits:
Interest sensitive products benefits............................. $ 122,527 $ 122,729 $ 119,186
Traditional life insurance and accident and health benefits...... 55,880 56,369 53,864
Increase in traditional life and accident and health future policy
benefits..................................................... 21,264 27,173 25,875
Distributions to participating policyholders..................... 25,818 25,852 26,152
------------ ------------- -------------
Total........................................................ $ 225,489 $ 232,123 $ 225,077
============ ============= =============
</TABLE>
INTEREST SENSITIVE PRODUCT BENEFITS decreased 0.2% in 1998, to $122.5 million,
and increased 3.0% in 1997, to $122.7 million. The components of interest
sensitive product benefits, along with selected average interest crediting
rates, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------- --------------
1998 1997 1996
------------- --------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest credited to account balances.................. $ 105,604 $ 107,239 $ 105,176
Death benefits in excess of related account balances... 16,923 15,490 14,010
Average crediting rate for universal life liabilities.. 5.94% 6.18% 6.39%
Average crediting rate for annuity liabilities......... 5.83 6.18 6.35
</TABLE>
The Company decreased interest crediting rates on many of its products during
1998 and 1997 in response to the general decline in market interest rates during
the same periods. During 1997, the impact of the decreases in interest crediting
rates was more than offset by an increase in the volume of business in force.
TRADITIONAL LIFE INSURANCE AND ACCIDENT AND HEALTH BENEFITS, INCLUDING THE
RELATED CHANGES IN RESERVES, decreased 7.7% in 1998, to $77.1 million, and
increased 4.8% in 1997, to $83.5 million. Death and surrender benefits on
traditional products increased 3.6% in 1998, to $48.2 million, and 4.7% in 1997,
to $46.5 million. Accident and health benefits decreased $2.1 million in 1998
and increased $0.9 million in 1997. A $5.9 million decrease in the change in
reserves in 1998 compared to 1997 is attributable primarily to a $4.0 million
decrease in the change in accident and health reserves resulting from fewer
disability income claims. Traditional life insurance and accident and health
benefits can tend to fluctuate from year to year as a result of changes in
mortality and morbidity experience.
DISTRIBUTIONS TO PARTICIPATING POLICYHOLDERS decreased 0.1% in 1998, to $25.8
million, and 1.1% in 1997, to $25.9 million. These decreases are primarily
attributable to decreases in the average interest rate used in the dividend
formula for these policies to 5.84% at December 31, 1998, from 5.89% at December
31, 1997 and 6.12% at December 31, 1996.
A summary of the Company's underwriting, acquisition and insurance expenses is
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1998 1997 1996
------------ ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Underwriting, acquisition and insurance expenses:
Commission expense, net of deferrals.............................. $ 9,125 $ 9,037 $ 9,191
Amortization of deferred policy acquisition costs................. 10,171 8,474 8,667
Other underwriting, acquisition and insurance expenses, net of
deferrals...................................................... 44,687 44,072 39,403
------------ ------------- -------------
Total.......................................................... $ 63,983 $ 61,583 $ 57,261
============ ============= =============
</TABLE>
COMMISSION EXPENSE increased 1.0% in 1998, to $9.1 million, and decreased 1.7%
in 1997, to $9.0 million. Changes in the level of commission expense have been
small due primarily to relative consistency in the amount of direct life and
accident and health insurance premiums earned.
18
<PAGE>
AMORTIZATION OF DEFERRED POLICY ACQUISITION COSTS increased 20.0% in 1998, to
$10.2 million, and decreased 2.2% in 1997, to $8.5 million. The increase in 1998
is primarily attributable to an increase in the profitability of the underlying
business. The decrease in 1997 is the result of the impact of realized gains and
losses on investments backing the related policyholder liabilities.
OTHER UNDERWRITING, ACQUISITION AND INSURANCE EXPENSES increased 1.4% in 1998,
to $44.7 million, and 11.8% in 1997, to $44.1 million. During 1998 and 1997,
expenses totaling $2.2 million and $0.7 million, respectively, were incurred
relating to modifying the Company's computer systems to prepare for the Year
2000 date conversion. See "Impact of Year 2000". Expenses also increased during
1998 as a result of start-up activities relating to the sale of variable
products through alternative distribution channels. The increases in 1998 were
partially offset by a $2.6 million decrease in home office real estate expense
due to the exchange of home office properties on March 30, 1998. See "Exchange
of Home Office Properties". Changes in the amounts and timing of estimated
guaranty fund assessments resulted in a related credit of $1.2 million in 1998,
while the adoption of a new accounting pronouncement in 1997 resulted in an
increase in guaranty fund expense of $1.6 million in 1997. Also effecting
expenses in 1997 was a $1.6 million increase in the amortization of value of
insurance in force due to the impact of realized gains and losses on
investments.
INTEREST EXPENSE increased 13.2% in 1998, to $1.7 million, and 63.7% in 1997, to
$1.5 million due to an increase in the average debt outstanding.
OTHER EXPENSES increased 33.6% in 1998, to $15.5 million, and 3.0% in 1997, to
$11.6 million. These increases are due principally to an increase in the level
of leasing, management and financial services provided to affiliates and third
parties.
INCOME TAXES decreased 31.2% in 1998, to $26.4 million, and 0.8% in 1997, to
$38.4 million. The effective tax rate was 31.8% for 1998, 33.5% for 1997 and
32.5% for 1996. The effective tax rates were lower than the federal statutory
rate of 35% due primarily to (i) a tax benefit in 1998 and 1997 associated with
the payment of dividends on mandatorily redeemable preferred stock of subsidiary
trust, (ii) tax-exempt interest and (iii) tax-exempt dividend income. In
addition, in 1996, other permanent differences between book and taxable income
primarily relating to investment transactions reduced the effective tax rate.
DIVIDENDS ON COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED STOCK OF
SUBSIDIARY TRUST increased to $4.9 million in 1998 from $2.8 million in 1997.
The underlying securities were issued on May 30, 1997. The increase in 1998 is
offset by a corresponding decrease in dividends on series preferred stock.
EQUITY INCOME, NET OF RELATED INCOME TAXES, decreased 39.8% in 1998, to $1.3
million, and 52.0% in 1997, to $2.1 million. Equity income includes the
Company's proportionate share of gains and losses on investments owned by the
underlying partnerships and joint ventures. The level of these gains and losses
is subject to fluctuation from year to year depending on the prevailing economic
environment and the timing of the sale of investments held by the partnerships
and joint ventures.
DISCONTINUED OPERATIONS
The Company recorded a gain of $1.0 million, net of related income taxes, on the
sale of Utah Insurance. In addition, the increase in net unrealized appreciation
on securities classified as available for sale was reduced $1.4 million, net of
related income taxes, as a result of the sale. The gain on the sale may be
increased in future years in accordance with an earn-out provision included in
the related sales agreement. See "Liquidity and Capital Resources - FBL
Financial Group, Inc."
Income (loss) from discontinued operations totaled $0.3 million for 1998, $0.7
million for 1997 and ($1.2) million for 1996. Revenues from discontinued
operations totaled $12.9 million through the date of sale in 1998, $53.2 million
in 1997 and $35.7 million in 1996.
19
<PAGE>
EXCHANGE OF HOME OFFICE PROPERTIES
On March 30, 1998, the Company exchanged a subsidiary owning its home office
properties for 2,536,112 unregistered shares of Class A common stock owned by
the Iowa Farm Bureau Federation. The Company is leasing a portion of the
properties back from a wholly-owned subsidiary of the Iowa Farm Bureau
Federation under a 15-year operating lease. The value of the transaction, which
was structured as a tax-free exchange of a real estate subsidiary, was $45.7
million, or $18.00 per common share. The book value of the properties was $24.7
million on the date of the exchange. A gain on the transaction of approximately
$21.0 million was deferred and is being amortized over the term of the operating
lease. The exchange did not have a significant impact on income from continuing
operations for 1998, nor is it expected to have a significant impact in the
future, as the increase in net expense associated with leasing the properties
versus owning them directly is substantially offset by the amortization of the
deferred gain on the transaction.
IMPACT OF YEAR 2000
Many of the Company's computer programs were originally written using two digits
rather than four to define a particular year. As a result, these computer
programs have time-sensitive software that may recognize a date using "00" as
the year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions to operations, including, but not limited
to, a temporary inability to process transactions, send premium notices and
calculate policy reserves and accruals. To a lesser extent, the Company is
dependent on various non-information technology systems, such as telephone
switches. The Year 2000 could also cause these systems to fail or malfunction.
During 1997, the Company completed a comprehensive assessment of the Year 2000
issue and developed a plan to address the issue in a timely manner. The plan
consists of the following four phases: (1) identification of all information
technology and non-information technology systems that have time-sensitive
software, (2) modification or replacement of the software/systems, (3) testing
the modified or new software/systems and (4) development of a contingency plan
to address any critical system that may malfunction. In addition, the Company
has ongoing formal communications with all of its significant vendors to keep
abreast of the extent to which the Company's interface systems are vulnerable to
those third parties' failure to remediate their own Year 2000 issues.
The Company has and will utilize both internal and external resources to
reprogram, or replace, and test the software for Year 2000 modifications. With
only a few exceptions, the Year 2000 modifications and testing have been
completed. The exceptions are limited to a few third-party software packages for
which the Year 2000 compliant version will become available in the first quarter
of 1999. It is anticipated that the Company will complete its system
modifications and testing prior to any material impact on its operating systems.
Non-information technology systems that are not Year 2000 compliant have been
replaced or have been identified and will be replaced by December 31, 1999.
The total incremental cost of the Year 2000 project (those costs which would not
have been incurred had the Year 2000 issue not existed) is estimated to be $4.1
million and is being funded through operating cash flows. Year 2000 modification
costs incurred and charged to expense totaled $2.4 million (including $0.2
million attributable to discontinued operations) for 1998 and $1.0 million
(including $0.3 million attributable to discontinued operations) for 1997. It is
anticipated the project costs to be charged to expense during 1999 will total
approximately $0.7 million. The Company has also incurred internal costs
associated with the Year 2000 project. These costs, which are principally
payroll related expenses for information systems personnel, have not been
separately accounted for and, therefore, are not available.
Despite the Company's extensive efforts to modify or replace computer programs
and information systems that are time-sensitive, the Company could experience a
disruption to its operations as a result of the Year 2000. The Company has a
detailed contingency plan to address any critical system that may malfunction
despite the testing being performed. The contingency plan provides for the
availability of staff, defines and prioritizes tasks and outlines procedures to
fix any systems that are malfunctioning.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third party modification plans
and other factors. However, there can be no guarantees that these estimates will
be achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the
20
<PAGE>
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes and similar uncertainties.
FINANCIAL CONDITION
INVESTMENTS
The Company's total investment portfolio increased 3.1% to $3,031.4 million at
December 31, 1998 compared to $2,940.9 million at December 31, 1997. This
increase is primarily the result of positive cash flows from operations,
partially offset by net withdrawals of policyholder account balances on interest
sensitive products.
Over the last several years, the mix of the Company's life insurance business
has been shifting from traditional and interest sensitive products to variable
products. In addition, in an attempt to enhance the Company's persistency rate,
the Company has promoted an exchange program for the rollover of universal life
policies to variable universal life policies. The Company expects the shift to
variable products to continue due to this program and the continued popularity
of the variable products. A majority of premiums received on variable products
are typically invested in the Company's separate accounts as opposed to the
general account investments. This trend is expected to impact the future growth
rate of the Company's investment portfolio and separate account assets.
The Company's investment portfolio is managed by its internal investment
professionals. The investment strategy is designed to achieve superior
risk-adjusted returns consistent with the investment philosophy of maintaining a
largely investment grade portfolio and providing adequate liquidity for
obligations to policyholders and other requirements. Management continually
reviews the returns on invested assets and changes the mix of invested assets as
deemed prudent under the current market environment to help maximize current
income.
The Company's investment portfolio is summarized in the table below:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------------
1998 1997 1996
--------------------------- -------------------------- -------------------------
CARRYING CARRYING CARRYING
VALUE PERCENT VALUE PERCENT VALUE PERCENT
------------ ---------- ----------- ---------- ------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities:
Public.................... $ 1,852,291 61.1 % $ 1,807,240 61.4 % $ 1,676,307 59.3 %
144A private placement.... 347,499 11.5 276,578 9.4 230,296 8.1
Private placement......... 242,542 8.0 267,358 9.1 302,136 10.7
------------ ---------- ----------- ---------- ------------ ---------
Total fixed maturities.... 2,442,332 80.6 2,351,176 79.9 2,208,739 78.1
Equity securities............ 35,287 1.2 57,736 2.0 86,977 3.1
Mortgage loans on real estate 299,372 9.9 323,605 11.0 293,777 10.3
Investment real estate:
Acquired for debt......... 867 -- 1,168 -- 2,007 --
Investment................ 39,812 1.3 38,774 1.3 26,384 1.0
Policy loans................. 123,328 4.1 121,941 4.2 118,996 4.2
Other long-term investments.. 10,210 0.3 14,438 0.5 24,287 0.9
Short-term investments....... 80,228 2.6 32,073 1.1 68,350 2.4
------------ ---------- ----------- ---------- ------------ ---------
Total investments...... $ 3,031,436 100.0 % $ 2,940,911 100.0 % $ 2,829,517 100.0 %
============ ========== =========== ========== ============ =========
</TABLE>
As of December 31, 1998, 94.5% (based on carrying value) of the fixed maturity
securities were investment grade debt securities, defined as being in the
highest two National Association of Insurance Commissioners (NAIC) designations.
Non-investment grade debt securities generally provide higher yields and involve
greater risks than investment grade debt securities because their issuers
typically are more highly leveraged and more vulnerable to adverse economic
conditions than investment grade issuers. In addition, the trading market for
these securities is usually more limited than for investment grade debt
securities. The Company regularly reviews the percentage of its portfolio which
is invested in non-investment grade debt securities (NAIC designations 3 through
6). As of December 31, 1998, the investment in non-investment grade debt was
5.5% of fixed maturity securities. At that time no single non-investment grade
holding exceeded 0.3% of total investments.
21
<PAGE>
The following table sets forth the credit quality, by NAIC designation and
Standard & Poors (S & P) rating equivalents, of fixed maturity securities.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------
1998 1997 1996
----------------------- ----------------------- ------------------------
NAIC EQUIVALENT S&P RATINGS CARRYING CARRYING CARRYING
DESIGNATION (1) VALUE PERCENT VALUE PERCENT VALUE PERCENT
- ------------- ------------------------ ----------- --------- ----------- --------- ------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1 (AAA, AA, A)............ $ 1,570,264 64.3 % $ 1,548,628 65.9 % $ 1,430,604 64.8 %
2 (BBB)................... 738,468 30.2 689,414 29.3 622,597 28.2
----------- --------- ----------- --------- ------------ ---------
Total investment grade.. 2,308,732 94.5 2,238,042 95.2 2,053,201 93.0
3 (BB).................... 105,138 4.3 62,214 2.7 103,292 4.7
4 (B)..................... 18,005 0.7 47,225 2.0 48,932 2.2
5 (CCC, CC, C)............ 7,060 0.3 525 - 275 -
6 In or near default...... 3,397 0.2 3,170 0.1 3,039 0.1
----------- --------- ----------- --------- ------------ ---------
Total below
investment grade..... 133,600 5.5 113,134 4.8 155,538 7.0
----------- --------- ----------- --------- ------------ ---------
Total fixed maturities.. $ 2,442,332 100.0 % $ 2,351,176 100.0 % $ 2,208,739 100.0 %
=========== ========= =========== ========= ============ =========
</TABLE>
- ---------------
(1) Private placement securities are generally rated by the Securities
Valuation Office of the NAIC. Comparisons between NAIC designations
and S & P ratings are published by the NAIC. S & P has not rated some
of the fixed maturity securities in the Company's portfolio.
Mortgage and other asset-backed securities constitute a significant portion of
the Company's portfolio of securities. These securities were purchased at a time
when, management believed, these types of investments provided superior
risk-adjusted returns compared to returns of more conventional investments such
as corporate bonds and mortgage loans. These securities are diversified as to
collateral types, cash flow characteristics and maturity.
The return of principal on mortgage and other asset-backed securities occurs
more frequently and is more variable than that of more traditional fixed
maturity securities. The principal prepayment speeds (e.g., the rate of
individuals refinancing their home mortgages) can vary based on a number of
economic factors that can not be predicted with certainty. These factors include
the prevailing interest rate environment and general status of the economy.
Deviations in actual prepayment speeds from that originally expected can cause a
change in the yield earned on mortgage and asset-backed securities purchased at
a premium or discount. Increases in prepayment speeds, which typically occur in
a decreasing interest rate environment, generally increases the rate at which
discount is accrued and premium is amortized into income. Decreases in
prepayment speeds, which typically occur in an increasing interest rate
environment, generally slows down the rate these amounts are recorded into
income.
The mortgage-backed portfolio includes pass-through and collateralized mortgage
obligation (CMO) securities. With a pass-through security, the Company receives
a pro rata share of principal payments as payments are made on the underlying
mortgage loans. CMOs consist of pools of mortgages divided into sections or
"tranches" which provide sequential retirement of the bonds. The Company invests
in sequential tranches, which provide cash flow stability in that principal
payments do not occur until the previous tranches are paid off. In addition, to
provide call protection and more stable average lives, the Company invests in
CMOs such as planned amortization class (PAC) and targeted amortization class
(TAC) securities. CMOs of these types provide more predictable cash flows within
a range of prepayment speeds by shifting the prepayment risks to support
tranches. The Company does not purchase certain types of collateralized mortgage
obligations which it believes would subject the investment portfolio to greater
than average risk. These include, but are not limited to, interest only,
principal only, floater, inverse floater, PAC II, Z and support tranches.
22
<PAGE>
The following table sets forth the par value, amortized cost and carrying value
of the Company's mortgage and asset-backed securities at December 31, 1998,
summarized by type of security.
<TABLE>
<CAPTION>
PERCENT
AMORTIZED CARRYING OF FIXED
COST PAR VALUE VALUE MATURITIES
----------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Residential mortgage-backed securities:
Sequential........................................ $ 437,003 $ 441,264 $ 442,087 18.1 %
Pass through...................................... 85,664 84,997 86,662 3.5
Planned and targeted amortization class........... 52,803 52,922 52,753 2.2
Other............................................. 13,637 13,872 13,625 0.6
----------- ----------- ----------- ----------
Total residential mortgage-backed securities......... 589,107 593,055 595,127 24.4
Commercial mortgage-backed securities................ 231,004 231,186 235,444 9.6
Other asset-backed securities........................ 259,284 259,076 272,221 11.2
----------- ----------- ----------- ----------
Total mortgage and asset-backed securities........... $ 1,079,395 $ 1,083,317 $ 1,102,792 45.2 %
=========== =========== =========== ==========
</TABLE>
The commercial and other asset-backed securities are primarily sequential
securities. Commercial mortgage-backed securities typically have cash flows that
are less sensitive to interest rate changes than residential securities of
similar types due principally to prepayment restrictions on many of the
underlying commercial mortgage loans. Other asset-backed securities are
principally mortgage related (manufactured housing and home equity loans) which
historically have also demonstrated relatively less cash flow volatility than
residential securities of similar types.
At December 31, 1998, the Company held $299.4 million or 9.9% of invested assets
in mortgage loans. These mortgage loans are diversified as to property type,
location and loan size, and are collateralized by the related properties. At
December 31, 1998, mortgages more than 60 days delinquent accounted for 0.4% of
the carrying value of the mortgage portfolio. The Company's mortgage lending
policies establish limits on the amount that can be loaned to one borrower and
require diversification by geographic location and collateral type. Regions with
the largest concentration of the Company's mortgage loan portfolio at December
31, 1998 include: Pacific (26.9%), which includes California, Oregon and
Washington; and West South Central (25.2%), which includes Oklahoma and Texas.
Mortgage loans on real estate are also diversified by collateral types with
office buildings (37.4%) and retail facilities (37.2%) representing the largest
holdings at December 31, 1998.
OTHER ASSETS
Deferred policy acquisition costs increased 11.9% to $203.6 million at December
31, 1998 due principally to the capitalization of costs incurred with new sales.
Property and equipment decreased $8.2 million, or 13.0%, due principally to the
exchange of home office properties for Class A common stock, partially offset by
increases in leased assets and capitalized software costs. Assets of
discontinued operations decreased $106.7 million as a result of the sale of Utah
Insurance. Assets held in separate accounts increased $51.7 million, or 37.4%,
to $190.1 million at December 31, 1998 due primarily to increased sales of
variable products, partially offset by depreciation in the value of separate
account investments. At December 31, 1998, the Company had total assets of
$3,651.0 million, a 1.4% increase from total assets at December 31, 1997.
LIABILITIES
Policy liabilities and accruals increased 1.6% to $2,364.3 million at December
31, 1998. The relatively modest increase in policy liabilities is partially
attributable to the Company's marketing emphasis on the sale of variable
products. As noted under the "Investments" section above, the shift in sales to
variable products will have an impact on the future growth rate of the Company's
policy liabilities and accruals as well as the separate account liabilities.
Other liabilities increased 90.2% to $85.5 million at December 31, 1998 due
primarily to an increase in payables for securities purchased and the deferral
of the gain on the exchange of home office properties for Class A common stock.
Liabilities of discontinued operations decreased $79.1 million as a result of
the sale of Utah Insurance. At December 31, 1998, the Company had total
liabilities of $2,965.9 million, a 2.5% increase from total liabilities at
December 31, 1997.
23
<PAGE>
STOCKHOLDERS' EQUITY
Stockholders' equity decreased 3.6%, to $583.6 million at December 31, 1998
compared to $605.3 million at December 31, 1997. This decrease is principally
attributable to the exchange of home office properties for Class A common stock
and stock repurchases which, collectively, resulted in a $70.7 million decrease
in equity. These decreases were partially offset by net income during 1998 and
net unrealized appreciation of securities classified as available for sale.
At December 31, 1998, common stockholders' equity was $580.6 million, or $17.75
per share, compared to $602.3 million, or $16.77 per share at December 31, 1997.
Included in stockholders' equity per common share is $1.61 at December 31, 1998
and $1.41 at December 31, 1997 attributable to unrealized investment gains
resulting from marking the Company's fixed maturity securities classified as
available for sale to market value. The change in unrealized appreciation of
fixed maturity and equity securities classified as available for sale increased
stockholders' equity $1.5 million during 1998, after related adjustments to
deferred policy acquisition costs, value of insurance in force acquired,
unearned revenue reserve and deferred income taxes.
MARKET RISKS OF FINANCIAL INSTRUMENTS
Interest rate risk is the Company's primary market risk exposure. Substantial
and sustained increases and decreases in market interest rates can affect the
profitability of insurance products and market value of investments. The yield
realized on new investments generally increases or decreases in direct
relationship with interest rate changes. The market value of the Company's fixed
maturity and mortgage loan portfolios generally increases when interest rates
decrease, and decreases when interest rates increase.
A majority of the Company's insurance liabilities are backed by fixed maturity
securities and mortgage loans. The fixed maturity securities have laddered
maturities and a weighted average life of 7.0 years. Accordingly, the earned
rate on the portfolio lags behind changes in market yields. The extent that the
portfolio yield lags behind changes in market yields generally depends upon (i)
the average life of the portfolio, (ii) the amount and speed at which market
interest rates rise or fall, (iii) the amount by which bond calls, mortgage loan
prepayments and paydowns on mortgage and asset-backed securities accelerate
during periods of declining interest rates and (iv) the amount by which bond
calls, mortgage loan prepayments and paydowns on mortgage and asset-backed
securities decelerate during periods of increasing interest rates.
For a majority of the Company's traditional insurance products, profitability is
significantly affected by the spreads between interest yields on investments and
rates credited on insurance liabilities. For variable products, profitability on
the portion, if any, of the policyholder's account balance invested in the
Company's general account is also affected by the spreads earned. The variable
policyholder assumes essentially all the investment earnings risk for the
portion of the account balance invested in the separate accounts.
For approximately 93% of the policy liabilities, the Company has the ability to
adjust interest or dividend crediting rates in reaction to changes in portfolio
yield. However, the ability to adjust these rates is limited by competitive
factors. Surrender rates could increase and new sales could be negatively
impacted if the crediting rates are not competitive with the rates on similar
products offered by other insurance companies and financial service
institutions. In addition, if market rates were to decrease substantially and
stay at a low level for an extended period of time, the Company's spread could
be lowered due to interest rate guarantees on many of its interest sensitive
products. At December 31, 1998, interest rate guarantees on interest sensitive
products ranged from 3.0% to 5.5%, with a weighted average guarantee of 3.7%.
24
<PAGE>
The Company designs its products and manages its investment portfolio in a
manner to encourage persistency and to help ensure targeted spreads are earned.
In addition to the ability to change interest crediting rates on its products,
certain interest sensitive contracts have surrender and withdrawal penalty
provisions. The following is a summary of the surrender and discretionary
withdrawal characteristics of the Company's interest sensitive products and
supplementary contracts without life contingencies as of December 31, 1998:
<TABLE>
<CAPTION>
RESERVE BALANCE
---------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Surrender charge rate:
Greater than or equal to 5%............................. $ 359,319
Less than 5%, but still subject to surrender charge..... 240,345
Not subject to surrender charge......................... 1,019,908
Not subject to surrender or discretionary withdrawal......... 124,654
--------------
Total........................................................ $ 1,744,226
==============
</TABLE>
A major component of the Company's asset-liability management program is
structuring the investment portfolio with cash flow characteristics consistent
with the cash flow characteristics of the Company's insurance liabilities. The
Company uses computer models to perform simulations of the cash flows generated
from existing insurance policies under various interest rate scenarios.
Information from these models is used in the determination of interest crediting
rates and investment strategies. Effective duration is a common measure for the
price sensitivity to changes in interest rates. It measures the approximate
percentage change in the market value of a portfolio when interest rates change
by 100 basis points. This measure includes the impact of estimated changes in
portfolio cash flows from features such as bond calls and prepayments. When the
estimated durations of assets and liabilities are similar, exposure to interest
rate risk is minimized because a change in the value of assets should be largely
offset by a change in the value of liabilities. At December 31, 1998, the
effective duration of the Company's fixed maturity portfolio was approximately
4.4 and the effective duration of the interest sensitive products was
approximately 3.5.
If interest rates were to increase 10% from levels at December 31, 1998, the
Company's fixed maturity securities and short-term investments, net of
corresponding changes in the values of deferred policy acquisition costs, value
of insurance in force acquired and unearned revenue reserves, would decrease
approximately $49.3 million. This hypothetical change in value does not take
into account any offsetting change in the value of insurance liabilities for
investment contracts since the Company estimates such value to be the cash
surrender value of the underlying contracts. If interest rates were to decrease
10% from levels at December 31, 1998, the fair value of the Company's debt,
mandatorily redeemable preferred stock of subsidiary trust and preferred stock
issued by Western Life would increase $3.1 million.
The computer models used to estimate the impact of a 10% change in market
interest rates use many assumptions and estimates which materially impact the
fair value calculations. Key assumptions used by the models include an immediate
and parallel shift in the yield curve and an acceleration of bond calls and
principal prepayments on mortgage and other asset-backed securities. Due to the
subjectivity of these assumptions, the actual impact of a 10% change in rates on
the fair market values would likely be different from that estimated.
Equity price risk is not material to the Company due to the relatively small
equity portfolio held at December 31, 1998. However, the Company does earn
investment management fees (on those investments managed by the Company) and
mortality and expense fee income based on the value of the Company's separate
accounts. On an annualized basis, the investment management fee rates range from
0.20% to 0.45% and the mortality and expense fee rates range from 0.90% to
1.40%. As a result, revenues from these sources do fluctuate with changes in the
market value of the equity, fixed maturity and other securities held by the
separate accounts.
LIQUIDITY
FBL FINANCIAL GROUP, INC.
Parent company cash inflows from operations consists primarily of dividends from
subsidiaries, if declared and paid, fees which it charges the various
subsidiaries and affiliates for management of their operations and tax
settlements between the parent company and its subsidiaries. Cash outflows are
principally for salaries and other expenses related to providing these
management services, dividends on outstanding stock and interest on holding
company
25
<PAGE>
debt issued to a subsidiary. In addition, the parent company will on occasion
enter into capital transactions such as the acquisition of its common stock.
The Company received $25.0 million in cash on March 31, 1998 in connection with
the sale of Utah Insurance. The Company will receive an additional $1.2 million
(before applicable taxes) in the first quarter of 1999 and may receive
additional consideration during each of the four years in the period ending
December 31, 2003, in accordance with an earn-out provision included in the
underlying sales agreement. Under the earn-out arrangement, the Company and Farm
Bureau Mutual will share equally in the dollar amount by which the incurred
losses on Utah Insurance's direct business, net of reinsurance ceded, is less
than the incurred losses assumed in the valuation model used to derive the
initial $25.0 million acquisition price. The earn-out calculation will be
performed and any settlement (subject to a maximum of $2.0 million per year)
will be made on a calendar year basis.
On May 30, 1997, FBL Financial Group Capital Trust (the Trust), a consolidated
wholly-owned subsidiary of the Company, issued $97.0 million of 5% Preferred
Securities to the Iowa Farm Bureau Federation. In connection with the Trust's
issuance of the 5% Preferred Securities and the related purchase of all of the
Trust's common securities, the parent company issued to the Trust $100.0 million
principal amount of its 5% Subordinated Deferrable Interest Notes, due June 30,
2047 (the Notes). Concurrent with the issuance of the Notes, the Company
purchased from the Iowa Farm Bureau Federation 5,000,000 shares of the parent
company's Series A preferred stock at its liquidation value of $100.0 million.
In addition, the parent company issued 5,000,000 shares of Series B preferred
stock to the Iowa Farm Bureau Federation for $3.0 million.
The purchase of Series A preferred stock and simultaneous issuance of Series B
preferred stock and 5% Preferred Securities were noncash transactions. Except
for the maturity of the Notes on June 1, 2047, the parent company's future cash
flow requirements were not changed significantly by the aforementioned
transactions.
The Company acquired Class A common shares totaling 3,497,648 in 1998 and
1,930,740 in 1997 as a result of the exchange of a subsidiary owning its home
office properties and two stock repurchase programs. These transactions reduced
stockholders' equity $70.7 million in 1998 and $24.8 million in 1997.
FBL Financial Group, Inc. paid common and preferred stock dividends totaling
$10.2 million in 1998, $9.4 million in 1997 and $3.6 million in 1996. It is
anticipated that dividend requirements for 1999 will be $0.0825 per quarter per
common share and $0.0075 per quarter per preferred share, or approximately $11.0
million. In addition, interest payments on the Notes are estimated to be $5.0
million for 1999.
FBL Financial Group, Inc. relies primarily on dividends from Farm Bureau Life
and Western Life to make any dividend payments to its stockholders and interest
payments on its Notes. The ability of these companies to pay dividends to FBL
Financial Group, Inc. 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 for Farm Bureau Life and the State of Colorado for Western Life. In
addition, under the Iowa and Colorado Insurance Holding Company Acts, the Life
Companies may not pay an "extraordinary" dividend without prior notice to and
approval by the respective insurance commissioner. An "extraordinary" dividend
is defined under the Iowa and Colorado Insurance Holding Company Acts as any
dividend or distribution of cash or other property whose fair market value,
together with that of other dividends or distributions made within the preceding
12 months, exceeds the greater of (i) 10% of policyholders' surplus (total
statutory capital stock and statutory surplus) as of December 31 of the
preceding year, or (ii) the statutory net gain from operations of the insurer
for the 12-month period ending December 31 of the preceding year. During 1999,
the maximum amount legally available for distribution to FBL Financial Group,
Inc. without further regulatory approval is approximately $41.0 million from
Farm Bureau Life and $14.6 million from Western Life.
In November 1998, the Company's Board of Directors approved a $25.0 million
Class A common stock repurchase plan. In connection with the plan, the Company
entered into a $25.0 million short-term line of credit with a bank to fund any
repurchases. The line of credit, which expires on June 30, 1999, requires the
Company to maintain minimum tangible net worth and risk-based capital ratios and
limits the Company's ability to incur additional indebtedness. As of December
31, 1998, no repurchases had been made under the plan and no related draws were
made on the line of credit. It is anticipated that any draws on the line of
credit will be repaid during 1999 with dividends from subsidiaries.
26
<PAGE>
INSURANCE OPERATIONS
The Life Companies' cash inflows consist primarily of premium income, deposits
to policyholder account balances, product charges on variable products, income
from investments, sales, maturities and calls of investments and repayments of
investment principal. The Life Companies' cash outflows are primarily related to
withdrawals of policyholder account balances, investment purchases, payment of
policy acquisition costs, policyholder benefits, income taxes, dividends and
current operating expenses. Life insurance companies generally produce a
positive cash flow which may be measured by the degree to which cash inflows are
adequate to meet benefit obligations to policyholders and normal operating
expenses as they are incurred. The remaining cash flow is generally used to
increase the asset base to provide funds to meet the need for future policy
benefit payments and for writing new business. The Life Companies' liquidity
positions continued to be favorable in 1998, with cash inflows at levels
sufficient to provide the funds necessary to meet their obligations.
For the life insurance operations, cash outflow requirements for operations are
typically met from the year's normal premium and deposit cash inflows. This has
been the case for all reported years as the Life Companies' continuing
operations and financing activities relating to interest sensitive products
provided funds amounting to $121.5 million in 1998, $99.3 million in 1997 and
$156.6 million in 1996. These funds were primarily used to increase the
insurance companies' short-term and fixed maturity investment portfolios. In
developing their investment strategy, the Life Companies establish a level of
cash and securities which, combined with expected net cash inflows from
operations, maturities of fixed maturity investments and principal payments on
mortgage and asset-backed securities and mortgage loans, are believed adequate
to meet anticipated short-term and long-term benefit and expense payment
obligations.
Through its membership in the Federal Home Loan Bank of Des Moines, Farm Bureau
Life is eligible to establish and borrow on a line of credit to provide it
additional liquidity. The line of credit available is based on the amount of
capital stock of the Federal Home Loan Bank of Des Moines owned by Farm Bureau
Life, which supported a borrowing capacity of $54.0 million as of December 31,
1998. Interest is payable at the current market rate on the date of issuance. As
of December 31, 1998, the line of credit was not established and no borrowings
were outstanding.
The Company has a $12.0 million line of credit with Farm Bureau Mutual in the
form of a revolving demand note. Borrowings on the note, which totaled $8.6
million at December 31, 1998, are being used to acquire assets that will be
leased to certain affiliates, including Farm Bureau Mutual. Interest is payable
at a rate equal to the prime rate of a national bank (7.75% at December 31,
1998).
Management anticipates that funds to meet its short-term and long-term capital
expenditures, cash dividends to stockholders and operating cash needs will come
from existing capital and internally generated funds. Management believes that
the current level of cash and available-for-sale and short-term securities,
combined with expected net cash inflows from operations, maturities of fixed
maturity investments, principal payments on mortgage and asset-backed
securities, mortgage loans and its insurance products, are adequate to meet the
Company's anticipated cash obligations for the foreseeable future. The Company's
investment portfolio at December 31, 1998, included $80.2 million of short-term
investments and $311.4 million in carrying value of U.S. Government and U.S.
Government agency backed securities that could be readily converted to cash at
or near carrying value. Notwithstanding the above, management currently
anticipates refinancing the $24.5 million lease-backed note payable that is due
August, 1999.
The Company may from time to time review potential acquisition opportunities.
The Company anticipates that funding for any such acquisition may be provided
from available cash resources, debt or equity financing. As of December 31,
1998, the Company had no material commitments for capital expenditures.
PENDING ACCOUNTING CHANGES
In March 1998, Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use", was issued. The
Company plans to adopt the SOP effective on January 1, 1999. The SOP requires
the capitalization of certain costs incurred after the date of adoption in
connection with developing or obtaining software for internal use. The Company
currently capitalizes external software development costs and charges internal
costs, primarily payroll and related items, to expense as they are incurred.
Under the SOP, these internal costs will be capitalized. The Company has not yet
determined the impact of adopting this SOP.
27
<PAGE>
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities." Statement No.
133 requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Accounting for gains or losses resulting
from changes in the values of those derivatives is dependent on the use of the
derivative and whether it qualifies for hedge accounting. Statement No. 133 also
allows companies to transfer securities classified as held to maturity to either
the available-for-sale or trading categories in connection with the adoption of
the new standard. The Statement is effective for the Company in the year 2000,
with earlier adoption encouraged. Because of the Company's minimal use of
derivatives, management does not anticipate that the adoption of the new
Statement will have a significant effect on earnings or the financial position
of the Company.
EFFECTS OF INFLATION
The Company does not believe that inflation has had a material effect on its
consolidated results of operations.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
From time to time, the Company may publish 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. The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for
these types of statements. In order to comply with the terms of the safe harbor,
the Company notes that a variety of factors could cause the Company's actual
results and experiences to differ materially from the anticipated results or
other expectations expressed in the Company's forward-looking statements. The
risks and uncertainties that may affect the operations, performance, development
and results of the Company's business, in addition to those identified under
"Impact of Year 2000", include but are not limited to the following:
* Changes to interest rate levels and stock market performance may impact
the Company's lapse rates, market value of investment portfolio and the
Company's ability to sell its life insurance products, notwithstanding
product features to mitigate the financial impact of such changes.
* The degree to which the Company's products are accepted by customers and
agents (including the agents of the Company's alliance partners) will
impact the Company's future growth rate.
* Extraordinary acts of nature or man may result in higher than expected
claim activity.
* Changes in federal and state income tax laws and regulations may affect
the relative tax advantage of the Company's products.
ITEM 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" (page 24), for the Company's qualitative and quantitative
disclosures about market risk.
28
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FBL FINANCIAL GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Report of Management........................................................ 30
Report of Independent Auditors.............................................. 31
Audited Consolidated Financial Statements
Consolidated Balance Sheets................................................. 32
Consolidated Statements of Income........................................... 34
Consolidated Statements of Changes in Stockholders' Equity.................. 35
Consolidated Statements of Cash Flows....................................... 36
Notes to Consolidated Financial Statements.................................. 38
29
<PAGE>
REPORT OF MANAGEMENT
To Our Stockholders
The management of FBL Financial Group, Inc. is responsible for the integrity of
the financial information contained in this annual report. The accompanying
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles appropriate in the circumstances.
Certain financial information presented depends on management's estimates and
judgments regarding the ultimate outcome of transactions which are not yet
complete. Management believes these estimates and judgements are fair and
reasonable based upon available information.
Management maintains a system of internal control designed to meet its
responsibilities for preparing reliable financial statements. The system is
designed to provide reasonable assurance that assets are safeguarded and
transactions are properly authorized and reported. Reasonable assurance is based
upon the premise that the cost of controls should not exceed the benefits
derived from them. An internal audit department is maintained to continually
monitor and challenge the adequacy of internal control. It is management's
opinion that its system of internal control during the periods covered by this
annual report was effective in providing reasonable assurance that its financial
statements are fairly stated in all material respects.
The Company engages Ernst & Young LLP as independent auditors to audit its
financial statements and express their opinion thereon. Their audits include
reviews and tests of the Company's internal controls to the extent they believe
necessary to determine and conduct the audit procedures that support their
opinion. A copy of Ernst & Young LLP's audit opinion follows this letter.
The Audit Committee of the Board of Directors, composed solely of nonmanagement
directors, meets periodically with management, internal auditors and Ernst &
Young LLP to review internal accounting control, audit activities, auditor
independence and financial reporting matters. The internal auditors and Ernst &
Young LLP have free access to the Audit Committee, with and without the presence
of management, to discuss the adequacy of internal control and to review the
quality of financial reporting. The Audit Committee is also responsible for
making recommendations to the Board of Directors concerning the selection of
independent auditors.
Thomas R. Gibson
CHIEF EXECUTIVE OFFICER AND DIRECTOR
James W. Noyce
CHIEF FINANCIAL OFFICER
30
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
FBL Financial Group, Inc.
We have audited the accompanying consolidated balance sheets of FBL Financial
Group, Inc. as of December 31, 1998 and 1997, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of FBL
Financial Group, Inc. at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 15, 1999
31
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997
-------------- --------------
ASSETS
<S> <C> <C>
Investments:
Fixed maturities:
Held for investment, at amortized cost (market: 1998 - $516,729; 1997 -
$663,315)............................................................ $ 492,288 $ 639,598
Available for sale, at market (amortized cost: 1998 - $1,862,861; 1997 -
$1,629,950).......................................................... 1,950,044 1,711,578
Equity securities, at market (cost: 1998 - $39,589; 1997 - $60,500)....... 35,287 57,736
Mortgage loans on real estate............................................. 299,372 323,605
Investment real estate, less allowances for depreciation of $4,223 in 1998
and $2,682 in 1997...................................................... 40,679 39,942
Policy loans.............................................................. 123,328 121,941
Other long-term investments............................................... 10,210 14,438
Short-term investments.................................................... 80,228 32,073
-------------- --------------
Total investments............................................................ 3,031,436 2,940,911
Cash and cash equivalents.................................................... 4,516 2,397
Securities and indebtedness of related parties............................... 65,291 64,442
Accrued investment income.................................................... 34,318 33,894
Accounts and notes receivable................................................ 833 1,401
Amounts receivable from affiliates........................................... 4,020 3,656
Reinsurance recoverable...................................................... 4,711 9,789
Deferred policy acquisition costs............................................ 203,581 181,916
Value of insurance in force acquired......................................... 14,533 16,044
Property and equipment, less allowances for depreciation of $37,100 in 1998
and $48,847 in 1997....................................................... 55,250 63,481
Current income taxes recoverable............................................. 13,185 11,925
Goodwill, less accumulated amortization of $3,484 in 1998 and $2,792 in
1997...................................................................... 9,948 10,640
Other assets................................................................. 19,227 15,949
Assets of discontinued operations............................................ -- 106,672
Assets held in separate accounts............................................. 190,111 138,409
-------------- --------------
Total assets......................................................... $ 3,650,960 $ 3,601,526
============== ==============
</TABLE>
32
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Policy liabilities and accruals:
Future policy benefits:
Interest sensitive products.......................................... $ 1,596,471 $ 1,578,794
Traditional life insurance and accident and health products.......... 731,873 711,722
Unearned revenue reserve............................................. 25,373 23,530
Other policy claims and benefits........................................ 10,625 13,488
-------------- --------------
2,364,342 2,327,534
Other policyholders' funds:
Supplementary contracts without life contingencies...................... 147,755 137,398
Advance premiums and other deposits..................................... 84,206 85,280
Accrued dividends....................................................... 13,797 13,801
-------------- --------------
245,758 236,479
Short-term debt........................................................... 24,500 --
Short-term debt payable to affiliate...................................... 8,626 --
Amounts payable to affiliates............................................. 511 60
Long-term debt............................................................ 71 24,577
Deferred income taxes..................................................... 46,497 43,592
Other liabilities......................................................... 85,453 44,939
Liabilities of discontinued operations.................................... -- 79,118
Liabilities related to separate accounts.................................. 190,111 138,409
-------------- --------------
Total liabilities.................................................... 2,965,869 2,894,708
Commitments and contingencies
Minority interest in subsidiaries:
Company-obligated mandatorily redeemable preferred stock
of subsidiary trust..................................................... 97,000 97,000
Other..................................................................... 4,503 4,503
Stockholders' equity:
Preferred stock, without par value, at liquidation value - authorized
10,000,000 shares, issued and outstanding 5,000,000 Series B shares..... 3,000 3,000
Class A common stock, without par value - authorized 88,500,000 shares,
issued and outstanding 31,512,113 shares in 1998 and 34,732,448 shares
in 1997................................................................. 42,034 42,907
Class B common stock, without par value - authorized 1,500,000 shares,
issued and outstanding 1,192,990 shares................................. 7,558 7,567
Accumulated other comprehensive income.................................... 50,050 48,559
Retained earnings......................................................... 480,946 503,282
-------------- --------------
Total stockholders' equity.............................................. 583,588 605,315
-------------- --------------
Total liabilities and stockholders' equity........................... $ 3,650,960 $ 3,601,526
============== ==============
</TABLE>
See accompanying notes.
33
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Interest sensitive product charges ......................... $ 52,157 $ 47,979 $ 43,654
Traditional life insurance and accident and health premiums 93,473 92,528 92,780
Net investment income ...................................... 228,067 220,366 208,265
Realized gains (losses) on investments ..................... (4,878) 40,953 52,760
Other income ............................................... 20,802 19,525 15,914
----------- ----------- -----------
Total revenues ........................................... 389,621 421,351 413,373
Benefits and expenses:
Interest sensitive product benefits ........................ 122,527 122,729 119,186
Traditional life insurance and accident and health benefits 55,880 56,369 53,864
Increase in traditional life and accident and health future
policy benefits .......................................... 21,264 27,173 25,875
Distributions to participating policyholders ............... 25,818 25,852 26,152
Underwriting, acquisition and insurance expenses ........... 63,983 61,583 57,261
Interest expense ........................................... 1,690 1,493 912
Other expenses ............................................. 15,453 11,565 11,223
----------- ----------- -----------
Total benefits and expenses .............................. 306,615 306,764 294,473
----------- ----------- -----------
83,006 114,587 118,900
Income taxes .................................................. (26,404) (38,367) (38,660)
Minority interest in earnings of subsidiaries:
Dividends on company-obligated mandatorily redeemable
preferred stock of subsidiary trust ...................... (4,850) (2,829) --
Other ...................................................... (335) (351) (542)
Equity income, net of related income taxes .................... 1,258 2,088 4,351
----------- ----------- -----------
Income from continuing operations ............................. 52,675 75,128 84,049
Discontinued operations:
Income (loss) from property-casualty operations, net of
related income taxes ..................................... 287 699 (1,165)
Gain on disposal of property-casualty operations, net of
related income taxes ..................................... 978 -- --
----------- ----------- -----------
Net income .................................................... 53,940 75,827 82,884
Dividends on Series A and B preferred stock ................... (150) (2,171) (2,250)
----------- ----------- -----------
Net income applicable to common stock ......................... $ 53,790 $ 73,656 $ 80,634
=========== =========== ===========
Earnings per common share:
Income from continuing operations .......................... $ 1.56 $ 2.01 $ 1.90
Income (loss) from discontinued operations ................. 0.04 0.02 (0.03)
----------- ----------- -----------
Earnings per common share .................................. $ 1.60 $ 2.03 $ 1.87
=========== =========== ===========
Earnings per common share - assuming dilution:
Income from continuing operations .......................... $ 1.52 $ 1.97 $ 1.89
Income (loss) from discontinued operations ................. 0.04 0.02 (0.03)
----------- ----------- -----------
Earnings per common share - assuming dilution .............. $ 1.56 $ 1.99 $ 1.86
=========== =========== ===========
</TABLE>
See accompanying notes.
34
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON
STOCK AND ACCUMULATED
CLASS A CLASS B ADDITIONAL OTHER TOTAL
PREFERRED COMMON COMMON PAID-IN COMPREHENSIVE RETAINED STOCKHOLDERS'
STOCK STOCK STOCK CAPITAL INCOME EARNINGS EQUITY
---------- ---------- ---------- ---------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 .. $ -- $ -- $ -- $ 146,481 $ 37,807 $ 380,010 $ 564,298
Comprehensive income:
Net income for 1996 ....... -- -- -- -- -- 82,884 82,884
Change in net unrealized
investment gains/losses . -- -- -- -- (9,949) -- (9,949)
----------
Total comprehensive income . 72,935
Recapitalization and
conversion of common stock -- 139,157 7,324 (146,481) -- -- --
Exchange of common stock
for preferred stock ....... 100,000 (100,000) -- -- -- -- --
Adjustment resulting from
capital transaction of
equity investee ........... -- 4,616 243 -- -- -- 4,859
Dividends on preferred
stock .................. -- -- -- -- -- (2,250) (2,250)
Dividends on common stock .. -- -- -- -- -- (1,320) (1,320)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 100,000 43,773 7,567 -- 27,858 459,324 638,522
Comprehensive income:
Net income for 1997 ....... -- -- -- -- -- 75,827 75,827
Change in net unrealized
investment gains/losses . -- -- -- -- 20,701 -- 20,701
----------
Total comprehensive income . 96,528
Purchase of Series A
preferred stock ........... (100,000) -- -- -- -- -- (100,000)
Issuance of Series B
preferred stock ........... 3,000 -- -- -- -- -- 3,000
Purchase of 1,930,740
shares of common stock .... -- (2,402) -- -- -- (22,432) (24,834)
Issuance of 136,578 shares
of common stock under
stock option plan,
including related income
tax benefit ............... -- 1,536 -- -- -- -- 1,536
Dividends on preferred
stock .................... -- -- -- -- -- (2,171) (2,171)
Dividends on common stock .. -- -- -- -- -- (7,266) (7,266)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 3,000 42,907 7,567 -- 48,559 503,282 605,315
Comprehensive income:
Net income for 1998 ....... -- -- -- -- -- 53,940 53,940
Change in net unrealized
investment gains/losses . -- -- -- -- 1,491 -- 1,491
----------
Total comprehensive income . 55,431
Acquisition of 2,536,112
shares of common stock in
exchange for properties ... -- (3,340) -- -- -- (42,310) (45,650)
Purchase of 961,536 shares
of common stock ........... -- (1,224) -- -- -- (23,784) (25,008)
Issuance of 277,313 shares
of common stock under
stock option plan,
including related income
tax benefit ............... -- 3,742 -- -- -- -- 3,742
Adjustment resulting from
capital transactions of
equity investee ........... -- (51) (9) -- -- -- (60)
Dividends on preferred
stock .................... -- -- -- -- -- (150) (150)
Dividends on common stock .. -- -- -- -- -- (10,032) (10,032)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1998 $ 3,000 $ 42,034 $ 7,558 $ -- $ 50,050 $ 480,946 $ 583,588
========== ========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes.
35
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Continuing operations:
Net income .................................................. $ 52,675 $ 75,128 $ 84,049
Adjustments to reconcile net income to net cash provided by
continuing operations:
Adjustments related to interest sensitive products:
Interest credited to account balances ................ 105,604 107,238 105,176
Charges for mortality and administration ............. (52,050) (48,468) (44,981)
Deferral of unearned revenues ........................ 2,607 2,417 1,858
Amortization of unearned revenue reserve ............. (888) (775) (531)
Provision for depreciation and amortization .............. 10,629 17,276 15,435
Net losses (gains) related to investments held by
broker-dealer and investment company subsidiaries .... 326 (1,130) (3,272)
Realized losses (gains) on investments ................... 4,878 (40,953) (52,760)
Increase in traditional life and accident and health
benefit accruals ..................................... 22,305 26,921 25,842
Policy acquisition costs deferred ........................ (31,081) (30,111) (25,493)
Amortization of deferred policy acquisition costs ........ 10,171 8,474 8,667
Provision for deferred income taxes ...................... 3,051 (8,552) 3,601
Other .................................................... 19,830 (9,240) 8,088
----------- ----------- -----------
Net cash provided by continuing operations ...................... 148,057 98,225 125,679
Discontinued operations:
Net income (loss) ........................................... 1,265 699 (1,165)
Adjustments to reconcile net income (loss) to net cash
provided by discontinued operations ...................... 1,207 7,144 18,962
----------- ----------- -----------
Net cash provided by discontinued operations .................... 2,472 7,843 17,797
----------- ----------- -----------
Net cash provided by operating activities ....................... 150,529 106,068 143,476
INVESTING ACTIVITIES
Sale, maturity or repayment of investments:
Fixed maturities - held for investment ...................... 151,298 49,961 42,855
Fixed maturities - available for sale ....................... 280,324 288,893 253,801
Equity securities ........................................... 24,843 115,742 102,237
Mortgage loans on real estate ............................... 75,887 48,059 29,086
Investment real estate ...................................... 1,349 1,191 5,075
Policy loans ................................................ 28,423 27,513 25,754
Other long-term investments ................................. 2,152 660 10,951
Short-term investments - net ................................ -- 38,870 --
----------- ----------- -----------
564,276 570,889 469,759
</TABLE>
36
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
INVESTING ACTIVITIES (CONTINUED)
Acquisition of investments:
Fixed maturities - held for investment ....................... $ -- $ -- $ (52,614)
Fixed maturities - available for sale ........................ (513,992) (422,178) (440,156)
Equity securities ............................................ (5,644) (50,368) (29,631)
Mortgage loans on real estate ................................ (51,883) (78,703) (56,295)
Investment real estate ....................................... (3,096) (10,208) (5,001)
Policy loans ................................................. (29,810) (30,458) (28,643)
Other long-term investments .................................. (1,726) (4,960) (946)
Short-term investments - net ................................. (48,155) -- (21,529)
----------- ----------- -----------
(654,306) (596,875) (634,815)
Proceeds from disposal, repayments of advances and other
distributions from equity investees .......................... 6,254 16,519 37,058
Investments in and advances to equity investees .................. (5,505) (41,018) (10,396)
Net cash paid for acquisitions ................................... -- (9,694) --
Net proceeds from sale of discontinued operations ................ 24,844 -- --
Net purchases of property and equipment and other ................ (26,680) (13,249) (10,867)
Investing activities of discontinued operations .................. (2,474) (8,356) (33,374)
----------- ----------- -----------
Net cash used in investing activities ............................ (93,591) (81,784) (182,635)
FINANCING ACTIVITIES
Receipts from interest sensitive and variable products credited
to policyholder account balances ............................. 260,949 258,919 220,328
Return of policyholder account balances on interest sensitive
and variable products ........................................ (286,469) (247,823) (185,627)
Proceeds from short-term debt with affiliate ..................... 8,626 -- --
Proceeds from long-term debt ..................................... -- -- 24,500
Repayments of long-term debt ..................................... (6) (4) (12,523)
Distributions on company-obligated mandatorily redeemable
preferred stock of subsidiary trust .......................... (4,850) (2,829) --
Other distributions to minority interests ........................ (335) (663) (366)
Purchase of common stock ......................................... (25,008) (24,834) --
Issuance of common stock ......................................... 2,456 1,201 --
Dividends paid ................................................... (10,182) (9,437) (3,570)
----------- ----------- -----------
Net cash provided by (used in) financing activities .............. (54,819) (25,470) 42,742
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents ................. 2,119 (1,186) 3,583
Cash and cash equivalents at beginning of year ................... 2,397 3,583 --
----------- ----------- -----------
Cash and cash equivalents at end of year ......................... $ 4,516 $ 2,397 $ 3,583
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest ..................................................... $ 1,676 $ 1,486 $ 836
Income taxes ................................................. 23,683 56,592 25,415
</TABLE>
See accompanying notes.
37
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
FBL Financial Group, Inc. (the Company) operates predominantly in the life
insurance industry through its principal subsidiaries, Farm Bureau Life
Insurance Company (Farm Bureau Life), Western Farm Bureau Life Insurance Company
(Western Life) and EquiTrust Life Insurance Company (EquiTrust) (collectively,
the Life Companies). The Company currently markets individual life insurance
policies and annuity contracts to Farm Bureau members and other individuals and
businesses in 14 midwestern and western states. Variable insurance and annuity
contracts are also marketed in other states through alliances with other
insurance companies and a regional broker/dealer. Several subsidiaries support
various functional areas of the Life Companies and other affiliates, by
providing investment advisory, marketing and distribution, and leasing services.
On March 31, 1998, the Company sold its wholly-owned subsidiary, Utah Farm
Bureau Insurance Company (Utah Insurance), to Farm Bureau Mutual Insurance
Company (Farm Bureau Mutual), an affiliate. As a result of the sale, the Company
no longer has property-casualty operations. Financial information herein has
been restated to reflect the operations of Utah Insurance as discontinued. See
Note 14, "Discontinued Operations."
CONSOLIDATION
The consolidated financial statements include the financial statements of the
Company and its direct and indirect subsidiaries. All significant intercompany
transactions have been eliminated.
INVESTMENTS
FIXED MATURITIES AND EQUITY SECURITIES
Fixed maturity securities, comprised of bonds and redeemable preferred stocks,
that the Company has the positive intent and ability to hold to maturity are
designated as "held for investment." Held for investment securities are reported
at cost adjusted for amortization of premiums and discounts. Changes in the
market value of these securities, except for declines that are other than
temporary, are not reflected in the Company's financial statements. Fixed
maturity securities which may be sold are designated as "available for sale."
Available for sale securities are reported at market value and unrealized gains
and losses on these securities are included directly in stockholders' equity as
a component of accumulated other comprehensive income. The unrealized gains and
losses included in accumulated other comprehensive income are reduced by a
provision for deferred income taxes and adjustments to deferred policy
acquisition costs, value of insurance in force acquired and unearned revenue
reserve that would have been required as a charge or credit to income had such
amounts been realized. Premiums and discounts are amortized/accrued using
methods which result in a constant yield over the securities' expected lives.
Amortization/accrual of premiums and discounts on mortgage and asset-backed
securities incorporates prepayment assumptions to estimate the securities'
expected lives.
Equity securities, comprised of common and non-redeemable preferred stocks, are
reported at market value. The change in unrealized appreciation and depreciation
of equity securities is included directly in stockholders' equity, net of any
related deferred income taxes, as a component of accumulated other comprehensive
income.
38
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MORTGAGE LOANS ON REAL ESTATE
Mortgage loans on real estate are reported at cost adjusted for amortization of
premiums and accrual of discounts. If the value of any mortgage loan is
determined to be impaired (i.e., when it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of the loan
agreement), the carrying value of the mortgage loan is reduced to its fair
value, which may be based upon the present value of expected future cash flows
from the loan (discounted at the loan's effective interest rate), or the fair
value of the underlying collateral. The carrying value of impaired loans is
reduced by the establishment of a valuation allowance, changes to which are
recognized as realized gains or losses on investments. Interest income on
impaired loans is recorded on a cash basis.
INVESTMENT REAL ESTATE
Investment real estate is reported at cost less allowances for depreciation.
Real estate acquired through foreclosure, which is included with investment real
estate in the consolidated balance sheets, is recorded at the lower of cost
(which includes the balance of the mortgage loan, any accrued interest and any
costs incurred to obtain title to the property) or fair value as determined at
or before the foreclosure date. The carrying value of these assets is subject to
regular review. If the fair value, less estimated sales costs, of real estate
owned decreases to an amount lower than its carrying value, a valuation
allowance is established for the difference. This valuation allowance can be
reduced or eliminated should the fair value of the property increase. Changes in
this valuation allowance are recognized as realized gains or losses on
investments. The Company had a valuation allowance on its investment real estate
totaling $0.1 million at December 31, 1997. No allowance was recorded at
December 31, 1998.
OTHER INVESTMENTS
Policy loans are reported at unpaid principal balance. Short-term investments
are reported at cost adjusted for amortization of premiums and accrual of
discounts.
Other long-term investments include certain nontraditional investments and
securities held by subsidiaries engaged in the broker-dealer or venture capital
investment company industries. Nontraditional investments include a debt-related
instrument and investment deposits which are reported at cost. In accordance
with accounting practices for the broker-dealer and investment company
industries, marketable securities held by subsidiaries in these industries are
valued at market value if readily marketable or at fair value, as determined by
the Board of Directors of the subsidiary holding the security, if not readily
marketable. The resulting difference between cost and market is included in the
statements of income as net investment income. Realized gains and losses are
also reported as a component of net investment income. The Company recorded
transfers from its venture capital subsidiary, which was dissolved during 1997,
at fair value on the date of transfer, re-establishing a new cost basis for the
security.
Securities and indebtedness of related parties include investments in
partnerships and corporations over which the Company may exercise significant
influence. Such investments are accounted for using the equity method. Changes
in the value of the Company's investment in equity investees attributable to
capital transactions of the investee, such as an additional offering of stock,
are recorded directly to stockholders' equity. Securities and indebtedness of
related parties also includes advances and loans to the partnerships and
corporations which are principally reported at cost.
REALIZED GAINS AND LOSSES ON INVESTMENTS
The carrying values of all the Company's investments are reviewed on an ongoing
basis for credit deterioration, and if this review indicates a decline in market
value that is other than temporary, the Company's carrying value in the
investment is reduced to its estimated realizable value (the sum of the
estimated nondiscounted cash flows for securities or fair value for mortgage
loans on real estate) and a specific writedown is taken. Such reductions in
carrying value are recognized as realized losses on investments. Realized gains
and losses on sales are determined on the basis of specific identification of
investments. If the Company expects that an issuer of a security will modify its
payment pattern from contractual terms but no writedown is required, future
investment income is recognized at the rate implicit in the calculation of net
realizable value under the expected payment pattern.
39
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARKET VALUES
Market values of fixed maturity securities are reported based on quoted market
prices, where available. Market values of fixed maturity securities not actively
traded in a liquid market are estimated using a matrix calculation assuming a
spread (based on interest rates and a risk assessment of the bonds) over U. S.
Treasury bonds. Market values of redeemable preferred stock and equity
securities are based on the latest quoted market prices, or for those not
readily marketable, generally at values which are representative of the market
values of comparable issues.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
DEFERRED POLICY ACQUISITION COSTS AND VALUE OF INSURANCE IN FORCE ACQUIRED
To the extent recoverable from future policy revenues and gross profits, certain
costs of acquiring new insurance business, principally commissions and other
expenses related to the production of new business, have been deferred. The
value of insurance in force acquired represents the cost assigned to insurance
contracts when an insurance company is acquired. The initial value is determined
by an actuarial study using expected future gross profits as a measurement of
the net present value of the insurance acquired. Interest accrues on the
unamortized balance at rates that range from 5.91% to 6.79%.
For participating traditional life insurance and interest sensitive products
(principally universal life insurance policies and annuity contracts), these
costs are being amortized generally in proportion to expected gross profits
(after dividends to policyholders, if applicable) from surrender charges and
investment, mortality, and expense margins. That amortization is adjusted
retrospectively when estimates of current or future gross profits/margins
(including the impact of investment gains and losses) to be realized from a
group of products are revised. For nonparticipating traditional life and
accident and health insurance products, these costs are amortized over the
premium paying period of the related policies, in proportion to the ratio of
annual premium revenues to total anticipated premium revenues. Such anticipated
premium revenues are estimated using the same assumptions used for computing
liabilities for future policy benefits.
PROPERTY AND EQUIPMENT
Property and equipment, comprised primarily of home office properties (prior to
March 30, 1998, see Note 2), furniture, equipment and capitalized software
costs, are reported at cost less allowances for depreciation and amortization.
Depreciation and amortization expense are computed primarily using the
straight-line method over the estimated useful lives of the assets. Depreciation
and amortization expense for 1998, 1997 and 1996 was $11.4 million, $11.0
million and $10.0 million, respectively.
GOODWILL
Goodwill represents the excess of the fair value of assets exchanged over the
net assets acquired. Goodwill is generally being amortized on a straight-line
basis over a period of 20 years. The carrying value of goodwill is regularly
reviewed for indicators of impairment in value, which in the view of management
are other than temporary. If facts and circumstances suggest that goodwill is
impaired, the Company assesses the fair value of the underlying business and
reduces goodwill to an amount that results in the book value of the underlying
business approximating fair value. The Company has not recorded any such
writedowns during 1998, 1997 or 1996.
FUTURE POLICY BENEFITS
The liability for future policy benefits for participating traditional life
insurance is based on net level premium reserves, including assumptions as to
interest, mortality, and other assumptions underlying the guaranteed policy cash
values. Reserve interest assumptions are level and range from 2.5% to 6.0%. The
average rate of assumed investment yields used in estimating gross margins was
8.03% in 1998, 8.15% in 1997 and 8.34% in 1996. Accrued dividends for
participating business are established for anticipated amounts earned to date
for the period through the policy's next anniversary and are provided for as a
separate liability. The declaration of future dividends for participating
business is at the discretion of the Board of Directors. Participating business
accounted for 41% of
40
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
receipts from policyholders during the year ended December 31, 1998 and
represented 18% of life insurance inforce at December 31, 1998. Participating
business accounted for 42% of receipts from policyholders during the year ended
December 31, 1997 and represented 19% of life insurance inforce at December 31,
1997.
The liabilities for future policy benefits for accident and health insurance are
computed using a net level (or an equivalent) method, including assumptions as
to morbidity, mortality and interest and to include provisions for possible
unfavorable deviations. Policy benefit claims are charged to expense in the
period that the claims are incurred.
Future policy benefit reserves for interest sensitive products are computed
under a retrospective deposit method and represent policy account balances
before applicable surrender charges. Policy benefits and claims that are charged
to expense include benefit claims incurred in the period in excess of related
policy account balances.
Interest crediting rates for interest sensitive products ranged from 4.00% to
6.50% in 1998, from 4.00% to 7.00% in 1997 and from 4.00% to 7.50% in 1996.
The unearned revenue reserve reflects the unamortized balance of the excess of
first year administration charges over renewal period administration charges
(policy initiation fees) on interest sensitive products. These excess charges
have been deferred and are being recognized in income over the period benefited
using the same assumptions and factors used to amortize deferred policy
acquisition costs.
GUARANTY FUND ASSESSMENTS
From time to time assessments are levied on the Company's insurance subsidiaries
by guaranty associations in most states in which the subsidiaries are licensed.
These assessments are to cover losses of policyholders of insolvent or
rehabilitated companies. In some states, these assessments can be partially
recovered through a reduction in future premium taxes. During 1997, the Company
adopted Statement of Position (SOP) 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments", which requires the accrual of
such assessments. Prior to 1997, the Company recognized its obligation for
guaranty fund assessments when such assessments were received and an asset was
recorded for future premium tax offsets on assessments paid. The impact of
adopting SOP 97-3 was not separately reported as a change in accounting
principles because the impact of adoption was not material to the Company.
At December 31, 1998 and 1997, the Company had undiscounted reserves of $1.3
million and $2.8 million, respectively, to cover estimated future assessments on
known insolvencies. The Company had assets totaling $3.1 million and $3.9
million at December 31, 1998 and 1997, respectively, representing estimated
premium tax offsets on paid and future assessments. Expenses (credits) incurred
for guaranty fund assessments, net of related premium tax offsets, totaled
($1.2) million, $1.9 million (including $1.6 million related to the adoption of
SOP 97-3) and $0.1 million during 1998, 1997 and 1996, respectively. It is
estimated future guaranty fund assessments on known insolvencies will be paid
during the three year period ended December 31, 2001 and substantially all the
related future premium tax offsets will be realized during the six year period
ended December 31, 2004. The Company believes the reserve for guaranty fund
assessments is sufficient to provide for future assessments based upon known
insolvencies and projected premium levels.
DEFERRED INCOME TAXES
Deferred tax assets or liabilities are computed based on the difference between
the financial statement and income tax bases of assets and liabilities using the
enacted marginal tax rate. Deferred income tax expenses or credits are based on
the changes in the asset or liability from period to period.
SEPARATE ACCOUNTS
The separate account assets and liabilities reported in the accompanying
consolidated balance sheets represent funds that are separately administered,
principally for the benefit of certain policyholders who bear the underlying
investment risk. The separate account assets and liabilities are carried at fair
value. Revenues and expenses related to the separate account assets and
liabilities, to the extent of benefits paid or provided to the separate account
policyholders, are excluded from the amounts reported in the accompanying
consolidated statements of income.
41
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RECOGNITION OF PREMIUM REVENUES AND COSTS
Revenues for interest sensitive and variable products consist of policy charges
for the cost of insurance, administration charges, amortization of policy
initiation fees and surrender charges assessed against policyholder account
balances. Expenses related to these products include interest credited to
policyholder account balances and benefit claims incurred in excess of
policyholder account balances.
Traditional life insurance premiums are recognized as revenues over the
premium-paying period. Future policy benefits and policy acquisition costs are
recognized as expenses over the life of the policy by means of the provision for
future policy benefits and amortization of deferred policy acquisition costs.
All insurance-related revenues, benefits and expenses are reported net of
reinsurance ceded.
REINSURANCE
The Company uses reinsurance to manage certain risks associated with its
insurance operations. These reinsurance arrangements provide for greater
diversification of business, allow management to control exposure to potential
risks arising from large losses and provide additional capacity for growth.
The Company's life insurance operations cede reinsurance to various reinsurers.
The cost of reinsurance is generally amortized over the contract periods of the
reinsurance agreements.
OTHER INCOME AND OTHER EXPENSES
Other income and other expenses include revenue and expenses generated by the
Company's various non-insurance subsidiaries for investment advisory, marketing
and distribution, and leasing services. A portion of these activities are
performed on behalf of affiliates of the Company. In addition, certain revenue
generated by the Company's insurance subsidiaries have been classified as other
income. During 1998, 1997 and 1996, revenues of the insurance subsidiaries
included as other income aggregated $1.4 million, $4.0 million and $2.9 million,
respectively. Lease income from leases with affiliates totaled $5.8 million,
$3.0 million and $2.4 million for 1998, 1997 and 1996, respectively. Investment
advisory fee income from affiliates totaled $1.3 million, $1.2 million and $0.9
million for 1998, 1997 and 1996, respectively.
COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standard (Statement) No. 130, "Reporting Comprehensive Income." Statement No.
130 establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of this statement had no impact on the
Company's net income or stockholders' equity. Statement No. 130 requires
unrealized gains and losses on the Company's available-for-sale securities,
which prior to adoption were reported separately in stockholders' equity, to be
included in other comprehensive income.
Other comprehensive income excludes net investment gains (losses) included in
net income which merely represent transfers from unrealized to realized gains
and losses. These amounts totaled ($0.9) million in 1998, $26.5 million in 1997
and $38.1 million in 1996. Such amounts, which have been measured through the
date of sale, are net of income taxes and adjustments to deferred policy
acquisition costs, value of insurance inforce acquired and unearned revenue
reserve totaling $0.5 million in 1998, ($15.3) million in 1997 and ($19.5)
million in 1996.
SEGMENT INFORMATION
At December 31, 1998, the Company adopted Statement No. 131, "Disclosure about
Segments of an Enterprise and Related Information." Statement No. 131
establishes standards for reporting information about operating segments,
products and markets. Generally, Statement No. 131 requires financial
information to be reported on the basis on which it is used internally for
evaluating segment performance and deciding how to allocate resources to
segments. Adoption of Statement No. 131 increased the number of the Company's
reportable segments. See Note 15, "Segment Information."
42
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RECLASSIFICATIONS
Certain amounts in the 1997 and 1996 consolidated financial statements have been
reclassified to conform to the 1998 financial statement presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods. For
example, significant estimates and assumptions are utilized in the calculation
of deferred policy acquisition costs, policyholder liabilities and accruals and
valuation allowances on investments. It is reasonably possible that actual
experience could differ from the estimates and assumptions utilized which could
have a material impact on the consolidated financial statements.
PENDING ACCOUNTING CHANGES
In March 1998, SOP 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use", was issued. The Company plans to adopt
the SOP effective on January 1, 1999. The SOP requires the capitalization of
certain costs incurred after the date of adoption in connection with developing
or obtaining software for internal use. The Company currently capitalizes
external software development costs and charges internal costs, primarily
payroll and related items, to expense as they are incurred. Under the SOP, these
internal costs will be capitalized. The Company has not yet determined the
impact of adopting this SOP.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities." Statement No.
133 requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Accounting for gains or losses resulting
from changes in the values of those derivatives is dependent on the use of the
derivative and whether it qualifies for hedge accounting. Statement No. 133 also
allows companies to transfer securities classified as held for investment to
either the available-for-sale or trading categories in connection with the
adoption of the new standard. The Statement is effective for the Company in the
year 2000, with earlier adoption encouraged. Because of the Company's minimal
use of derivatives, management does not anticipate that the adoption of the new
Statement will have a significant effect on earnings or the financial position
of the Company.
2. STOCKHOLDERS' EQUITY AND MINORITY INTEREST
On March 12, 1996, the Company's stockholders approved a change to the Company's
capital structure and a related revision to the Company's Articles of
Incorporation (the Recapitalization). The restated Articles of Incorporation
authorize the Company to issue 88,500,000 shares of Class A common stock,
without par value; 1,500,000 shares of Class B common stock, without par value,
and 10,000,000 shares of preferred stock. Pursuant to the Recapitalization, each
outstanding share of common stock prior to Recapitalization was converted on a
pro rata basis to 1,900 shares of Class A common stock and 100 shares of Class B
common stock.
On April 29, 1996, the Company designated 5,000,000 shares of its preferred
stock as Series A preferred stock and on July 18, 1996, such shares were issued
in exchange for 5,000,000 shares of Class A common stock. The Series A preferred
stock paid quarterly cash dividends of $0.25 per share and had voting rights
identical to that of Class A common stock. As described below, the Series A
preferred stock was redeemed during 1997.
On May 30, 1997, FBL Financial Group Capital Trust (the Trust), a consolidated
wholly-owned subsidiary of the Company, issued $97.0 million of 5% Preferred
Securities to the Company's majority stockholder, the Iowa Farm Bureau
Federation. In connection with the Trust's issuance of the 5% Preferred
Securities and the related purchase by the Company of all of the Trust's common
securities, the Company issued to the Trust $100.0 million principal amount of
its 5% Subordinated Deferrable Interest Notes, due June 30, 2047 (the Notes).
The sole assets of the Trust are and will be the Notes and any interest accrued
thereon. The interest payment dates on the Notes correspond to the distribution
dates on the 5% Preferred Securities. The 5% Preferred Securities, which have a
liquidation value of $1,000.00 per share plus accrued and unpaid distributions,
mature simultaneously with the Notes. As of December 31, 1998, 97,000 shares of
5% Preferred Securities were outstanding, all of which are unconditionally
guaranteed by the Company.
43
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Concurrent with the issuance of the 5% Preferred Securities, the Company
purchased from the Iowa Farm Bureau Federation the Company's Series A preferred
stock at its liquidation value of $100.0 million. In addition, the Company
issued 5,000,000 shares of Series B preferred stock to the Iowa Farm Bureau
Federation for $3.0 million. Each share of Series B preferred stock has a
liquidation preference of $0.60 and voting rights identical to that of Class A
common stock. The Series B preferred stock pays cumulative annual cash dividends
of $0.03 per share, payable quarterly, and is redeemable by the Company, at the
option of the Company, at $0.60 per share plus unpaid dividends if the stock
ceases to be beneficially owned by a Farm Bureau organization. The purchase of
Series A preferred stock and simultaneous issuance of Series B preferred stock
and 5% Preferred Securities were treated as noncash transactions for purposes of
the 1997 statement of cash flows.
On March 30, 1998, the Company exchanged a subsidiary owning its home office
properties for 2,536,112 unregistered shares of Class A common stock owned by
the Iowa Farm Bureau Federation. The value of the transaction, which was
structured as a tax-free exchange of a real estate subsidiary, was $45.7
million, or $18.00 per common share. The book value of the properties was $24.7
million on the date of the exchange. The Company is leasing a portion of the
properties back from a wholly-owned subsidiary of the Iowa Farm Bureau
Federation under a 15-year operating lease. A gain on the transaction of
approximately $21.0 million was deferred by the Company and is being amortized
over the term of the operating lease. The transaction was accounted for as a
noncash financing activity for purposes of the 1998 statement of cash flows.
On March 17, 1998, the Company's Board of Directors approved a two-for-one
common stock split payable in the form of a 100% stock dividend to stockholders
of record as of April 6, 1998. The additional shares were distributed April 17,
1998. As required by the Company's Articles of Incorporation, holders of the
Class B common stock received Class A common shares in payment of the stock
dividend. In addition, the 5.0 million shares of Series B preferred stock have
non-dilutive voting rights. As a result, voting rights on these shares increased
proportionately while the number of shares outstanding did not change. All
references to the number of common shares and per share amounts in this report
have been restated to reflect the effect of the stock dividend.
During 1998 and 1997, the Company repurchased 961,536 and 1,930,740 shares,
respectively, of Class A common stock in accordance with repurchase plans
approved by the Board of Directors. The cost of the repurchases totaled $25.0
million in 1998 and $24.8 million in 1997. Of the shares repurchased, 2,701,476
were unregistered shares owned by various Farm Bureau entities. The purchase
amounts were allocated partly to Class A common stock based on the average
common stock balance per share on the acquisition dates with the remainder
allocated to retained earnings.
During 1998, 1997 and 1996, the Company paid cash dividends totaling $0.30,
$0.20 and $0.04 per common share, respectively.
Holders of the Class A common stock and Series preferred stock, together as a
group, and Class B common stock vote as separate classes on all issues. Only
holders of the Class A common stock and Series preferred stock vote for the
election of Class A Directors (three to five) and only holders of the Class B
common stock vote for the election of Class B Directors (ten to twenty). Voting
for the Directors is noncumulative. In addition, various ownership aspects of
the Company's Class B common stock are governed by a Class B Shareholder
Agreement which results in the Iowa Farm Bureau Federation, which owns 65.3% of
the Company's voting stock as of December 31, 1998, maintaining control of the
Company. Holders of Class A common stock and Class B common stock are entitled
to share ratably on a share-for-share basis with respect to common stock
dividends.
44
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENT OPERATIONS
FIXED MATURITIES AND EQUITY SECURITIES
The following tables contain amortized cost and market value information on
fixed maturities and equity securities at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
HELD FOR INVESTMENT
---------------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED COST GAINS LOSSES MARKET VALUE
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998 (DOLLARS IN THOUSANDS)
Bonds:
Corporate securities .................... $ 5,008 $ 542 $ (8) $ 5,542
Mortgage-backed securities .............. 487,280 24,690 (783) 511,187
-------------- -------------- -------------- --------------
Total fixed maturities ...................... $ 492,288 $ 25,232 $ (791) $ 516,729
============== ============== ============== ==============
<CAPTION>
AVAILABLE FOR SALE
---------------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED COST GAINS LOSSES MARKET VALUE
-------------- -------------- -------------- --------------
DECEMBER 31, 1998 (DOLLARS IN THOUSANDS)
Bonds:
United States Government and agencies ... $ 81,674 $ 5,375 $ (4) $ 87,045
State, municipal and other governments .. 61,194 2,516 (101) 63,609
Public utilities ........................ 137,640 9,626 (536) 146,730
Corporate securities .................... 959,689 64,729 (16,985) 1,007,433
Mortgage and asset-backed securities .... 592,115 24,526 (1,129) 615,512
Redeemable preferred stock .................. 30,549 741 (1,575) 29,715
-------------- -------------- -------------- --------------
Total fixed maturities ...................... $ 1,862,861 $ 107,513 $ (20,330) $ 1,950,044
============== ============== ============== ==============
Equity securities ........................... $ 39,589 $ 748 $ (5,050) $ 35,287
============== ============== ============== ==============
<CAPTION>
HELD FOR INVESTMENT
---------------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED COST GAINS LOSSES MARKET VALUE
-------------- -------------- -------------- --------------
DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
Bonds:
Corporate securities .................... $ 5,008 $ 814 $ (8) $ 5,814
Mortgage-backed securities .............. 634,590 24,721 (1,810) 657,501
-------------- -------------- -------------- --------------
Total fixed maturities ...................... $ 639,598 $ 25,535 $ (1,818) $ 663,315
============== ============== ============== ==============
</TABLE>
45
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
---------------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED COST GAINS LOSSES MARKET VALUE
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
Bonds:
United States Government and agencies ... $ 93,721 $ 2,040 $ (146) $ 95,615
State, municipal and other governments .. 46,767 1,382 (128) 48,021
Public utilities ........................ 138,328 6,682 (495) 144,515
Corporate securities .................... 846,252 62,131 (6,468) 901,915
Mortgage and asset-backed securities .... 477,091 16,491 (1,308) 492,274
Redeemable preferred stock .................. 27,791 1,576 (129) 29,238
-------------- -------------- -------------- --------------
Total fixed maturities ...................... $ 1,629,950 $ 90,302 $ (8,674) $ 1,711,578
-------------- -------------- -------------- --------------
Equity securities ........................... $ 60,500 $ 4,647 $ (7,411) $ 57,736
============== ============== ============== ==============
</TABLE>
Short-term investments have been excluded from the above schedules as amortized
cost approximates market value for these securities.
The carrying value and estimated market value of the Company's portfolio of
fixed maturity securities at December 31, 1998, by contractual maturity, are
shown below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
HELD FOR INVESTMENT AVAILABLE FOR SALE
-------------------------------- --------------------------------
ESTIMATED ESTIMATED
AMORTIZED COST MARKET VALUE AMORTIZED COST MARKET VALUE
-------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less ..................... $ -- $ -- $ 15,264 $ 15,342
Due after one year through five years ....... -- -- 201,829 205,364
Due after five years through ten years ...... 5,008 5,542 377,892 396,558
Due after ten years ......................... -- -- 645,212 687,553
-------------- -------------- -------------- --------------
5,008 5,542 1,240,197 1,304,817
Mortgage and asset-backed securities ........ 487,280 511,187 592,115 615,512
Redeemable preferred stocks ................. -- -- 30,549 29,715
-------------- -------------- -------------- --------------
$ 492,288 $ 516,729 $ 1,862,861 $ 1,950,044
============== ============== ============== ==============
</TABLE>
46
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Net unrealized investment gains on equity securities and fixed maturity
securities classified as available for sale were comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1998 1997
-------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Unrealized appreciation on fixed maturity and equity securities available
for sale.............................................................. $ 82,881 $ 81,076
Adjustments for assumed changes in amortization pattern of:
Deferred policy acquisition costs..................................... (5,264) (6,019)
Value of insurance in force acquired.................................. (1,306) (1,061)
Unearned revenue reserve.............................................. 585 709
Provision for deferred income taxes....................................... (26,914) (26,146)
-------------- --------------
49,982 48,559
Proportionate share of net unrealized investment gains of equity investees 68 --
-------------- --------------
Net unrealized investment gains........................................... $ 50,050 $ 48,559
============== ==============
</TABLE>
The change in net unrealized investment gains/losses are recorded net of
deferred income taxes and other adjustments for assumed changes in the
amortization pattern of deferred policy acquisition costs, value of insurance in
force acquired and unearned revenue reserve totaling $1.2 million in 1998, $16.6
million in 1997 and ($20.9) million in 1996.
MORTGAGE LOANS ON REAL ESTATE
The Company's mortgage loan portfolio consists principally of commercial
mortgage loans. The Company's lending policies require that the loans be
collateralized by the value of the related property, establish limits on the
amount that can be loaned to one borrower and require diversification by
geographic location and collateral type.
The Company has provided an allowance for possible losses against its mortgage
loan portfolio. An analysis of this allowance, which consist of specific and
general reserves, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year................................ $ 812 $ 1,128 $ 800
Realized losses......................................... 59 -- 2,983
Uncollectible amounts written off, net of recoveries... -- (316) (2,655)
-------------- -------------- --------------
Balance at end of year...................................... $ 871 $ 812 $ 1,128
============== ============== ==============
</TABLE>
Impaired loans (those loans in which the Company does not believe it will
collect all amounts due according to the contractual terms of the respective
loan agreements) totaled $1.0 million at December 31, 1998 and $0.3 million at
December 31, 1997. A valuation allowance totaling $0.4 million at December 31,
1998 and $0.3 million at December 31, 1997 was established on the impaired
loans.
47
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NET INVESTMENT INCOME
Components of net investment income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1998 1997 1996
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities:
Held for investment ..................................... $ 49,176 $ 53,332 $ 55,662
Available for sale ...................................... 136,269 126,089 111,899
Equity securities .......................................... 2,116 1,283 1,367
Mortgage loans on real estate .............................. 25,895 26,160 24,791
Investment real estate ..................................... 5,822 4,902 5,024
Policy loans ............................................... 7,642 7,587 7,314
Other long-term investments ................................ (42) 3,143 3,860
Short-term investments ..................................... 3,670 4,064 3,519
Other ...................................................... 8,200 4,522 3,678
----------- ----------- -----------
238,748 231,082 217,114
Less investment expenses ................................... (10,681) (10,716) (8,849)
----------- ----------- -----------
Net investment income ...................................... $ 228,067 $ 220,366 $ 208,265
=========== =========== ===========
</TABLE>
REALIZED AND UNREALIZED GAINS AND LOSSES
Realized gains (losses) and the change in unrealized appreciation/depreciation
on investments, excluding amounts attributed to investments held by subsidiaries
engaged in the broker-dealer and investment company industries, are summarized
below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1998 1997 1996
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
REALIZED
Fixed maturities - available for sale ....................... $ 318 $ 4,300 $ 1,055
Equity securities ........................................... (1,712) 37,468 56,584
Mortgage loans on real estate ............................... (59) -- (2,983)
Investment real estate ...................................... 381 (28) 411
Other long-term investments ................................. -- (300) (154)
Securities and indebtedness of related parties .............. (331) (487) (1,387)
Notes receivable and other .................................. (3,475) -- (766)
----------- ----------- -----------
Realized gains on investments ............................... $ (4,878) $ 40,953 $ 52,760
=========== =========== ===========
UNREALIZED
Fixed maturities:
Held for investment ...................................... $ 724 $ 8,900 $ (14,385)
Available for sale ....................................... 5,555 51,465 (36,577)
Equity securities ........................................... (1,538) (14,957) 5,521
----------- ----------- -----------
Change in unrealized appreciation/depreciation of investments $ 4,741 $ 45,408 $ (45,441)
=========== =========== ===========
</TABLE>
48
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
An analysis of sales, maturities and principal repayments of the Company's fixed
maturities portfolio for 1998, 1997, and 1996 is as follows:
<TABLE>
<CAPTION>
GROSS REALIZED GROSS REALIZED
AMORTIZED COST GAINS LOSSES PROCEEDS
------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Scheduled principal repayments and calls:
Available for sale ................... $ 191,636 $ 170 $ (291) $ 191,515
Held for investment .................. 151,298 -- -- 151,298
Sales - available for sale .............. 85,586 5,965 (2,742) 88,809
------------- ------------- ------------- -------------
Total ................................ $ 428,520 $ 6,135 $ (3,033) $ 431,622
============= ============= ============= =============
YEAR ENDED DECEMBER 31, 1997
Scheduled principal repayments and calls:
Available for sale ................... $ 175,996 $ 42 $ -- $ 176,038
Held for investment .................. 49,961 -- -- 49,961
Sales - available for sale .............. 108,597 6,457 (2,199) 112,855
------------- ------------- ------------- -------------
Total ................................ $ 334,554 $ 6,499 $ (2,199) $ 338,854
============= ============= ============= =============
YEAR ENDED DECEMBER 31, 1996
Scheduled principal repayments and calls:
Available for sale ................... $ 155,507 $ -- $ -- $ 155,507
Held for investment .................. 42,855 -- -- 42,855
Sales - available for sale .............. 96,739 5,241 (3,686) 98,294
------------- ------------- ------------- -------------
Total ............................ $ 295,101 $ 5,241 $ (3,686) $ 296,656
============= ============= ============= =============
</TABLE>
Realized losses totaling $2.8 million in 1998 and $0.5 million in 1996 were
incurred as a result of writedowns for other than temporary impairment of fixed
maturity securities. No such writedowns were recorded during 1997.
Income taxes (credits) during 1998, 1997 and 1996 include a provision of ($1.7)
million, $14.3 million and $18.5 million, respectively, for the tax effect of
realized gains.
OTHER
In December 1997, the Company acquired a 35% interest in an unaffiliated life
insurance company for $25.0 million. The excess (approximately $5.9 million) of
the carrying amount of the investment, which is classified as securities and
indebtedness of related parties on the consolidated balance sheets, over the
amount of underlying equity in net assets on the acquisition date is
attributable to goodwill and is being amortized over a 20 year period. The
investment is being accounted for using the equity method. The insurance company
underwrites and markets life insurance and annuity products throughout the
United States.
Also in December 1997, the Company acquired all of the common stock of EquiTrust
Life Insurance Company for $9.7 million. EquiTrust Life Insurance Company is a
life insurance company licensed in 38 states. Goodwill totaling $1.5 million was
recorded in connection with the acquisition and is being amortized over 20
years.
In February 1996, an equity investee of the Company completed an initial public
offering which resulted in an increase of $4.9 million, net of $2.6 million in
taxes, in the Company's share of the investee's stockholders' equity. This
increase was credited directly to common stock, allocated proportionately among
Class A common stock and Class B common stock based on shares outstanding.
Subsequent to the public offering, the Company reclassified the investment to
equity securities. The Company has sold its holdings in this investment and
realized gains of $2.4 million, $24.3 million and $50.4 during 1998, 1997 and
1996, respectively.
At December 31, 1998, affidavits of deposits covering investments with a
carrying value totaling $2,139.9 million were on deposit with state agencies to
meet regulatory requirements.
49
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1998, the Company had committed to provide additional funding
for mortgage loans on real estate aggregating $11.9 million. These commitments
arose in the normal course of business at terms which are comparable to similar
investments.
The carrying value of investments which have been non-income producing for the
twelve months preceding December 31, 1998, include: fixed maturities - $3.7
million; mortgage loans on real estate - $1.0 million; and other long-term
investments - $1.6 million.
No investment in any person or its affiliates (other than bonds issued by
agencies of the United States Government) exceeded ten percent of stockholders'
equity at December 31, 1998.
4. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement No. 107, "Disclosures About Fair Value of Financial Instruments",
requires disclosure of fair value information about financial instruments,
whether or not recognized in the consolidated balance sheets, for which it is
practicable to estimate value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. Statement No. 107 also excludes
certain financial instruments and all nonfinancial instruments from its
disclosure requirements and allows companies to forego the disclosures when
those estimates can only be made at excessive cost. Accordingly, the aggregate
fair value amounts presented herein are limited by each of these factors and do
not purport to represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments.
FIXED MATURITY SECURITIES: Fair values for fixed maturity securities are based
on quoted market prices, where available. For fixed maturity securities not
actively traded, fair values are estimated using a matrix calculation assuming a
spread (based on interest rates and a risk assessment of the bonds) over U. S.
Treasury bonds.
EQUITY SECURITIES: The fair values for equity securities are based on quoted
market prices, where available. For equity securities that are not actively
traded, estimated fair values are based on values of comparable issues.
MORTGAGE LOANS ON REAL ESTATE AND POLICY LOANS: Fair values are estimated by
discounting expected cash flows using interest rates currently being offered for
similar loans.
OTHER LONG-TERM INVESTMENTS: The fair values for nontraditional debt instruments
and investment deposits are estimated by discounting expected cash flows using
interest rates currently being offered for similar investments. The fair values
for investments held by broker-dealer subsidiaries are based on quoted market
prices, where available. For holdings that are not actively traded, fair values
are determined in good faith by the Board of Directors of the subsidiary holding
the security.
CASH AND SHORT-TERM INVESTMENTS: The carrying amounts reported in the
consolidated balance sheets for these instruments approximate their fair values.
SECURITIES AND INDEBTEDNESS OF RELATED PARTIES: Fair values for loans and
advances are estimated by discounting expected cash flows using interest rates
currently being offered for similar investments. As allowed by Statement No.
107, fair values are not assigned to investments accounted for using the equity
method.
ASSETS AND LIABILITIES OF SEPARATE ACCOUNTS: Separate account assets and
liabilities are reported at estimated fair value in the Company's consolidated
balance sheets.
FUTURE POLICY BENEFITS AND OTHER POLICYHOLDERS' FUNDS: Fair values of the
Company's liabilities under contracts not involving significant mortality or
morbidity risks (principally deferred annuities, deposit administration funds
and supplementary contracts) are stated at cash surrender value, the cost the
Company would incur to extinguish the liability. The Company is not required to
estimate the fair value of its liabilities under other contracts.
50
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SHORT-TERM AND LONG-TERM DEBT: The fair values for long-term debt are estimated
using discounted cash flow analysis based on the Company's current incremental
borrowing rate for similar types of borrowing arrangements. For short-term debt,
the carrying value approximates fair value.
COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED STOCK OF SUBSIDIARY TRUST:
Fair values are estimated by discounting expected cash flows using interest
rates currently being offered for similar securities.
OTHER PREFERRED STOCK: The carrying amount reported in the consolidated balance
sheets, which equals redemption value, approximates fair value.
The following sets forth a comparison of the fair values and carrying values of
the Company's financial instruments subject to the provisions of Statement No.
107:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------
1998 1997
----------------------------------- -----------------------------------
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
----------------- ---------------- ---------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities:
Held for investment.................. $ 492,288 $ 516,729 $ 639,598 $ 663,315
Available for sale................... 1,950,044 1,950,044 1,711,578 1,711,578
Equity securities....................... 35,287 35,287 57,736 57,736
Mortgage loans on real estate........... 299,372 311,012 323,605 337,868
Policy loans............................ 123,328 144,264 121,941 131,311
Other long-term investments............. 10,210 10,610 14,438 14,036
Cash and short-term investments......... 84,744 84,744 34,470 34,470
Securities and indebtedness of related
parties.............................. 4,812 5,288 5,451 5,829
Assets held in separate accounts........ 190,111 190,111 138,409 138,409
LIABILITIES
Future policy benefits.................. $ 1,020,080 $ 996,428 $ 1,013,503 $ 988,535
Other policyholders' funds.............. 230,945 230,945 221,675 221,675
Short-term debt......................... 24,500 24,500 -- --
Short-term debt payable to affiliate.... 8,626 8,626 -- --
Long-term debt.......................... 71 75 24,577 24,583
Liabilities related to separate accounts 190,111 190,111 138,409 138,409
MINORITY INTEREST IN SUBSIDIARIES
Company-obligated mandatorily redeemable
preferred stock of subsidiary trust.. $ 97,000 $ 53,024 $ 97,000 $ 54,921
Other preferred stock................... 4,503 4,503 4,503 4,503
</TABLE>
51
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. REINSURANCE AND POLICY PROVISIONS
An analysis of the value of insurance in force acquired for 1998, 1997 and 1996
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Excluding impact of net unrealized investment gains and
losses:
Balance at beginning of year............................. $ 17,105 $ 18,824 $ 18,900
Accretion of interest during the year.................... 973 1,062 1,226
Amortization of asset.................................... (2,239) (2,781) (1,302)
-------------- -------------- --------------
Balance prior to impact of net unrealized investment gains
and losses............................................... 15,839 17,105 18,824
Impact of net unrealized investment gains and losses........ (1,306) (1,061) 1,104
-------------- -------------- --------------
Balance at end of year...................................... $ 14,533 $ 16,044 $ 19,928
============== ============== ==============
</TABLE>
Net amortization of the value of insurance in force acquired, based on expected
future gross profits/margins, for the next five years and thereafter is expected
to be as follows: 1999 - $1.0 million; 2000 - $1.1 million; 2001 - $1.1 million;
2002 - $1.0 million; 2003 - $1.0 million; and thereafter, through 2023 - $10.6
million.
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
reinsurance to other insurance enterprises or reinsurers. Reinsurance coverages
for life insurance vary according to the age and risk classification of the
insured with retention limits ranging up to $0.5 million of coverage per
individual life. The Company does not use financial or surplus relief
reinsurance. Life insurance in force ceded on a consolidated basis totaled
$1,298.7 million (6.6% of total life insurance in force) at December 31, 1998
and $1,248.6 million (6.8% of total life insurance in force) at December 31,
1997.
Reinsurance contracts do not relieve the Company of its obligations to its
policyholders. To the extent that reinsuring companies are later unable to meet
obligations under reinsurance agreements, the Company's life insurance
subsidiaries would be liable for these obligations, and payment of these
obligations could result in losses to the Company. To limit the possibility of
such losses, the Company evaluates the financial condition of its reinsurers and
monitors concentrations of credit risk.
No allowance for uncollectible amounts has been established against the
Company's asset for reinsurance recoverable since none of the receivables are
deemed to be uncollectible. Insurance premiums and product charges have been
reduced by $5.9 million, $6.0 million and $5.7 million and insurance benefits
have been reduced by $2.2 million, $6.6 million and $5.1 million during 1998,
1997 and 1996, respectively, as a result of cession agreements.
Prior to 1998, the amount of reinsurance assumed was not significant. In
December 1998, the Company assumed a block of ordinary annuity policies with
reserves totaling $22.0 million. In addition, beginning in 1998, the Company
began assuming variable annuity business from an equity investee through a
modified coinsurance arrangement. Product charges from this business were not
significant during 1998.
52
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unpaid claims on accident and health policies (entirely disability income
products) include amounts for losses and related adjustment expense and are
estimates of the ultimate net costs of all losses, reported and unreported.
These estimates are subject to the impact of future changes in claim severity,
frequency and other factors. The activity in the liability for unpaid claims and
related adjustment expense, net of reinsurance, is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Unpaid claims liability, net of related reinsurance, at
beginning of year....................................... $ 21,199 $ 14,801 $ 14,964
Add:
Provision for claims occurring in the current year...... 5,520 8,289 5,334
Increase (decrease) in estimated expense for claims
occurring in the prior years......................... (519) 3,038 (485)
-------------- -------------- --------------
Incurred claim expense during the current year............. 5,001 11,327 4,849
Deduct expense payments for claims occurring during:
Current year............................................ 2,200 2,010 1,996
Prior years............................................. 3,294 2,919 3,016
-------------- -------------- --------------
5,494 4,929 5,012
-------------- -------------- --------------
Unpaid claims liability, net of related reinsurance, at end
of year................................................. 20,706 21,199 14,801
Active life reserve........................................ 17,632 16,924 16,419
-------------- -------------- --------------
Net accident and health reserves........................... 38,338 38,123 31,220
Reinsurance ceded.......................................... 612 2,940 2,498
-------------- -------------- --------------
Gross accident and health reserves......................... $ 38,950 $ 41,063 $ 33,718
============== ============== ==============
</TABLE>
Reserves for unpaid claims are developed using industry mortality and morbidity
data. One year development on prior year reserves represents Company experience
being more or less favorable than that of the industry. Over time, the Company
expects its experience with respect to disability income business to be
comparable to that of the industry. A certain level of volatility in development
is inherent in these reserves since the underlying block of business is
relatively small.
6. INCOME TAXES
The Company files a consolidated federal income tax return with Utah Insurance,
Farm Bureau Life and certain of its subsidiaries and FBL Financial Services,
Inc. and its subsidiaries. The companies included in the consolidated federal
income tax return each report current income tax expense as allocated under a
consolidated tax allocation agreement. Generally, this allocation results in
profitable companies recognizing a tax provision as if the individual company
filed a separate return and loss companies recognizing benefits to the extent
their losses contribute to reduce consolidated taxes. Western Life files a
separate federal income tax return.
Deferred income taxes have been established based upon the temporary differences
between the financial statement and income tax bases of assets and liabilities.
The reversal of the temporary differences will result in taxable or deductible
amounts in future years when the related asset or liability is recovered or
settled.
53
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Income tax expenses (credits) are included in the consolidated financial
statements as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Taxes provided in consolidated statements of income on:
Income from continuing operations before minority
interest in earnings of subsidiaries and equity income:
Current.............................................. $ 23,432 $ 46,996 $ 35,656
Deferred............................................. 2,972 (8,629) 3,004
-------------- -------------- --------------
26,404 38,367 38,660
Equity income:
Current.............................................. 575 1,048 1,746
Deferred............................................. 79 78 597
-------------- -------------- --------------
654 1,126 2,343
Taxes provided in consolidated statements of changes in
stockholders' equity:
Change in net unrealized investment gains/losses -
deferred............................................. 1,570 10,734 (5,470)
Adjustment resulting from capital transaction of equity
investee - deferred.................................. (33) -- 2,617
Adjustment resulting from the issuance of shares under
stock option plan - current.......................... (1,286) (335) --
-------------- -------------- --------------
251 10,399 (2,853)
-------------- -------------- --------------
$ 27,309 $ 49,892 $ 38,150
============== ============== ==============
</TABLE>
The effective tax rate on income from continuing operations before income taxes,
minority interest in earnings of subsidiaries and equity income is different
from the prevailing federal income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income from continuing operations before income taxes,
minority interest in earnings of subsidiaries and equity
income.................................................. $ 83,006 $ 114,587 $ 118,900
============== ============== ==============
Income tax at federal statutory rate (35%).................. $ 29,052 $ 40,105 $ 41,615
Tax effect (decrease) of:
Dividends on company-obligated mandatorily redeemable
preferred stock of subsidiary trust................... (1,698) (990) -
Tax-exempt interest income.............................. (280) (336) (397)
Tax-exempt dividend income.............................. (229) (1,186) (1,253)
State income taxes...................................... (207) 240 231
Other items............................................. (234) 534 (1,536)
-------------- -------------- --------------
Income tax expense.......................................... $ 26,404 $ 38,367 $ 38,660
============== ============== ==============
</TABLE>
54
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The tax effect of temporary differences giving rise to the Company's deferred
income tax assets and liabilities at December 31, 1998 and 1997, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1997
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred income tax liabilities:
Fixed maturity and equity securities.................................. $ 34,214 $ 35,654
Deferred policy acquisition costs..................................... 57,114 51,955
Value of insurance in force acquired.................................. 5,087 5,613
Other................................................................. 16,747 17,631
------------- -------------
113,162 110,853
Deferred income tax assets:
Future policy benefits................................................ (44,684) (44,071)
Accrued dividends..................................................... (4,045) (3,533)
Accrued pension costs................................................. (10,729) (11,485)
Other................................................................. (7,207) (8,172)
------------- -------------
(66,665) (67,261)
------------- -------------
Deferred income tax liability............................................. $ 46,497 $ 43,592
============= =============
</TABLE>
Prior to 1984, a portion of current income of the Company's life insurance
subsidiaries was not subject to current income taxation, but was accumulated,
for tax purposes, in a memorandum account designated as "policyholders' surplus
account." The aggregate accumulation in this account at December 31, 1998 was
$11.1 million and $0.7 million for Farm Bureau Life and Western Life,
respectively. Should the policyholders' surplus account of Farm Bureau Life and
Western Life exceed the limitation prescribed by federal income tax law, or
should distributions be made by Farm Bureau Life and Western Life to the parent
company in excess of $479.1 million and $158.3 million, respectively, such
excess would be subject to federal income taxes at rates then effective.
Deferred income taxes of $4.2 million have not been provided on amounts included
in this memorandum account.
7. CREDIT ARRANGEMENTS
As an investor in the Federal Home Loan Bank (FHLB), the Company has the right
to borrow up to $54.0 million from the FHLB as of December 31, 1998. As of
December 31, 1998 and 1997, the Company had no outstanding debt under this
credit arrangement.
During 1998, the Company entered into a $12.0 million line of credit with Farm
Bureau Mutual in the form of a revolving demand note. Borrowings on the note,
which totaled $8.6 million at December 31, 1998, are being used to acquire
assets that are leased to certain affiliates, including Farm Bureau Mutual.
Interest is payable at a rate equal to the prime rate of a national bank (7.75%
at December 31, 1998). Rental income from the related leases includes a
provision for interest on the carrying value of the assets.
Also during 1998, the Company entered into a $25.0 million short-term line of
credit. The line of credit expires on June 30, 1999 and requires the Company to
maintain minimum tangible net worth and risk-based capital ratios. The agreement
also limits the Company's ability to incur additional indebtedness. As of
December 31, 1998, the Company had no outstanding debt under this credit
arrangement.
The Company's short-term debt consists of a lease-backed note payable with an
outstanding balance of $24.5 million at December 31, 1998 and 1997. Interest on
the note is charged at a variable rate equal to LIBOR plus 0.31% (5.37% at
December 31, 1998) with a maximum rate of 14.0% per annum. The note is due
August 1999, and is secured by rentals to be received under certain operating
leases with members of the consolidated group and other affiliates.
55
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. RETIREMENT AND COMPENSATION PLANS
The Company participates with several affiliates in various defined benefit
plans covering substantially all employees. The benefits of these plans are
based primarily on years of service and employees' compensation. The Company and
affiliates have adopted a policy of allocating the net periodic pension cost of
the plans between themselves generally on a basis of time incurred by the
respective employees for each employer. Such allocations are reviewed annually.
Pension expense aggregated $5.7 million, $6.9 million and $8.6 million for 1998,
1997 and 1996, respectively.
The Company participates with several affiliates in a 401(k) defined
contribution plan which covers substantially all employees. Beginning in 1998,
the Company contributes FBL Financial Group, Inc. stock in amounts equal to 50
percent of employee contributions up to four percent of the annual salary
contributed by the employees. Costs are allocated among the affiliates on a
basis of time incurred by the respective employees for each employer. Related
expense totaled $0.3 million for 1998.
The Company has established deferred compensation plans for certain key current
and former employees and has certain other benefit plans which provide for
retirement and other benefits. These plans have been accrued or funded as deemed
appropriate by management of the Company.
Certain of the assets related to these plans are on deposit with the Company and
amounts relating to these plans are included in the financial statements herein.
In addition, certain amounts included in the policy liabilities for interest
sensitive products relate to deposit administration funds maintained by the
Company on behalf of affiliates offering substantially the same benefit programs
as the Company.
In addition to benefits offered under the aforementioned benefit plans, the
Company and several other affiliates sponsor a plan that provides group term
life insurance benefits to retired full-time employees who have worked ten years
and attained age 55 while in service with the Company. Postretirement benefit
expense is allocated in a manner consistent with pension expense discussed
above. Postretirement pension expense aggregated $0.1 million, $0.3 million and
$0.1 million for 1998, 1997 and 1996, respectively.
9. STOCK COMPENSATION
During 1996, the Company adopted the 1996 Class A Common Stock Compensation Plan
(the Plan) under which incentive stock options, nonqualified stock options,
bonus stock, restricted stock and stock appreciation rights may be granted to
directors, officers and employees. Option shares granted to directors are fully
vested upon grant and have a contractual term that varies with the length of
time the director remains on the Board. Option shares granted to officers and
employees generally vest over a period up to five years contingent upon
continued employment with the Company and have a contractual term of 10 years.
Information relating to stock options during 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
NUMBER OF EXERCISE PRICE TOTAL
SHARES PER SHARE EXERCISE PRICE
-------------- ---------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Shares granted during 1996 and under option at
December 31, 1996....................................... 1,642,464 $ 8.83 $ 14,511
Granted................................................. 137,684 13.04 1,795
Exercised............................................... 136,578 8.79 1,201
Forfeited............................................... 39,898 8.80 351
-------------- --------------
Shares under option at December 31, 1997.................... 1,603,672 9.20 $ 14,754
Granted................................................. 105,143 19.56 2,057
Exercised............................................... 276,807 8.84 2,446
Forfeited............................................... 4,156 16.12 67
-------------- --------------
Shares under option at December 31, 1998.................... 1,427,852 10.01 $ 14,298
============== ==============
Exercisable options:
December 31, 1997....................................... 514,330 $ 8.99 $ 4,626
December 31, 1998....................................... 610,258 9.87 6,022
</TABLE>
56
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Information regarding stock options outstanding at December 31, 1998 is as
follows:
<TABLE>
<CAPTION>
CURRENTLY EXERCISABLE
------------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE PRICE EXERCISE PRICE
OUTSTANDING LIFE (IN YEARS) PER SHARE NUMBER PER SHARE
------------- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Range of exercise prices:
At $8.75..................... 1,149,922 7.49 $ 8.75 517,448 $ 8.75
$8.76 - $14.00............... 155,881 8.01 12.06 52,706 12.00
$14.01 - $19.25.............. 86,630 8.99 18.07 11,588 18.39
$19.26 - $23.25.............. 35,419 9.16 22.36 28,516 22.75
------------- ------------
$8.75 - $23.25............... 1,427,852 7.68 10.01 610,258 9.87
============= ============
</TABLE>
At December 31, 1998 and 1997, shares of Class A common stock available for
grant as additional awards under the Plan totaled 1,658,763 and 1,759,750,
respectively.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25), and related Interpretations in accounting
for its stock options. Under APB 25, because the exercise price of the Company's
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized. Under the alternative accounting
method provided by Statement No. 123, compensation expense is recognized in an
amount equal to the estimated fair value of stock options on the date of grant.
The Company has not adopted the accounting provisions of Statement No. 123
because the valuation of non-traded stock options is highly subjective and, in
management's opinion, the existing pricing models do not necessarily provide a
reliable single measure of the fair value of the Company's options.
Pro forma information regarding net income and earnings per common share is
required by Statement No. 123, and has been determined as if the Company had
accounted for its stock options under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1998, 1997 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1998 1997 1996
---------------- ---------------- -----------------
<S> <C> <C> <C>
Risk-free interest rate....................................... 5.40 % 6.34 % 6.50 %
Dividend yield................................................ 1.40 % 1.60 % 1.60 %
Volatility factor of the expected market price................ 0.12 0.12 0.12
Weighted-average expected life................................ 4.9 years 5.1 years 5.1 years
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. The
Company's employee stock options have characteristics significantly different
from those of traded options and the subjective input assumptions can materially
affect the fair value estimate produced by the Black-Scholes option valuation
model.
57
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma net earnings and earnings per common share were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1998 1997 1996
--------------- --------------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income - as reported...................................... $ 53,940 $ 75,827 $ 82,884
Net income - pro forma........................................ 53,273 75,240 82,488
Earnings per common share - as reported....................... 1.60 2.03 1.87
Earnings per common share - pro forma......................... 1.58 2.01 1.86
Earnings per common share - assuming dilution, as reported.... 1.56 1.99 1.86
Earnings per common share - assuming dilution, pro forma...... 1.55 1.98 1.85
Weighted-average fair value of options granted during the year 3.27 2.29 1.77
</TABLE>
The pro forma impact is likely to increase in future years as additional options
are granted and amortized ratably over the vesting period.
10. STOCKHOLDERS' EQUITY OF SUBSIDIARIES
REDEEMABLE PREFERRED STOCK OF SUBSIDIARY
Western Life is authorized to issue up to 100,000 shares of redeemable preferred
stock in series at $200.00 per share. There were 22,517 preferred shares
outstanding at December 31, 1998 and 1997, all of which are currently redeemable
at the option of Western Life. Dividends accrue at fixed or variable rates
depending on the series and can range from 7.5% to 15.0%. Under certain
circumstances and with respect to certain matters, the holders of redeemable
preferred stock are entitled to vote separately as a class. The redeemable
preferred stock and related dividends are reported as minority interest in
subsidiaries in the consolidated financial statements.
STATUTORY LIMITATIONS ON SUBSIDIARY DIVIDENDS
The ability of Farm Bureau Life and Western Life to pay dividends to the parent
company is restricted because prior approval of insurance regulatory authorities
is required for payment of dividends to the stockholder which exceed an annual
limitation. During 1999, Farm Bureau Life and Western Life could pay dividends
to the parent company of approximately $41.0 million and $14.6 million,
respectively, without prior approval of insurance regulatory authorities.
STATUTORY ACCOUNTING POLICIES
The financial statements of the Company's insurance subsidiaries included herein
differ from related statutory-basis financial statements principally as follows:
(a) the bond portfolio is segregated into held-for-investment (carried at
amortized cost) and available-for-sale (carried at fair value) classifications
rather than generally being carried at amortized cost; (b) acquisition costs of
acquiring new business are deferred and amortized over the life of the policies
rather than charged to operations as incurred; (c) future policy benefit
reserves for participating traditional life insurance products are based on net
level premium methods and guaranteed cash value assumptions which may differ
from statutory reserves; (d) future policy benefit reserves on certain interest
sensitive products are based on full account values, rather than discounting
methodologies utilizing statutory interest rates; (e) deferred income taxes are
provided for the difference between the financial statement and income tax bases
of assets and liabilities; (f) net realized gains or losses attributed to
changes in the level of market interest rates are recognized as gains or losses
in the statements of income when the sale is completed rather than deferred and
amortized over the remaining life of the fixed maturity security or mortgage
loan; (g) declines in the estimated realizable value of investments are charged
to the statements of income when such declines are judged to be other than
temporary rather than through the establishment of a formula-determined
statutory investment reserve (carried as a liability), changes in which are
charged directly to surplus; (h) agents' balances and certain other assets
designated as "non-admitted assets" for statutory purposes are reported as
assets rather than being charged to surplus; (i) revenues for interest sensitive
and variable products consist of policy charges for the cost of insurance,
policy administration charges, amortization of policy initiation fees and
surrender charges assessed rather than premiums received; (j) pension income or
expense is recognized in accordance with Statement No. 87, "Employers'
Accounting for Pensions" rather than in accordance
58
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
with rules and regulations permitted by the Employee Retirement Income Security
Act of 1974; (k) the financial statements of subsidiaries are consolidated with
those of the insurance subsidiary; and (l) assets and liabilities are restated
to fair values when a change in ownership occurs that is accounted for as a
purchase, with provisions for goodwill and other intangible assets, rather than
continuing to be presented at historical cost.
Net income of the life insurance subsidiaries, as determined in accordance with
statutory accounting practices, was $52.5 million, $85.3 million and $83.0
million for 1998, 1997 and 1996, respectively. Statutory net gain from
operations for the life insurance subsidiaries, which excludes realized gains
and losses, totaled $56.0 million, $46.9 and $43.3 million for 1998, 1997 and
1996, respectively. Statutory capital and surplus, after appropriate elimination
of intercompany accounts, totaled $376.9 million at December 31, 1998 and $360.8
million at December 31, 1997.
11. MANAGEMENT AND OTHER AGREEMENTS
The Company shares certain office facilities and services with the Iowa Farm
Bureau Federation and its affiliated companies. These expenses are allocated by
the Company on the basis of cost and time studies that are updated annually and
consist primarily of salaries and related expenses, travel, and other operating
costs.
The Company has management agreements with Farm Bureau Mutual and other
affiliates under which the Company provides general business, administrative and
management services. Fee income for these services totaled $0.5 million, $0.2
million and $0.2 million during 1998, 1997 and 1996, respectively. In addition,
Farm Bureau Management Corporation, a wholly-owned subsidiary of the Iowa Farm
Bureau Federation, provides certain management services to the Company under a
separate arrangement. During 1998, 1997 and 1996, the Company incurred related
expenses totaling $0.7 million, $0.8 million and $2.6 million, respectively.
The Company has marketing agreements with the property-casualty companies
operating within its marketing territory, including Farm Bureau Mutual and other
affiliates. Under the marketing agreements, the property-casualty companies are
responsible for development and management of the Company's agency force for a
fee equal to a percentage of commissions on first year life insurance premiums
and annuity deposits. During 1998, 1997 and 1996, the Company paid $4.5 million,
$3.9 million and $3.6 million, respectively, to the property-casualty companies
under these arrangements.
The Company is licensed by the Iowa Farm Bureau Federation to use the "Farm
Bureau" and "FB" designations in Iowa. In connection with this license,
royalties of $0.7 million, $0.5 million and $0.4 million were paid to the Iowa
Farm Bureau Federation for 1998, 1997 and 1996, respectively. The Company has
similar arrangements with Farm Bureau organizations in other states in its
market territory. Total royalties paid to Farm Bureau organizations other than
the Iowa Farm Bureau Federation for 1998, 1997 and 1996 were $1.0 million, $1.1
million and $0.8 million, respectively.
Beginning in 1998, the Company has administrative services agreements with an
equity investee under which the Company provides underwriting, claims
processing, accounting, compliance and other administrative services relating to
certain variable insurance products underwritten by the affiliate. Fee income
from performing these services totaled $0.2 million during 1998.
12. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company may be involved in litigation
where amounts are alleged that are substantially in excess of contractual policy
benefits or certain other agreements. At December 31, 1998, management is not
aware of any claims for which a material loss is reasonably possible.
The Company leases its home office properties under a 15-year operating lease.
Future remaining minimum lease payments under this lease as of December 31, 1998
are as follows: 1999 - $1.7 million; 2000 - $2.1 million; 2001 - $2.1 million;
2002 - $2.1 million; 2003 - $2.3 million and thereafter, through 2013 - $23.6
million. Rent expense for the lease during 1998 totaled $1.3 million, net of
$1.0 million in amortization of the deferred gain on the exchange of home office
properties for common stock (see Note 2).
In connection with an investment in a limited real estate partnership, the
Company has agreed to pay any cash flow deficiencies of a medium-sized shopping
center owned by the partnership through January 1, 2001. At December
59
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
31, 1998, the Company recorded a $0.3 million reserve for expected future cash
flow deficiencies. No reserves were recorded at December 31, 1997. At December
31, 1998, the limited partnership had a $5.3 million mortgage loan, secured by
the shopping center, with Farm Bureau Mutual Insurance Company.
13. EARNINGS PER SHARE
The following table sets forth the computation of earnings per common share and
earnings per common share - assuming dilution:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1998 1997 1996
-------------- -------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Numerator:
Income from continuing operations ...................... $ 52,675 $ 75,128 $ 84,049
Income (loss) from discontinued operations ............. 1,265 699 (1,165)
-------------- -------------- --------------
Net income ............................................. 53,940 75,827 82,884
Dividends on Series A and B preferred stock ............ (150) (2,171) (2,250)
-------------- -------------- --------------
Numerator for earnings per common share-income
available to common stockholders ................ $ 53,790 $ 73,656 $ 80,634
============== ============== ==============
Denominator:
Denominator for earnings per common share -
weighted-average shares ............................. 33,568,852 36,332,858 43,144,258
Effect of dilutive securities - employee stock options . 831,661 638,378 126,134
-------------- -------------- --------------
Denominator for diluted earnings per common share -
adjusted weighted-average shares ................ 34,400,513 36,971,236 43,270,392
============== ============== ==============
Earnings per common share:
Income from continuing operations ...................... $ 1.56 $ 2.01 $ 1.90
Income (loss) from discontinued operations ............. 0.04 0.02 (0.03)
-------------- -------------- --------------
Earnings per common share .............................. $ 1.60 $ 2.03 $ 1.87
============== ============== ==============
Earnings per common share - assuming dilution:
Income from continuing operations ...................... $ 1.52 $ 1.97 $ 1.89
Income (loss) from discontinued operations ............. 0.04 0.02 (0.03)
-------------- -------------- --------------
Earnings per common share - assuming dilution .......... $ 1.56 $ 1.99 $ 1.86
============== ============== ==============
</TABLE>
14. DISCONTINUED OPERATIONS
On March 31, 1998, the Company sold its wholly-owned subsidiary, Utah Insurance,
to Farm Bureau Mutual. The Company recorded a gain on the sale of $1.0 million,
consisting of $0.2 million on the transaction date and $0.8 million accrued in
connection with an earn-out provision included in the underlying sales
agreement. The gain is net of an income tax benefit of $0.5 million resulting
from the reversal of cumulative temporary differences between the book and
income tax bases of Utah Insurance's assets and liabilities.
The Company may earn additional consideration during each of the four years in
the period ended December 31, 2002 in accordance with the earn-out provision.
Under the earn-out arrangement, the Company and Farm Bureau Mutual share equally
in the dollar amount by which the incurred losses on Utah Insurance's direct
business, net of reinsurance ceded, is less than the incurred losses assumed in
the valuation model used to derive the initial acquisition price. The earn-out
calculation is performed and any settlement (subject to a maximum of $2.0
million per year) is made on a calendar year basis. The Company has not accrued
any contingent consideration for the four year period ending December 31, 2002
as such amounts, if any, cannot be reasonably estimated as of December 31, 1998.
Receipts as a result of the earn-out provision are recorded as an adjustment to
the gain on the disposal of the discontinued segment.
60
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Income (loss) from discontinued operations was comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues................................................... $ 12,902 $ 53,199 $ 35,698
Benefits and expenses...................................... 12,579 52,522 37,745
-------------- -------------- --------------
Pre-tax income (loss)................................... 323 677 (2,047)
Income tax expense (credit)................................ 36 (22) (882)
-------------- -------------- --------------
Income (loss)........................................... $ 287 $ 699 $ (1,165)
=============== =============== ==============
</TABLE>
15. SEGMENT INFORMATION
In general, the Company is organized by the types of products and services it
offers for sale. The Company's principal and only reportable operating segment
is its life insurance segment. The life insurance segment includes activities
related to the sale of life insurance, annuities and accident and health
insurance products. Operations have been aggregated into the same segment due to
the similarity of the products, including the underlying economic
characteristics, the method of distribution and the regulatory environment. The
Company also has several other operating segments that do not meet the
quantitative threshold for separate segment reporting and, therefore, are
aggregated herein. A summary of these segments, along with the related source of
revenues, is as follows:
SEGMENT SOURCE OF REVENUES
Investment advisory........... Fee income from the management of investments
Marketing and distribution.... Commissions and distribution fee income from
the sale of mutual funds and insurance
products not issued by the Company
Leasing....................... Income from operating leases
Corporate..................... Fees from management and administrative
services
As noted above, the Company also had a property-casualty insurance segment prior
to March 31, 1998. Revenues from this segment were derived from the sale of
property and casualty insurance policies. See Note 14, "Discontinued
Operations", for additional information regarding this segment.
61
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Financial information concerning the Company's operating segments for 1998, 1997
and 1996 is as follows:
<TABLE>
<CAPTION>
LIFE
INSURANCE ALL OTHER SUBTOTAL ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues from external customers:
1998 ............................. $ 371,230 36,939 $ 408,169 $ (18,548) $ 389,621
1997 ............................. 406,712 32,903 439,615 (18,264) 421,351
1996 ............................. 401,978 25,628 427,606 (14,233) 413,373
Intersegment revenues:
1998 ............................. 934 17,614 18,548 (18,548) --
1997 ............................. 1,162 17,102 18,264 (18,264) --
1996 ............................. 1,900 12,333 14,233 (14,233) --
Net investment income:
1998 ............................. 228,494 216 228,710 (643) 228,067
1997 ............................. 220,328 326 220,654 (288) 220,366
1996 ............................. 208,250 364 208,614 (349) 208,265
Depreciation and amortization:
1998 ............................. 1,111 9,518 10,629 -- 10,629
1997 ............................. 8,714 8,562 17,276 -- 17,276
1996 ............................. 7,801 7,634 15,435 -- 15,435
Income tax expense (benefit):
1998 ............................. 27,196 (792) 26,404 -- 26,404
1997 ............................. 38,007 360 38,367 -- 38,367
1996 ............................. 37,801 859 38,660 -- 38,660
Income (loss) from continuing
operations:
1998 ............................. 53,661 (986) 52,675 -- 52,675
1997 ............................. 74,907 221 75,128 -- 75,128
1996 ............................. 83,028 1,021 84,049 -- 84,049
Assets:
December 31, 1998 ................ 3,602,015 175,996 3,778,011 (127,051) 3,650,960
December 31, 1997 ................ 3,466,489 154,308 3,620,797 (125,943) 3,494,854
</TABLE>
The Company's investment in equity method investees and the related equity
income are attributable to the life insurance segment. The exchange of the
Company's home office properties for Class A common stock described in Note 2 is
attributable to the life insurance segment.
Transactions between segments are recorded at negotiated rates generally
intended to be at levels commensurate with charges that would be assessed to
unaffiliated parties. Interest expense and expenditures for long-lived assets
were not significant during 1998, 1997 and 1996.
62
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Unaudited quarterly results of operations are as follows:
<TABLE>
<CAPTION>
1998
-----------------------------------------------------------
QUARTER ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Premiums and product charges ............. $ 35,496 $ 39,548 $ 35,119 $ 35,467
Net investment income .................... 56,070 58,603 56,587 56,807
Realized gains (losses) on investments ... 1,312 (4,169) 475 (2,496)
Total revenues ........................... 98,162 99,006 97,239 95,214
Income from continuing operations ........ 13,076 12,870 14,198 12,531
Discontinued operations .................. 466 -- -- 799
Net income ............................... 13,542 12,870 14,198 13,330
Net income applicable to common stock .... 13,505 12,832 14,160 13,293
Earnings per common share:
Income from continuing operations ..... $ 0.36 $ 0.39 $ 0.43 $ 0.38
Income from discontinued operations ... 0.02 -- -- 0.03
------------ ------------ ------------ ------------
Earnings per common share ............. $ 0.38 $ 0.39 $ 0.43 $ 0.41
============ ============ ============ ============
Earnings per common share - assuming
dilution:
Income from continuing operations ..... $ 0.35 $ 0.38 $ 0.42 $ 0.37
Income from discontinued operations ... 0.02 -- -- 0.03
------------ ------------ ------------ ------------
Earnings per common share - assuming
dilution ............................ $ 0.37 $ 0.38 $ 0.42 $ 0.40
============ ============ ============ ============
<CAPTION>
1997
-----------------------------------------------------------
QUARTER ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Premiums and product charges ............. $ 33,844 $ 38,763 $ 34,406 $ 33,494
Net investment income .................... 53,882 55,063 55,232 56,189
Realized gains on investments ............ 21,836 2,089 10,533 6,495
Total revenues ........................... 113,843 100,679 104,911 101,918
Income from continuing operations ........ 26,529 12,863 20,285 15,451
Discontinued operations .................. 24 (25) (161) 861
Net income ............................... 26,553 12,838 20,124 16,312
Net income applicable to common stock .... 25,303 11,992 20,087 16,274
Earnings per common share:
Income from continuing operations ..... $ 0.67 $ 0.33 $ 0.56 $ 0.43
Income from discontinued operations ... -- -- -- 0.02
------------ ------------ ------------ ------------
Earnings per common share ............. $ 0.67 $ 0.33 $ 0.56 $ 0.45
============ ============ ============ ============
Earnings per common share - assuming
dilution:
Income from continuing operations ..... $ 0.66 $ 0.33 $ 0.55 $ 0.42
Income from discontinued operations ... -- -- -- 0.02
------------ ------------ ------------ ------------
Earnings per common share - assuming
dilution ............................ $ 0.66 $ 0.33 $ 0.55 $ 0.44
============ ============ ============ ============
</TABLE>
Earnings per common share for each quarter is computed independently of earnings
per common share for the year. As a result, the sum of the quarterly earnings
per common share amounts may not equal the earnings per common share for the
year due primarily to transactions affecting the number of weighted average
common shares outstanding in each quarter.
63
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
The information required by Part III is hereby incorporated by reference from
the Registrant's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A within 120 days after December 31, 1998.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements. See index to Financial Statements on page 29 for
a list of financial statements included in this Report.
2. Financial Statement Schedules. The following financial statement
schedules are included as part of this Report immediately following
the signature page:
Schedule I -- Summary of Investments
Schedule II -- Condensed Financial Information of Registrant (Parent
Company)
Schedule III -- Supplementary Insurance Information
Schedule IV -- Reinsurance
All other schedules are omitted, either because they are not applicable, not
required, or because the information they contain is included elsewhere in the
consolidated financial statements or notes.
3. Exhibits.
3.4 Restated Bylaws of the Registrant
21 Subsidiaries of FBL Financial Group, Inc.
23 Consent of Independent Auditors
27 Financial Data Schedule
(b) Reports on Form 8-K.
None
64
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, this 16th day of March,
1999.
FBL Financial Group, Inc.
By: /s/ EDWARD M. WIEDERSTEIN
--------------------------
Edward M. Wiederstein
CHAIRMAN OF THE BOARD
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated;
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------ ------------------------------------------------ ------------------
<S> <C> <C>
/s/ THOMAS R. GIBSON Chief Executive Officer and Director (Principal March 16, 1999
- -------------------- Executive Officer)
Thomas R. Gibson
/s/ JAMES W. NOYCE Chief Financial Officer (Principal Financial and March 16, 1999
- ------------------ Accounting Officer)
James W. Noyce
/s/ EDWARD M. WIEDERSTEIN Chairman of the Board and Director March 16, 1999
- -------------------------
Edward M. Wiederstein
/s/ ROGER BILL MITCHELL First Vice Chair and Director March 16, 1999
- -----------------------
Roger Bill Mitchell
/s/ KAREN J. HENRY Second Vice Chair and Director March 16, 1999
- ------------------
Karen J. Henry
/s/ KENNETH R. ASHBY Director March 16, 1999
- --------------------
Kenneth R. Ashby
/s/ JERRY L. CHICOINE Director March 16, 1999
- ---------------------
Jerry L. Chicoine
/s/ AL CHRISTOPHERSON Director March 16, 1999
- ---------------------
Al Christopherson
/s/ JOHN W. CREER Director March 16, 1999
- -----------------
John W. Creer
/s/ KENNY J. EVANS Director March 16, 1999
- ------------------
Kenny J. Evans
/s/ JACK M. GIVENS Director March 16, 1999
- ------------------
Jack M. Givens
/s/ GARY L. HALL Director March 16, 1999
- ----------------
Gary L .Hall
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------ ------------------------------------------------ ------------------
<S> <C> <C>
/s/ JAMES K. HARMON Director March 16, 1999
- -------------------
James K. Harmon
/s/ RICHARD G. KJERSTAD Director March 16, 1999
- -----------------------
Richard G. Kjerstad
/s/ DAVID L. MCCLURE Director March 16, 1999
- --------------------
David L. McClure
/s/ BRYCE P. NEIDIG Director March 16, 1999
- -------------------
Bryce P. Neidig
/s/ HOWARD D. POULSON Director March 16, 1999
- ---------------------
Howard D. Poulson
/s/ FRANK S. PRIESTLEY Director March 16, 1999
- ----------------------
Frank S. Priestley
/s/ JOHN J. VAN SWEDEN Director March 16, 1999
- ----------------------
John J. Van Sweden
/s/ JOHN E. WALKER Director March 16, 1999
- ------------------
John E. Walker
/s/ RICHARD D. HARRIS Senior Vice President, Secretary, Treasurer and March 16, 1999
- --------------------- Director
Richard D. Harris
/s/ STEPHEN M. MORAIN Senior Vice President, General Counsel and March 16, 1999
- --------------------- Director
Stephen M. Morain
</TABLE>
66
<PAGE>
REPORT OF INDEPENDENT AUDITORS ON SCHEDULES
The Board of Directors and Stockholders
FBL Financial Group, Inc.
We have audited the consolidated balance sheets of FBL Financial Group, Inc. as
of December 31, 1998 and 1997, and the related consolidated statements of
income, changes in stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1998, and have issued our report thereon
dated February 15, 1999 (included elsewhere in this Form 10-K). Our audits also
included the financial statement schedules listed in Item 14(a) of this Form
10-K. These schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 15, 1999
67
<PAGE>
SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER
THAN INVESTMENTS IN RELATED PARTIES
FBL FINANCIAL GROUP, INC.
DECEMBER 31, 1998
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
- ------------------------------------------------ --------------------- --------------------- ---------------------
AMOUNT AT WHICH
SHOWN IN THE
TYPE OF INVESTMENT COST (1) VALUE BALANCE SHEET
- ------------------------------------------------ --------------------- --------------------- ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturity securities, held for investment:
Bonds:
Corporate securities......................... $ 5,008 $ 5,542 $ 5,008
Mortgage-backed securities................... 487,280 511,187 487,280
--------------------- --------------------- ---------------------
Total .................................... 492,288 $ 516,729 492,288
=====================
Fixed maturity securities, available for sale:
Bonds:
United States Government and agencies........ 81,674 87,045 87,045
State, municipal and other governments....... 61,194 63,609 63,609
Public utilities............................. 137,640 146,730 146,730
Corporate securities......................... 942,929 991,320 991,320
Mortgage and asset-backed securities......... 592,115 615,512 615,512
Convertible bonds............................ 16,760 16,113 16,113
Redeemable preferred stock..................... 30,549 29,715 29,715
--------------------- --------------------- ---------------------
Total..................................... 1,862,861 $ 1,950,044 1,950,044
=====================
Equity securities, available-for-sale:
Common stocks:
Public utilities............................. 2,950 3,009 3,009
Banks, trusts, and insurance companies....... 8,972 9,036 9,036
Industrial, miscellaneous, and all other..... 19,467 15,558 15,558
Nonredeemable preferred stocks................. 8,200 7,684 7,684
--------------------- --------------------- ---------------------
Total..................................... 39,589 $ 35,287 35,287
=====================
Mortgage loans on real estate................... 300,243 299,372 (2)
Investment real estate:
Acquired for debt............................ 867 867
Investment................................... 39,812 39,812
Policy loans.................................... 123,328 123,328
Other long-term investments..................... 14,197 10,210 (3)
Short-term investments.......................... 80,228 80,228
--------------------- ---------------------
$ 2,953,413 $ 3,031,436
===================== =====================
</TABLE>
(1) On the basis of cost adjusted for repayments and amortization of premiums
and accrual of discounts for fixed maturities, other long-term
investments and short-term investments; original cost for equity
securities; unpaid principal balance for mortgage loans on real estate
and policy loans, and original cost less accumulated depreciation for
investment real estate.
(2) Amount not equal to cost (Column B) because of allowance for possible
losses deducted from cost to determine reported amount.
(3) Amount not equal to cost (Column B) because other long-term investments
include securities held by broker-dealer and investment company
subsidiaries which carry securities at market value. Also, an allowance
for possible losses is deducted from cost to determine reported amount.
68
<PAGE>
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
FBL FINANCIAL GROUP, INC. (PARENT COMPANY)
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ............................................... $ 1,743 $ 409
Amounts receivable from affiliates ...................................... 2,067 2,843
Amounts receivable from subsidiaries (eliminated in consolidation) ...... 3,521 3,463
Current income taxes recoverable ........................................ 2,197 1,356
Deferred income taxes ................................................... 1,668 --
Other assets ............................................................ 3,121 2,644
Investments in subsidiaries (eliminated in consolidation) ............... 675,161 675,747
Investment in subsidiary - discontinued operations
(eliminated in consolidation) ....................................... -- 27,711
------------ ------------
Total assets ..................................................... $ 689,478 $ 714,173
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accrued expenses and other liabilities .............................. $ 1,649 $ 1,783
Amounts payable to affiliates ....................................... 437 202
Amounts payable to subsidiaries (eliminated in consolidation) ....... 3,804 6,844
Deferred income taxes ............................................... -- 29
Long-term debt (eliminated in consolidation) ........................ 100,000 100,000
------------ ------------
Total liabilities ................................................ 105,890 108,858
Stockholders' equity:
Preferred stock ..................................................... 3,000 3,000
Class A common stock ................................................ 42,034 42,907
Class B common stock ................................................ 7,558 7,567
Accumulated other comprehensive income .............................. 50,050 48,559
Retained earnings ................................................... 480,946 503,282
------------ ------------
Total stockholders' equity ....................................... 583,588 605,315
------------ ------------
Total liabilities and stockholders' equity ................. $ 689,478 $ 714,173
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
69
<PAGE>
SCHEDULE II -CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
FBL FINANCIAL GROUP, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Net investment income ..................................... $ 242 $ 22 $ 16
Dividends from subsidiaries (eliminated in consolidation) 59,244 37,038 20,096
Management fee income from affiliates ..................... 538 247 182
Management fee income from subsidiaries (eliminated in
consolidation) ......................................... 392 290 284
------------ ------------ ------------
Total revenues ......................................... 60,416 37,597 20,578
Expenses:
Interest expense (eliminated in consolidation) ............ 5,000 2,917 --
General and administrative expenses ....................... 1,083 562 278
------------ ------------ ------------
Total expenses ......................................... 6,083 3,479 278
------------ ------------ ------------
54,333 34,118 20,300
Income taxes (credits) ........................................ (1,795) (975) 61
------------ ------------ ------------
Income before equity in undistributed income (dividends in
excess of equity income) of subsidiaries and discontinued
operations ................................................ 56,128 35,093 20,239
Equity in undistributed income (dividends in excess of equity
income) of subsidiaries (eliminated in consolidation) ..... (3,453) 40,035 63,810
------------ ------------ ------------
Income from continuing operations ............................. 52,675 75,128 84,049
Discontinued operations:
Equity income from property-casualty subsidiary, net of
related income taxes ................................... 287 699 (1,165)
Gain on disposal of property-casualty subsidiary, net of
related income taxes ................................... 978 -- --
------------ ------------ ------------
Net income .................................................... 53,940 75,827 82,884
Dividends on Series A and B preferred stock ................... (150) (2,171) (2,250)
------------ ------------ ------------
Net income applicable to common stock ......................... $ 53,790 $ 73,656 $ 80,634
============ ============ ============
</TABLE>
See accompanying notes to condensed financial statements.
70
<PAGE>
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
FBL FINANCIAL GROUP, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES .......... $ (4,526) $ (4,048) $ 1,104
INVESTING ACTIVITIES
Investments in subsidiaries (eliminated in consolidation) -- -- (1,500)
Investments in subsidiary - discontinued operations
(eliminated in consolidation) ......................... -- -- (16,000)
Net proceeds from sale of subsidiary - discontinued
operations ............................................ 25,000 -- --
Dividends and return of capital from subsidiaries
(eliminated in consolidation) ......................... 13,594 37,038 20,000
------------ ------------ ------------
Net cash provided by (used in) investing activities .......... 38,594 37,038 2,500
FINANCING ACTIVITIES
Purchase of common stock ................................. (25,008) (24,834) --
Issuance of common stock ................................. 2,456 1,201 --
Dividends paid ........................................... (10,182) (9,437) (3,570)
------------ ------------ ------------
Net cash used in financing activities ........................ (32,734) (33,070) (3,570)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents ............. 1,334 (80) 34
Cash and cash equivalents at beginning of year ............... 409 489 455
------------ ------------ ------------
Cash and cash equivalents at end of year ..................... $ 1,743 $ 409 $ 489
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash received (paid) during the year for income taxes ........ $ 1,853 $ (111) $ 73
Noncash investing and financing activities:
Dividend from subsidary .................................. 45,650 -- --
Investment in subsidiaries ............................... -- (3,000) --
Issuance of long-term debt ............................... -- 100,000 --
Purchase of Series A preferred stock ..................... -- (100,000) --
Issuance of Series B preferred stock ..................... -- 3,000 --
------------ ------------ ------------
45,650 -- --
</TABLE>
See accompanying notes to condensed financial statements.
71
<PAGE>
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
FBL FINANCIAL GROUP, INC. (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. BASIS OF PRESENTATION
The accompanying condensed financial statements should be read in conjunction
with the consolidated financial statements and notes thereto of FBL Financial
Group, Inc.
In the parent company only financial statements, the Company's investments in
subsidiaries are stated at cost plus equity in undistributed earnings of
subsidiaries since the date of acquisition and net unrealized gains/losses on
the subsidiaries' investments classified as "available-for-sale" in accordance
with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities".
2. CASH DIVIDENDS FROM SUBSIDIARY
During the 1998, 1997 and 1996, the parent company received cash dividends
totaling $13.6 million, $37.0 million and $5.0 million, respectively.
72
<PAGE>
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
FBL FINANCIAL GROUP, INC.
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- -------------- -------------- --------------- -------------- ---------------
FUTURE POLICY
DEFERRED BENEFITS,
POLICY LOSSES, OTHER
ACQUISITION CLAIMS AND UNEARNED POLICYHOLDER
COSTS LOSS EXPENSES REVENUES FUNDS PREMIUM REVENUE
-------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
December 31, 1998:
Life insurance................... $ 203,581 $ 2,338,969 $ 25,373 $ 245,758 $ 145,630
=========== ============ =========== =========== ===========
December 31, 1997:
Life insurance................... $ 181,916 $ 2,304,004 $ 23,530 $ 236,479 $ 140,507
=========== ============ =========== =========== ===========
December 31, 1996:
Life insurance................... $ 164,277 $ 2,215,422 $ 22,215 $ 226,234 $ 136,434
=========== ============ =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
COLUMN A COLUMN G COLUMN H COLUMN I COLUMN J
-------- -------------- -------------- --------------- --------------
BENEFITS, AMORTIZATION
CLAIMS, OF DEFERRED
NET LOSSES AND POLICY OTHER
INVESTMENT SETTLEMENT ACQUISITION OPERATING
INCOME EXPENSES COSTS EXPENSES
-------------- -------------- --------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
December 31, 1998:
Life insurance................... $ 228,494 $ 199,671 $ 10,171 $ 53,812
Other, including eliminations.... (427) -- -- --
----------- ------------- ------------- ------------
Total............................ $ 228,067 $ 199,671 $ 10,171 $ 53,812
=========== ============= ============= ============
December 31, 1997:
Life insurance................... $ 220,328 $ 206,271 $ 8,474 $ 53,109
Other, including eliminations.... 38 -- -- --
----------- ------------- ------------- ------------
Total............................ $ 220,366 $ 206,271 $ 8,474 $ 53,109
=========== ============= ============= ============
December 31, 1996:
Life insurance................... $ 208,250 $ 198,925 $ 8,667 $ 48,594
Other, including eliminations.... 15 -- -- --
----------- ------------- ------------- ------------
Total............................ $ 208,265 $ 198,925 $ 8,667 $ 48,594
=========== ============= ============= ============
</TABLE>
73
<PAGE>
SCHEDULE IV - REINSURANCE
FBL FINANCIAL GROUP, INC.
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- -------------- -------------- -------------- -------------- --------------
PERCENT OF
CEDED TO AMOUNT
OTHER ASSUMED FROM ASSUMED TO
GROSS AMOUNT COMPANIES OTHER COMPANY NET AMOUNT NET
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Year ended December 31, 1998:
Life insurance in force, at end
of year......................... $ 19,665,773 $ 1,298,695 $ -- $ 18,367,078 --
=========== ============ ============ ============ ============
Insurance premiums and other
considerations:
Interest sensitive product
charges....................... $ 53,976 $ 1,820 $ 1 $ 52,157 --
Traditional life insurance and
accident and health premiums.. 97,591 4,118 -- 93,473 --
----------- ------------ ------------ ------------ ------------
$ 151,567 $ 5,938 $ 1 $ 145,630 -- %
=========== ============ ============ ============ ============
Year ended December 31, 1997:
Life insurance in force, at end
of year......................... $ 18,380,799 $ 1,248,564 $ -- $ 17,132,235 --
=========== ============ ============ ============ ============
Insurance premiums and other
considerations:
Interest sensitive product
charges....................... $ 49,793 $ 1,814 $ -- $ 47,979 --
Traditional life insurance and
accident and health premiums.. 96,708 4,180 -- 92,528 --
----------- ------------ ------------ ------------ ------------
$ 146,501 $ 5,994 $ -- $ 140,507 -- %
=========== ============ ============ ============ ============
Year ended December 31, 1996:
Life insurance in force, at end
of year........................ $ 17,195,432 $ 1,082,311 $ -- $ 16,113,121 --
=========== ============ ============ ============ ============
Insurance premiums and other
considerations:
Interest sensitive product
charges...................... $ 45,549 $ 1,895 $ -- $ 43,654 --
Traditional life insurance and
accident and health premiums. 96,567 3,787 -- 92,780 --
----------- ------------ ------------ ------------ ------------
$ 142,116 $ 5,682 $ -- $ 136,434 -- %
=========== ============ ============ ============ ============
</TABLE>
74
EXHIBIT 3.4
RESTATED BYLAWS
OF
FBL FINANCIAL GROUP, INC.
WITH FIRST AMENDMENT THERETO
ARTICLE I.
MEETINGS OF SHAREHOLDERS
1.1 PLACE OF MEETINGS. All meetings of the shareholders shall be
held at such place, either within or without Iowa, as from time to time may be
fixed by the Board of Directors.
1.2 ANNUAL MEETINGS. The annual meeting of the shareholders shall be
held on the third Tuesday in the month of May in each year, at the hour of 9:00
a.m., at the principal office of the Corporation, or at such other date, time
and place as may be fixed from time to time by resolution of the Board of
Directors and set forth in the notice of the meeting, for the purpose of
electing directors and transacting such other business as may properly come
before the meeting. If the day fixed for the annual meeting is a legal holiday,
such meeting shall be held on the next succeeding business day.
At an annual meeting of the shareholders, only such business shall
be conducted as shall have been properly brought before an annual meeting. To be
properly brought before an annual meeting, business must be (i) specified in the
notice of the meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (ii) otherwise properly brought before the meeting by
or at the direction of the Board of Directors or (iii) otherwise properly
brought before the meeting by a shareholder of the Corporation who was a
shareholder of record at the time of giving of notice provided for in this
Section, who is entitled to vote at the meeting and who complied with the notice
procedures set forth in this Section. For business to be properly brought before
an annual meeting by a shareholder, the shareholder must have given timely
notice thereof in writing to the Secretary of the Corporation, at the principal
executive offices of the Corporation. To be timely, a shareholder's notice shall
be delivered not less than 45 days prior to the anniversary of the mailing of
the preceding year's proxy statement; provided however, that in the event that
the date of the annual meeting is advanced by more than 30 days or delayed by
more than 60 days from the prior year's meeting date, notice by the shareholder,
to be timely, must be so delivered not later than the 90th day prior to such
annual meeting or the 10th day following the day on which public announcement
(as defined herein) of the date of such meeting is first made.
Such shareholder's notice shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the meeting and the reasons for
conducting such business at the meeting and any material interest in such
business of such shareholder and the beneficial owner, if any, on whose behalf
the proposal is made; and (ii) as to the shareholder giving the notice and the
beneficial owner, if any, on whose behalf the proposal is made (A) the name and
address of such shareholder, as they appear on the Corporation's books, and of
such beneficial owner and (B) the class and number of shares of the Corporation
which are owned beneficially and of record by such shareholder and such
beneficial owners; and (iii) in the event that such business includes a proposal
to amend either the Articles of Incorporation or the Bylaws of the Corporation,
the language of the proposed amendment. Notwithstanding anything in these Bylaws
to the contrary, no business shall be conducted at any annual meeting except in
accordance with this paragraph, and the Chairman
<PAGE>
of the Board or other person presiding at an annual meeting of shareholders, may
refuse to permit any business to be brought before an annual meeting without
compliance with the foregoing procedures. For the purposes of this paragraph
"public announcement" shall mean disclosure in a press release reported by the
Dow Jones New Service, Associated Press or comparable national news service or
in a document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Sections 13, 14 or 15(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). In addition to the provisions of this
paragraph, a shareholder shall also comply with all applicable requirements of
the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth herein. Nothing in these Bylaws shall be deemed to affect any
rights of shareholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.
1.3 SPECIAL MEETINGS. A special meeting of the shareholders for any
purpose or purposes may be called at any time by the Chairman of the Board or by
any two members of the Board of Directors. Unless otherwise provided in an
agreement to which holders of a voting group are subject, If the holders of at
least fifty percent (50%) of all votes entitled to be cast by any voting group
on any issue proposed to be considered at a proposed special meeting sign, date,
and deliver to the Secretary of the Corporation one or more written demands for
the meeting, describing the purpose or purposes for which it is to be held, the
Board of Directors shall call the requested special meeting within a reasonable
time, at a place and time determined by the Board of Directors. At a special
meeting no business shall be conducted other than that stated in the notice of
the meeting. At any special meeting of the shareholders whereat the sole purpose
of the meeting is to elect or remove only Class A Directors or only Class B
Directors, or at any other special meeting of the shareholders at which only
shareholders of Class A Common Stock or only shareholders of Class B Common
Stock are entitled to vote, only holders of the class of stock entitled to vote
are entitled to notice.
1.4 NOTICE OF MEETINGS. Written or printed notice stating the place,
day and hour of every meeting of the shareholders and, in case of a special
meeting, the purpose or purposes for which the meeting is called, shall be
mailed not less than ten nor more than sixty days before the date of the meeting
to each shareholder of record entitled to vote at such meeting, at the
shareholder's address which appears in the share transfer books of the
Corporation. Such further notice shall be given as may be required by law, but
meetings may be held without notice if all the shareholders entitled to vote at
the meeting are present in person or by proxy or if notice is waived in writing
by those not present, either before or after the meeting.
1.5 DIRECTOR NOMINATION BYLAW. Nominations of persons for election
as Class A Directors may be made by the Board of Directors or by any shareholder
entitled to vote for the election of Class A Directors. Any shareholder entitled
to vote for the election of Class A Directors may nominate a person or persons
for election as director only if written notice of such shareholder's intent is
delivered to the Secretary of the Corporation at the principal executive offices
of the Corporation (i) with respect to an election to be held at an annual
meeting of shareholders, not less than 45 days prior to the anniversary of the
mailing of the preceding year's proxy statement, or as set out below, and (ii)
with respect to an election to be held at a special meeting of shareholders for
the election of directors, not later than 10 days following the date on which
public announcement (as hereinafter defined) of the date of such meeting is
first made. For the purposes of this Bylaw "public announcement" means
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities Exchange Commission pursuant to Sections 13, 14
or 15(d) of the Exchange Act. In the event that the date of the annual meeting
is advanced by more than 30 days or delayed by more than 60 days from the date
of the prior year's annual meeting, notice by the shareholder must be delivered
not later than 90 days prior to such annual meeting, or the 10th day following
the day on which public announcement of the date of such meeting is first made.
Notwithstanding anything in the foregoing sentence to the contrary, in the event
that the number of Class A Directors to be elected to the Board of Directors of
the Corporation is increased and there is no public announcement naming all of
the nominees for director or
<PAGE>
specifying the size of the increased Board of Directors made by the Corporation
at least 100 days prior to the first anniversary of the preceding year's annual
meeting, a shareholder's notice required by this Section shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary of the
Corporation not later than the close of business on the 10th day following the
day on which such public announcement is first made.
Such shareholder's notice shall set forth: (a) the name and address
of the shareholder who intends to make the nomination and the name, address, age
and principal occupation or employment of the person or persons to be nominated;
(b) a representation that the shareholder is a holder of record of Class A
Common Stock of the Corporation entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (c) the number and class of shares of the Corporation
which are owned by such shareholder and the beneficial owner, if any, and the
number and class of shares, if any, beneficially owned by the nominee; (d) a
description of all arrangements or understandings between the shareholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
shareholder; (e) such other information regarding each nominee that is required
to be disclosed in connection with the solicitation of proxies for the election
of directors, or as otherwise required, in each case pursuant to Regulation 14A
under the Exchange Act (including, without limitation, such person's written
consent to being named in a proxy statement as a nominee and to serving as a
director if nominated). The Chairman of the Board or other person presiding at a
meeting of shareholders, may refuse to acknowledge the nomination of any person
not made in accordance with the procedures prescribed by these Bylaws, and in
that event the defective nomination shall be disregarded.
1.6 VOTING LISTS. After the record date for a meeting has been
fixed, the officer or agent having charge of the stock transfer books for shares
of the Corporation shall make a complete list of the shareholders entitled to
vote at such meeting, or any adjournment thereof, arranged by voting group and
within each voting group, in alphabetical order, with the address of and the
number and class of shares held by each, which list, for a period beginning two
business day after notice of the meeting was first given for which the list was
prepared and continuing through the meeting, shall be kept on file at the
principal office of the Corporation or at the place identified in the meeting
notice in the city where the meeting will be held. The list shall be subject to
inspection by any shareholder at any time during usual business hours. Such list
shall also be produced and kept open at the time and place of the meeting and
shall be subject to inspection of any shareholder during the whole time of the
meeting. The list furnished to the Corporation by its stock transfer agent shall
be prima facie evidence as to who are the shareholders entitled to examine such
list or transfer books or to vote at any meeting of shareholders.
1.7 QUORUM. At any meeting of the shareholders, a majority of the
votes entitled to be cast on the matter by a voting group constitutes a quorum
of that voting group for action on that matter, unless the representation of a
different number is required by law, and in that case, the representation of the
number so required shall constitute a quorum. If a quorum shall fail to attend
any meeting, the chairman of the meeting or a majority of the votes present may
adjourn the meeting to another place, date or time. When a meeting is adjourned
to another place, date or time, notice need not be given of the adjourned
meeting if the place, date and time thereof are announced at the meeting at
which the adjournment is taken; provided, however, that if the date of any
adjourned meeting is more than one hundred twenty (120) days after the date for
which the meeting was originally noticed, or if a new record date is fixed for
the adjourned meeting, notice of the place, date and time of the adjourned
meeting shall be given in conformity herewith. At any adjourned meeting, any
business may be transacted which might have been transacted at the original
meeting.
1.8 PROXIES. At all meetings of shareholders, a shareholder may vote
by proxy executed in writing by the shareholder or by the shareholder's duly
authorized attorney in fact. Such proxy shall be filed with the
<PAGE>
Secretary of the Corporation before or at the time of the meeting. No proxy
shall be valid after eleven months from the date of its execution, unless
otherwise provided in the proxy. No holder of any share of any class of stock of
the Corporation shall sell the vote pertaining to such share or issue a proxy to
vote such share in consideration of any sum of money or anything of value.
1.9 VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the name
of another corporation may be voted by such officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine.
Shares held by an administrator, executor, guardian or conservator
may be voted, either in person or by proxy, without a transfer of such shares.
Shares standing in the name of a trustee may be voted by the trustee, either in
person or by proxy, but no trustee shall be entitled to vote shares so held
without a transfer of such shares into the name of the trustee.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof if authority so to do be contained in
an appropriate order of the court by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote
such shares until the shares have been transferred into the name of the pledgee,
and thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares nor, absent special circumstances, shares
held by another corporation if a majority of the shares entitled to vote for the
election of directors of such other corporation is held by the Corporation,
shall be voted at any meeting or counted in determining the total number of
outstanding shares at any given time.
1.10 VOTING. At any meeting of the shareholders, each shareholder of
a class entitled to vote on any matter coming before the meeting shall, as to
such matter, have one vote, in person or by proxy, for each share of capital
stock of such class standing in such shareholder's name on the books of the
Corporation on the date, not more than seventy days prior to such meeting, fixed
by the Board of Directors as the record date for the purpose of determining
shareholders entitled to vote, except that holders of serial preferred shares
shall have such number of votes per share as are required by the terms of such
series. Every proxy shall be in writing, dated and signed by the shareholder
entitled to vote or the shareholder's duly authorized attorney-in-fact.
1.11 VOTING BY BALLOT. Voting by shareholders on any question or in
any election may be viva voce unless the presiding officer shall order or any
shareholder shall demand that voting be by ballot.
1.12 INSPECTORS. One or more inspectors for any meeting of
shareholders may be appointed by the Chairman of such meeting. Inspectors so
appointed will open and close the polls, will receive and take charge of proxies
and ballots, and will decide all questions as to the qualifications of voters,
validity of proxies and ballots, and the number of votes properly cast.
<PAGE>
ARTICLE II.
DIRECTORS
2.1 GENERAL POWERS. The property, affairs and business of the
Corporation shall be managed under the direction of the Board of Directors, and,
except as otherwise expressly provided by law, the Articles of Incorporation or
these Bylaws, all of the powers of the Corporation shall be vested in such
Board.
2.2 NUMBER OF DIRECTORS. The number of Class A Directors shall be
not less than three (3) nor more than five (5) with the exact number as
determined from time to time by resolution of the Board of Directors. The number
of Class B Directors shall be not less than ten (10) nor more than twenty (20)
with the exact number as determined from time to time by written agreement of
the holders of at least a majority of the Class B Common Stock.
2.3 ELECTION AND REMOVAL OF DIRECTORS; QUORUM.
(a) At each annual meeting of the shareholders, the
Class A shareholders shall elect, by a majority vote of the votes
cast by the shares of Class A Common Stock entitled to vote in the
election, Class A Directors, and the Class B shareholders shall
elect, by a majority vote of the votes cast by the shares of Class B
Common Stock entitled to vote in the election, Class B Directors,
each to hold office until the next succeeding annual meeting of
shareholders and until their successors are elected.
(b) Any Class A Director or Class B Director may be
removed from office at a meeting called expressly for that purpose
by the vote of shareholders holding not less than a majority of the
class of shares entitled to vote for directors of that class at an
election of Directors of that class.
(c) Any vacancy occurring in the Board of Directors may
be filled by the vote of a majority of the Directors, including a
majority of the Class of Directors with respect to which such
vacancy occurred.
(d) A majority of the number of Directors prescribed
pursuant to Resolution of the Board of Directors in accordance with
the Articles of Incorporation shall constitute a quorum for the
transaction of business. The act of a majority of Directors present
at a meeting at which a quorum is present shall be the act of the
Board of Directors. Less than a quorum may adjourn any meeting.
2.4 MEETINGS OF DIRECTORS. An annual meeting of the Board of
Directors shall be held as soon as practicable after the adjournment of the
annual meeting of shareholders at such place as the Board may designate. Regular
meetings of the Board of Directors shall be held quarterly at such time and
place as the Board may fix by resolution. Other meetings of the Board of
Directors shall be held at places within or without the State of Iowa and at
times fixed by resolution of the Board, or upon call of the Chairman of the
Board or any two of the Directors. The Secretary or officer performing the
Secretary's duties shall give not less than twenty-four hours' notice by letter,
telegraph, telefax, or telephone (or in person) of all meetings of the Board of
Directors, provided that notice need not be given of the annual meeting or of
regular meetings held at times and places fixed by resolution of the Board.
Meetings may be held at any time without notice if all of the Directors are
present, or if those not present
<PAGE>
waive notice in writing either before or after the meeting. The notice of
meetings of the Board need not state the purpose of the meeting.
2.5 COMPENSATION. By resolution of the Board, Directors may be
allowed annual fees and fees and expenses for attendance at all meetings of the
Board of Directors and any committee of the Board of Directors, but nothing
herein shall preclude Directors from serving the Corporation in other capacities
and receiving compensation for such other services.
2.6 ELIGIBILITY FOR SERVICE AS A DIRECTOR. Qualifications for
election as a Director of the Corporation are set forth in, or in the manner
prescribed in, the Articles of Incorporation. The directorship of any Director
who ceases to remain qualified shall immediately thereupon be vacant, and the
vacancy may be filled in the manner specified in these Bylaws.
ARTICLE III.
COMMITTEES
3.1 EXECUTIVE COMMITTEE. An Executive Committee consisting of two or
more members of the Board of Directors may be designated by the Board of
Directors at the time of the annual meeting or at such other time as the Board
of Directors may determine. The Chairman and the Chief Executive Officer shall,
at all times, be designated members of the Executive Committee. The Executive
Committee shall, during the intervals between the meetings of the Board of
Directors and so far as it lawfully may, possess and exercise all of the
authority of the Board of Directors in the management of the business of the
Corporation, in all cases in which specific directions shall not have been given
by the Board of Directors provided that notwithstanding the foregoing, the
Executive Committee shall not have authority:
(1) to authorize dividends or other distributions;
(2) to approve or propose to shareholders actions or proposals
required by the Iowa Business Corporation Act to be approved by
shareholders;
(3) to fill vacancies on the Board of Directors or any committee
thereof;
(4) to amend the Articles of Incorporation of the Corporation;
(5) to adopt, amend or repeal Bylaws;
(6) to approve a plan of merger not requiring shareholder approval;
(7) to authorize or approve the reacquisition of shares unless
pursuant to a general formula or method specified by the Board of
Directors;
(8) to authorize or approve the issuance or sale of, or any contract
for sale of shares, or determine the designation and relative
rights, preferences and limitations of a class or series of shares;
except that the Board of Directors may authorize a committee or
senior officer to do so within limits specifically prescribed by the
Board of Directors; or
<PAGE>
(9) to remove the Chairman of the board, Chairman of the Executive
Committee or the Chief Executive Officer, or to appoint any person
to fill a vacancy in any such office.
3.2 AUDIT COMMITTEE. The Board of Directors shall appoint an Audit
Committee. The Audit Committee shall consist solely of Class A Directors who are
independent of management and free from any relationships that, in the opinion
of the Board of Directors, would interfere with the exercise by the Director of
independent judgment as a committee member. No Director who is an officer or
director of a Class B Common Stockholder or who is an officer or employee of the
Corporation shall be qualified for Audit Committee membership. The policy
statement on audit committees issued by the New York Stock Exchange shall be
applicable in determining which Directors are "independent" for this purpose.
The Audit Committee shall assist the Board of Directors in
fulfilling its responsibilities for the Corporation's accounting and financial
reporting practices and provide a channel of communication between the Board of
Directors and the Corporation's independent auditors.
To accomplish the above purposes, the Audit Committee shall:
(a) Review with the independent auditors the scope of their annual
and interim examinations, placing particular attention where either
the Committee or the auditors believe such attention should be
directed, and to direct the auditors to expand (but not to limit)
the scope of their audit whenever such action is, in the opinion of
the Committee, necessary or desirable. The independent auditors
shall have sole authority to determine the scope of the audit which
they deem necessary for the formation of an opinion on financial
statements.
(b) Consult with the auditors during any annual or interim audit on
any situation which the auditors deem advisable for resolution prior
to the completion of their examination.
(c) Meet with the auditors to appraise the effectiveness of the
audit effort. Such appraisal shall include a discussion of the
overall approach to and the scope of the examination, with
particular attention on those areas on which either the Committee or
the auditors believe emphasis is necessary or desirable.
(d) Determine through discussions with the auditors and otherwise,
that no restrictions were placed by management on the scope of the
examination or its implementation.
(e) Inquire into the effectiveness of the Corporation's accounting
and internal control functions through discussions with the auditors
and appropriate officers of the Corporation and exercise supervision
of the Corporation's policies which prohibit improper or illegal
payments.
(f) Review with the auditors and management any registration
statement which shall be filed by the Corporation in connection with
the public offering of securities and such other public financial
reports as the Committee or the Board of Directors shall deem
desirable.
(g) Report to the Board of Directors on the results of the
Committee's activities and recommend to the Board of Directors any
changes in the appointment of independent auditors which the
Committee may deem to be in the best interests of the Corporation
and its shareholders.
<PAGE>
(h) Review with the auditors and management any transaction or
series of similar transactions to which the Corporation or a
subsidiary of the Corporation was within the past year or is
currently expected to be a party not previously made known to the
Board involving more than $60,000, and with respect to which any of
the following persons had or is expected to have a direct or
indirect material interest:
(1) Any director or executive officer of the
Corporation;
(2) Any nominee for election as a director;
(3) Any stockholder who is known to the Corporation to
own of record or beneficially more than five percent of
any class of the Corporation's Common Stock; and
(4) Any member of the immediate family of any of the
foregoing persons.
(i) Report to the Board of Directors any transaction described in
(h) above determined by the Audit Committee to be unfair to the
Corporation.
(j) Have such other powers and perform such other duties as the
Board shall, from time to time, grant and assign to it.
3.3 BUDGET COMMITTEE. The Board of Directors shall appoint a Budget
Committee. The Budget Committee shall consist of members of the Board of
Directors and shall be nominated by the Chairman of the Board. The Chairman
thereof shall be designated by the Chairman of the Board. The Budget Committee
shall review at periodic intervals all budgets proposed by management and make
recommendations thereon to the Board of Directors, and perform such other duties
as may be delegated to it by the Board of Directors.
3.4 COMPENSATION AND STOCK OPTION COMMITTEE. The Board of Directors
shall appoint a Compensation and Stock Option Committee, consisting of any
number of its members as it may designate, consistent with the Articles of
Incorporation, the Bylaws, and the laws of Iowa. The Compensation and Stock
Option Committee shall establish a general compensation policy for the
Corporation and shall have responsibility for the approval of Directors' fees
and salaries. The Chairman of the Board shall be chairman of the Compensation
and Stock Option Committee.
3.5 INVESTMENT COMMITTEE. The investment policy of the Corporation
shall be determined by the Board of Directors, which shall have the power to
determine the classes of investments and the percentage of investment to be made
within each of the said classifications. The Board of Directors may appoint an
Investment Committee of up to seven members as designated from time to time by
the Board. Other members of the Investment Committee need not be Directors. The
Investment Committee shall have the duty and the power to authorize and direct
the mode, manner and time of making and calling in investments, and the sale or
transfer of investments and the reinvestment of the proceeds thereof, and to
examine all funds and securities as often as they deem necessary or when
required to do so by the Board of Directors. The Investment Committee shall have
the duty and authority from time to time and whenever necessary to authorize the
execution of all contracts, deeds, conveyances and any other instruments of the
Corporation necessary for the assignment, transfer, and sale of investments of
the Corporation requiring corporate signature.
<PAGE>
The Committee shall select from its members a Chairman and
Secretary. The Secretary of the Committee shall keep a complete record of the
proceedings thereof. The Investment Committee shall make a report to the board
of Directors at each meeting of the Board, which report shall show the
investments purchased, sold, or retired since the prior report, and in addition,
said Committee shall make a full report to the Board of Directors, covering all
investment activities with particular reference to purchases and sales each
fiscal year. The Board of Directors may call for special reports on investments
at any time.
3.6 NOMINATING COMMITTEE.
(a) Class A Directors Nominating Committee. The Class A Directors
Nominating Committee shall include at least two-thirds of the Class
A Directors and consist of up to five members of the Board of
Directors who shall be nominated by the Chairman of the Board and
appointed by the Board of Directors. Any action of the Class A
Directors Nominating Committee requires the concurrence of at least
50% of the Class A Directors who are members of such Committee. The
Chairman of the Board shall designate the Chairman and the Secretary
of the Class A Director Nominating Committee. A majority of the
members of the Committee shall constitute a quorum. The Secretary of
the Committee shall keep a complete record of the proceedings
thereof. The duty of the Committee shall be to recommend to the
Board of Directors the number of Class A Directors, which shall be
not less than 3, nor more than 5, to be elected for the next year,
and to nominate for election the Class A Directors. The Secretary of
the Committee shall submit and file in writing with the Secretary of
this Corporation, not less than seventy-five (75) days prior to the
date of the meeting of the shareholders of this Corporation at which
Directors are to be elected, the names of such nominees.
(b) Class B Directors Nominating Committee. The Class B Directors
Nominating Committee shall include at least two (2) Class B
Directors and consist of up to five members of the Board of
Directors who shall be nominated by the Chairman of the Board and
appointed by the Board of Directors. The Chairman of the Board shall
designate the Chairman and the Secretary of the Class B Director
Nominating Committee. A majority of the members of the Committee
shall constitute a quorum. The Secretary of the Committee shall keep
a complete record of the proceedings thereof. The duty of the
Committee shall be to recommend to the Board of Directors the number
of Class B Directors, which shall be not less than 10 nor more than
20, to be elected for the next year, consistent with any agreement
among the Class B Common Stockholders, and to nominate for election
the Class B Directors. The Secretary of the Committee shall submit
and file in writing with the Secretary of this Corporation, not less
than seventy-five (75) days prior to the date of the meeting of the
shareholders of this Corporation at which Directors are to be
elected, the names of such nominees.
(c) Class A and Preferred Shareholder Bylaw. Section 3.6(a) and this
Section 3.6(c) are shareholder bylaws and may only be amended by a
vote of a majority of a quorum of the Class A Common Stock and any
series of preferred stock having voting rights, voting together as a
single voting group.
(d) Report of Secretary. The Secretary shall report and submit to
the shareholders for election, the names of those so nominated, if
eligible; in regard to the nominees as Class B Directors, no other
names may be nominated for election and no others may be elected.
<PAGE>
3.7 OTHER COMMITTEES. The Board of Directors by resolution may
establish such other standing or special committees of the Board as it may deem
advisable, consisting of not less than two Directors; and the members, terms,
and authority of such committees shall be as set forth in the resolutions
establishing the same.
3.8 MEETINGS. Regular and special meetings of any Committee
established pursuant to this Article may be called and held subject to the same
requirements with respect to time, place, and notice as are specified in these
Bylaws for regular and special meetings of the Board of Directors.
3.9 QUORUM AND MANNER OF ACTING. A majority of the members of any
Committee serving at the time of any meeting thereof shall constitute a quorum
for the transaction of business at such meeting. The action of a majority of
those members present at a Committee meeting at which a quorum is present shall
constitute the act of the Committee.
3.10 TERM OF OFFICE. Members of any Committee shall be elected as
above provided and shall hold office until their successors are elected by the
Board of Directors or until such Committee is dissolved by the Board of
Directors.
3.11 RESIGNATION AND REMOVAL. Any member of a Committee may resign
at any time by giving written notice of his intention to do so to the Chairman
of the Board or the Secretary of the Corporation, or may be removed, with or
without cause, at any time by vote of the Board of Directors.
3.12 VACANCIES. Any vacancy occurring in a Committee resulting from
any cause whatever may be filled by a person elected by majority of the
Directors then in office.
ARTICLE IV.
OFFICERS
4.1 OFFICERS. The Officers of the Corporation shall be a Chairman of
the Board; a Chief Executive Officer; a First Vice Chair; a Second Vice Chair; a
Secretary; a Treasurer; a Vice President and Chief Financial Officer; and
additional Vice Presidents (the number thereof to be determined by the Board of
Directors), and such other officers as the Board of Directors may from time to
time designate by resolution, each of whom shall be elected by the Board of
Directors. Any two or more offices may be held by the same person. In its
discretion, the Board of Directors may delegate the powers or duties of any
officer to any other officer or agents, notwithstanding any provision of these
Bylaws, and the Board of Directors may leave unfilled for any such period as it
may fix, any office except those of Chairman of the Board, the Chief Executive
Officer, the Vice President, Chief Financial Officer, and the Secretary.
4.2 ELECTION AND TERM OF OFFICE. The officers of the Corporation to
be elected by the Board of Directors shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each annual
meeting of the shareholders. If the election of officers shall not be held at
such meeting, such election shall be held as soon thereafter as conveniently may
be. Each officer shall hold office until such officer's successor shall have
been duly elected or until death or until such officer shall resign or shall
have been removed in the manner hereinafter provided.
4.3 REMOVAL. Any officers or agent elected or appointed by the Board
of Directors may be removed by the Board of Directors whenever in its judgment
the best interests of the Corporation would be served thereby, but
<PAGE>
such removal shall be without prejudice to the contract rights, if any, of the
person so removed. Any officer or agent elected by the Board of Directors except
the Chairman of the Board, Chairman of the Executive Committee and the Chief
Executive Officer, may be removed by the Executive Committee.
4.4 VACANCIES. A vacancy in the office of Chairman of the Board, or
Chief Executive Officer because of death, resignation, removal, disqualification
or otherwise, may be filled only by the Board of Directors for the unexpired
portion of the term. A vacancy in any other office may be filled by the
Executive Committee.
4.5 CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside
over all meetings of the Board of Directors and meetings of the shareholders;
shall be the Chairman of the Executive Committee, and shall be a member or
member ex-officio of all other committees of the Board of Directors.
4.6 CHIEF EXECUTIVE OFFICER. Subject to the business and
administrative policies adopted by the Board of Directors from time to time and
under the supervision and direction of the Board, the Chief Executive Officer
shall be responsible for the supervision and direction of the business and
affairs of this Corporation and its employees.
4.7 FIRST VICE CHAIR. In the absence or the inability or disability
of the Chairman of the Board or his refusal to act, his duties shall devolve
upon and be discharged by the First Vice Chair.
4.8 SECOND VICE CHAIR. In the absence or the inability or disability
of the Chairman of the Board and First Vice Chair, or their refusal to act,
their duties shall devolve upon and be discharged by the Second Vice Chair.
4.9 SECRETARY. The Secretary shall be the custodian of all books,
papers, records and documents of the Corporation, except as otherwise authorized
by the Board of Directors. He shall conduct, by himself or through such
assistant secretaries and other subordinates, such business as shall be
authorized by the Board of Directors; he shall serve or cause to be served,
printed and published, such notice as shall be required by law, by these Bylaws
and by resolutions of the Board of Directors; he shall keep the corporate
records, carry on all proper correspondence and shall act as Secretary in the
meetings of the shareholders and the Board of Directors, and shall perform such
other administrative duties as shall be assigned to him from time to time by the
Board of Directors.
4.10 TREASURER. The Treasurer shall have charge of the funds of the
Corporation and shall pay them out as ordered by the Board of Directors. He
shall keep an accurate account of receipts and disbursements and submit a report
thereof to the Board of Directors at their regular meeting and more often as
required.
4.11 VICE PRESIDENT AND CHIEF FINANCIAL OFFICER. The Vice President
and Chief Financial Officer shall be the principal and chief accounting and
principal and chief finance officer of the Corporation. In that capacity, the
Vice President and Chief Financial Officer shall keep and maintain, or cause to
be kept and maintained accurate and correct books and records of accounts of the
properties and business transactions of the Corporation, including accounts of
the assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The Vice President and Chief Financial Officer
shall deposit all monies and other valuables in the name and to the credit of
the Corporation with such depositories as may be designated by the Board of
Directors. The Vice President and Chief Financial Officer shall disburse the
funds of the Corporation as may be ordered by the Board of Directors, shall
render to the Chairman of the Board, or to the Chief Executive Officer,
Treasurer and/or the Board of Directors, upon their request, an account of the
financial condition of the Corporation, and shall have such other powers and
perform such other duties as may be prescribed from time to time by the Board of
Directors, the Chairman of the Board, the Chief Executive Officer or the
Treasurer.
<PAGE>
ARTICLE V.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
5.1 GENERAL. The Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a Director or officer of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust, or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit, or proceeding if he acted in good faith and
in a manner he reasonably believed to be in, or not opposed to, the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
5.2 DERIVATIVE ACTIONS. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending, or completed action or suit by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that he is or was a
Director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, provided that no indemnification shall be
made in respect of any claim, issue, or matter as to which such person shall
have been adjudged to be liable to the Corporation unless and only to the extent
that the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnification for such expenses which the court shall deem proper.
5.3 INDEMNIFICATION IN CERTAIN CASES. To the extent that a Director,
officer, employee, or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
Sections 1 and 2 of this Article V, or in defense of any claim, issue, or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
5.4 PROCEDURE. Any indemnification under Sections 1 and 2 of this
Article V (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
Director or officer is proper in the circumstances because he has met the
applicable standard of conduct set forth in such Sections 1 and 2. Such
determination shall be made (a) by the Board of Directors by a majority vote of
a quorum consisting of Directors who were not parties to such action, suit, or
proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable if
a quorum of disinterested Directors so directs, by independent legal counsel in
a written opinion, or (c) by the shareholders.
5.5 ADVANCES FOR EXPENSES. Expenses incurred in defending a civil or
criminal action, suit, or proceeding shall be paid by the Corporation in advance
of the final disposition of such action, suit, or proceeding upon receipt
<PAGE>
of an undertaking by or on behalf of the Director or officer to repay such
amount if it shall be ultimately determined that he is not entitled to be
indemnified by the Corporation as authorized in this Article V.
5.6. RIGHTS NOT EXCLUSIVE. The indemnification and advancement of
expenses provided by, or granted pursuant to, the other subsections of this
Article V shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
law, bylaw, agreement, vote of shareholders, or disinterested Directors or
otherwise, both as to action in their official capacities and as to action in
another capacity while holding such offices.
5.7 INSURANCE. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a Director, officer,
employee, or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the provisions of this
Article V.
5.8 DEFINITION OF CORPORATION. For the purposes of this Article V,
references to "the Corporation" include all constituent corporations absorbed in
a consolidation or merger as well as the resulting or surviving corporation so
that any person who is or was a director or officer of such a constituent
corporation or is or was serving at the request of such constituent corporation
as a director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise shall stand in the same position under
the provisions of this Article V with respect to the resulting or surviving
corporation as he would if he had served the resulting or surviving corporation
in the same capacity.
5.9 SURVIVAL RIGHTS. The indemnification and advancement of expenses
provided by, or granted pursuant to this Article V shall continue as to a person
who has ceased to be a Director or officer and shall inure to the benefit of the
heirs, executors and administrators of such a person.
ARTICLE VI.
CAPITAL STOCK
6.1 CERTIFICATES FOR SHARES. Certificates for shares of capital
stock of the Corporation shall be in such form as shall be determined by the
Board of Directors. They shall be issued in consecutive order within each class
shall indicate the class of stock represented thereby, shall be numbered in the
order of their issue within the class, and shall be signed by the Chairman of
the Board or the Chief Executive Officer or any other Vice Chair or Vice
President and the Secretary or an Assistant Secretary, provided, however, that
if any stock certificate is countersigned by a transfer agent, other than the
Corporation or its employee, or by a registrar, other than the Corporation or
its employee, any other signature, including that of any such officer, on such
certificate may be a facsimile, engraved, stamped or printed. In case any
officer or agent who has signed or whose facsimile signature shall be used on
any stock certificate shall cease to be such officer or agent of the Corporation
because of death, resignation or otherwise before such stock certificate shall
have been delivered by the Corporation, such stock certificate may nevertheless
be issued and delivered as though the person or agent who signed the certificate
or whose facsimile signature shall have been used thereon had not ceased to be
such officer or agent of the Corporation.
<PAGE>
6.2 TRANSFER OF SHARES. Upon surrender to the Corporation or its
transfer agent of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction on its books.
6.3 LOST, DESTROYED AND MUTILATED CERTIFICATES. Holders of the
shares of the Corporation shall immediately notify the Corporation of any loss,
destruction, or mutilation of the certificate therefor, and the Board of
Directors may in its discretion cause one or more new certificates for the same
number of shares in the aggregate to be issued to such shareholder upon the
surrender of the mutilated certificate or upon satisfactory proof of such loss
or destruction, and the deposit of a bond in such form and amount and with such
surety as the Board of Directors may require.
6.4 FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the Board of Directors of the Corporation may fix in advance a
date as the record date for any such determination of shareholders, such date in
any case to be not more than seventy days and, in case of a meeting of
shareholders, not less than ten days prior to the date on which the particular
action requiring such determination of shareholders is to be taken. If no record
date is fixed for the determination of shareholders entitled to notice of or to
vote at a meeting of shareholders, or shareholders entitled to receive payment
of a dividend, the day before the first date on which notice of the meeting is
mailed or the day before the date on which the resolution of the Board of
Directors declaring such dividend is adopted, as the case may be, shall be the
record date for such determination of shareholders. In order to determine the
shareholders entitled to demand a special meeting, the record date shall be the
sixtieth day preceding the date of receipt by the Corporation of written demands
sufficient to require the calling of such meeting, unless otherwise fixed by the
Board of Directors. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof, unless the Board of
Directors selects a new record date or unless a new record date is required by
law.
6.5 TRANSFER OF SHARES. The shares of the Corporation shall be
transferable or assignable only on the books of the Corporation by the holder in
person or by attorney on surrender of the certificate for such shares duly
endorsed and, if sought to be transferred by attorney, accompanied by a written
power of attorney to have the same transferred on the books of the Corporation.
The Corporation will recognize however, the exclusive right of the person
registered on the books as the owner of shares to receive dividends and to vote
as such owner. No person, holding shares of Class B Common Stock may transfer,
and the Corporation shall not register the transfer of, such shares of Class B
Common Stock whether by sale, assignment, gift, bequest, appointment or
otherwise, except as permitted by the Class B Common Stockholder Agreement dated
May 1, 1996, as amended hereafter (the "Class B Stockholder Agreement").
ARTICLE VII.
MISCELLANEOUS PROVISIONS
7.1 SEAL. This Corporation shall not have a corporate seal.
7.2 FISCAL YEAR. The fiscal year of the Corporation shall commence
with the first day of January each year and terminate with the 31st day of
December each year.
<PAGE>
7.3 CHECKS, NOTES AND DRAFTS. Checks, notes, drafts, and other
orders for the payment of money shall be signed by such persons as the Board of
Directors from time to time may authorize. When the Board of Directors so
authorizes, however, the signature of any such person may be a facsimile.
7.4 AMENDMENT OF BYLAWS. Unless proscribed by the Articles of
Incorporation, an existing Bylaw, or by law, these Bylaws may be amended or
altered at any meeting of the Board of Directors. Only the holders of Class A
Common Stock and any series of preferred stock having voting rights, voting
together as a single voting group, shall have the power to rescind, amend,
alter, or repeal Section 3.6(a) and Section 3.6(c). Any other shareholder
amendment or repeal of the Bylaws shall require the approval of a majority of
the shares of each voting group.
7.5 VOTING OF SHARES HELD. Unless otherwise provided by resolution
of the Board of Directors, the Chairman of the Board may from time to time
appoint an attorney or attorneys or agent or agents of the Corporation, in the
name and on behalf of the Corporation, to cast the vote which the Corporation
may be entitled to cast as a shareholder or otherwise in any other corporation,
any of whose securities may be held by the Corporation, at meetings of the
holders of the shares or other securities of such other corporation, or to
consent in writing to any action by any such other corporation; and the Chairman
of the Board shall instruct the person or persons to appoint as to the manner of
casting such votes or giving such consent and may execute or cause to be
executed on behalf of the Corporation such written proxies, consents, waivers,
or other instruments as may be necessary or proper in the premises. In lieu of
such appointment the Chairman of the Board may himself attend any meetings of
the holders of shares or other securities of any such other corporation and
there vote or exercise any or all power of the Corporation as the holder of such
shares or other securities of such other corporation.
7.6. PRINCIPAL OFFICE. The principal office and principal executive
office of the Corporation in the State of Iowa shall be located in the City of
West Des Moines, County of Polk, and as otherwise or more particularly
identified in the most recently filed (at any time), annual report of the
Corporation on file with the Iowa Secretary of State.
ARTICLE VIII.
EMERGENCY BYLAWS
8.1 The Emergency Bylaws provided in this Article VIII shall be
operative during any emergency, notwithstanding any different provision in the
preceding Articles of these Bylaws or in the Articles of Incorporation of the
Corporation or in the Iowa Business Corporation Act (other than those provisions
relating to emergency bylaws). An emergency exists if a quorum of the
Corporation's Board of Directors cannot readily be assembled because of some
catastrophic event. To the extent not inconsistent with these Emergency Bylaws,
the Bylaws provided in the preceding Articles shall remain in effect during such
emergency and upon the termination of such emergency the Emergency Bylaws shall
cease to be operative unless and until another such emergency shall occur.
<PAGE>
8.2 During any such emergency:
(a) Any meeting of the Board of Directors may be called
by any officer of the Corporation or by any Director. The notice
thereof shall specify the time and place of the meeting. To the
extent feasible, notice shall be given in accordance with Section
2.4 above, but notice may be given only to such of the Directors as
it may be feasible to reach at the time, by such means as may be
feasible at the time, including publication or radio, and at a time
less than twenty-four hours before the meeting if deemed necessary
by the person giving notice. Notice shall be similarly given, to the
extent feasible, to the other persons referred to in (b) below.
(b) At any meeting of the Board of Directors, a quorum
shall consist of a majority of the number of Directors then in
office. If the Directors present at any particular meeting shall be
fewer than the number required for such quorum, other persons
present as referred to below, to the number necessary to make up
such quorum, shall be deemed Directors for such particular meeting
as determined by the following provisions and in the following order
priority:
(i) Vice-Presidents not already serving as Directors, in
the order of their seniority of first election to such
offices, or if two or more shall have been first elected
to such offices on the same day, in the order of their
seniority in age;
(ii) All other officers of the Corporation in the order
of their seniority of first election to such offices, or
if two or more shall have been first elected to such
offices on the same day, in the order of their seniority
in age; and
(iii) Any other persons that are designated on a list
that shall have been approved by the Board of Directors
before the emergency, such persons to be taken in such
order of priority and subject to such conditions as may
be provided in the resolution approving the list.
(iv) The Board of Directors, during as well as before
any such emergency, may provide, and from to time
modify, lines of succession in the event that during
such an emergency any or all officers or agents of the
Corporation shall for any reason be rendered incapable
of discharging their duties.
(v) The Board of Directors, during as well as before any
such emergency, may, effective in the emergency, change
the principal office, or designate several alternative
offices, or authorize the officers so to do.
8.3 No officer, Director, or employee shall be liable for action
taken in good faith in accordance with these Emergency Bylaws.
8.4 These Emergency Bylaws shall be subject to repeal or change by
further action of the Board of Directors or by action of the shareholders,
except that no such repeal or change shall modify the provisions of the next
preceding paragraph with regard to action or inaction prior to the time of such
repeal or change. Any such amendment of these Emergency Bylaws may make any
further or different provision that may be practical and necessary for the
circumstances of the emergency.
<PAGE>
These Restated Bylaws were duly adopted by the Board of Directors of
the Corporation on the 29th day of April, 1996, and amended by the Board of
Directors of the Corporation on the 16th day of November, 1998.
/S/ RICHARD D. HARRIS
---------------------
Richard D. Harris, Secretary
EXHIBIT 21
FBL FINANCIAL GROUP, INC.
SUBSIDIARIES OF FBL FINANCIAL GROUP, INC.
STATE OF
INCORPORATION
-----------------
Insurance Subsidiaries:
EquiTrust Life Insurance Company......................... Iowa
Farm Bureau Life Insurance Company....................... Iowa
Universal Assurors Life Insurance Company................ Iowa
Western Farm Bureau Life Insurance Company............... Colorado
Noninsurance Subsidiaries:
EquiTrust Assigned Benefit Company....................... Iowa
EquiTrust Investment Management Services, Inc. .......... Delaware
EquiTrust Marketing Services, LLC ....................... Delaware
FBL Financial Group Capital Trust........................ Delaware
FBL Financial Services, Inc.............................. Iowa
FBL Insurance Brokerage, Inc............................. Iowa
FBL Leasing Services, Inc................................ Iowa
FBL Real Estate Ventures, Ltd............................ Wisconsin
Western Ag Insurance Agency, Inc......................... Arizona
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-17007) pertaining to the Amended and Restated FBL Financial Group,
Inc. 1996 Class A Common Stock Compensation Plan, Registration Statement (Form
S-8 No. 333-08567) pertaining to the Farm Bureau 401(k) Savings Plan (formerly
the Iowa Farm Bureau Federation and Affiliated Companies 401(k) Savings Plan),
and Registration Statement (Form S-8 No.333-53739) pertaining to the FBL
Financial Group, Inc. Director Compensation Plan of our reports dated February
15, 1999, with respect to the consolidated financial statements and schedules of
FBL Financial Group, Inc. included in the Annual Report (Form 10-K) for the year
ended December 31, 1998.
Des Moines, Iowa
March 15, 1999
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<DEBT-HELD-FOR-SALE> 1,950,044
<DEBT-CARRYING-VALUE> 492,288
<DEBT-MARKET-VALUE> 516,729
<EQUITIES> 35,287
<MORTGAGE> 299,372
<REAL-ESTATE> 40,679
<TOTAL-INVEST> 3,031,436
<CASH> 4,516
<RECOVER-REINSURE> 4,711
<DEFERRED-ACQUISITION> 203,581
<TOTAL-ASSETS> 3,650,960
<POLICY-LOSSES> 2,328,344
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 35,998
<POLICY-HOLDER-FUNDS> 245,758
<NOTES-PAYABLE> 33,197
0
3,000
<COMMON> 49,592
<OTHER-SE> 530,996
<TOTAL-LIABILITY-AND-EQUITY> 3,650,960
145,630
<INVESTMENT-INCOME> 228,067
<INVESTMENT-GAINS> (4,878)
<OTHER-INCOME> 20,802
<BENEFITS> 199,671
<UNDERWRITING-AMORTIZATION> 10,171
<UNDERWRITING-OTHER> 53,812
<INCOME-PRETAX> 83,006
<INCOME-TAX> 26,404
<INCOME-CONTINUING> 52,675
<DISCONTINUED> 1,265
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53,940
<EPS-PRIMARY> 1.60
<EPS-DILUTED> 1.56
<RESERVE-OPEN> 21,199
<PROVISION-CURRENT> 5,520
<PROVISION-PRIOR> (519)
<PAYMENTS-CURRENT> 2,200
<PAYMENTS-PRIOR> 3,294
<RESERVE-CLOSE> 20,706
<CUMULATIVE-DEFICIENCY> (519)
</TABLE>
