UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 
 FORM 10-Q
  (Mark one)[X]
                  
                  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period endedMarch 31, 2010or[  ]
                  
                  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For 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 of incorporation)
                  
                  (I.R.S. Employer Identification No.)5400 University Avenue, West Des Moines, Iowa
                  
                  50266-5997(Address of principal executive offices)
                  
                  (Zip Code)(515) 225-5400(Registrant's telephone number, including area code)(Former name, former address and former fiscal year, if changed since last report)
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No
 
 Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] Yes [ ] No
 
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
 Large accelerated filer [ ]
                  Accelerated filer [X]
                  Non-accelerated filer [ ]
                  Smaller reporting company [ ]
  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   [ ] Yes   [X] NoIndicate the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date:Title of each class
                  
                  Outstanding at May 3, 2010Class A Common Stock, without par value
                  
                  29,586,115Class B Common Stock, without par value
                  
                  1,192,990


---



FBL FINANCIAL GROUP, INC.
 FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2010
 TABLE OF CONTENTS
    PART I.
                  FINANCIAL INFORMATIONItem 1.
                  Financial Statements (Unaudited)Consolidated Balance Sheets
                  2Consolidated Statements of Operations
                  4Consolidated Statements of Changes in Stockholders' Equity
                  5Consolidated Statements of Cash Flows
                  6Notes to Consolidated Financial Statements
                  8Item 2.
                  Management's Discussion and Analysis of Financial Condition and Results of Operations
                  25Item 3.
                  Quantitative and Qualitative Disclosures About Market Risk
                  52Item 4.
                  Controls and Procedures
                  52PART II.
                  OTHER INFORMATION
                  53Item 6.
                  Exhibits
                  53SIGNATURES
                  
                  54


---



FBL FINANCIAL GROUP, INC.
 CONSOLIDATED BALANCE SHEETS (Unaudited)
 (Dollars in thousands)
    March 31, 2010
                  
                  December 31, 2009AssetsInvestments:Fixed maturities - available for sale, at market (amortized cost: 2010 - $10,525,224; 2009 - $10,338,670)
                  $
                  10,306,026
                  
                  
                  $
                  9,864,601Equity securities - available for sale, at market (cost: 2010 - $70,125; 2009 - $62,271)
                  70,110
                  
                  
                  60,154Mortgage loans on real estate
                  1,286,214
                  
                  
                  1,293,936Derivative instruments
                  60,880
                  
                  
                  44,023Real estate
                  14,748
                  
                  
                  16,563Policy loans
                  168,035
                  
                  
                  168,736Other long-term investments
                  1,875
                  
                  
                  1,882Short-term investments
                  218,243
                  
                  
                  203,142Total investments
                  12,126,131
                  
                  
                  11,653,037Cash and cash equivalents
                  44,686
                  
                  
                  11,690Securities and indebtedness of related parties
                  50,059
                  
                  
                  46,518Accrued investment income
                  143,780
                  
                  
                  131,655Amounts receivable from affiliates
                  2,231
                  
                  
                  8,311Reinsurance recoverable
                  128,317
                  
                  
                  126,918Deferred policy acquisition costs
                  1,006,617
                  
                  
                  1,101,233Deferred sales inducements
                  324,520
                  
                  
                  359,771Value of insurance in force acquired
                  34,410
                  
                  
                  38,781Property and equipment, less allowances for depreciation of$61,651 in 2010 and $62,895 in 2009
                  16,587
                  
                  
                  17,335Current income taxes recoverable
                  6,103
                  
                  
                  16,955Goodwill
                  11,170
                  
                  
                  11,170Other assets
                  56,550
                  
                  
                  33,894Assets held in separate accounts
                  726,825
                  
                  
                  702,073Total assets
                  $
                  14,677,986
                  
                  
                  $
                  14,259,341
  
  
    FBL FINANCIAL GROUP, INC.
 CONSOLIDATED BALANCE SHEETS (Continued)
 (Dollars in thousands)
  March 31, 2010
                  
                  December 31, 2009Liabilities and stockholders' equityLiabilities:Policy liabilities and accruals:Future policy benefits:Interest sensitive and index products
                  $
                  10,367,858
                  
                  
                  $
                  10,149,505Traditional life insurance and accident and health products
                  1,330,364
                  
                  
                  1,318,834Unearned revenue reserve
                  26,298
                  
                  
                  27,500Other policy claims and benefits
                  21,456
                  
                  
                  22,18511,745,976
                  
                  
                  11,518,024Other policyholders' funds:Supplementary contracts without life contingencies
                  504,205
                  
                  
                  502,553Advance premiums and other deposits
                  172,188
                  
                  
                  169,108Accrued dividends
                  9,854
                  
                  
                  9,656686,247
                  
                  
                  681,317Amounts payable to affiliates
                  252
                  
                  
                  759Long-term debt payable to affiliates
                  100,000
                  
                  
                  100,000Long-term debt
                  271,105
                  
                  
                  271,084Deferred income taxes
                  73,884
                  
                  
                  27,506Other liabilities
                  101,182
                  
                  
                  87,301Liabilities related to separate accounts
                  726,825
                  
                  
                  702,073Total liabilities
                  13,705,471
                  
                  
                  13,388,064Stockholders' equity:FBL Financial Group, Inc. stockholders' equity:Preferred stock, without par value, at liquidation value - authorized 10,000,000 shares, issued and outstanding 5,000,000 Series B shares
                  3,000
                  
                  
                  3,000Class A common stock, without par value - authorized 88,500,000 shares, issued and outstanding 29,575,213 shares in 2010 and 29,282,989 shares in 2009
                  111,790
                  
                  
                  109,877Class B common stock, without par value - authorized 1,500,000 shares, issued and outstanding 1,192,990 shares
                  7,522
                  
                  
                  7,522Accumulated other comprehensive loss
                  (35,512
                  )
                  
                  (118,730
                  )Retained earnings
                  885,586
                  
                  
                  869,487Total FBL Financial Group, Inc. stockholders' equity
                  972,386
                  
                  
                  871,156Noncontrolling interest
                  129
                  
                  
                  121Total stockholders' equity
                  972,515
                  
                  
                  871,277Total liabilities and stockholders' equity
                  $
                  14,677,986
                  
                  
                  $
                  14,259,341
           See accompanying notes.


---



FBL FINANCIAL GROUP, INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 (Dollars in thousands, except per share data)
  Three months ended March 31,2010
                  
                  2009Revenues:Interest sensitive and index product charges
                  $
                  30,003
                  
                  
                  $
                  41,140Traditional life insurance premiums
                  39,245
                  
                  
                  37,954Net investment income
                  178,089
                  
                  
                  184,069Derivative income (loss)
                  22,336
                  
                  
                  (24,601
                  )Net realized capital gains on sales of investments
                  4,729
                  
                  
                  1,951Total other-than-temporary impairment losses
                  (27,154
                  )
                  
                  (31,127
                  )Non-credit portion in other comprehensive loss
                  19,132
                  
                  
                  9,506Net impairment loss recognized in earnings
                  (8,022
                  )
                  
                  (21,621
                  )Other income
                  3,019
                  
                  
                  4,586Total revenues
                  269,399
                  
                  
                  223,478Benefits and expenses:Interest sensitive and index product benefits
                  122,184
                  
                  
                  114,436Change in value of index product embedded derivatives
                  26,056
                  
                  
                  (8,669
                  )Traditional life insurance benefits
                  27,568
                  
                  
                  22,104Increase in traditional life future policy benefits
                  9,741
                  
                  
                  9,718Distributions to participating policyholders
                  4,673
                  
                  
                  4,921Underwriting, acquisition and insurance expenses
                  43,938
                  
                  
                  71,963Interest expense
                  6,118
                  
                  
                  6,932Other expenses
                  4,254
                  
                  
                  4,930Total benefits and expenses
                  244,532
                  
                  
                  226,33524,867
                  
                  
                  (2,857
                  )Income taxes
                  (7,955
                  )
                  
                  1,256Equity income, net of related income taxes
                  1,095
                  
                  
                  73Net income (loss)
                  18,007
                  
                  
                  (1,528
                  )Net loss attributable to noncontrolling interest
                  14
                  
                  
                  38Net income (loss) attributable to FBL Financial Group, Inc.
                  $
                  18,021
                  
                  
                  $
                  (1,490
                  )Earnings (loss) per common share
                  $
                  0.59
                  
                  
                  $
                  (0.05
                  )Earnings (loss) per common share - assuming dilution
                  $
                  0.59
                  
                  
                  $
                  (0.05
                  )Cash dividends per common share
                  $
                  0.0625
                  
                  
                  $
                  0.1250
           
 See accompanying notes.


---



FBL FINANCIAL GROUP, INC.
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
 (Dollars in thousands)
  FBL Financial Group, Inc. Stockholders' EquitySeries B Preferred Stock
                  
                  Class A and Class B Common Stock (a)
                  
                  Accumulated Other Comprehensive Loss
                  
                  Retained Earnings
                  
                  Non- controlling Interest
                  
                  Total Stockholders' EquityBalance at January 1, 2009
                  $
                  3,000
                  
                  
                  $
                  111,612
                  
                  
                  $
                  (649,758
                  )
                  
                  $
                  793,511
                  
                  
                  $
                  96
                  
                  
                  $
                  258,461Reclassification of non-credit impairment losses from prior periods
                  —
                  
                  
                  —
                  
                  
                  (15,641
                  )
                  
                  15,641
                  
                  
                  —
                  
                  
                  —Comprehensive income:Net loss - three months ended March 31, 2009
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (1,490
                  )
                  
                  (38
                  )
                  
                  (1,528
                  )Change in net unrealized investment gains/losses
                  —
                  
                  
                  —
                  
                  
                  22,105
                  
                  
                  —
                  
                  
                  —
                  
                  
                  22,105Non-credit impairment losses
                  —
                  
                  
                  —
                  
                  
                  (5,185
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  (5,185
                  )Change in underfunded status of other postretirement benefit plans
                  —
                  
                  
                  —
                  
                  
                  10
                  
                  
                  —
                  
                  
                  —
                  
                  
                  10Total comprehensive income (b)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  15,402Stock-based compensation, including the issuance of 196,386 common shares under compensation plans
                  —
                  
                  
                  1,468
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  1,468Dividends on preferred stock
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (38
                  )
                  
                  —
                  
                  
                  (38
                  )Dividends on common stock
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (3,732
                  )
                  
                  —
                  
                  
                  (3,732
                  )Receipts related to noncontrolling interest
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  41
                  
                  
                  41Balance at March 31, 2009
                  $
                  3,000
                  
                  
                  $
                  113,080
                  
                  
                  $
                  (648,469
                  )
                  
                  $
                  803,892
                  
                  
                  $
                  99
                  
                  
                  $
                  271,602Balance at January 1, 2010
                  $
                  3,000
                  
                  
                  $
                  117,399
                  
                  
                  $
                  (118,730
                  )
                  
                  $
                  869,487
                  
                  
                  $
                  121
                  
                  
                  $
                  871,277Comprehensive income:Net income - three months ended March 31, 2010
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  18,021
                  
                  
                  (14
                  )
                  
                  18,007Change in net unrealized investment gains/losses
                  —
                  
                  
                  —
                  
                  
                  91,190
                  
                  
                  —
                  
                  
                  —
                  
                  
                  91,190Non-credit impairment losses
                  —
                  
                  
                  —
                  
                  
                  (8,084
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  (8,084
                  )Change in underfunded status of the other postretirement benefit plans
                  —
                  
                  
                  —
                  
                  
                  112
                  
                  
                  —
                  
                  
                  —
                  
                  
                  112Total comprehensive income (b)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  101,225Stock-based compensation, including the issuance of 226,872common shares under compensation plans
                  —
                  
                  
                  1,913
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  1,913Dividends on preferred stock
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (38
                  )
                  
                  —
                  
                  
                  (38
                  )Dividends on common stock
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (1,884
                  )
                  
                  —
                  
                  
                  (1,884
                  )Receipts related to noncontrolling interest
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  22
                  
                  
                  22Balance at March 31, 2010
                  $
                  3,000
                  
                  
                  $
                  119,312
                  
                  
                  $
                  (35,512
                  )
                  
                  $
                  885,586
                  
                  
                  $
                  129
                  
                  
                  $
                  972,515
 (a)
                  All activity for the periods shown relates to Class A Common Stock.(b)
                  Comprehensive income attributable to FBL Financial Group, Inc. aggregated $101,239 and $15,440 for the three months ended March 31, 2010 and 2009, respectively.
  
        See accompanying notes.


---



FBL FINANCIAL GROUP, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 (Dollars in thousands)
  Three months ended March 31,2010
                  
                  2009Operating activitiesNet income (loss)
                  $
                  18,007
                  
                  
                  $
                  (1,528
                  )Adjustments to reconcile net income to net cash provided by operating activities:Adjustments related to interest sensitive and index products:Interest credited/index credits to account balances, excluding deferred sales inducements
                  108,019
                  
                  
                  80,589Change in fair value of embedded derivatives
                  26,056
                  
                  
                  (8,669
                  )Charges for mortality, surrenders and administration
                  (28,221
                  )
                  
                  (40,014
                  )Deferral of unearned revenues
                  629
                  
                  
                  464Amortization of unearned revenue reserve
                  (715
                  )
                  
                  (684
                  )Provision for depreciation and amortization of property and equipment
                  1,197
                  
                  
                  1,740Provision for accretion and amortization of investments
                  505
                  
                  
                  (1,994
                  )Realized losses on investments
                  3,293
                  
                  
                  19,670Change in fair value of derivatives
                  (18,113
                  )
                  
                  18,029Increase in traditional life and accident and health benefit accruals
                  11,530
                  
                  
                  10,156Policy acquisition costs deferred
                  (18,819
                  )
                  
                  (36,756
                  )Amortization of deferred policy acquisition costs
                  20,776
                  
                  
                  47,440Amortization of deferred sales inducements
                  4,392
                  
                  
                  19,387Amortization of value of insurance in force
                  576
                  
                  
                  741Change in accrued investment income
                  (12,125
                  )
                  
                  (6,908
                  )Change in amounts receivable from/payable to affiliates
                  5,573
                  
                  
                  7,438Change in reinsurance recoverable
                  (1,399
                  )
                  
                  394Change in current income taxes
                  10,852
                  
                  
                  (10,180
                  )Provision for deferred income taxes
                  1,004
                  
                  
                  10,340Other
                  (1,836
                  )
                  
                  7,609Net cash provided by operating activities
                  131,181
                  
                  
                  117,264Investing activitiesSale, maturity or repayment of investments:Fixed maturities - available for sale
                  175,854
                  
                  
                  231,571Mortgage loans on real estate
                  11,903
                  
                  
                  19,309Other long-term investments
                  —
                  
                  
                  14Derivative instruments
                  16,678
                  
                  
                  841Policy loans
                  11,014
                  
                  
                  9,732215,449
                  
                  
                  261,467Acquisition of investments:Fixed maturities - available for sale
                  (375,586
                  )
                  
                  (154,866
                  )Equity securities available for sale
                  (7,854
                  )
                  
                  (9,302
                  )Mortgage loans on real estate
                  (2,700
                  )
                  
                  (475
                  )Derivative instruments
                  (13,437
                  )
                  
                  (21,683
                  )Policy loans
                  (10,313
                  )
                  
                  (10,734
                  )Short term investments - net
                  (15,101
                  )
                  
                  (120,724
                  )(424,991
                  )
                  
                  (317,784
                  )
    
    FBL FINANCIAL GROUP, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
 (Dollars in thousands)
  Three months ended March 31,2010
                  
                  2009Investing activities - continuedProceeds from disposal, repayments of advances and other distributions of capital from equity investees
                  $
                  169
                  
                  
                  $
                  7Purchases of property and equipment
                  (945
                  )
                  
                  (357
                  )Disposal of property and equipment
                  496
                  
                  
                  856Net cash used in investing activities
                  (209,822
                  )
                  
                  (55,811
                  )Financing activitiesReceipts from interest sensitive and index products credited to policyholder account balances
                  380,478
                  
                  
                  584,562Return of policyholder account balances on interest sensitive and index products
                  (268,284
                  )
                  
                  (608,988
                  )Repayment of short-term debt
                  —
                  
                  
                  (60,000
                  )Receipts related to noncontrolling interests - net
                  22
                  
                  
                  41Excess tax deductions on stock-based compensation
                  581
                  
                  
                  —Issuance of common stock
                  762
                  
                  
                  436Dividends paid
                  (1,922
                  )
                  
                  (3,770
                  )Net cash provided by (used in) financing activities
                  111,637
                  
                  
                  (87,719
                  )Increase (decrease) in cash and cash equivalents
                  32,996
                  
                  
                  (26,266
                  )Cash and cash equivalents at beginning of period
                  11,690
                  
                  
                  37,710Cash and cash equivalents at end of period
                  $
                  44,686
                  
                  
                  $
                  11,444Supplemental disclosures of cash flow informationCash paid (received) during the period for:Interest
                  $
                  6,463
                  
                  
                  $
                  7,365Income taxes
                  (3,893
                  )
                  
                  (1,377
                  )Non-cash operating activity:Deferral of sales inducements
                  2,978
                  
                  
                  13,654Non-cash investing activity:Exchange of real estate for mortgage loans
                  1,492
                  
                  
                  —Exchange of fixed maturities for partnership investment in securities and indebtedness of related parties
                  2,087
                  
                  —
                  See accompanying notes.


---



FBL FINANCIAL GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 March 31, 2010
   1.  Significant Accounting Policies
  Basis of Presentation
  The accompanying unaudited consolidated financial statements of FBL Financial Group, Inc. (we or the Company) have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. Our financial statements include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of our financial position and results of operations.
  Operating results for the three-month period ended March 31, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. We encourage you to refer to our consolidated financial statements and notes for the year ended December 31, 2009 included in our Annual Report on Form 10-K for a complete description of our material accounting policies. Also included in the Form 10-K is a description of areas of judgments and estimates and other information necessary to understand our financial position and results of operations.
  Accounting Changes
 
 Effective January 1, 2010, we adopted guidance that seeks to improve financial reporting by enterprises involved with variable interest entities. This guidance addresses (1) the effects on certain provisions of GAAP as a result of the elimination of the qualifying special-purpose entity concept, and (2) constituent concerns about the accounting and disclosures that do not always provide timely and useful information about an enterprise's involvement in a variable interest entity. The adoption of this guidance did not have any impact to our consolidated financial statements.
  In June 2009, we adopted guidance that establishes general standards of accounting for and disclosing of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In February 2010, the Financial Accounting Standards Board (FASB) issued additional guidance that requires Securities and Exchange Commission (SEC) filers to evaluate subsequent events through the date that the financial statements are issued. For SEC filers, this guidance also removed the disclosure requirement related to disclosing the date through which subsequent events have been evaluated. The adoption of this guidance did not have any impact on our consolidated financial statements.
  In January 2010, the FASB issued guidance that requires additional disclosures and clarifies existing disclosure requirements related to fair value measurements. Effective January 1, 2010, we adopted the portion of this guidance related to disclosures for 1) transfers in and out of the Level 1 and 2 categories, 2) the level of disaggregation of assets and liabilities and 3) inputs and valuation techniques. The adoption of this guidance did not have any impact on our consolidated financial statements. The guidance related to expanded disclosure of activity in Level 3 fair value measurements is effective for financial statements for periods that begin after December 15, 2010. We are currently evaluating the impact of adoption, and, other than enhanced disclosures, do not expect it to have any impact to our consolidated financial statements.
  In March 2010, the FASB issued guidance that clarifies the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements. This new guidance requires that the only form of embedded credit derivatives that qualify for the exemption are credit derivatives related to the subordination of one financial instrument to another. This guidance is effective for financial statements for periods that begin after June 15, 2010. We are currently evaluating the impact of adoption of this guidance.


---



Table of Contents
 March 31, 2010
   2.  Investment Operations
 
 Fixed Maturities and Equity Securities
 
 Available-For-Sale Fixed Maturity and Equity Securities by Investment CategoryMarch 31, 2010Amortized
                     Cost
                  
                  Gross
                     Unrealized
                     Gains
                  
                  Gross
                     Unrealized
                     Losses (1)
                  
                  Estimated
                     Fair
                     Value(Dollars in thousands)Bonds:Corporate securities
                  $
                  5,218,257
                  
                  
                  $
                  253,220
                  
                  
                  $
                  (143,486
                  )
                  
                  $
                  5,327,991Residential mortgage-backed securities
                  1,952,897
                  
                  
                  32,198
                  
                  
                  (129,531
                  )
                  
                  1,855,564Commercial mortgage-backed securities
                  771,482
                  
                  
                  33,878
                  
                  
                  (67,140
                  )
                  
                  738,220Other asset-backed securities
                  373,015
                  
                  
                  1,166
                  
                  
                  (83,680
                  )
                  
                  290,501Collateralized debt obligations
                  18,000
                  
                  
                  —
                  
                  
                  (14,693
                  )
                  
                  3,307United States Government and agencies
                  128,561
                  
                  
                  5,114
                  
                  
                  (4,823
                  )
                  
                  128,852State, municipal and other governments
                  2,058,012
                  
                  
                  15,074
                  
                  
                  (116,278
                  )
                  
                  1,956,808Redeemable preferred stocks
                  5,000
                  
                  
                  —
                  
                  
                  (217
                  )
                  
                  4,783Total fixed maturities
                  $
                  10,525,224
                  
                  
                  $
                  340,650
                  
                  
                  $
                  (559,848
                  )
                  
                  $
                  10,306,026Equity securities:Non-redeemable preferred stocks
                  $
                  40,649
                  
                  
                  $
                  2,690
                  
                  
                  $
                  (3,062
                  )
                  
                  $
                  40,277Common stocks
                  29,476
                  
                  
                  358
                  
                  
                  (1
                  )
                  
                  29,833Total equity securities
                  $
                  70,125
                  
                  
                  $
                  3,048
                  
                  
                  $
                  (3,063
                  )
                  
                  $
                  70,110
  December 31, 2009Amortized
                     Cost
                  
                  Gross
                     Unrealized
                     Gains
                  
                  Gross
                     Unrealized
                     Losses (1)
                  
                  Estimated
                     Fair
                     Value(Dollars in thousands)Bonds:Corporate securities
                  $
                  5,120,925
                  
                  
                  $
                  195,581
                  
                  
                  $
                  (226,617
                  )
                  
                  $
                  5,089,889Residential mortgage-backed securities
                  1,993,086
                  
                  
                  22,365
                  
                  
                  (142,041
                  )
                  
                  1,873,410Commercial mortgage-backed securities
                  785,729
                  
                  
                  20,327
                  
                  
                  (85,933
                  )
                  
                  720,123Other asset-backed securities
                  230,755
                  
                  
                  351
                  
                  
                  (98,233
                  )
                  
                  132,873Collateralized debt obligations
                  27,541
                  
                  
                  —
                  
                  
                  (14,649
                  )
                  
                  12,892United States Government and agencies
                  137,390
                  
                  
                  4,620
                  
                  
                  (2,543
                  )
                  
                  139,467State, municipal and other governments
                  2,038,244
                  
                  
                  8,509
                  
                  
                  (155,500
                  )
                  
                  1,891,253Redeemable preferred stocks
                  5,000
                  
                  
                  —
                  
                  
                  (306
                  )
                  
                  4,694Total fixed maturities
                  $
                  10,338,670
                  
                  
                  $
                  251,753
                  
                  
                  $
                  (725,822
                  )
                  
                  $
                  9,864,601Equity securities:Non-redeemable preferred stocks
                  $
                  40,649
                  
                  
                  $
                  2,436
                  
                  
                  $
                  (4,648
                  )
                  
                  $
                  38,437Common stocks
                  21,622
                  
                  
                  109
                  
                  
                  (14
                  )
                  
                  21,717Total equity securities
                  $
                  62,271
                  
                  
                  $
                  2,545
                  
                  
                  $
                  (4,662
                  )
                  
                  $
                  60,154
  (1)
                  Gross unrealized losses include non-credit losses on other-than-temporarily impaired other asset-backed securities totaling $8.0 million at March 31, 2010 and $30.2 million at December 31, 2009, and residential mortgage-backed securities totaling $7.4 million at December 31, 2009.
  Short-term investments have been excluded from the above schedules as amortized cost approximates fair value for these securities.
 Table of Contents
 March 31, 2010
 Available-For-Sale Fixed Maturity Securities by Maturity DateMarch 31, 2010Amortized
                     Cost
                  
                  Estimated
                     Fair Value(Dollars in thousands)Due in one year or less
                  $
                  92,574
                  
                  
                  $
                  94,162Due after one year through five years
                  1,151,691
                  
                  
                  1,208,079Due after five years through ten years
                  2,547,722
                  
                  
                  2,650,800Due after ten years
                  3,630,843
                  
                  
                  3,463,9177,422,830
                  
                  
                  7,416,958Residential mortgage-backed securities
                  1,952,897
                  
                  
                  1,855,564Commercial mortgage-backed securities
                  771,482
                  
                  
                  738,220Other asset-backed securities
                  373,015
                  
                  
                  290,501Redeemable preferred stocks
                  5,000
                  
                  
                  4,783$
                  10,525,224
                  
                  
                  $
                  10,306,026
  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.
  Net Unrealized Losses on Investments in Accumulated Other Comprehensive LossMarch 31, 2010
                  
                  December 31, 2009(Dollars in thousands)Unrealized depreciation on:Fixed maturities - available for sale
                  $
                  (219,198
                  )
                  
                  $
                  (474,069
                  )Equity securities - available for sale
                  (15
                  )
                  
                  (2,117
                  )Interest rate swaps
                  (303
                  )
                  
                  (362
                  )(219,516
                  )
                  
                  (476,548
                  )Adjustments for assumed changes in amortization pattern of:Deferred policy acquisition costs
                  103,417
                  
                  
                  196,077Deferred sales inducements
                  62,106
                  
                  
                  95,942Value of insurance in force acquired
                  (138
                  )
                  
                  3,657Unearned revenue reserve
                  (375
                  )
                  
                  (1,492
                  )Provision for deferred income taxes
                  19,085
                  
                  
                  63,837(35,421
                  )
                  
                  (118,527
                  )Proportionate share of net unrealized investment gains of equity investees
                  (3
                  )
                  
                  (3
                  )Net unrealized investment losses
                  $
                  (35,424
                  )
                  
                  $
                  (118,530
                  )
  The changes in net unrealized investment gains and losses are recorded net of deferred income taxes and other adjustments for assumed changes in the amortization pattern of deferred policy acquisition costs, deferred sales inducements, value of insurance in force acquired and unearned revenue reserve totaling ( $173.9)  million for the three months ended March 31, 2010 and $39.9 million for the three months ended March 31, 2009. Subsequent changes in fair value of securities for which a previous non-credit other-than-temporary impairment loss was recognized in accumulated other comprehensive loss are reported along with changes in fair value for which no other-than-temporary impairment losses were previously recognized.
  We monitor the financial condition and operations of the issuers of securities rated below investment grade and of the issuers of certain investment grade securities on which we have concerns regarding credit quality. In determining whether or not an unrealized loss is other than temporary, we review factors such as:
    
    Table of Contents
 March 31, 2010
  historical operating trends;business prospects;status of the industry in which the company operates;analyst ratings on the issuer and sector;quality of management;size of unrealized loss;level of current market interest rates compared to market interest rates when the security was purchased;length of time the security has been in an unrealized loss position; andour intent to sell and whether it is more likely than not that we would be required to sell prior to recovery.
 
 Fixed Maturity Securities with Unrealized Losses by Length of TimeMarch 31, 2010Less than one year
                  
                  One year or more
                  
                  TotalDescription of Securities
                  
                  Estimated
                     Fair Value
                  
                  Unrealized Losses
                  
                  Estimated
                     Fair Value
                  
                  Unrealized Losses
                  
                  Estimated Fair Value
                  
                  Unrealized Losses(Dollars in thousands)Corporate securities
                  
                  $
                  322,549
                  
                  
                  $
                  (10,069
                  )
                  
                  $
                  1,216,026
                  
                  
                  $
                  (133,417
                  )
                  
                  $
                  1,538,575
                  
                  
                  $
                  (143,486
                  )Residential mortgage-backed securities
                  
                  47,032
                  
                  
                  (2,567
                  )
                  
                  1,004,466
                  
                  
                  (126,964
                  )
                  
                  1,051,498
                  
                  
                  (129,531
                  )Commercial mortgage-backed securities
                  
                  20,076
                  
                  
                  (25
                  )
                  
                  160,700
                  
                  
                  (67,115
                  )
                  
                  180,776
                  
                  
                  (67,140
                  )Other asset-backed securities
                  
                  69,624
                  
                  
                  (6,124
                  )
                  
                  112,701
                  
                  
                  (77,556
                  )
                  
                  182,325
                  
                  
                  (83,680
                  )Collateralized debt obligation
                  
                  —
                  
                  
                  —
                  
                  
                  3,307
                  
                  
                  (14,693
                  )
                  
                  3,307
                  
                  
                  (14,693
                  )Unites States Government and agencies
                  
                  54,620
                  
                  
                  (4,668
                  )
                  
                  14,682
                  
                  
                  (155
                  )
                  
                  69,302
                  
                  
                  (4,823
                  )State, municipal and other governments
                  
                  536,501
                  
                  
                  (9,414
                  )
                  
                  769,493
                  
                  
                  (106,864
                  )
                  
                  1,305,994
                  
                  
                  (116,278
                  )Redeemable preferred stocks
                  
                  —
                  
                  
                  —
                  
                  
                  4,783
                  
                  
                  (217
                  )
                  
                  4,783
                  
                  
                  (217
                  )Total fixed maturities
                  
                  $
                  1,050,402
                  
                  
                  $
                  (32,867
                  )
                  
                  $
                  3,286,158
                  
                  
                  $
                  (526,981
                  )
                  
                  $
                  4,336,560
                  
                  
                  $
                  (559,848
                  )
  December 31, 2009Less than one year
                  
                  One year or more
                  
                  TotalDescription of Securities
                  
                  Estimated
                     Fair Value
                  
                  Unrealized Losses
                  
                  Estimated
                     Fair Value
                  
                  Unrealized Losses
                  
                  Estimated Fair Value
                  
                  Unrealized Losses(Dollars in thousands)Corporate securities
                  
                  $
                  314,304
                  
                  
                  $
                  (13,717
                  )
                  
                  $
                  1,577,140
                  
                  
                  $
                  (212,900
                  )
                  
                  $
                  1,891,444
                  
                  
                  $
                  (226,617
                  )Residential mortgage-backed securities
                  
                  53,341
                  
                  
                  (1,807
                  )
                  
                  1,025,010
                  
                  
                  (140,234
                  )
                  
                  1,078,351
                  
                  
                  (142,041
                  )Commercial mortgage-backed securities
                  
                  8,110
                  
                  
                  (521
                  )
                  
                  242,414
                  
                  
                  (85,412
                  )
                  
                  250,524
                  
                  
                  (85,933
                  )Other asset-backed securities
                  
                  18,386
                  
                  
                  (11,891
                  )
                  
                  104,784
                  
                  
                  (86,342
                  )
                  
                  123,170
                  
                  
                  (98,233
                  )Collateralized debt obligation
                  
                  —
                  
                  
                  —
                  
                  
                  3,351
                  
                  
                  (14,649
                  )
                  
                  3,351
                  
                  
                  (14,649
                  )Unites States Government and agencies
                  
                  63,528
                  
                  
                  (2,392
                  )
                  
                  14,684
                  
                  
                  (151
                  )
                  
                  78,212
                  
                  
                  (2,543
                  )State, municipal and other governments
                  
                  762,644
                  
                  
                  (21,139
                  )
                  
                  777,542
                  
                  
                  (134,361
                  )
                  
                  1,540,186
                  
                  
                  (155,500
                  )Redeemable preferred stocks
                  
                  —
                  
                  
                  —
                  
                  
                  4,694
                  
                  
                  (306
                  )
                  
                  4,694
                  
                  
                  (306
                  )Total fixed maturities
                  
                  $
                  1,220,313
                  
                  
                  $
                  (51,467
                  )
                  
                  $
                  3,749,619
                  
                  
                  $
                  (674,355
                  )
                  
                  $
                  4,969,932
                  
                  
                  $
                  (725,822
                  )
  Included in the above tables ar e 795  securities from 553 issuers at March 31, 2010 and 953 securities from 651 issuers at December 31, 2009. The unrealized losses are primarily due to wider spreads between the risk-free and corporate and other bond yields relative to the spreads when the securities were purchased. The following summarizes the more significant unrealized losses by investment category as of March 31, 2010.
  Corporate securities : The unrealized losses on corporate securities represent 25.6% of our total unrealized losses. The largest losses remain in the finance sector ($724.3  million carrying value and $90.8 mill ion unrealized loss). The largest unrealized losses in the finance sector were in the banking ( $349.4 million carrying value and $58.0  million unrealized loss), the life insurance ( $95.7 million carrying value and $13.6 million unrealized loss) and the real estate investment trust ($206.9 m illion
  
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 March 31, 2010
  carrying value an d $12.8 million unrealized loss) sub-sectors. The unrealized losses across the finance sector are primarily attributable to a general widening in spread levels relative to the spreads at which we acquired the securities. Finance sector spreads have narrowed but remain historically wide in comparison to the narrowing experienced in the remaining sectors, contributing to the proportionately larger amount of unrealized losses for this sector.
  The other sector containing our largest unrealized losses is basic industrial ( $107.1 million carrying value and $15.3 million unrealized loss). The unrealized loss in this sector is generally due to spread widening attributable to issuers' weaker operating results. The unrealized losses in the remaining corporate sectors are attributable to some spread widening and also increases in yields since the time we acquired the securities. This movement does not necessarily reflect credit concerns, but rather normal volatility in interest rates and credit spreads.
  Because we do not intend to sell or believe we will be required to sell these securities before their anticipated recovery of amortized cost, we do not consider these investments to be other-than-temporarily impaired at March 31, 2010.
  Residential mortgage-backed securities: The unrealized losses on residential mortgage-backed securities represent 23.1% of our total unrealized losses, and were caused primarily by continued uncertainty regarding mortgage defaults on Alt-A and other risky mortgages. We purchased most of these investments at a discount to their face amount and the contractual cash flows of these investments are based on mortgages and other assets backing the securities. Because we do not intend to sell or believe we will be required to sell these investments before their anticipated recovery of amortized cost, we do not consider these investments to be other-than-temporarily impaired at March 31, 2010.
  Commercial mortgage-backed securities: The unrealized losses on commercial mortgage-backed securities represent 12.0% of our total unrealized losses, and were caused primarily by spread widening and industry concerns regarding the potential for future commercial mortgage defaults. There were also concerns regarding current and future downgrades by the three major rating agencies for tranches below the super senior AAA level. The contractual cash flows of these investments are based on mortgages backing the securities. Because we do not intend to sell or believe we will be required to sell these investments before their anticipated recovery of amortized cost, we do not consider these investments to be other-than-temporarily impaired at March 31, 2010.
  Other asset-backed securities: The unrealized losses on other asset-backed securities represen t 14.9% of our total unrealized losses, and were caused primarily by concerns regarding mortgage defaults on subprime and home equity loans. There were also downgrades and defaults of monoline bond insurers providing credit protection for underlying securities. We purchased most of these investments at a discount to their face amount and the contractual cash flows of these investments are based on mortgages and other assets backing the securities. Because we do not intend to sell or believe we will be required to sell these investments before their anticipated recovery of amortized cost, we do not consider these investments to be other-than-temporarily impaired at March 31, 2010.
  Collateralized debt obligation: The unrealized loss on collateralized debt obligation represe nts  2.6%  of our total unrealized losses. Our investment in this synthetic collateralized debt obligation is backed by credit default swaps with no home equity exposure. We have stress tested this security and determined that future principal losses are not expected based on reasonably adverse conditions, as we believe the existing subordination is sufficient to maintain the value of our investment. In addition, we do not intend to sell or believe we will be required to sell this investment before its anticipated recovery of amortized cost, and therefore, do not consider it to be other-than-temporarily impaired at March 31, 2010.
  State, municipal and other governments: The unrealized losses on state, municipal and other governments represent 20.8%  of our total unrealized losses, and were primarily caused by general spread widening, concerns regarding the future of the monoline bond insurers, the lack of printed underlying ratings on insured bonds and the market's uncertainty around the recession's impact on municipalities' income. We purchased most of these investments at a discount to their face amount and the contractual cash flows of these investments are based on the taxing authority of a municipality or the revenues of a municipal project. We do not consider these investments to be other-than-temporarily impaired at March 31, 2010 because the decline in fair value is primarily attributable to increased spreads and concerns regarding the stability of the monoline bond insurers rather than the underlying issuers. In addition, we do not intend to sell or believe we will be required to sell these investments before their anticipated recovery of amortized cost.
  Excluding mortgage and asset-backed securities, no securities from the same issuer had an aggregate unrealized loss in excess of $14.7 million at March 31, 2010. The $14.7 million unrealized loss is from one CCC- rated collateralized debt obligation which has been impacted by the actual defaults in the collateral underlying the security. With respect to mortgage and asset-backed securities not backed by the United States Government, no securities from the same issuer had an aggregate unrealized loss in excess of $28.2  million at March 31, 2010. The $28.2 million unrealized loss from one issuer relates to nine d ifferent
  
    Table of Contents
 March 31, 2010
  securities that are backed by different pools o f commercial mortgage loans. All but one of the nine securities are rated investment grade and the unrealized loss on the one  non-investment grade security totaled $4.2 million. The largest unrealized loss on any one security is $6.5 million at March 31, 2010.
  We also had $ 3.1 million of gross unrealized losses on equity securities with an estimated fair value of $22.0  million at March 31, 2010. The majority of the unrealized losses are attributable to perpetual preferred securities in the financial sector ($21.9 million carrying value and $3.1 million unrealized loss). These equity securities have been in an unrealized loss position for more than one year. These securities are similar to fixed maturities as they provide periodic cash flows, contain call features and are similarly rated and priced like other long-term callable bonds. We do not intend to sell or believe we will be required to sell these investments before their anticipated recovery; therefore we do not consider them to be other-than-temporarily impaired at March 31, 2010.
  Realized gains and losses on sales of investments are determined on the basis of specific identification. The carrying values of all our investments are reviewed on an ongoing basis for credit deterioration. When our review indicates a decline in fair value is other than temporary, a specific write down is charged to earnings for the credit loss and a specific charge is recognized in accumulated other comprehensive loss for the non-credit loss component. For fixed maturity securities, the previous amortized cost adjusted by the credit loss becomes the new cost basis for the security. For equity securities, the fair value becomes the new cost basis for the security.
  After an other-than-temporary write-down of all equity securities and any fixed maturity securities with a credit only impairment, the cost basis is generally not adjusted for subsequent recoveries in fair value. However, for fixed maturity securities for which we can reasonably estimate future cash flows after a write down, the discount or reduced premium recorded, based on the new cost basis, is amortized over the remaining life of the security. Amortization in this instance is computed using the prospective method and  the current estimate of the amount and timing of future cash flows .
  Significant assumptions regarding the present value of expected cash flows for each security are used when an other-than-temporary impairment occurs and there is a non-credit portion of the unrealized loss that won't be recognized in earnings. Our assumptions for residential mortgage-backed securities, commercial mortgage-backed securities, other asset-backed securities and collateralized debt obligations include collateral pledged, scheduled principal and interest payments, default levels, delinquency rates and the level of nonperforming assets for the remainder of the investments' expected term. We use a single best estimate of cash flows approach and use the effective yield prior to the date of impairment to calculate the present value of cash flows. Our assumptions for corporate and other fixed maturity securities include scheduled principal and interest payments and an estimated recovery value, generally based on a percentage return of the current market value.
  Credit Loss Component of Other-Than-Temporary Impairments on Fixed Maturity SecuritiesThree months endedMarch 31, 2010
                  
                  March 31, 2009(Dollars in thousands)Balance at beginning of period
                  $
                  (98,545
                  )
                  
                  $
                  (106,421
                  )Increases for which an impairment was not previously recognized
                  (6,548
                  )
                  
                  (17,186
                  )Increases to previously impaired investments
                  (1,474
                  )
                  
                  (3,570
                  )Reductions due to investments sold
                  22,894
                  
                  
                  32Balance at end of period
                  $
                  (83,673
                  )
                  
                  $
                  (127,145
                  )
  Sales, Maturities and Principal Repayments on Fixed Maturity SecuritiesThree months ended March 31, 2010Amortized Cost
                  
                  Gross
                     Realized
                     Gains
                  
                  Gross
                     Realized
                     Losses
                  
                  Proceeds(Dollars in thousands)Scheduled principal repayments and calls - available for sale
                  $
                  104,308
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  104,308Sales - available for sale
                  85,254
                  
                  
                  5,057
                  
                  
                  (70
                  )
                  
                  90,241Total
                  $
                  189,562
                  
                  
                  $
                  5,057
                  
                  
                  $
                  (70
                  )
                  
                  $
                  194,549
   
    Table of Contents
 March 31, 2010
  Three months ended March 31, 2009Amortized Cost
                  
                  Gross
                     Realized
                     Gains
                  
                  Gross
                     Realized
                     Losses
                  
                  Proceeds(Dollars in thousands)Scheduled principal repayments and calls - available for sale
                  $
                  96,427
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  96,427Sales - available for sale
                  133,224
                  
                  
                  2,068
                  
                  
                  (148
                  )
                  
                  135,144Total
                  $
                  229,651
                  
                  
                  $
                  2,068
                  
                  
                  $
                  (148
                  )
                  
                  $
                  231,571
  Realized losses on sales were on securities that we did not intend to sell at the prior balance sheet date or on securities that were impaired at the prior quarter end, but decreased in value during the quarter.
  Mortgage Loans on Real Estate
  Our mortgage loan portfolio consists principally of commercial mortgage loans that we have originated. Our lending policies require that the loans be collateralized by the value of the related property, establish limits on the amount that can be loaned to one borrower and require diversification by geographic location and collateral type.
  We establish an allowance as needed, consisting of specific reserves, for possible losses against our mortgage loan portfolio. An allowance is needed for loans in which we do not believe we will collect all amounts due according to the contractual terms of the respective loan agreements.
  Valuation Allowance on Mortgage LoansThree months endedMarch 31, 2010
                  
                  March 31, 2009(Dollars in thousands)Balance at beginning of period
                  $
                  725
                  
                  
                  $
                  —Allowances established
                  —
                  
                  
                  865Balance at end of period
                  $
                  725
                  
                  
                  $
                  865
   3.  Derivative Instruments
  We have entered into interest rate swaps to manage interest rate risk associated with a portion of our flexible premium deferred annuity contracts. Under the interest rate swaps, we pay a fixed rate of interest and receive a floating rate of interest on a notional amount which totaled $50.0 million at March 31, 2010 and $100.0 million at December 31, 2009. These interest rate swaps effectively fix the interest crediting rate on a portion of our flexible premium deferred annuity contract liabilities, thereby hedging our exposure to increases in market interest rates. The interest rate settlements decreased derivative income $ 0.7  million for the first quarter of 2010 and $1.2 million in the 2009 period. The change in unrealized loss on these swaps increased derivative income $ 0.3 million for the first quarter of 2010 and $0.5 million in the 2009 period.
  We also have one interest rate swap that we entered into to hedge the variable component of the interest rate on a $ 46.0 million line of credit borrowing. The terms of this instrument provide that we pay a fixed rate of interest and receive a floating rate of interest on a notional amount of $46.0 million. We closed the line of credit agreement in the first quarter of 2009 and began recording the change in fair value of the underlying swap and interest payments in derivative income (loss). Prior to 2009, the change in fair value of the swap was included in accumulated other comprehensive loss. The interest rate settlements decreased derivative income $0.5 million for the first quarter of 2010 and $0.4 million in the 2009 period. The c hange in unrealized loss on this swap increased derivative incom e $0.5 million for the first quarter of 2010. Derivative income (loss) for the the 2009 period includes the unrealized loss on the swap at December 31, 2008 of $2.7 million which was previously included in accumulated other comprehensive loss, partially offset by the swap's increase in fair value during the period, which totaled $0.3 million.
   
    Table of Contents
 March 31, 2010
  Summary of SwapsCarrying and Fair ValueMaturity
                     Date
                  
                  Notional
                     Amount
                  
                  Receive
                     Rate
                  
                  Pay
                     Rate
                  
                  March 31, 2010
                  
                  December 31, 2009(Dollars in thousands)1/1/2010
                  
                  $
                  50,000
                  
                  
                  3 month LIBOR*
                  
                  4.858
                  %
                  
                  $
                  —
                  
                  
                  $
                  (18
                  )10/7/2010
                  
                  46,000
                  
                  
                  3 month LIBOR*
                  
                  4.760
                  %
                  
                  (1,066
                  )
                  
                  (1,521
                  )6/1/2011
                  
                  50,000
                  
                  
                  1 month LIBOR*
                  
                  5.519
                  %
                  
                  (2,860
                  )
                  
                  (3,241
                  )$
                  (3,926
                  )
                  
                  $
                  (4,780
                  )
  * London Interbank Offered Rate
  When applicable, we formally document hedging relationships, our risk management objectives and strategies for undertaking these transactions. We also test for hedge ineffectiveness at inception of the hedge and at each reporting period as needed. There were no derivative instruments designated as hedges at March 31, 2010 or December 31, 2009.
  We write index annuities directly and assume index annuity business under a coinsurance agreement. Index annuities guarantee the return of principal to the contract holder and credit amounts based on a percentage of the gain in a specified market index. Most of the premium received is invested in investment grade fixed income securities and a portion of the premium received from the contract holder is used to purchase derivatives consisting of one-year or two-year call options on the applicable market indices to fund the index credits due to the index annuity contract holders. On the respective anniversary dates of the index annuity contracts, the market index used to compute the index credits is reset and new call options are purchased to fund the next index credit. Although the call options are designed to be effective hedges from an economic standpoint, they do not meet the requirements for hedge accounting treatment under GAAP. Therefore, the change in fair value of the options is recognized in earnings in the period of change. The cost of the options can be managed through the terms of the index annuities, which permit changes to participation rates, asset fees and/or caps, subject to guaranteed minimums.
  We held call options relating to our direct business, net of collateral received for counterparty credit risk, with a fair value of $ 60.9 million at March 31, 2010 and $44.0 million at December 31, 2009. Our share of call options assumed, which is recorded as an embedded derivative in reinsurance recoverable, totaled $31.7 million at March 31, 2010 and $29.3  million at December 31, 2009. Derivative income (loss) includes $ 23.0 million in the first quarter of 2010 and ($21.7) million for the 2009 period relating to call option proceeds and changes in fair value.
  The reserve for index annuity contracts includes a series of embedded derivatives that represent the contract holder's right to participate in index returns over the expected lives of the applicable contracts. The reserve includes the value of the embedded forward options despite the fact that call options are not purchased for a period longer than the period of time to the next index reset date. The change in the value of this embedded derivative is reported on a separate line in the consolidated statements of operations and totaled $26.1 million for the first quarter of 2010 and ($8.7) million for the 2009 period.
  We have modified coinsurance agreements where interest on funds withheld is determined by reference to a pool of fixed maturity securities. These arrangements contain embedded derivatives requiring bifurcation. Embedded derivatives in these contracts are recorded at fair value at each balance sheet date and changes in the fair values of the derivatives are recorded as derivative income or loss. The fair value of the embedded derivatives pertaining to funds withheld on variable business assumed by us totaled $1.4 million a t March 31, 2010 and $1.6 million at December 31, 2009. The fair value of the embedded derivatives pertaining to funds withheld on business ceded by us wa s $0.1 million at March 31, 2010 and $0.2 million at December 31, 2009. Derivative income (loss) from our modified coinsurance contracts totaled ( $0.3) mill ion for the first quarter of 2010 and $0.6 million for the 2009 period.
   4.  Fair Values
  GAAP defines fair value, establishes a framework for measuring fair value and requires disclosures about fair value measurements. Fair value is based on an exit price, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP also establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring financial instruments at fair value. Market price observability is affected by a number of factors, including the type of instrument and the characteristics specific to the instrument. Financial instruments with readily available active quoted prices or those for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. For some investments, little market activity may exist and
  
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 March 31, 2010
  management's determination of fair value is then based on the best information available in the circumstances, and may incorporate management's own assumptions of what a market participant would consider for the fair value, which involves a significant degree of judgment.
  Volatile and illiquid market conditions in the early part of 2009 affected pricing for a broad range of asset classes and most fixed-income sectors. Market conditions improved substantially through year-end 2009 and into 2010. However, certain market sectors remain somewhat dislocated, increasing the difficulty in valuing certain instruments, as trading has been less frequent and/or market data less observable. As a result, certain valuations require greater estimation and judgment as well as more complex valuation methods. These values may not ultimately be realizable in a market transaction, and such values may change rapidly as market conditions change and valuation assumptions are modified.
  We used the following methods and assumptions in estimating the fair value of our financial instruments.
  Fixed maturity securities: Fair values of fixed maturity securities are based on quoted market prices in active markets when available. We have valued these investments using the valuation methodologies described below.
  Equity securities: 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: Fair values are estimated by discounting expected cash flows of each loan at an interest rate equal to a spread above the U.S. Treasury bond yield that corresponds to the loan's expected life. These spreads are based on overall market pricing of commercial mortgage loans at the time of valuation.
  Derivative instruments: Fair values for call options are based on counterparty market prices adjusted for a credit component of the counterparty, net of collateral received. Prices are verified internally using analytical tools.
  Policy loans : Fair values are estimated by discounting expected cash flows using a risk-free interest rate based on the U.S. Treasury curve.
  Other long-term investments, cash and short-term investments: Amounts are reported at historical cost, adjusted for amortization of premiums, depreciation or accrual of discounts, as applicable, which approximates the fair values due to the nature of these assets.
  Reinsurance recoverable: The fair value of our portion of the call options used to fund index credits on the index annuities assumed from a reinsurer is determined using quoted market prices, less an adjustment for credit risk. Fair values for the embedded derivatives in our modified coinsurance contracts under which we cede or assume business are based on the difference between the fair value and the cost basis of the underlying fixed maturity securities. We are not required to estimate fair value for the remainder of the reinsurance recoverable balance.
  Assets held in separate accounts: Fair values are based on quoted net asset values of the underlying mutual funds.
  Future policy benefits and other policyholders' funds: Fair values of our liabilities under contracts not involving significant mortality or morbidity risks (principally deferred annuities, deposit administration funds, funding agreements and supplementary contracts) are estimated using one of two methods. For contracts with known maturities (including index annuity embedded derivatives), fair value is determined using discounted cash flow valuation techniques based on current interest rates adjusted to reflect our credit risk and an additional provision for adverse deviation. For deposit liabilities with no defined maturities, fair value is the amount payable on demand. We are not required to estimate the fair value of our liabilities under other insurance contracts.
  Long-term debt: Fair values are estimated using discounted cash flow analysis based on our current incremental borrowing rate for similar types of borrowing arrangements adjusted, as needed, to reflect our credit risk.
  Other liabilities: Fair values for interest rate swaps are based on counterparty market prices adjusted for a credit component of the counterparty, net of collateral paid. Prices are verified internally using analytical tools. We are not required to estimate fair values for the remainder of the other liabilities balances.
  Liabilities related to separate accounts: Fair values are based on cash surrender value, the cost we would incur to extinguish the liability.
   
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 March 31, 2010
  Fair Values and Carrying ValuesMarch 31, 2010
                  
                  December 31, 2009Carrying Value
                  
                  Fair Value
                  
                  Carrying Value
                  
                  Fair Value(Dollars in thousands)AssetsFixed maturities - available for sale
                  $
                  10,306,026
                  
                  
                  $
                  10,306,026
                  
                  
                  $
                  9,864,601
                  
                  
                  $
                  9,864,601Equity securities - available for sale
                  70,110
                  
                  
                  70,110
                  
                  
                  60,154
                  
                  
                  60,154Mortgage loans on real estate
                  1,286,214
                  
                  
                  1,268,481
                  
                  
                  1,293,936
                  
                  
                  1,257,980Derivative instruments
                  60,880
                  
                  
                  60,880
                  
                  
                  44,023
                  
                  
                  44,023Policy loans
                  168,035
                  
                  
                  204,062
                  
                  
                  168,736
                  
                  
                  205,453Other long-term investments
                  1,875
                  
                  
                  1,875
                  
                  
                  1,882
                  
                  
                  1,882Cash and short-term investments
                  262,929
                  
                  
                  262,929
                  
                  
                  214,832
                  
                  
                  214,832Reinsurance recoverable
                  33,201
                  
                  
                  33,201
                  
                  
                  31,080
                  
                  
                  31,080Assets held in separate accounts
                  726,825
                  
                  
                  726,825
                  
                  
                  702,073
                  
                  
                  702,073
  LiabilitiesFuture policy benefits
                  $
                  9,609,642
                  
                  
                  $
                  8,778,297
                  
                  
                  $
                  9,392,402
                  
                  
                  $
                  8,397,026Other policyholders' funds
                  674,987
                  
                  
                  661,700
                  
                  
                  670,653
                  
                  
                  645,995Long-term debt
                  371,105
                  
                  
                  305,471
                  
                  
                  371,084
                  
                  
                  280,828Other liabilities
                  3,926
                  
                  
                  3,926
                  
                  
                  4,780
                  
                  
                  4,780Liabilities related to separate accounts
                  726,825
                  
                  
                  707,380
                  
                  
                  702,073
                  
                  
                  682,438
  Financial instruments measured and reported at fair value are classified and disclosed in one of the following categories.
  Level 1 - Quoted prices are available in active markets for identical financial instruments as of the reporting date. The types of financial instruments included in Level 1 are listed equities, mutual funds, money market funds, non-interest bearing cash and U.S. Treasury securities. As required by GAAP, we do not adjust the quoted price for these financial instruments, even in situations where we hold a large position and a sale could reasonably impact the quoted price.
  Level 2 - Pricing inputs are other than quoted prices in active markets which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methods. Financial instruments which are generally included in this category include fixed maturity securities (including public and private bonds), less liquid and restricted equity securities and over-the-counter derivatives that are priced by third-party pricing services or internal systems using observable inputs.
  Fair values of all Level 2 fixed maturity public securities are obtained primarily from a variety of independent pricing sources, whose results we evaluate internally. We generally obtain one or two prices per security, which are compared to relevant credit information, perceived market movements and sector news. Market indices of similar rated asset class spreads are consulted for valuations and broker indications of similar securities are compared. If the issuer has had trades in similar debt outstanding but not necessarily the same rank in the capital structure, spread information is used to support fair value. If discrepancies are identified, additional quotes are obtained and the quote that best reflects a fair value exit price at the reporting date is selected. Fair value of most of our private investments are determined using matrix pricing with substantially all observable inputs, such as industry classification, duration and rating.
  Level 3 - Pricing inputs are unobservable for the financial instrument and include situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in this category generally include non-binding broker and internally priced mortgage or other asset-backed securities and other publicly traded issues, private corporate securities and index annuity embedded derivatives.
  Fair values of private investments in Level 3 are determined by reference to public market, private transactions or valuations for comparable companies or assets in the relevant asset class when such amounts are available. For other securities where an exit price based on relevant observable inputs is not obtained, the fair value is determined using an enhanced matrix calculation.
   
    Table of Contents
 March 31, 2010
  The matrix pricing we and pricing services perform include a discounted cash flow analysis using a spread, including the specific creditors' credit default swap spread (if available), over U.S. Treasury bond yields, adjusted for the maturity/average life differences. Spread adjustments are intended to reflect an illiquidity premium and take into account a variety of factors including but not limited to: senior unsecured versus secured status, par amount outstanding, number of holders, maturity, average life, composition of lending group and debt rating. These valuation methodologies involve a significant degree of judgment.
  In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, a financial instrument's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument.
  Valuation of our Financial Instruments Reported at Fair Value by Hierarchy LevelsMarch 31, 2010Quoted prices in active markets
                     for identical assets (Level 1)
                  
                  Significant other observable
                     inputs (Level 2)
                  
                  Significant unobservable
                     inputs (Level 3)
                  
                  Total(Dollars in thousands)AssetsCorporate securities
                  $
                  —
                  
                  
                  $
                  5,142,574
                  
                  
                  $
                  185,417
                  
                  
                  $
                  5,327,991Residential mortgage-backed securities
                  —
                  
                  
                  1,849,639
                  
                  
                  5,925
                  
                  
                  1,855,564Commercial mortgage-backed securities
                  —
                  
                  
                  715,347
                  
                  
                  22,873
                  
                  
                  738,220Other asset-backed securities
                  —
                  
                  
                  270,988
                  
                  
                  19,513
                  
                  
                  290,501Collateralized debt obligations
                  —
                  
                  
                  —
                  
                  
                  3,307
                  
                  
                  3,307United States Government and agencies
                  63,890
                  
                  
                  50,280
                  
                  
                  14,682
                  
                  
                  128,852State, municipal and other governments
                  —
                  
                  
                  1,835,817
                  
                  
                  120,991
                  
                  
                  1,956,808Redeemable preferred stocks
                  —
                  
                  
                  4,783
                  
                  
                  —
                  
                  
                  4,783Non-redeemable preferred stocks
                  —
                  
                  
                  32,985
                  
                  
                  7,292
                  
                  
                  40,277Common stocks
                  2,947
                  
                  
                  26,886
                  
                  
                  —
                  
                  
                  29,833Derivative instruments
                  —
                  
                  
                  60,880
                  
                  
                  —
                  
                  
                  60,880Other long-term investments
                  —
                  
                  
                  —
                  
                  
                  1,875
                  
                  
                  1,875Cash and short-term investments
                  262,929
                  
                  
                  —
                  
                  
                  —
                  
                  
                  262,929Reinsurance recoverable
                  —
                  
                  
                  33,201
                  
                  
                  —
                  
                  
                  33,201Assets held in separate accounts
                  726,825
                  
                  
                  —
                  
                  
                  —
                  
                  
                  726,825LiabilitiesFuture policy benefits - index annuity embedded derivatives
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  538,342
                  
                  
                  $
                  538,342Other liabilities
                  —
                  
                  
                  3,926
                  
                  
                  —
                  
                  
                  3,926
     
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 March 31, 2010
  December 31, 2009Quoted prices in active markets
                     for identical assets (Level 1)
                  
                  Significant other observable
                     inputs (Level 2)
                  
                  Significant unobservable
                     inputs (Level 3)
                  
                  Total(Dollars in thousands)AssetsCorporate securities
                  $
                  —
                  
                  
                  $
                  4,901,409
                  
                  
                  $
                  188,480
                  
                  
                  $
                  5,089,889Residential mortgage-backed securities
                  —
                  
                  
                  1,873,410
                  
                  
                  —
                  
                  
                  1,873,410Commercial mortgage-backed securities
                  —
                  
                  
                  688,636
                  
                  
                  31,487
                  
                  
                  720,123Other asset-backed securities
                  —
                  
                  
                  109,925
                  
                  
                  22,948
                  
                  
                  132,873Collateralized debt obligations
                  —
                  
                  
                  —
                  
                  
                  12,892
                  
                  
                  12,892United States Government and agencies
                  69,527
                  
                  
                  55,257
                  
                  
                  14,683
                  
                  
                  139,467State, municipal and other governments
                  —
                  
                  
                  1,780,546
                  
                  
                  110,707
                  
                  
                  1,891,253Redeemable preferred stocks
                  —
                  
                  
                  4,694
                  
                  
                  —
                  
                  
                  4,694Non-redeemable preferred stocks
                  —
                  
                  
                  31,038
                  
                  
                  7,399
                  
                  
                  38,437Common stocks
                  2,685
                  
                  
                  19,032
                  
                  
                  —
                  
                  
                  21,717Derivative instruments
                  —
                  
                  
                  44,023
                  
                  
                  —
                  
                  
                  44,023Other long-term investments
                  —
                  
                  
                  —
                  
                  
                  1,882
                  
                  
                  1,882Cash and short-term investments
                  214,832
                  
                  
                  —
                  
                  
                  —
                  
                  
                  214,832Reinsurance recoverable
                  —
                  
                  
                  31,080
                  
                  
                  —
                  
                  
                  31,080Assets held in separate accounts
                  702,073
                  
                  
                  —
                  
                  
                  —
                  
                  
                  702,073LiabilitiesFuture policy benefits - index annuity embedded derivatives
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  502,067
                  
                  
                  $
                  502,067Other liabilities
                  —
                  
                  
                  4,780
                  
                  
                  —
                  
                  
                  4,780
  Approximately 3.6% of the total fixed maturities are included in the Level 3 group at March 31, 2010 and 3.9% at December 31, 2009. The fair value of the assets and liabilities above include the financial instruments' nonperformance risk. Nonperformance risk is the risk that the instrument will not be fulfilled and affects the value at which the instrument could be transferred in an orderly transaction. The nonperformance risk for our assets reported at fair value totaled $ 0.3 million at March 31, 2010 and December 31, 2009. Our nonperformance risk decreased the fair value of our reported liabilities $97.2  million at March 31, 2010 and $108.5 million at December 31, 2009.
  Level 3 Fixed Maturity Securities by Valuation SourceMarch 31, 2010Third-party vendors
                  
                  Priced internally
                  
                  Total(Dollars in thousands)Corporate securities
                  $
                  128,379
                  
                  
                  $
                  57,038
                  
                  
                  $
                  185,417Residential mortgage-backed securities
                  5,925
                  
                  
                  —
                  
                  
                  5,925Commercial mortgage-backed securities
                  18,507
                  
                  
                  4,366
                  
                  
                  22,873Other asset-backed securities
                  19,513
                  
                  
                  —
                  
                  
                  19,513Collateralized debt obligations
                  3,307
                  
                  
                  —
                  
                  
                  3,307United States Government and agencies
                  —
                  
                  
                  14,682
                  
                  
                  14,682State, municipal and other governments
                  120,991
                  
                  
                  —
                  
                  
                  120,991Total
                  $
                  296,622
                  
                  
                  $
                  76,086
                  
                  
                  $
                  372,708Percent of total
                  79.6
                  %
                  
                  20.4
                  %
                  
                  100.0
                  %
   
    Table of Contents
 March 31, 2010
  December 31, 2009Third-party vendors
                  
                  Priced internally
                  
                  Total(Dollars in thousands)Corporate securities
                  $
                  151,056
                  
                  
                  $
                  37,424
                  
                  
                  $
                  188,480Commercial mortgage-backed securities
                  26,761
                  
                  
                  4,726
                  
                  
                  31,487Other asset-backed securities
                  22,948
                  
                  
                  —
                  
                  
                  22,948Collateralized debt obligations
                  12,892
                  
                  
                  —
                  
                  
                  12,892United States Government and agencies
                  14,683
                  
                  
                  —
                  
                  
                  14,683State, municipal and other governments
                  110,707
                  
                  
                  —
                  
                  
                  110,707Total
                  $
                  339,047
                  
                  
                  $
                  42,150
                  
                  
                  $
                  381,197Percent of total
                  88.9
                  %
                  
                  11.1
                  %
                  
                  100
                  %
  Level 3 Financial Instruments Changes in Fair Value - AssetsMarch 31, 2010Balance, December 31, 2009
                  
                  Purchases (disposals), net
                  
                  Realized and unrealized gains (losses), net
                  
                  Net transfers in (out) of Level 3 (1)
                  
                  Included in earnings (amort- ization)
                  
                  Balance, March 31, 2010(Dollars in thousands)Corporate securities
                  $
                  188,480
                  
                  
                  $
                  (1,751
                  )
                  
                  $
                  6,998
                  
                  
                  $
                  (8,350
                  )
                  
                  $
                  40
                  
                  
                  $
                  185,417Residential mortgage-backed securities
                  —
                  
                  
                  5,925
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  5,925Commercial mortgage-backed securities
                  31,487
                  
                  
                  (324
                  )
                  
                  1,295
                  
                  
                  (9,500
                  )
                  
                  (85
                  )
                  
                  22,873Other asset-backed securities
                  22,948
                  
                  
                  (377
                  )
                  
                  1,068
                  
                  
                  (4,322
                  )
                  
                  196
                  
                  
                  19,513Collateralized debt obligations
                  12,892
                  
                  
                  (10,200
                  )
                  
                  615
                  
                  
                  —
                  
                  
                  —
                  
                  
                  3,307United States Government and agencies
                  14,683
                  
                  
                  —
                  
                  
                  (4
                  )
                  
                  —
                  
                  
                  3
                  
                  
                  14,682State, municipal and other governments
                  110,707
                  
                  
                  4,879
                  
                  
                  5,412
                  
                  
                  —
                  
                  
                  (7
                  )
                  
                  120,991Non-redeemable preferred stocks
                  7,399
                  
                  
                  —
                  
                  
                  (107
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  7,292Other long-term investments
                  1,882
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (7
                  )
                  
                  1,875Total
                  $
                  390,478
                  
                  
                  $
                  (1,848
                  )
                  
                  $
                  15,277
                  
                  
                  $
                  (22,172
                  )
                  
                  $
                  140
                  
                  
                  $
                  381,875
  March 31, 2009Balance, December 31, 2008
                  
                  Purchases (disposals), net
                  
                  Realized and unrealized gains (losses), net
                  
                  Net transfers in (out) of Level 3 (1)
                  
                  Included in earnings (amort- ization)
                  
                  Balance, March 31, 2009(Dollars in thousands)Corporate securities
                  $
                  642,234
                  
                  
                  $
                  (10,811
                  )
                  
                  $
                  (3,474
                  )
                  
                  $
                  (455,128
                  )
                  
                  $
                  (34
                  )
                  
                  $
                  172,787Residential mortgage-backed securities
                  70,003
                  
                  
                  —
                  
                  
                  9,049
                  
                  
                  9,224
                  
                  
                  16
                  
                  
                  88,292Commercial mortgage-backed securities
                  24,122
                  
                  
                  (301
                  )
                  
                  1,067
                  
                  
                  (5,590
                  )
                  
                  (3
                  )
                  
                  19,295Other asset-backed securities
                  17,201
                  
                  
                  (637
                  )
                  
                  (2,572
                  )
                  
                  2,231
                  
                  
                  3
                  
                  
                  16,226Collateralized debt obligations
                  7,414
                  
                  
                  —
                  
                  
                  (1,976
                  )
                  
                  —
                  
                  
                  (1
                  )
                  
                  5,437United States Government and agencies
                  1,928
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  1,928State, municipal and other governments
                  140,189
                  
                  
                  (54
                  )
                  
                  (4,287
                  )
                  
                  (19,999
                  )
                  
                  (5
                  )
                  
                  115,844Redeemable preferred stocks
                  4,526
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  4,526Non-redeemable preferred stocks
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  
                  
                  —Other long-term investments
                  1,527
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  54
                  
                  
                  1,581Total
                  $
                  909,144
                  
                  
                  $
                  (11,803
                  )
                  
                  $
                  (2,193
                  )
                  
                  $
                  (469,262
                  )
                  
                  $
                  30
                  
                  
                  $
                  425,916
   
    Table of Contents
 March 31, 2010
  (1)
                  For the 2010 period, the net transfers in (out) line above includes $22.2 million of securities that were priced using a broker only quote at December 31, 2009 and transferred to a pricing service that uses observable market data in the prices at March 31, 2010. For the 2009 period, net transfers in (out) includes $535.4 million of securities that were priced using a broker only quote at December 31, 2008 but transferred to a pricing service that uses observable market data in the prices. The 2009 period also includes $66.1 million that were transferred into Level 3 but did not have enough observable data to include in Level 2 at December 31, 2009.
  The change in unrealized gains/losses on Level 3 investments was $ 18.6 million for the three months ended March 31, 2010 and ($2.2) million for the three months ended March 31, 2009.
 
 Level 3 Financial Instruments Changes in Fair Value - Future Policy BenefitsThree months ended March 312010
                  
                  2009(Dollars in thousands)Index Product Embedded DerivativesBalance, beginning of period
                  $
                  502,067
                  
                  
                  $
                  523,515Premiums less benefits, net
                  (8,869
                  )
                  
                  (20,558
                  )Impact of unrealized gains (losses), net
                  45,144
                  
                  
                  (55,734
                  )Balance, end of period
                  $
                  538,342
                  
                  
                  $
                  447,223Change in unrealized gains/losses on embedded derivatives held at end of period (1)
                  $
                  45,144
                  
                  
                  $
                  (55,734
                  )
 (1)
                  Excludes host accretion and the timing of posting index credits, which are included with the change in value of index product embedded derivatives in the consolidated statements of operations.
 
  5. Defined Benefit Plan
  We participate with several affiliates and an unaffiliated organization in various multiemployer defined benefit plans. Our share of net periodic pension cost for the plans recorded as expense in our consolidated statements of operations totaled $1.4 million for the three months ended March 31, 2010 and $2.0 million for the three months ended March 31, 2009. Pension cost is lower than 2009 primarily due to improved asset returns and the impact of certain cost savings measures implemented in 2009.
  Components of Net Periodic Pension Cost for all Employers in the Multiemployer Plans
 Three months ended March 31,2010
                  
                  2009(Dollars in thousands)Service cost
                  $
                  1,828
                  
                  
                  $
                  1,860Interest cost
                  3,558
                  
                  
                  3,890Expected return on assets
                  (3,166
                  )
                  
                  (2,997
                  )Amortization of prior service cost
                  182
                  
                  
                  185Amortization of actuarial loss
                  1,741
                  
                  
                  2,216Settlement expense
                  (148
                  )
                  
                  96Net periodic pension cost - all employees
                  $
                  3,995
                  
                  
                  $
                  5,250
   6.  Commitments and Contingencies
  Legal Proceedings
  In the normal course of business, we may be involved in litigation where damages are alleged that are substantially in excess of contractual policy benefits or certain other agreements. In recent years, companies in the life insurance and annuity business have faced litigation, including class action lawsuits, alleging improper product design, improper sales practices and similar claims. We are currently a defendant in two purported class action lawsuits against EquiTrust Life Insurance Company (EquiTrust Life) alleging claims as described below. We believe that many of the asserted claims will be defeated by dispositive motions. We remain optimistic that class certification will also be defeated in these actions. However, the court has a great deal of discretion in deciding whether to certify a class, and it is impossible to accurately predict how the court will rule on such a
  
    Table of Contents
 March 31, 2010
  motion. Other theories of potential liability may develop as these cases progress. This is especially true as plaintiffs continue to alter their theories of liability during discovery. Given these uncertainties, we are unable to make a reliable evaluation of the likelihood of an unfavorable outcome or an estimate of the amount or range of potential loss to the extent the matters proceed through litigation.
  The first case is Tabares v. EquiTrust Life Insurance Company, et al , filed in Los Angeles Superior Court on May 5, 2008, Case No. BC390195. Tabares is a purported California class action on behalf of all persons who purchased certain deferred annuities from EquiTrust Life. The complaint asserts a sub-class of purchasers that were age 60 or older at the time of purchasing those annuities from EquiTrust Life. Plaintiffs seek injunctive relief on behalf of all class members under California Business & Professions Code Section 17200 et seq., compensatory damages for breach of contract and punitive damages under a common law cause of action for fraud.
  The second case is Eller v. EquiTrust Life Insurance Company, et al , f iled in United States District Court, District of Arizona, on January 12, 2009, Case No. 4:09-cv-00029 DCB. This purported national class action includes all persons who purchased EquiTrust Life index annuities, with one sub-class for all persons age 65 and older that purchased an EquiTrust Life index annuity contract with a maturity date beyond the annuitant's actuarial life expectancy; and a 17-state sub-class under various consumer protection and unfair insurance practices statutes. This case seeks rescission and injunctive relief including restitution and disgorgement of profits on behalf of all class members, compensatory damages, unjust enrichment and punitive damages.
  In 2008, the jury from a trial in Federal District Court in Utah involving an agency matter awarded Farm Bureau Life Insurance Company (Farm Bureau Life) and Farm Bureau Property & Casualty Insurance Company (Farm Bureau Property & Casualty) actual damages totaling $3.6 million and punitive damages totaling $62.7 million. Approximately 25% of the award is allocable to Farm Bureau Life with the remaining 75% allocable to Farm Bureau Property & Casualty. In 2009, the court ruled on various post trial motions, upholding the actual damages, but reducing the punitive damages to $3.6 million. The defendants have appealed this decision and Farm Bureau Life and Farm Bureau Property & Casualty have cross-appealed. All briefs were submitted to the 10th Circuit Court of Appeals and oral arguments were held on May 4, 2010. Recoveries from third parties are required to be accounted for as gain contingencies and are not recorded in our financial statements until the lawsuit is resolved.
  In 2006, we incurred a pre-tax charge of $4.9 million relating to the settlement of a lawsuit with a husband and wife who had applied for life insurance policies. The settlement ended litigation, which was filed in the Federal District Court in Wyoming, regarding the process we followed in denying insurance coverage for medical reasons. Insurance claims have been filed under our professional liability and general liability insurance policies for reimbursement of the settlement amount, but coverage has been denied, and we have made a claim against an insurance broker for breach of contractual duties. We have filed lawsuits in the Polk County District Court of Iowa against the insurer and the insurance broker to recover those damages. We received an adverse ruling in the case against the insurer at the district court level, which was subsequently affirmed by the Iowa Supreme Court in April 2010. We retain our cause of action against the broker for failure to provide timely notice of our claim to said insurers and believe the claim is valid. Any recoveries will be recorded in net income in the period the recovery is received.
  Other
  In the normal course of business, we seek to limit our exposure to loss on any single insured or event and to recover a portion of benefits paid by ceding a portion of our exposure to other insurance enterprises or reinsurers. Reinsurance contracts do not relieve us of our obligations to policyholders. To the extent that reinsuring companies are later unable to meet obligations under reinsurance agreements, our insurance subsidiaries would be liable for these obligations, and payment of these obligations could result in losses. To limit the possibility of such losses, we evaluate the financial condition of our reinsurers and monitor concentrations of credit risk. No allowance for uncollectible amounts has been established against our asset for reinsurance recoverable since none of our receivables are deemed to be uncollectible.
  We self-insure our employee health and dental claims. However, claims in excess of our self-insurance levels are fully insured. We fund insurance claims through a self-insurance trust. Deposits to the trust are made at an amount equal to our best estimate of claims incurred during the period and a liability is established at each balance sheet date for unpaid claims. Adjustments, if any, resulting in changes in the estimate of claims incurred will be reflected in operations in the periods in which such adjustments are known.


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Table of Contents
 March 31, 2010
   7.  Earnings (Loss) per Share
  Computation of Earnings (Loss) per Common ShareThree months ended March 31,2010
                  
                  2009(Dollars in thousands, except per share data)Numerator:Net income (loss) attributable to FBL Financial Group, Inc.
                  $
                  18,021
                  
                  
                  $
                  (1,490
                  )Dividends on Series B preferred stock
                  (38
                  )
                  
                  (38
                  )Numerator for earnings (loss) per common share - income available to common stockholders
                  $
                  17,983
                  
                  
                  $
                  (1,528
                  )Denominator:Weighted average shares
                  30,104,281
                  
                  
                  29,850,768Deferred common stock units relating to deferred compensation plans
                  174,796
                  
                  
                  107,035Denominator for earnings (loss) per common share - weighted average shares
                  30,279,077
                  
                  
                  29,957,803Effect of dilutive securities - stock-based compensation
                  252,509
                  
                  
                  —Denominator for dilutive earnings (loss) per common share - adjusted weighted-average shares
                  30,531,586
                  
                  
                  29,957,803Earnings (loss) per common share
                  $
                  0.59
                  
                  
                  $
                  (0.05
                  )Earnings (loss) per common share - assuming dilution
                  $
                  0.59
                  
                  
                  $
                  (0.05
                  )
  Stock options totaling 2,033,294 f or the three-month period ended March 31, 2010 and 3,060,758 for the 2009 period were excluded from the earnings (loss) per share computation as these stock options were anti-dilutive.
   8.  Segment Information
  We analyze operations by reviewing financial information regarding products that are aggregated into four product segments. The product segments are: (1) Traditional Annuity - Exclusive Distribution ("Exclusive Annuity"), (2) Traditional Annuity - Independent Distribution ("Independent Annuity"), (3) Traditional and Universal Life Insurance and (4) Variable. We also have various support operations and corporate capital that are aggregated into a Corporate and Other segment.
  We analyze our segment results based on pre-tax operating income (loss). Accordingly, income taxes are not allocated to the segments. In addition, operating results are generally reported net of any transactions between the segments. Operating income (loss) for 2010 and 2009 represents net income (loss) excluding, as applicable, the impact of realized and unrealized gains and losses on investments and changes in net unrealized gains and losses on derivatives.
  We use operating income (loss), in addition to net income (loss), to measure our performance since realized and unrealized gains and losses on investments and the change in net unrealized gains and losses on derivatives can fluctuate greatly from quarter to quarter. These fluctuations make it difficult to analyze core operating trends. In addition, for derivatives not designated as hedges, there is a mismatch between the valuation of the asset and liability when deriving net income (loss). Specifically, call options relating to our index business are one or two-year assets while the embedded derivative in the index contracts represents the rights of the contract holder to receive index credits over the entire period the index annuities are expected to be in force. For our other embedded derivatives and interest rate swaps, the derivatives are marked to market, but the associated liabilities are not marked to market. A view of our operating performance without the impact of these mismatches and nonrecurring items enhances the analysis of our results. We use operating income for goal setting, determining company-wide short-term incentive compensation and evaluating performance on a basis comparable to that used by many in the investment community.
   
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 March 31, 2010
  Financial Information Concerning our Operating SegmentsThree months ended March 31,2010
                  
                  2009(Dollars in thousands)Operating revenues:Traditional Annuity - Exclusive Distribution
                  $
                  40,774
                  
                  
                  $
                  36,660Traditional Annuity - Independent Distribution
                  112,263
                  
                  
                  91,133Traditional and Universal Life Insurance
                  83,547
                  
                  
                  86,132Variable
                  16,915
                  
                  
                  16,145Corporate and Other
                  4,999
                  
                  
                  5,598258,498
                  
                  
                  235,668Realized gains (losses) on investments (A)
                  (3,291
                  )
                  
                  (19,680
                  )Change in net unrealized gains/losses on derivatives (A)
                  14,192
                  
                  
                  7,490Consolidated revenues
                  $
                  269,399
                  
                  
                  $
                  223,478Pre-tax operating income (loss):Traditional Annuity - Exclusive Distribution
                  $
                  11,890
                  
                  
                  $
                  6,826Traditional Annity - Independent Distribution
                  7,643
                  
                  
                  (127
                  )Traditional and Universal Life Insurance
                  11,111
                  
                  
                  15,443Variable
                  3,540
                  
                  
                  (3,825
                  )Corporate and Other
                  (4,116
                  )
                  
                  (6,628
                  )30,068
                  
                  
                  11,689Income taxes on operating income
                  (9,770
                  )
                  
                  (3,821
                  )Realized gains/losses on investments (A)
                  (1,319
                  )
                  
                  (11,040
                  )Change in net unrealized gains/losses on derivatives (A)
                  (958
                  )
                  
                  1,682Consolidated net income (loss) attributable to FBL Financial Group, Inc.
                  $
                  18,021
                  
                  
                  $
                  (1,490
                  )
 
 (A)
                  Amounts are net of adjustments, as applicable, to amortization of unearned revenue reserves, deferred policy acquisition costs, deferred sales inducements, value of insurance in force acquired and income taxes attributable to these items.
  Our investment in equity method investees, the related equity income and interest expense are attributable to the Corporate and Other segment. Expenditures for long-lived assets were not significant during the periods presented above. Goodwill at March 31, 2010 and December 31, 2009 is allocated among the segments as follows: Exclusive Annuity ( $3.9 million), Traditional and Universal Life Insuranc e ($6.1 million) and Corporate ($ 1.2 m illion).


---



Table of Contents
 March 31, 2010
   ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  This section includes a summary of FBL Financial Group, Inc.'s consolidated results of operations, financial condition and where appropriate, factors that management believes may affect future performance. Unless noted otherwise, all references to FBL Financial Group, Inc. (we or the Company) include all of its direct and indirect subsidiaries, including its primary life insurance subsidiaries, Farm Bureau Life Insurance Company (Farm Bureau Life) and EquiTrust Life Insurance Company (EquiTrust Life) (collectively, the Life  Companies). Please read this discussion in conjunction with the accompanying consolidated financial statements and related notes. In addition, we encourage you to refer to our 2009 Form 10-K for a complete description of our significant accounting policies and estimates. Familiarity with this information is important in understanding our financial position and results of operations.
  This Form 10-Q includes statements relating to anticipated financial performance, business prospects, new products, and similar matters. These statements and others, which include words such as "expect", "anticipate", "believe", "intend" and other similar expressions, constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. A variety of factors could cause our actual results and experiences to differ materially from the anticipated results or other expectations expressed in our forward-looking statements. See Part 1A, Risk Factors, of our 2009 Annual Report on Form 10-K for additional information on the risks and uncertainties that may affect the operations, performance, development and results of our business.
   Impact of Recent Business Environment
  The improvement in the financial markets that began in the latter half of 2009 continued into 2010, although at a more modest pace. The overall stock market continued to rise through the first quarter of 2010, while fixed income credit spreads narrowed further. Interest rates remain relatively low, with the Federal Reserve currently setting short-term rates near 0.0% and the 10-year Treasury yielding less than 4.0%.
  U.S. Gross Domestic Product (GDP) grew 2.2% and 5.6% annualized for the third and fourth quarter of 2009, respectively. Economists currently expect GDP to grow approximately 3.0% in both 2010 and 2011. The economy recorded job growth in March and should continue to support job growth in the near future. The level of unemployment remains high and the pace and extent of job growth will determine how robust the overall economic recovery will be. The housing market experienced a slowdown in the recent winter months but will likely remain supported by government tax credits, relatively low mortgage rates and overall high affordability.
  Our business generally benefits from moderate to strong economic expansion. Conversely, a lackluster economic recovery characterized by higher unemployment, lower family income, lower consumer spending, muted corporate earnings growth and lower business investment could adversely impact the demand for our products in the future. We also may experience a higher incidence of claims, lapses or surrenders of policies. We cannot predict whether or when such actions may occur, or what impact, if any, such actions could have on our business, results of operations, cash flows or financial condition.
  The fixed-income markets continued to improve modestly in the first quarter of 2010 following the strong recovery experienced throughout 2009. Liquidity remains favorable as investors rapidly acquire new issues across both investment grade and high yield bond segments. Within the corporate credit sector, defaults and downgrades have begun to decline, suggesting an improvement in credit conditions. Investor demand and improving fundamentals have caused substantial spread tightening across most fixed-income sectors, including the asset-backed and commercial mortgage-backed securities markets.
  The carrying value of our investments improved throughout the quarter as a result of the continued narrowing in spreads. However, unrealized losses remain in many asset sectors. Additionally, certain sectors remain somewhat dislocated, making it difficult to value some securities. As a result, certain valuations require greater estimation and judgment, as well as valuation methods that are more complex. These values may not ultimately be realizable in a market transaction, and such values may change rapidly as market conditions change and valuation assumptions are modified. See Note 2 to our consolidated financial statements for details on the nature of our unrealized loss position and Note 4 for discussion of our valuation methods.
  Our fixed annuity products contain features that allow contract holders to surrender a policy. To encourage persistency, we impose a surrender charge against the account balance for early termination of a contract within a specified period after its effective date. Most of the fixed annuity products sold by the EquiTrust Life independent channel offered a market value adjustment (MVA) feature based on U.S. Treasury rates. This feature provides us interest rate protection when U.S. Treasury interest rates are greater than the rates in effect when a contract is issued and provides a benefit to contract holders when U.S.
  
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 March 31, 2010
  Treasury interest rates are less than the rates in effect when a contract is issued. The unprecedented low U.S. Treasury yields in early 2009 provided an environment where contract holders were able to surrender with smaller net charges, which significantly increased the level of surrender activity. Surrender activity began declining toward the end of the first quarter of 2009 and continued declining throughout the remainder of 2009 to expected levels in the fourth quarter of 2009. Surrender activity during the first quarter of 2010 continued at or below expected levels.
  We maintain capital levels in accordance with certain statutory and rating agency requirements. Fixed annuity products generally place a strain on statutory capital when sold and add to capital in subsequent years. As a result of the significant growth of the EquiTrust Life independent distribution channel business, our need for capital has increased in recent years. In addition, our capital levels were negatively impacted during 2008 and 2009 as a result of the increased surrender activity and realized and unrealized losses on our investments. During 2008 and 2009, we took rate and other actions to reduce sales of new annuity contracts at EquiTrust Life and modified contract terms on many products and implemented a new commission structure to preserve our capital position.  In addition, we took other actions to restore our capital levels during 2009, such as the sale of a block of coinsured business in the fourth quarter. In 2010, we are continuing to monitor and take actions to further strengthen our capital position. See the "Liquidity and Capital Resources" section below for additional details regarding our capital position.
 
  Results of Operations for the Periods Ended March 31, 2010 and 2009Three months ended March 31,2010
                  
                  2009(Dollars in thousands,
                     except per share data)Revenues
                  $
                  269,399
                  
                  
                  $
                  223,478Benefits and expenses
                  244,532
                  
                  
                  226,33524,867
                  
                  
                  (2,857
                  )Income taxes
                  (7,955
                  )
                  
                  1,256Equity income
                  1,095
                  
                  
                  73Net income (loss)
                  18,007
                  
                  
                  (1,528
                  )Net loss attributable to noncontrolling interest
                  14
                  
                  
                  38Net income (loss) attributable to FBL Financial Group, Inc.
                  $
                  18,021
                  
                  
                  $
                  (1,490
                  )Earnings (loss) per common share
                  $
                  0.59
                  
                  
                  $
                  (0.05
                  )Earnings (loss) per common share - assuming dilution
                  $
                  0.59
                  
                  
                  $
                  (0.05
                  )
  Other dataDirect premiums collected, net of reinsurance ceded:Traditional Annuity - Exclusive Distribution
                  $
                  78,684
                  
                  
                  $
                  96,368Traditional Annuity - Independent Distribution
                  47,336
                  
                  
                  324,699Traditional and Universal Life Insurance
                  52,051
                  
                  
                  49,860Variable Annuity and Variable Universal Life (1)
                  30,450
                  
                  
                  26,180Reinsurance assumed and other
                  390
                  
                  
                  2,936Total
                  $
                  208,911
                  
                  
                  $
                  500,043Direct life insurance in force, end of quarter (in millions)
                  $
                  46,582
                  
                  
                  $
                  43,993Life insurance lapse rates
                  6.9
                  %
                  
                  7.1
                  %Withdrawal rates - individual traditional annuity:Exclusive Distribution
                  4.1
                  %
                  
                  4.9
                  %Independent Distribution
                  6.8
                  %
                  
                  20.8
                  %
 (1)
                  Amounts are net of portion ceded to and include amounts assumed from alliance partners.
  Premiums collected is not a measure used in financial statements prepared in accordance with GAAP. There is no comparable GAAP financial measure. We use premiums collected to measure the productivity of our exclusive and independent agents.
  
    Table of Contents
 March 31, 2010
  Direct Traditional Annuity - Exclusive Distribution premiums collected segment decreased for the three-month period in 2010 primarily due to the strong recovery of the fixed-income markets throughout 2009, making other competing investment options relatively more attractive to our customers than they were in 2009. Direct premiums collected in the Traditional Annuity - Ind ependent Distribution segment decreased in 2010 as a result of the continuing impact of rate and other actions taken to preserve capital. Variable premiums collected tend to vary with volatility, performance of and confidence level in the equity markets as well as crediting and interest rates on competing products, including fixed rate annuities and bank-offered certificates of deposit.
  The withdrawal rate for the Traditional Annuity - Independent Distribution segment increased in 2009 primarily due to the impact of low U.S. Treasury yields on the MVA feature for our direct fixed annuity products, which provided an environment where contract holders could surrender with smaller net surrender charges. Additional details on this feature are discussed above in the "Impact of Recent Business Environment" section.
  Net Income (Loss) Attributable to FBL Financial Group, Inc.
  Net income (loss) attributable to FBL Financial Group, Inc. (FBL Net Income (Loss)) was $18.0 million in the first quarter of 2010 compared to ($1.5) million for the 2009 period. As discussed in detail below, the increase in the first quarter was primarily due to a decrease in impairment losses on investments, the impact of reduced surrender activity from our EquiTrust Life independent distribution and improved spreads earned. In addition, results for the first quarter of 2010 benefited from lower expenses and an increase in the volume of Farm Bureau Life's business in force. The i ncrease in volume of business in force is quantified by summarizing the face amount of insurance in force for traditional life products or account values of contracts in force for interest sensitive products. The face amount of life insurance in force represents the gross death benefit payable to policyholders and account value represents the value of the contract to the contract holder before application of surrender charges or reduction for any policy loans outstanding. The following discussion provides additional details on the items impacting FBL Net Income (Loss).
  Spreads Earned on our Universal Life and Individual Annuity ProductsThree months ended March 31,2010
                  
                  2009Weighted average yield on cash and invested assets
                  6.09
                  %
                  
                  6.15
                  %Weighted average interest crediting rate/index cost
                  3.72
                  %
                  
                  3.98
                  %Spread
                  2.37
                  %
                  
                  2.17
                  %
  The weighted average yield on cash and invested assets represents the yield on cash and investments backing the universal life and individual traditional annuity products net of investment expenses. The yield also includes gains or losses relating to our interest rate swap program for certain individual traditional annuities. With respect to our index annuities, index costs represent the expenses we incur to fund the annual index credits through the purchase of options and minimum guaranteed interest credited on the index business. The weighted average crediting rate/index cost and spread are computed excluding the impact of the amortization of deferred sales inducements. See the "Segment Information" section that follows for a discussion of our spreads.
 
 Impact of Operating Adjustments on FBL Net Income (Loss)Three months ended March 31,2010
                  
                  2009(Dollars in thousands)Realized losses on investments
                  $
                  (3,293
                  )
                  
                  $
                  (19,670
                  )Change in net unrealized gains/losses on derivatives
                  (11,864
                  )
                  
                  16,159Change in amortization of:Deferred policy acquisition costs
                  6,680
                  
                  
                  (6,850
                  )Deferred sales inducements
                  4,996
                  
                  
                  (4,031
                  )Value of insurance in force acquired
                  (24
                  )
                  
                  5Unearned revenue reserve
                  2
                  
                  
                  (10
                  )Income tax offset
                  1,226
                  
                  
                  5,039Net impact of operating income adjustments
                  $
                  (2,277
                  )
                  
                  $
                  (9,358
                  )
 Table of Contents
 March 31, 2010
 Three months ended March 31,2010
                  
                  2009(Dollars in thousands)Summary of adjustments noted above after offsets and income taxes:Realized gains/losses on investments
                  $
                  (1,319
                  )
                  
                  $
                  (11,040
                  )Change in net unrealized gains/losses on derivatives
                  (958
                  )
                  
                  1,682Net impact of operating income adjustments
                  $
                  (2,277
                  )
                  
                  $
                  (9,358
                  )Net impact per share - basic
                  $
                  (0.08
                  )
                  
                  $
                  (0.31
                  )Net impact per share - assuming dilution
                  $
                  (0.07
                  )
                  
                  $
                  (0.31
                  )
  As noted in the "Segment Information" section that follows, we use both net income (loss) and operating income (loss) to measure our operating results. Operating income for the periods covered by this report equals net income (loss), excluding the impact of realized gains and losses on investments and the change in net unrealized gains and losses on derivatives. Our rationale for excluding these items from operating income is also explained in Note 8 to our consolidated financial statements.
  Changes in FBL Net Income (Loss)Three months endedMarch 31,2010 vs. 2009(Dollars in thousands)Premiums and product charges
                  $
                  (9,846
                  )Net investment income
                  (5,980
                  )Derivative income (loss)
                  46,937Realized gains (losses) on investments
                  16,377Other income and other expenses
                  (891
                  )Interest sensitive and index products benefits and change in value of index product embedded derivative
                  (42,473
                  )Traditional life insurance policy benefits
                  (5,239
                  )Underwriting, acquisition and insurance expenses
                  28,025Interest expense
                  814Income taxes
                  (9,211
                  )Noncontrolling interest and equity income
                  998Total change in FBL Net Income (Loss)
                  $
                  19,511
  A detailed discussion of changes in FBL Net Income (Loss) follows.
   Premiums and Product Charges
  Three months ended March 31,2010
                  
                  2009(Dollars in thousands)Premiums and product charges:Interest sensitive and index product charges
                  $
                  30,003
                  
                  
                  $
                  41,140Traditional life insurance premiums
                  39,245
                  
                  
                  37,954Total
                  $
                  69,248
                  
                  
                  $
                  79,094
  Premiums and product charges decreased  12.4% in the first quarter of 2010 to $69.2 million primarily due to a reduction in surrender charges on annuity products. In addition, premium and product charges declined as a result of the sale of a block of coinsured business in the fourth quarter of 2009. Surrender charges totaled  $7.0 million in the three months ended March 31, 2010 and $17.9 million in the 2009 period. Net surrender charges decreased on certain products sold by our EquiTrust Life independent distribution as noted in the "Impact of Recent Business Environment" section above.
   
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  Surrender Charges on EquiTrust Life Direct Fixed Annuity ContractsThree months ended March 31,2010
                  
                  2009(Dollars in thousands)Surrender charges:Gross surrender charges
                  $
                  6,637
                  
                  
                  $
                  64,609Market value adjustments
                  (1,759
                  )
                  
                  (49,771
                  )Net surrender charges
                  $
                  4,878
                  
                  
                  $
                  14,838
  Traditional life insurance premiums increased due to an increase in the volume of business in force. The increase in the business in force is primarily attributable to sales of traditional life products by our Farm Bureau Life agency force exceeding the loss of in force amounts through deaths, lapses and surrenders. Our average aggregate traditional life insurance in force, net of reinsurance ceded, totaled $25,245.7 million for the three-month period in 2010 and $23,203.4 million for the three-month period in 2009. The change in life insurance in force is not proportional to the change in premium income due to a shift in the composition of our traditional life block of business from whole life policies to term policies. The premium for a term policy per $1,000 face amount is less than that for a whole life policy.
   Net Investment Income
  Net investment income,  which excludes investment income on separate account assets relating to variable products, decreased 3.2% in the first quarter of 2010 to $178.1 million . The decrease for the quarter is primarily due to the decrease in average invested assets and a decrease in short-term interest rates. Average invested assets in the three-month period of 2010 decreased 2.1% to $12,186.8 million (based on securities at amortized cost) from $12,446.5 million in the 2009 period, principally due to the net cash outflows from EquiTrust Life, partially offset by net cash inflows from Farm Bureau Life during the fifteen-month period ended March 31, 2010. EquiTrust Life had net cash outflows in 2009 due to the reduction in sales to preserve capital, increased surrender activity from the independent distribution channel and assets transferred in connection with the sale of a block of coinsured business. The annualized yield earned on average invested assets decreased to 6.02% in the three months ended March 31, 2010 from 6.09% in the respective 2009 period. The decrease in yield is primarily due to holding higher cash and short-term investment balances and a reduction in short-term interest rates. The yield on our primary short-term investment account was less than 0.01% at March 31, 2010 compared to 0.19% at March 31, 2009.
  Fee income from bond calls, tender offers and mortgage loan prepayments totaled $ 0.4 million in the three months ended March 31, 2010 compared to $0.1 million in the respective 2009 period. Net investment income also includes less than $ 0.1 million in the three months ended March 31, 2010 compared to $1.3 million in the 2009 respective period representing the change of net discount accretion on mortgage and asset-backed securities resulting from changing prepayment speed assumptions at the end of each respective period. See the "Financial Condition - Investments" section that follows for a description of how changes in prepayment speeds impact net investment income.
   Derivative Income (Loss)Three months ended March 31,2010
                  
                  2009(Dollars in thousands)Derivative income (loss):Components of derivative income (loss) from call options:Gains received at expiration
                  $
                  31,304
                  
                  
                  $
                  227Change in the difference between fair value and remaining option cost at beginning and end of period
                  13,733
                  
                  
                  8,804Cost of money for call options
                  (22,018
                  )
                  
                  (30,742
                  )23,019
                  
                  
                  (21,711
                  )Other
                  (683
                  )
                  
                  (2,890
                  )Total
                  $
                  22,336
                  
                  
                  $
                  (24,601
                  )
  Gains received at expiration increased in the first quarter of 2010 as a result of increases in the S&P 500 Index ® (upon which the majority of our options are based). These gains are used to fund index credits on index annuities, which also increased in 2010 , as discussed below under "Interest Sensitive and Index Product Benefits." The change in the difference between fair
  
    Table of Contents
 March 31, 2010
  value and remaining option cost at beginning and end of period increased derivative income in 2010 primarily due to the change in the S&P 500 Index compared to the strike price of the outstanding options.
  The cost of money for call options decreased primarily due to a decrease in the volume of business in force, a decrease in the cost of hedging programs on our direct and assumed business and a decrease in the overhedged position on our direct business. The average aggregate account value of index annuities in force, which has decreased due to increased surrender activity from the independent distribution channel and run-off of assumed business, totaled $4,095.4 million for the first quarter of 2010 compared to $4,686.6 million for the respective 2009 period.
  Other derivative income (loss) is comprised of income or loss from the embedded derivatives included in our modified coinsurance contracts and interest rate swaps relating to certain deferred annuity contracts. Derivative income (loss) also includes unrealized gains (losses) on the interest rate swap that previously hedged our line of credit, which totaled $0.5 million for the first quarter of 2010 and ($2.4) million for the 2009 period. Derivative income (loss) will fluctuate based on market conditions. See Note 3 to our consolidated financial statements for additional details on our derivatives.
   Realized Gains (Losses) on InvestmentsThree months ended March 31,2010
                  
                  2009(Dollars in thousands)Realized gains (losses) on investments:Realized gains on sales
                  $
                  5,073
                  
                  
                  $
                  2,099Realized losses on sales
                  (344
                  )
                  
                  (148
                  )Total other-then-temporary impairment charges
                  (27,154
                  )
                  
                  (31,127
                  )Net realized investment losses
                  (22,425
                  )
                  
                  (29,176
                  )Non-credit losses included in accumulated other comprehensive loss
                  19,132
                  
                  
                  9,506Total reported in statements of operations
                  $
                  (3,293
                  )
                  
                  $
                  (19,670
                  )
  The level of realized gains (losses) is subject to fluctuation from period to period depending on the prevailing interest rate and economic environment and the timing of the sale of investments. See "Financial Condition - Investments" for details regarding our unrealized gains and losses on available-for-sale securities at March 31, 2010 and December 31, 2009.
  We monitor the financial condition and operations of the issuers of securities rated below investment grade and of the issuers of certain investment grade securities on which we have concerns regarding credit quality. If we determine that an unrealized loss is other than temporary, the security is written down to its fair value and a portion of the write-down attributable to non-credit factors is recognized in accumulated other comprehensive loss. See additional details regarding the non-credit portion of the write-downs and our methodology for evaluating investments for other-than-temporary impairment in Note 2 to our consolidated financial statements.
  Investment Impairments Recognized in FBL Net Income (Loss) Individually Exceeding $0.5 MillionGeneral Description
                  
                  Impairment Loss
                  
                  Circumstance(Dollars in thousands)Three months ended March 31, 2010:Other asset-backed securities
                  
                  $
                  5,438
                  
                  
                  Projected losses indicate a shortfall could occur in the near future and the underlying insurance that was expected to absorb losses was deemed to be less valuable during the period.Other asset-backed security
                  
                  1,110
                  
                  
                  The monoline insurer discontinued supporting this issue ending insurance payments that were absorbing losses on the security.Collateralized bond obligation
                  
                  663
                  
                  
                  Defaults of the underlying collateral supporting this issue increased and the present value of future cash flows decreased.Other asset-backed security
                  
                  591
                  
                  
                  Rating declines occurred, defaults of the underlying collateral supporting this issue increased and the present value of future cash flows decreased.
   
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  Three months ended March 31, 2009:Major paper manufacturing company
                  
                  $
                  6,630
                  
                  
                  Issuer filed for bankruptcy after unsuccessful attempts to obtain financial assistance. This reduced estimates on potential recovery.Real estate investment trust
                  
                  6,299
                  
                  
                  Issuer filed for bankruptcy after unsuccessful attempts to obtain financial assistance. This reduced estimates on potential recovery.Major printing & publishing company
                  
                  4,764
                  
                  
                  Rating declines occurred due to expected revenue declines which could result in a future covenant violation.Other asset-backed securities
                  
                  1,095
                  
                  
                  Rating declines occurred on the monoline insurer supporting these issues. Financial recoveries are fully dependent on the insurer.Collateralized bond obligation
                  
                  636
                  
                  
                  Rating declines occurred and defaults of the underlying collateral supporting this issue increased.Reinsurance carrier
                  
                  586
                  
                  
                  Rating declines occurred and near term solvency became a concern.Other asset-backed security
                  
                  550
                  
                  
                  Rating declines occurred, delinquencies increased and credit support from the lower tranches stopped increasing.
  Negative trends in the industries listed above were considered in our analysis, which is done on an issue-by-issue basis. No additional write-downs were deemed necessary for other material investments in those industries.
   Other Income and Other Expenses
  Other income and other expenses  include revenues and expenses, respectively, relating primarily to our non-insurance operations. Our non-insurance operations include management, advisory, marketing and distribution services and leasing activities. Fluctuations in these financial statement line items are generally attributable to fluctuations in the level of these services provided during the periods.
   Interest Sensitive and Index Product Benefits and Change in Value of Index Product Embedded DerivativesThree months ended March 31,2010
                  
                  2009(Dollars in thousands)Interest sensitive and index product benefits:Interest credited
                  $
                  75,557
                  
                  
                  $
                  79,160Index credits
                  32,566
                  
                  
                  1,345Amortization of deferred sales inducements
                  4,338
                  
                  
                  19,336Interest sensitive death benefits
                  9,723
                  
                  
                  14,595122,184
                  
                  
                  114,436Change in value of index product embedded derivatives
                  26,056
                  
                  
                  (8,669
                  )Total
                  $
                  148,240
                  
                  
                  $
                  105,767
  Interest sensitive and index product benefits and change in value of index product embedded derivatives increased  40.2% in the first quarter of 2010 to $148.2 million , primarily due to the impact of the change in value of index product embedded derivatives and market appreciation of the indices backing the index annuities, partially offset by the impact of operating adjustments and a reduction in the weighted average interest crediting rate/index cost. Interest sensitive and index product benefits tend to fluctuate from period to period primarily as a result of changes in mortality experience and the impact of changes in the equity markets on index credits, amortization of deferred sales inducements and the value of the embedded derivatives in our index annuities.
 
 The weighted average interest crediting rate/index cost for universal life and individual traditional annuity products, excluding the impact of the amortization of deferred sales inducements, was 3.72% for the three-month period in 2010 period and 3.98% for the 2009 period. See the "Segment Information" section that follows for additional details on our spreads.
  As discussed above under "Derivative Income (Loss)" above, the change in the amount of index credits is impacted by the volume of index annuities in force and the amount of appreciation/depreciation in the underlying market indices on which our options are based. The change in the value of the embedded derivatives is impacted by the change in expected index credits on the next policy anniversary dates, which is related to the change in the fair value of the options acquired to fund these index credits. The value of the embedded derivatives is also impacted by the timing of the posting of index credits and changes in
  
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 March 31, 2010
  reserve discount rates and assumptions used in estimating future call option costs.
  The decrease in amortization of deferred sales inducements is primarily due to the impact of unrealized gains/losses on derivatives, as described above in the "Impact of Operating Adjustments on FBL Net Income (Loss)," and the impact of decreased surrender activity from the EquiTrust Life independent distribution channel. Amortization of deferred sales inducements on interest sensitive and index products, excluding the impact of operating adjustments, totaled $9.3 million for the first quarter of 2010 and $15.3 million for the first quarter of 2009.
   Traditional Life Insurance Policy BenefitsThree months ended March 31,2010
                  
                  2009(Dollars in thousands)Traditional life insurance policy benefits:Traditional life insurance benefits
                  $
                  27,568
                  
                  
                  $
                  22,104Increase in traditional life future policy benefits
                  9,741
                  
                  
                  9,718Distributions to participating policyholders
                  4,673
                  
                  
                  4,921Total
                  $
                  41,982
                  
                  
                  $
                  36,743
  Traditional life insurance benefits increased  14.3% in the first quarter of 2010 to $42.0 million . The increase in 2010 is primarily due to an increase in death benefits, which totaled $17.8 million in the first quarter of 2010, compared to $12.7 million in the 2009 period. The increase in traditional life insurance benefits is partially offset by a decrease in interest sensitive death benefits noted above. In total, mortality experience was comparable quarter to quarter. Traditional life insurance benefits can fluctuate from period to period primarily as a result of changes in mortality experience. The change in traditional life future policy benefits may not be proportional to the change in traditional premiums and benefits as reserves on term policies are generally less than reserves on whole life policies.
   Underwriting, Acquisition and Insurance ExpensesThree months ended March 31,2010
                  
                  2009(Dollars in thousands)Underwriting, acquisition and insurance expenses:Commission expense, net of deferrals
                  $
                  3,767
                  
                  
                  $
                  3,573Amortization of deferred policy acquisition costs
                  20,776
                  
                  
                  47,440Amortization of value of insurance in force acquired
                  576
                  
                  
                  741Other underwriting, acquisition and insurance expenses, net of deferrals
                  18,819
                  
                  
                  20,209Total
                  $
                  43,938
                  
                  
                  $
                  71,963
  Underwriting, acquisition and insurance expenses decreased 38.9% in the first quarter of 2010 to $43.9 million . Amortization of deferred policy acquisition costs in the first quarter decreased primarily due the net impact of operating adjustments as detailed under "Impact of Operating Adjustments on FBL Net Income," the impact of surrender activity from the EquiTrust Life independent distribution channel and improved market performance in separate accounts. Amortization of deferred policy acquisition costs on our EquiTrust Life distribution channel, excluding the impact of operating adjustments, totaled $ 12.0  million in the first quarter of 2010, compared to $20.6 million in the first quarter of 2009.
  Other underwriting, acquisition and insurance expenses decreased for the first quarter of 2010 primarily due to implementation of cost saving measures as announced in the first quarter of 2009. During the first quarter 2009, we incurred $1.7 million of one-time charges associated with the implementation of these initiatives.
   Interest Expense
  Interest expense decreased 11.7%  to $6.1 million  in the first quarter of 2010, primarily due to a decrease in our average debt outstanding. The average debt outstanding decreased to $371.1  million for the three months ended March 31, 2010 from $400.9 million for the 2009 period due to the pay-off of our $60.0 million revolving line of credit borrowings in February 2009.
    
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 March 31, 2010
  Income Taxes
  Income tax expense (benefit) totaled $8.0 million in the first quarter of 2010 and ($1.3) million for the 2009 period. The effective tax rate was 32.0% for the first quarter of 2010 and 44.0% for the 2009 period. The effective tax rates differ from the federal statutory rate of 35% primarily due to the impact of tax-exempt interest and tax-exempt dividend income. The permanent differences between book and tax income increase the effective rate when there is a net loss and decrease the effective rate when there is a net gain. Permanent differences had a greater impact on the effective rates in 2009 due to realized losses on investments reducing the size of the income or loss for the period relative to the size of the permanent differences.
   Equity Income, Net of Related Income Taxes
  Equity income, net of related income taxes, totaled $1.1 million for the first quarter of 2010 and $0.1 million for the 2009 period. Equity income includes our proportionate share of gains and losses attributable to our ownership interest in partnerships, joint ventures and certain companies where we exhibit some control but have a minority ownership interest. Given the timing of availability of financial information from our equity investees, we will consistently use information that is as much as three months in arrears for certain of these entities. Several of these entities are investment companies whose operating results are derived primarily from unrealized and realized gains and losses generated by their investment portfolios. As is normal with these types of entities, the level of these gains and losses is subject to fluctuation from period to period depending on the prevailing economic environment, changes in prices of equity securities held by the investment partnerships, timing and success of initial public offerings and other exit strategies, and the timing of the sale of investments held by the partnerships and joint ventures.
   Segment Information
  We analyze operations by reviewing financial information regarding products that are aggregated into four product segments. The product segments are: (1) Traditional Annuity - Exclusive Distribution ("Exclusive Annuity"), (2) Traditional Annuity - Independent Distribution ("Independent Annuity"), (3) Traditional and Universal Life Insurance and (4) Variable. We also have various support operations and corporate capital that are aggregated into a Corporate and Other segment.
  We analyze our segment results based on pre-tax operating income (loss). Accordingly, income taxes are not allocated to the segments. In addition, operating results are generally reported net of any transactions between the segments. Operating income (loss) for the periods ended March 31, 2010 and 2009 represents net income excluding the impact of realized gains and losses on investments and changes in net unrealized gains and losses on derivatives.
  The impact of realized gains and losses on investments and unrealized gains and losses on derivatives also includes adjustments for taxes and that portion of amortization of deferred policy acquisition costs, deferred sales inducements, unearned revenue reserve and value of insurance in force acquired attributable to such gains or losses. Our rationale for using operating income (loss), in addition to net income (loss), to measure our performance is summarized in Note 9 to the consolidated financial statements.
    
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 March 31, 2010
  Reconciliation of Net Income (Loss) to Pre-tax Operating IncomeThree months ended March 31,2010
                  
                  2009(Dollars in thousands)Net income (loss) attributable to FBL Financial Group, Inc.
                  $
                  18,021
                  
                  
                  $
                  (1,490
                  )Net impact of operating income adjustments (1)
                  2,277
                  
                  
                  9,358Income taxes on operating income
                  9,770
                  
                  
                  3,821Pre-tax operating income
                  $
                  30,068
                  
                  
                  $
                  11,689Pre-tax operating income (loss) by segment:Traditional Annuity - Exclusive Distribution
                  $
                  11,890
                  
                  
                  $
                  6,826Traditional Annuity - Independent Distribution
                  7,643
                  
                  
                  (127
                  )Traditional and Universal Life Insurance
                  11,111
                  
                  
                  15,443Variable
                  3,540
                  
                  
                  (3,825
                  )Corporate and Other
                  (4,116
                  )
                  
                  (6,628
                  )$
                  30,068
                  
                  
                  $
                  11,689
  (1)
                  See "Net Income (Loss) Attributable to FBL Financial Group, Inc." above for additional details on our operating income adjustments.
  A discussion of our operating results, by segment, follows:
   Traditional Annuity - Exclusive Distribution SegmentThree months ended March 31,2010
                  
                  2009(Dollars in thousands)Pre-tax operating incomeOperating revenues:Interest sensitive and index product charges and other
                  $
                  125
                  
                  
                  $
                  248Net investment income
                  41,151
                  
                  
                  37,669Derivative loss
                  (502
                  )
                  
                  (1,257
                  )40,774
                  
                  
                  36,660Benefits and expenses
                  28,884
                  
                  
                  29,834Pre-tax operating income
                  $
                  11,890
                  
                  
                  $
                  6,826Other dataAnnuity premiums collected, direct
                  $
                  78,684
                  
                  
                  $
                  96,368Policy liabilities and accruals, end of period
                  2,763,681
                  
                  
                  2,408,797  Individual deferred annuity spread:Weighted average yield on cash and invested assets
                  6.26
                  %
                  
                  6.11
                  %Weighted average interest crediting rate/index costs
                  3.69
                  %
                  
                  3.98
                  %Spread
                  2.57
                  %
                  
                  2.13
                  %Individual traditional annuity withdrawal rate
                  4.1
                  %
                  
                  4.9
                  %
  Pre-tax operating income for the Exclusive Annuity segment increased 74.2% in the first quarter of 2010 to $11.9 million
  
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 March 31, 2010
  primarily due to increases in spreads earned and the volume of business in force. The average aggregate account value for annuity contracts in force in the Exclusive Annuity segment totaled $ 1,876.7  million for the three months ended March 31, 2010 and $ 1,670.2 million for the 2009 period.
  Benefits and expenses decreased due to a $1.6 million decrease in amortization of deferred policy acquisition c osts primarily due to changes in earned rates and expected profits on the underlying business.
  Premiums collecte d decreased 18.4% in the three months ended March 31, 2010 to $78.7 million . The amount of traditional annuity premiums collected is highly dependent upon the relationship between the current crediting rate and perceived security of our products compared to competing products. We believe the decrease in annuity premiums for the three-month period is due to the strong recovery of the fixed-income markets throughout 2009, making other competing invest ment options relatively more attractive to our customers than they were in 2009.
  The increase in the weighted average yield on cash and invested assets is primarily attributable to a decrease in the cost of our interest rate swap program which totaled ($ 0.7)  million for the three-months in 2010 compared to ($1.2) million for the 2009 period. See Note 3 to our consolidated financial statements for additional details on our interest rate swaps. The weighted average interest crediting rate decreased  due to decreases in the interest crediting rates on a significant portion of our annuity portfolio during 2009.
   Traditional Annuity - Independent Distribution SegmentThree months ended March 31,2010
                  
                  2009(Dollars in thousands)Pre-tax operating income (loss)Operating revenues:Interest sensitive and index product charges
                  $
                  6,267
                  
                  
                  $
                  16,892Net investment income
                  96,831
                  
                  
                  104,705Derivative income (loss)
                  9,165
                  
                  
                  (30,464
                  )112,263
                  
                  
                  91,133Benefits and expenses
                  104,620
                  
                  
                  91,260Pre-tax operating income (loss)
                  $
                  7,643
                  
                  
                  $
                  (127
                  )Other dataAnnuity premiums collected, independent channelFixed rate annuities
                  $
                  18,648
                  
                  
                  $
                  213,332Index annuities
                  28,688
                  
                  
                  111,367Total annuity premiums collected, independent channel
                  47,336
                  
                  
                  324,699Annuity premiums collected, assumed
                  320
                  
                  
                  358Policy liabilities and accruals, end of period
                  7,260,128
                  
                  
                  7,638,876  Individual deferred annuity spread:Weighted average yield on cash and invested assets
                  5.97
                  %
                  
                  6.10
                  %Weighted average interest crediting rate/index cost
                  3.67
                  %
                  
                  3.93
                  %Spread
                  2.30
                  %
                  
                  2.17
                  %Individual traditional annuity withdrawal rate
                  6.8
                  %
                  
                  20.8
                  %
  Pre-tax operating income (loss) for the Independent Annuity segment increased in the first quarter of 2010 to $7.6 million . This increase is primarily  due to a decrease in surrender activity from the EquiTrust Life independent distribution channel, partially offset by the impact of a reduction in the average volume of business in force. The average aggregate account value for annuity contracts in force in the Independent Annuity segment totaled $ 7,030.9  million for the three months ended March 31, 2010 and
  
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 March 31, 2010
  $ 7,623.3 million for the 2009 period due to increased surrender activity from the EquiTrust Life independent distribution channel in 2009 and a reduction in coinsured business.
  The decrease in interest sensitive and index product charges is due to a decrease in surrender charges, which totaled $6.1 million for the first quarter of 2010 compared to $16.9 million in the 2009 period.  Surrender charges are reported net of MVAs.  See the "Impact of Recent Business Environment" and "Premium and Product Charges" sections above for discussion on the impact of MVAs on our direct fixed annuity products in 2009.
  The change in derivative income (loss) is primarily due to increased proceeds from call option settlements and lower cost of money for call options as discussed under "Derivative Income (Loss)" above.
  Benefits and expenses for the 2010 period increased primarily due to market appreciation of the indices backing the index annuities causing index credits to increase to $32.3 million for the three month period in 2010, compared to $1.3 million in the 2009 period.  This increase was partially offset by a $15.2 million decrease in amortization of deferred policy acquisition costs and deferred sales inducements primarily due to the decreased surrender activity.
  Premiums collected from the Independent channel decreased in 2010 as a result of crediting rate and other actions taken to preserve capital. The reduction in crediting rates, combined with improved results from hedging activities, resulted in a decrease to our weighted average crediting rate/index cost and increase in spread. The weighted average yield decreased primarily due to investment repositioning actions to increase the amount of liquidity in the portfolio, which included assets earning lower yields.
   Traditional and Universal Life Insurance SegmentThree months ended March 31,2010
                  
                  2009(Dollars in thousands)Pre-tax operating incomeOperating revenues:Interest sensitive product charges
                  $
                  11,413
                  
                  
                  $
                  12,126Traditional life insurance premiums and other income
                  39,271
                  
                  
                  38,015Net investment income
                  32,863
                  
                  
                  35,99183,547
                  
                  
                  86,132Benefits and expenses
                  72,436
                  
                  
                  70,689Pre-tax operating income
                  $
                  11,111
                  
                  
                  $
                  15,443Other dataLife premiums collected, net of reinsurance
                  $
                  52,051
                  
                  
                  $
                  52,367Policy liabilities and accruals, end of period
                  2,076,628
                  
                  
                  2,237,867Direct life insurance in force, end of period (in millions)
                  39,312
                  
                  
                  36,378
  Interest sensitive life insurance spread:Weighted average yield on cash and invested assets
                  6.59
                  %
                  
                  6.65
                  %Weighted average interest crediting rate
                  4.26
                  %
                  
                  4.39
                  %Spread
                  2.33
                  %
                  
                  2.26
                  %
  Pre-tax operating income for the Traditional and Universal Life Insurance segment decreased 28.1% in the first quarter of 2010 to $11.1 million . These decreases are primarily due to an increase in death benefits and the impact of the sale of a block of coinsured business during the fourth quarter of 2009.
  Death benefits incurred for the first quarter of 2010 increased 8.0% to $23.8 million, due to an increase in traditional life death claims reported and lower reinsurance recoveries. Traditional life insurance benefits can fluctuate from period to period primarily as a result of changes in mortality experience.
 
  
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 March 31, 2010
  Policy liabilities and accruals decreased primarily due to the sale of a block of coinsured business including traditional and universal life products that contributed $1.6 million in pre-tax operating income in the first quarter of 2009. Excluding the impact of reinsurance, our direct traditional and universal life insurance in force increased 8.1% to $39,312.2 milli on.
  The increase in spreads is primarily due to decreases in the weighted average interest crediting rate due to rate changes on our universal life products in 2010 and 2009.  The decrease in the weighted average yield on cash and invested assets is primarily due to a reduction in investment income from changes in the net discount accretion on mortgage and asset-backed securities.
   Variable SegmentThree months ended March 31,2010
                  
                  2009(Dollars in thousands)Pre-tax operating income (loss)Operating revenues:Interest sensitive product charges
                  $
                  12,196
                  
                  
                  $
                  11,928Net investment income
                  4,026
                  
                  
                  3,891Other income
                  693
                  
                  
                  32616,915
                  
                  
                  16,145Benefits and expenses
                  13,375
                  
                  
                  19,970Pre-tax operating income (loss)
                  $
                  3,540
                  
                  
                  $
                  (3,825
                  )Other dataVariable premiums collected, net of reinsurance
                  $
                  30,450
                  
                  
                  $
                  26,180Policy liabilities and accruals, end of period
                  268,630
                  
                  
                  262,758Separate account assets, end of period
                  726,825
                  
                  
                  522,591Direct life insurance in force, end of period (in millions)
                  7,270
                  
                  
                  7,614
  Pre-tax operating income (loss) for the Variable segment increased to $3.5 million in the first quarter of 2010. This increase is primarily due to the impact of market performance on amortization of deferred acquisition cost, improved mortality experience and a reduction in expenses allocated to the segment.
  Benefits and expenses decrease d 33.0% to $13.4  million in the first quarter of 2010 primarily due to a $3.1  million decrease in deferred policy acquisition cost amortization primarily resulting from the impact of positive separate account performance and a $2.3 million decrease in death benefits due to fewer claims. In addition, other underwriting expense decreased $1.3 million due to the impact of cost saving initiatives in 2009 and changes in expense allocations between segments.
  Variable premiums tend to vary with the volatility, performance of and confidence level in the equity markets as well as crediting and interest rates on competing products, including fixed rate annuities and bank-offered certificates of deposit.
  During the second quarter of 2010, we will discontinue underwriting new sales of variable products and terminate new sales with our variable alliance partners. We will begin selling through our Farm Bureau Life distribution channel variable products underwritten by a large well-known insurance company with variable product expertise. We will earn fees from the sale of brokered products, a portion of which will be passed on to the agents as commissions for the underlying sales. The decision to discontinue underwriting variable products was made because we lack the scale necessary to generate acceptable returns and be competitive in this product line over time. The existing in force business remains on our books and we will continue to administer this business. The decision to discontinue new sales is not expected to have a material impact to our financial statements.
    
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 March 31, 2010
  Corporate and Other SegmentThree months ended March 31,2010
                  
                  2009(Dollars in thousands)Pre-tax operating lossOperating revenues:Net investment income
                  $
                  3,218
                  
                  
                  $
                  1,813Derivative loss
                  (519
                  )
                  
                  (370
                  )Other income
                  2,300
                  
                  
                  4,1554,999
                  
                  
                  5,598Interest expense
                  6,118
                  
                  
                  6,932Benefits and other expenses
                  4,695
                  
                  
                  5,443(5,814
                  )
                  
                  (6,777
                  )Noncontrolling interest
                  14
                  
                  
                  38Equity income, before tax
                  1,684
                  
                  
                  111Pre-tax operating loss
                  $
                  (4,116
                  )
                  
                  $
                  (6,628
                  )
  Pre-tax operating loss decreased 37.9% to $4.1 million for the first quarter of 2010 primarily due an increase in equity income and net investment income and a decrease in interest expense, partially offset by a decrease in operating results of our non-insurance subsidiaries.
  The changes in equity income are discussed in the "Equity Income" section above. Net investment income increased primarily due to an increase in invested assets and the impact of being more fully invested. Interest expense decreased in the 2010 period due to a decrease in our average debt outstanding as discussed in the "Interest Expense" section above.
  Other income and expense primarily relate to operating results of our non-insurance subsidiaries. Profitability from these operations decreased $1.1 million in 2010, primarily due to a reduction in leasing activities.
   Financial Condition
   Investments
  Our total investment portfolio increased 4.1% to $12,126.1 million at March 31, 2010 compared to $11,653.0 million at December 31, 2009. This increase is primarily the result of a $254.9 m illion decrease in the net unrealized depreciation of fixed maturity securities during 2010 to a net unrealized loss of $219.2 mill ion at March 31, 2010. This decrease is principally due to the tightening of credit spreads and continued improvements in overall market conditions during the quarter. Volatile and illiquid market conditions in the early part of 2009 led to wide credit spreads and resulted in significant unrealized losses for our portfolio. Moderately wide credit spreads in certain sectors continue to impact our investment portfolio. However, as discussed in the "Impact of Recent Business Environment" section above, financial market conditions and our unrealized loss position improved for most sectors throughout 2009 and into 2010. Details regarding investment impairments are discussed above in the "Realized Gains (Losses) on Investments" section under "Results of Operations." Additional details regarding securities in an unrealized loss position at March 31, 2010 are included in the discussion that follows and in Note 2 to our consolidated financial statements.
  We manage our investment portfolio with a strategy 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.
   
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 March 31, 2010
  Investment Portfolio SummaryMarch 31, 2010
                  
                  December 31, 2009Carrying Value
                  
                  Percent
                  
                  Carrying Value
                  
                  Percent(Dollars in thousands)Fixed maturities - available for sale:Public
                  $
                  8,375,550
                  
                  
                  69.1
                  %
                  
                  $
                  8,103,381
                  
                  
                  69.6
                  %144A private placement
                  1,444,092
                  
                  
                  11.9
                  
                  
                  1,291,840
                  
                  
                  11.1Private placement
                  486,384
                  
                  
                  4.0
                  
                  
                  469,380
                  
                  
                  4.0Total fixed maturities - available for sale
                  10,306,026
                  
                  
                  85.0
                  
                  
                  9,864,601
                  
                  
                  84.7Equity securities
                  70,110
                  
                  
                  0.6
                  
                  
                  60,154
                  
                  
                  0.5Mortgage loans on real estate
                  1,286,214
                  
                  
                  10.6
                  
                  
                  1,293,936
                  
                  
                  11.1Derivative instruments
                  60,880
                  
                  
                  0.5
                  
                  
                  44,023
                  
                  
                  0.4Real estate
                  14,748
                  
                  
                  0.1
                  
                  
                  16,563
                  
                  
                  0.1Policy loans
                  168,035
                  
                  
                  1.4
                  
                  
                  168,736
                  
                  
                  1.5Other long-term investments
                  1,875
                  
                  
                  —
                  
                  
                  1,882
                  
                  
                  —Short-term investments
                  218,243
                  
                  
                  1.8
                  
                  
                  203,142
                  
                  
                  1.7Total investments
                  $
                  12,126,131
                  
                  
                  100.0
                  %
                  
                  $
                  11,653,037
                  
                  
                  100.0
                  %
  As of March 31, 2010, 94.3 % (based on carrying value) of the available-for-sale 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. We regularly review the percentage of our portfolio that is invested in non-investment grade debt securities (NAIC designations 3 through 6). As of March 31, 2010, the investment in non-investment grade debt was  5.7 % of available-for-sale fixed maturity securities. At that time, no single non-investment grade holding exceeded 0.2 % of total investments.
  Credit Quality by NAIC Designation and Equivalent RatingMarch 31, 2010
                  
                  December 31, 2009NAIC Designation
                  
                  Equivalent Rating (1)
                  
                  Carrying Value
                  
                  Percent
                  
                  Carrying Value
                  
                  Percent(Dollars in thousands)1
                  
                  AAA, AA, A
                  
                  $
                  6,217,763
                  
                  
                  60.3
                  %
                  
                  $
                  5,915,387
                  
                  
                  60.0
                  %2
                  
                  BBB
                  
                  3,499,832
                  
                  
                  34.0
                  
                  
                  3,397,424
                  
                  
                  34.4Total investment grade
                  
                  9,717,595
                  
                  
                  94.3
                  
                  
                  9,312,811
                  
                  
                  94.43
                  
                  BB
                  
                  441,936
                  
                  
                  4.3
                  
                  
                  402,047
                  
                  
                  4.14
                  
                  B
                  
                  85,722
                  
                  
                  0.8
                  
                  
                  86,311
                  
                  
                  0.95
                  
                  CCC
                  
                  35,870
                  
                  
                  0.4
                  
                  
                  30,451
                  
                  
                  0.36
                  
                  In or near default
                  
                  24,903
                  
                  
                  0.2
                  
                  
                  32,981
                  
                  
                  0.3Total below investment grade
                  
                  588,431
                  
                  
                  5.7
                  
                  
                  551,790
                  
                  
                  5.6Total fixed maturities - available for sale
                  
                  $
                  10,306,026
                  
                  
                  100.0
                  %
                  
                  $
                  9,864,601
                  
                  
                  100.0
                  %
  (1)
                  Equivalent ratings are generally based on those provided by nationally recognized rating agencies with some exceptions for certain residential mortgage and asset-backed securities where they are based on the expected loss of the security rather than the probability of default.
 
  
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 March 31, 2010
  Gross Unrealized Gains and Gross Unrealized Losses by Internal Industry ClassificationMarch 31, 2010Total Carrying Value
                  
                  Carrying
                     Value of
                     Securities  with Gross Unrealized Gains
                  
                  Gross Unrealized Gains
                  
                  Carrying
                     Value of
                     Securities
                     with Gross Unrealized Losses
                  
                  Gross Unrealized Losses(Dollars in thousands)Corporate securities:Basic industrial
                  $
                  424,509
                  
                  
                  $
                  317,408
                  
                  
                  $
                  23,976
                  
                  
                  $
                  107,101
                  
                  
                  $
                  (15,333
                  )Capital goods
                  336,768
                  
                  
                  281,241
                  
                  
                  20,406
                  
                  
                  55,527
                  
                  
                  (5,315
                  )Communications
                  215,858
                  
                  
                  184,196
                  
                  
                  12,117
                  
                  
                  31,662
                  
                  
                  (1,030
                  )Consumer cyclical
                  305,601
                  
                  
                  253,823
                  
                  
                  17,185
                  
                  
                  51,778
                  
                  
                  (6,194
                  )Consumer noncyclical
                  412,966
                  
                  
                  384,034
                  
                  
                  26,515
                  
                  
                  28,932
                  
                  
                  (560
                  )Energy
                  637,426
                  
                  
                  438,438
                  
                  
                  34,351
                  
                  
                  198,988
                  
                  
                  (8,355
                  )Finance
                  1,491,463
                  
                  
                  759,054
                  
                  
                  32,918
                  
                  
                  732,409
                  
                  
                  (105,714
                  )Transportation
                  174,949
                  
                  
                  138,650
                  
                  
                  10,436
                  
                  
                  36,299
                  
                  
                  (1,611
                  )Utilities
                  1,194,332
                  
                  
                  910,888
                  
                  
                  65,320
                  
                  
                  283,444
                  
                  
                  (11,348
                  )Other
                  142,209
                  
                  
                  121,684
                  
                  
                  9,996
                  
                  
                  20,525
                  
                  
                  (2,936
                  )Total corporate securities
                  5,336,081
                  
                  
                  3,789,416
                  
                  
                  253,220
                  
                  
                  1,546,665
                  
                  
                  (158,396
                  )Mortgage and asset-backed securities
                  2,884,285
                  
                  
                  1,469,686
                  
                  
                  67,242
                  
                  
                  1,414,599
                  
                  
                  (280,351
                  )United States Government and agencies
                  128,852
                  
                  
                  59,550
                  
                  
                  5,114
                  
                  
                  69,302
                  
                  
                  (4,823
                  )State, municipal and other governments
                  1,956,808
                  
                  
                  650,814
                  
                  
                  15,074
                  
                  
                  1,305,994
                  
                  
                  (116,278
                  )Total
                  $
                  10,306,026
                  
                  
                  $
                  5,969,466
                  
                  
                  $
                  340,650
                  
                  
                  $
                  4,336,560
                  
                  
                  $
                  (559,848
                  )
  December 31, 2009Total Carrying Value
                  
                  Carrying
                     Value of
                     Securities
                     with Gross
                     Unrealized
                     Gains
                  
                  Gross Unrealized Gains
                  
                  Carrying
                     Value of Securities
                     with Gross Unrealized Losses
                  
                  Gross Unrealized Losses(Dollars in thousands)Corporate securities:Basic industrial
                  $
                  406,541
                  
                  
                  $
                  270,886
                  
                  
                  $
                  19,254
                  
                  
                  $
                  135,655
                  
                  
                  $
                  (20,000
                  )Capital goods
                  320,176
                  
                  
                  256,139
                  
                  
                  16,844
                  
                  
                  64,037
                  
                  
                  (7,902
                  )Communications
                  190,423
                  
                  
                  164,464
                  
                  
                  9,739
                  
                  
                  25,959
                  
                  
                  (1,241
                  )Consumer cyclical
                  309,927
                  
                  
                  249,996
                  
                  
                  13,793
                  
                  
                  59,931
                  
                  
                  (9,512
                  )Consumer noncyclical
                  388,805
                  
                  
                  355,954
                  
                  
                  21,727
                  
                  
                  32,851
                  
                  
                  (954
                  )Energy
                  571,587
                  
                  
                  379,842
                  
                  
                  25,998
                  
                  
                  191,745
                  
                  
                  (11,407
                  )Finance
                  1,437,932
                  
                  
                  435,019
                  
                  
                  17,674
                  
                  
                  1,002,913
                  
                  
                  (167,168
                  )Transportation
                  166,789
                  
                  
                  115,727
                  
                  
                  7,256
                  
                  
                  51,062
                  
                  
                  (3,037
                  )Utilities
                  1,169,778
                  
                  
                  859,918
                  
                  
                  54,533
                  
                  
                  309,860
                  
                  
                  (17,389
                  )Other
                  145,517
                  
                  
                  120,041
                  
                  
                  8,763
                  
                  
                  25,476
                  
                  
                  (2,962
                  )Total corporate securities
                  5,107,475
                  
                  
                  3,207,986
                  
                  
                  195,581
                  
                  
                  1,899,489
                  
                  
                  (241,572
                  )Mortgage and asset-backed securities
                  2,726,406
                  
                  
                  1,274,361
                  
                  
                  43,043
                  
                  
                  1,452,045
                  
                  
                  (326,207
                  )United States Government and agencies
                  139,467
                  
                  
                  61,255
                  
                  
                  4,620
                  
                  
                  78,212
                  
                  
                  (2,543
                  )State, municipal and other governments
                  1,891,253
                  
                  
                  351,067
                  
                  
                  8,509
                  
                  
                  1,540,186
                  
                  
                  (155,500
                  )Total
                  $
                  9,864,601
                  
                  
                  $
                  4,894,669
                  
                  
                  $
                  251,753
                  
                  
                  $
                  4,969,932
                  
                  
                  $
                  (725,822
                  )
   
    Table of Contents
 March 31, 2010
  Credit Quality of Available-for-Sale Fixed Maturity Securities with Unrealized LossesMarch 31, 2010NAIC Designation
                  
                  Equivalent Rating
                  
                  Carrying Value of Securities with
                     Gross Unrealized
                     Losses
                  
                  Percent of Total
                  
                  Gross Unrealized Losses
                  
                  Percent of Total(Dollars in thousands)1
                  
                  AAA, AA, A
                  
                  $
                  2,943,679
                  
                  
                  67.9
                  %
                  
                  $
                  (287,465
                  )
                  
                  51.4
                  %2
                  
                  BBB
                  
                  957,302
                  
                  
                  22.1
                  
                  
                  (121,190
                  )
                  
                  21.6Total investment grade
                  
                  3,900,981
                  
                  
                  90.0
                  
                  
                  (408,655
                  )
                  
                  73.03
                  
                  BB
                  
                  305,799
                  
                  
                  7.0
                  
                  
                  (49,446
                  )
                  
                  8.84
                  
                  B
                  
                  73,248
                  
                  
                  1.7
                  
                  
                  (35,368
                  )
                  
                  6.35
                  
                  CCC
                  
                  32,419
                  
                  
                  0.7
                  
                  
                  (35,755
                  )
                  
                  6.46
                  
                  In or near default
                  
                  24,113
                  
                  
                  0.6
                  
                  
                  (30,624
                  )
                  
                  5.5Total below investment grade
                  
                  435,579
                  
                  
                  10.0
                  
                  
                  (151,193
                  )
                  
                  27.0Total
                  
                  $
                  4,336,560
                  
                  
                  100.0
                  %
                  
                  $
                  (559,848
                  )
                  
                  100.0
                  %
  December 31, 2009NAIC Designation
                  
                  Equivalent Rating
                  
                  Carrying Value of Securities with
                     Gross Unrealized
                     Losses
                  
                  Percent of Total
                  
                  Gross Unrealized Losses
                  
                  Percent of Total(Dollars in thousands)1
                  
                  AAA, AA, A
                  
                  $
                  3,189,335
                  
                  
                  64.2
                  %
                  
                  $
                  (355,516
                  )
                  
                  49.0
                  %2
                  
                  BBB
                  
                  1,335,973
                  
                  
                  26.9
                  
                  
                  (180,763
                  )
                  
                  24.9Total investment grade
                  
                  4,525,308
                  
                  
                  91.1
                  
                  
                  (536,279
                  )
                  
                  73.93
                  
                  BB
                  
                  315,603
                  
                  
                  6.3
                  
                  
                  (56,456
                  )
                  
                  7.84
                  
                  B
                  
                  78,226
                  
                  
                  1.6
                  
                  
                  (55,791
                  )
                  
                  7.75
                  
                  CCC
                  
                  27,357
                  
                  
                  0.5
                  
                  
                  (42,419
                  )
                  
                  5.86
                  
                  In or near default
                  
                  23,438
                  
                  
                  0.5
                  
                  
                  (34,877
                  )
                  
                  4.8Total below investment grade
                  
                  444,624
                  
                  
                  8.9
                  
                  
                  (189,543
                  )
                  
                  26.1Total
                  
                  $
                  4,969,932
                  
                  
                  100.0
                  %
                  
                  $
                  (725,822
                  )
                  
                  100.0
                  %
  Available-For-Sale Fixed Maturity Securities with Unrealized Losses by Length of TimeMarch 31, 2010Amortized Cost
                  
                  Gross Unrealized LossesNumber of Issuers
                  
                  Market Value
                     is Less than 75% of Cost
                  
                  Market Value is
                     75% or Greater
                     than Cost
                  
                  Market Value is Less than 75% of Cost
                  
                  Market Value is 75% or Greater than Cost(Dollars in thousands)Three months or less
                  37
                  
                  
                  $
                  —
                  
                  
                  $
                  280,459
                  
                  
                  $
                  —
                  
                  
                  $
                  (3,212
                  )Greater than three months to six months
                  121
                  
                  
                  —
                  
                  
                  736,380
                  
                  
                  —
                  
                  
                  (17,460
                  )Greater than six months to nine months
                  4
                  
                  
                  —
                  
                  
                  9,589
                  
                  
                  —
                  
                  
                  (165
                  )Greater than nine months to twelve months
                  12
                  
                  
                  11,724
                  
                  
                  45,117
                  
                  
                  (6,573
                  )
                  
                  (5,457
                  )Greater than twelve months
                  408
                  
                  
                  624,379
                  
                  
                  3,188,760
                  
                  
                  (258,940
                  )
                  
                  (268,041
                  )Total
                  
                  
                  $
                  636,103
                  
                  
                  $
                  4,260,305
                  
                  
                  $
                  (265,513
                  )
                  
                  $
                  (294,335
                  )
   
    Table of Contents
 March 31, 2010
  December 31, 2009Amortized Cost
                  
                  Gross Unrealized LossesNumber of Issuers
                  
                  Market Value
                     is Less than 75% of Cost
                  
                  Market Value is 75% or Greater than Cost
                  
                  Market Value is Less than 75% of Cost
                  
                  Market Value is 75% or Greater than Cost(Dollars in thousands)Three months or less
                  188
                  
                  $
                  —
                  
                  
                  $
                  1,166,486
                  
                  
                  $
                  —
                  
                  
                  $
                  (30,057
                  )Greater than three months to six months
                  4
                  
                  42
                  
                  
                  9,906
                  
                  
                  (15
                  )
                  
                  (421
                  )Greater than six months to nine months
                  13
                  
                  16,958
                  
                  
                  36,174
                  
                  
                  (9,226
                  )
                  
                  (3,236
                  )Greater than nine months to twelve months
                  12
                  
                  17,539
                  
                  
                  24,675
                  
                  
                  (6,960
                  )
                  
                  (1,552
                  )Greater than twelve months
                  463
                  
                  844,621
                  
                  
                  3,579,353
                  
                  
                  (350,096
                  )
                  
                  (324,259
                  )Total
                  
                  
                  $
                  879,160
                  
                  
                  $
                  4,816,594
                  
                  
                  $
                  (366,297
                  )
                  
                  $
                  (359,525
                  )
  Available-For-Sale Fixed Maturity Securities with Unrealized Losses by Maturity DateMarch 31, 2010
                  
                  December 31, 2009Carrying Value of Securities with Gross Unrealized Losses
                  
                  Gross
                     Unrealized
                     Losses
                  
                  Carrying Value of Securities with Gross Unrealized Losses
                  
                  Gross
                     Unrealized
                     Losses(Dollars in thousands)Due in one year or less
                  $
                  304
                  
                  
                  $
                  (2
                  )
                  
                  $
                  1,876
                  
                  
                  $
                  (116
                  )Due after one year through five years
                  123,182
                  
                  
                  (10,063
                  )
                  
                  241,292
                  
                  
                  (19,491
                  )Due after five years through ten years
                  548,374
                  
                  
                  (49,639
                  )
                  
                  852,567
                  
                  
                  (92,816
                  )Due after ten years
                  2,245,318
                  
                  
                  (219,576
                  )
                  
                  2,417,458
                  
                  
                  (286,886
                  )2,917,178
                  
                  
                  (279,280
                  )
                  
                  3,513,193
                  
                  
                  (399,309
                  )Mortgage and asset-backed securities
                  1,414,599
                  
                  
                  (280,351
                  )
                  
                  1,452,045
                  
                  
                  (326,207
                  )Redeemable preferred stock
                  4,783
                  
                  
                  (217
                  )
                  
                  4,694
                  
                  
                  (306
                  )Total
                  $
                  4,336,560
                  
                  
                  $
                  (559,848
                  )
                  
                  $
                  4,969,932
                  
                  
                  $
                  (725,822
                  )
  At March 31, 2010, unrealized losses on available-for-sale fixed maturity securities totaled $559.8 million primarily due to $280.4 million in unrealized losses on mortgage and asset-backed securities. The unrealized losses on mortgage and asset -backed securities were primarily due to an increase in credit spreads and decrease in market liquidity resulting from concerns about mortgage defaults on Alt-A, subprime and other risky mortgages, and potential downgrades or defaults of monoline bond insurers. In addition, the unrealized losses on corporate securities totaling $158.4 million were primarily due to a decrease in market liquidity, general spread widening and credit quality concerns of assets held by banking institutions and life insurance companies.  An increase in credit spreads on commercial real estate investment trust bonds, due to the underlying real estate exposure and market concerns about the ability to access capital markets, also contributed to the unrealized losses in the corporate segment. We do not intend to sell or believe we will be required to sell these investments before their anticipated recovery of amortized cost, therefore we do not consider these investments to be other-than-temporarily impaired at March 31, 2010. See Note 2 to our consolidated financial statements for additional analysis of these unrealized losses.
   Mortgage and Asset-Backed Securities
  Mortgage and other asset-backed securities comprised 28.0% at March 31, 2010 and 27.6% at December 31, 2009 of our total available-for-sale fixed maturity securities. These securities are purchased when we believe these types of investments provide superior risk-adjusted returns compared to returns of more conventional investments such as corporate bonds and mortgage loans. These securities are diversified as to collateral types, cash flow characteristics and maturity.
  The repayment pattern on mortgage and other asset-backed securities is more variable than that of more traditional fixed maturity securities because the repayment terms are tied to underlying debt obligations that are subject to prepayments. The prepayment speeds (e.g., the rate of individuals refinancing their home mortgages) can vary based on a number of economic factors that cannot be predicted with certainty. These factors include the prevailing interest rate environment and general status of the economy.
  At each balance sheet date, we review and update our expectation of future prepayment speeds and the book value of the mortgage and other asset-backed securities purchased at a premium or discount is reset, if needed, to result in a constant effective yield over the life of the security. This effective yield is computed using historical principal payments and expected
  
    Table of Contents
 March 31, 2010
  future principal payment patterns. Any adjustments to book value to derive the constant effective yield, which may include the reversal of premium or discount amounts previously amortized or accrued, are recorded in the current period as a component of net investment income. Accordingly, deviations in actual prepayment speeds from that originally expected or changes in expected prepayment speeds can cause a change in the yield earned on mortgage and asset-backed securities purchased at a premium or discount and may result in adjustments that have a material positive or negative impact on quarterly reported results. Increases in prepayment speeds, which typically occur in a decreasing interest rate environment, generally increase 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 slow down the rate these amounts are recorded into income.
 
 Mortgage and Asset-Backed Securities by TypeMarch 31, 2010Amortized Cost
                  
                  Par Value
                  
                  Carrying
                     Value
                  
                  Percent of Fixed Maturities(Dollars in thousands)Residential mortgage-backed securities:Sequential
                  $
                  1,223,499
                  
                  
                  $
                  1,239,227
                  
                  
                  $
                  1,147,420
                  
                  
                  11.1
                  %Pass-through
                  237,489
                  
                  
                  230,411
                  
                  
                  243,994
                  
                  
                  2.4Planned and targeted amortization class
                  452,662
                  
                  
                  455,634
                  
                  
                  430,897
                  
                  
                  4.2Other
                  39,247
                  
                  
                  39,344
                  
                  
                  33,253
                  
                  
                  0.3Total residential mortgage-backed securities
                  1,952,897
                  
                  
                  1,964,616
                  
                  
                  1,855,564
                  
                  
                  18.0Commercial mortgage-backed securities
                  771,482
                  
                  
                  795,518
                  
                  
                  738,220
                  
                  
                  7.2Other asset-backed securities
                  373,015
                  
                  
                  430,427
                  
                  
                  290,501
                  
                  
                  2.8Total mortgage and asset-backed securities
                  $
                  3,097,394
                  
                  
                  $
                  3,190,561
                  
                  
                  $
                  2,884,285
                  
                  
                  28.0
                  %
  December 31, 2009Amortized Cost
                  
                  Par Value
                  
                  Carrying
                     Value
                  
                  Percent of Fixed Maturities(Dollars in thousands)Residential mortgage-backed securities:Sequential
                  $
                  1,236,102
                  
                  
                  $
                  1,252,293
                  
                  
                  $
                  1,148,038
                  
                  
                  11.6
                  %Pass-through
                  258,509
                  
                  
                  250,964
                  
                  
                  263,175
                  
                  
                  2.7Planned and targeted amortization class
                  459,004
                  
                  
                  461,935
                  
                  
                  429,309
                  
                  
                  4.4Other
                  39,471
                  
                  
                  39,569
                  
                  
                  32,888
                  
                  
                  0.3Total residential mortgage-backed securities
                  1,993,086
                  
                  
                  2,004,761
                  
                  
                  1,873,410
                  
                  
                  19.0Commercial mortgage-backed securities
                  785,729
                  
                  
                  810,995
                  
                  
                  720,123
                  
                  
                  7.3Other asset-backed securities
                  230,755
                  
                  
                  290,104
                  
                  
                  132,873
                  
                  
                  1.3Total mortgage and asset-backed securities
                  $
                  3,009,570
                  
                  
                  $
                  3,105,860
                  
                  
                  $
                  2,726,406
                  
                  
                  27.6
                  %
   The residential mortgage-backed portfolio includes pass-through and collateralized mortgage obligation (CMO) securities. With a pass-through security, we receive a pro rata share of principal payments as payments are made on the underlying mortgage loans. CMOs consist of pools of mortgages divided into sections or "tranches" which provide sequential retirement of the bonds. We invest 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, we invest 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. We generally do not purchase certain types of CMOs that we believe would subject the investment portfolio to greater than average risk. These include, but are not limited to, principal only, floater, inverse floater, PAC II and support tranches.
  The commercial mortgage-backed securities are primarily sequential securities. Commercial mortgage-backed securities typically have cash flows that are less subject to refinance risk than residential mortgage-backed securities principally due to prepayment restrictions on many of the underlying commercial mortgage loans.
  The other asset-backed securities are backed by both residential and non-residential collateral. The collateral for residential
  
    Table of Contents
 March 31, 2010
  asset-backed securities primarily consists of second lien fixed-rate home equity loans. The cash flows of these securities are less subject to prepayment risk than residential mortgage-backed securities as the borrowers are less likely to refinance than those with only a first lien mortgage. The collateral for non-residential asset-backed securities primarily includes securities backed by credit card receivables, auto dealer receivables and auto installment loans. These securities are high quality, short-duration assets with limited cash flow variability.
  Our direct exposure to the Alt-A home equity and subprime first-lien sectors is limited to investments in structured securities collateralized by senior tranches of residential mortgage loans with this exposure. We also have a partnership interest in an investment grade securities fund that owns securities backed by Alt-A home equity, subprime first-lien and adjustable rate mortgage collateral. The fund is reported as securities and indebtedness of related parties in our consolidated balances sheets with a fair value of $26.5 million at March 31, 2010 and $25.0 million at December 31, 2009. We do not own any direct investments in subprime lenders or adjustable rate mortgages.
  Mortgage and Asset-Backed Securities by Collateral TypeMarch 31, 2010
                  
                  December 31, 2009Amortized Cost
                  
                  Carrying Value
                  
                  Percent
                     of Fixed Maturities
                  
                  Amortized Cost
                  
                  Carrying Value
                  
                  Percent
                     of Fixed Maturities(Dollars in thousands)
                  
                  (Dollars in thousands)Government agency
                  $
                  663,444
                  
                  
                  $
                  693,300
                  
                  
                  6.7
                  %
                  
                  $
                  687,079
                  
                  
                  $
                  707,166
                  
                  
                  7.2
                  %Prime
                  922,487
                  
                  
                  859,059
                  
                  
                  8.3
                  
                  
                  937,677
                  
                  
                  862,870
                  
                  
                  8.6Alt-A
                  509,504
                  
                  
                  393,098
                  
                  
                  3.8
                  
                  
                  521,911
                  
                  
                  390,352
                  
                  
                  4.0Subprime
                  30,116
                  
                  
                  19,416
                  
                  
                  0.2
                  
                  
                  30,119
                  
                  
                  20,383
                  
                  
                  0.2Commercial mortgage
                  771,482
                  
                  
                  738,220
                  
                  
                  7.2
                  
                  
                  785,729
                  
                  
                  720,123
                  
                  
                  7.3Non-mortgage
                  200,361
                  
                  
                  181,192
                  
                  
                  1.8
                  
                  
                  47,055
                  
                  
                  25,512
                  
                  
                  0.3Total
                  $
                  3,097,394
                  
                  
                  $
                  2,884,285
                  
                  
                  28.0
                  %
                  
                  $
                  3,009,570
                  
                  
                  $
                  2,726,406
                  
                  
                  27.6
                  %
  The mortgage and asset-backed securities can be summarized into three broad categories: residential, commercial and other asset-backed securities.
 
 Residential Mortgage-Backed Securities by Collateral Type and Origination YearMarch 31, 2010Government & Prime
                  
                  Alt-A
                  
                  TotalAmortized Cost (1)
                  
                  Carrying      Value
                  
                  Amortized Cost (1)
                  
                  Carrying       Value
                  
                  Amortized      Cost
                  
                  Carrying      Value(Dollars in thousands)2010
                  $
                  5,925
                  
                  
                  $
                  5,925
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  5,925
                  
                  
                  $
                  5,9252009
                  171,923
                  
                  
                  174,437
                  
                  
                  —
                  
                  
                  —
                  
                  
                  171,923
                  
                  
                  174,4372008
                  124,139
                  
                  
                  131,121
                  
                  
                  —
                  
                  
                  —
                  
                  
                  124,139
                  
                  
                  131,1212007
                  70,866
                  
                  
                  68,210
                  
                  
                  58,948
                  
                  
                  33,563
                  
                  
                  129,814
                  
                  
                  101,7732006
                  84,218
                  
                  
                  72,916
                  
                  
                  22,445
                  
                  
                  11,548
                  
                  
                  106,663
                  
                  
                  84,4642005 and prior
                  1,107,612
                  
                  
                  1,090,035
                  
                  
                  306,821
                  
                  
                  267,809
                  
                  
                  1,414,433
                  
                  
                  1,357,844Total
                  $
                  1,564,683
                  
                  
                  $
                  1,542,644
                  
                  
                  $
                  388,214
                  
                  
                  $
                  312,920
                  
                  
                  $
                  1,952,897
                  
                  
                  $
                  1,855,564
   
    Table of Contents
 March 31, 2010
  December 31, 2009Government & Prime
                  
                  Alt-A
                  
                  TotalAmortized
                     Cost (1)
                  
                  Carrying
                     Value
                  
                  Amortized
                     Cost (1)
                  
                  Carrying
                     Value
                  
                  Amortized      Cost
                  
                  Carrying
                     Value(Dollars in thousands)2009
                  $
                  185,339
                  
                  
                  $
                  185,850
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  185,339
                  
                  
                  $
                  185,8502008
                  127,442
                  
                  
                  132,204
                  
                  
                  —
                  
                  
                  —
                  
                  
                  127,442
                  
                  
                  132,2042007
                  71,256
                  
                  
                  67,363
                  
                  
                  58,958
                  
                  
                  33,113
                  
                  
                  130,214
                  
                  
                  100,4762006
                  84,822
                  
                  
                  72,193
                  
                  
                  22,445
                  
                  
                  11,861
                  
                  
                  107,267
                  
                  
                  84,0542005
                  61,246
                  
                  
                  61,404
                  
                  
                  —
                  
                  
                  —
                  
                  
                  61,246
                  
                  
                  61,4042004 and prior
                  1,072,170
                  
                  
                  1,041,311
                  
                  
                  309,408
                  
                  
                  268,111
                  
                  
                  1,381,578
                  
                  
                  1,309,422Total
                  $
                  1,602,275
                  
                  
                  $
                  1,560,325
                  
                  
                  $
                  390,811
                  
                  
                  $
                  313,085
                  
                  
                  $
                  1,993,086
                  
                  
                  $
                  1,873,410
  (1)
                  Insurance on 2006 Alt-A issues is provided by MBIA Insurance Corporation (78% in 2010 and 2009). Insurance on 2007 Alt-A issues is provided by Assured Guaranty Ltd. (33% in 2010 and 2009) and MBIA Insurance Corporation (26% in 2010 and 2009). There is no insurance coverage on Government & Prime investments or Alt-A investments with collateral originating prior to 2006.
  Residential Mortgage-Backed Securities by NAIC Designation and Equivalent RatingMarch 31, 2010
                  
                  December 31, 2009NAICDesignation
                  
                  Equivalent Rating
                  
                  Carrying Value
                  
                  Percent ofTotal
                  
                  Carrying Value
                  
                  Percent ofTotal(Dollars in thousands)1
                  
                  AAA, AA, A
                  
                  $
                  1,751,782
                  
                  
                  94.4
                  %
                  
                  $
                  1,770,168
                  
                  
                  94.5
                  %2
                  
                  BBB
                  
                  71,934
                  
                  
                  3.8
                  
                  
                  70,876
                  
                  
                  3.8Total investment grade
                  
                  1,823,716
                  
                  
                  98.2
                  
                  
                  1,841,044
                  
                  
                  98.33
                  
                  BB
                  
                  28,777
                  
                  
                  1.6
                  
                  
                  28,887
                  
                  
                  1.54
                  
                  B
                  
                  3,071
                  
                  
                  0.2
                  
                  
                  3,479
                  
                  
                  0.2Total
                  
                  $
                  1,855,564
                  
                  
                  100.0
                  %
                  
                  $
                  1,873,410
                  
                  
                  100.0
                  %
 
 Commercial Mortgage-Backed Securities by Origination YearMarch 31, 2010
                  
                  December 31, 2009Amortized Cost
                  
                  Carrying Value
                  
                  Amortized Cost
                  
                  Carrying Value(Dollars in thousands)2010
                  $
                  6,992
                  
                  
                  $
                  6,986
                  
                  
                  $
                  —
                  
                  
                  $
                  —2009
                  40,904
                  
                  
                  45,019
                  
                  
                  40,757
                  
                  
                  41,7672008
                  182,333
                  
                  
                  196,295
                  
                  
                  182,221
                  
                  
                  189,4452007
                  184,567
                  
                  
                  158,199
                  
                  
                  184,515
                  
                  
                  148,3422006
                  135,987
                  
                  
                  118,238
                  
                  
                  143,982
                  
                  
                  116,5702005 and prior
                  220,699
                  
                  
                  213,483
                  
                  
                  234,254
                  
                  
                  223,999Total
                  $
                  771,482
                  
                  
                  $
                  738,220
                  
                  
                  $
                  785,729
                  
                  
                  $
                  720,123
   
    Table of Contents
 March 31, 2010
  Commercial Mortgage-Backed Securities by NAIC Designation and Equivalent RatingMarch 31, 2010
                  
                  December 31, 2009NAICDesignation
                  
                  Equivalent Rating
                  
                  Carrying Value
                  
                  Percent of Total
                  
                  Carrying Value
                  
                  Percent of Total(Dollars in thousands)1
                  
                  GNMA
                  
                  $
                  311,925
                  
                  
                  42.3
                  %
                  
                  $
                  338,438
                  
                  
                  47.0
                  %1
                  
                  FNMA
                  
                  15,889
                  
                  
                  2.2
                  
                  
                  15,786
                  
                  
                  2.21
                  
                  AAA, AA, AGeneric
                  
                  86,752
                  
                  
                  11.8
                  
                  
                  68,076
                  
                  
                  9.5Super Senior
                  
                  191,466
                  
                  
                  25.9
                  
                  
                  179,361
                  
                  
                  24.9Mezzanine
                  
                  31,286
                  
                  
                  4.2
                  
                  
                  27,833
                  
                  
                  3.9Junior
                  
                  77,788
                  
                  
                  10.5
                  
                  
                  78,821
                  
                  
                  10.9Total AAA, AA, A
                  
                  387,292
                  
                  
                  52.4
                  
                  
                  354,091
                  
                  
                  49.22
                  
                  BBB
                  
                  15,445
                  
                  
                  2.0
                  
                  
                  3,985
                  
                  
                  0.54
                  
                  B
                  
                  7,249
                  
                  
                  1.0
                  
                  
                  7,434
                  
                  
                  1.06
                  
                  In or near default
                  
                  420
                  
                  
                  0.1
                  
                  
                  389
                  
                  
                  0.2Total
                  
                  $
                  738,220
                  
                  
                  100.0
                  %
                  
                  $
                  720,123
                  
                  
                  100.0
                  %
  Government National Mortgage Association (GNMA or Ginnie Mae) guarantees principal and interest on mortgage backed securities. The guarantee is backed by the full faith and credit of the United States Government. The Federal National Mortgage Association (FNMA or Fannie Mae) and the Federal Home Loan Mortgage Association (FHLMC or Freddie Mac) are government-sponsored enterprises (GSEs) that were chartered by Congress to reduce borrowing costs for certain homeowners. GSEs have carried an implicit backing of the United States Government but do not have explicit guarantees like GNMA. The Housing and Economic Recovery act of 2008 allows the government to expand its line of credit to $200 billion each for Fannie Mae and Freddie Mac. Late in 2009, the Treasury revised these caps to expand as needed to cover losses over the next three years. The revision was intended to show support for these firms throughout the housing crisis by the U.S. Treasury.
  The AAA, AA and A rated commercial mortgage-backed securities are broken down into categories based on subordination levels. Rating agencies disclose subordination levels, which measure the amount of credit support that the bonds (or tranches) have from subordinated bonds (or tranches). Generic is a term used for securities issued prior to 2005. The super senior securities have subordination levels greater than 27% , the mezzanine securities have subordination levels in the 17% to 27% range and the junior securities have subordination levels in the 9% to 16% range.
  Other Asset-Backed Securities by Collateral Type and Origination YearMarch 31, 2010Government & Prime
                  
                  Alt-A
                  
                  Subprime
                  
                  Non-Mortgage
                  
                  TotalAmortized Cost (1)
                  Carrying  Value
                  
                  Amortized Cost (1)
                  Carrying  Value
                  
                  Amortized Cost (1)
                  Carrying  Value
                  
                  Amortized Cost
                  Carrying Value
                  
                  Amortized Cost
                  Carrying  Value(Dollars in thousands)2010
                  $
                  —
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  $
                  —
                  
                  
                  $
                  91,376
                  
                  $
                  91,517
                  
                  
                  $
                  91,376
                  
                  $
                  91,5172009
                  —
                  
                  —
                  
                  
                  —
                  
                  —
                  
                  
                  —
                  
                  —
                  
                  
                  20,062
                  
                  20,186
                  
                  
                  20,062
                  
                  20,1862007
                  9,980
                  
                  2,683
                  
                  
                  16,181
                  
                  8,115
                  
                  
                  —
                  
                  —
                  
                  
                  31,750
                  
                  30,905
                  
                  
                  57,911
                  
                  41,7032006
                  8,642
                  
                  4,271
                  
                  
                  72,027
                  
                  44,798
                  
                  
                  —
                  
                  —
                  
                  
                  9,862
                  
                  9,872
                  
                  
                  90,531
                  
                  58,9412005 and prior
                  2,626
                  
                  2,761
                  
                  
                  33,082
                  
                  27,265
                  
                  
                  30,116
                  
                  19,416
                  
                  
                  47,311
                  
                  28,712
                  
                  
                  113,135
                  
                  78,154Total
                  $
                  21,248
                  
                  $
                  9,715
                  
                  
                  $
                  121,290
                  
                  $
                  80,178
                  
                  
                  $
                  30,116
                  
                  $
                  19,416
                  
                  
                  $
                  200,361
                  
                  $
                  181,192
                  
                  
                  $
                  373,015
                  
                  $
                  290,501
   
    Table of Contents
 March 31, 2010
  December 31, 2009Government & Prime
                  
                  Alt-A
                  
                  Subprime
                  
                  Non-Mortgage
                  
                  TotalAmortized Cost (1)
                  Carrying  Value
                  
                  Amortized Cost (1)
                  Carrying  Value
                  
                  Amortized Cost (1)
                  Carrying  Value
                  
                  Amortized Cost
                  Carrying  Value
                  
                  Amortized Cost
                  Carrying  Value(Dollars in thousands)2009
                  $
                  —
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  $
                  —
                  
                  
                  $
                  4,999
                  
                  $
                  4,983
                  
                  
                  $
                  4,999
                  
                  $
                  4,9832007
                  9,982
                  
                  2,596
                  
                  
                  18,853
                  
                  7,979
                  
                  
                  —
                  
                  —
                  
                  
                  7,065
                  
                  5,999
                  
                  
                  35,900
                  
                  16,5742006
                  9,748
                  
                  4,322
                  
                  
                  77,612
                  
                  42,621
                  
                  
                  —
                  
                  —
                  
                  
                  —
                  
                  —
                  
                  
                  87,360
                  
                  46,9432005
                  —
                  
                  —
                  
                  
                  23,845
                  
                  20,376
                  
                  
                  30,119
                  
                  20,383
                  
                  
                  8,831
                  
                  100
                  
                  
                  62,795
                  
                  40,8592004 and prior
                  2,751
                  
                  2,793
                  
                  
                  10,790
                  
                  6,291
                  
                  
                  —
                  
                  —
                  
                  
                  26,160
                  
                  14,430
                  
                  
                  39,701
                  
                  23,514Total
                  $
                  22,481
                  
                  $
                  9,711
                  
                  
                  $
                  131,100
                  
                  $
                  77,267
                  
                  
                  $
                  30,119
                  
                  $
                  20,383
                  
                  
                  $
                  47,055
                  
                  $
                  25,512
                  
                  
                  $
                  230,755
                  
                  $
                  132,873
 
 (1)
                  Insurance on 2006 Alt-A issues is provided by Financial Guaranty Insurance Co. (FGIC) (44% in 2010 and 2009) and Ambac Assurance Corporation (Ambac) (28% in 2010 and 30% in 2009). Insurance on 2007 Alt-A issues is provided by Ambac (46% in 2010 and 53% in 2009), MBIA Insurance Corporation (31% in 2010 and 27% in 2009) and FGIC (24% in 2010 and 21% in 2009). The 2006 and 2007 Government & Prime issues are 100% insured by Ambac (2006 issues) and MBIA Insurance Corporation (2007 issues). There is no insurance coverage on other asset-backed securities with subprime or non-mortgage collateral or collateral originating prior to 2006.
  Other Asset-Backed Securities by NAIC Designation and Equivalent RatingMarch 31, 2010
                  
                  December 31, 2009NAICDesignation
                  
                  Equivalent Ratings
                  
                  CarryingValue
                  
                  Percent ofTotal
                  
                  CarryingValue
                  
                  Percent of Total(Dollars in thousands)1
                  
                  AAA, AA, A
                  
                  $
                  273,423
                  
                  
                  94.2
                  %
                  
                  $
                  108,737
                  
                  
                  81.8
                  %2
                  
                  BBB
                  
                  7,404
                  
                  
                  2.5
                  
                  
                  7,199
                  
                  
                  5.43
                  
                  BB
                  
                  360
                  
                  
                  0.1
                  
                  
                  457
                  
                  
                  0.34
                  
                  B
                  
                  4,345
                  
                  
                  1.5
                  
                  
                  8,557
                  
                  
                  6.55
                  
                  CCC
                  
                  3,544
                  
                  
                  1.2
                  
                  
                  7,050
                  
                  
                  5.36
                  
                  In or near default
                  
                  1,425
                  
                  
                  0.5
                  
                  
                  873
                  
                  
                  0.7Total
                  
                  $
                  290,501
                  
                  
                  100.0
                  %
                  
                  $
                  132,873
                  
                  
                  100.0
                  %
 
 The mortgage and asset-backed portfolios include securities wrapped by monoline bond insurers to provide additional credit enhancement for the investment. We believe these securities were underwritten at investment grade levels excluding any credit enhancing protection. At March 31, 2010, the fair value of our insured mortgage and asset-backed holdings tot aled $78.4 million, or 2.7% of our mortgage and asset-backed portfolios and 0.8% of our total fixed income portfolio.
  During 2009, FGIC was downgraded by rating agencies and in November of 2009 was ordered to stop making payments. In March 2010, the Wisconsin Insurance Commissioner placed a temporary moratorium on payments for Ambac wrapped residential mortgage-backed securities. Securities with existing or expected cash flow concerns that are wrapped by FGIC or Ambac have been other-than-temporarily impaired. We do not consider the investments wrapped by other monoline bond insurers to be other-than-temporarily impaired at March 31, 2010 because we do not have reason to believe that those guarantees, if needed, will not be honored. We do not directly own any fixed income or equity investments in monoline bond insurers.
   
    Table of Contents
 March 31, 2010
  Residential Mortgage-Backed Securities and Other Asset-Backed Securities by InsuranceMarch 31, 2009
                  
                  December 31, 2009Insurers'
                     S&P
                     Rating (1)
                  
                  ResidentialMortgage-Backed
                  
                  Other Asset-Backed
                  
                  TotalCarryingValue
                  
                  ResidentialMortgage-Backed
                  
                  Other Asset-Backed
                  
                  TotalCarryingValueInsured:
                  
                  
                  (Dollars in thousands)Ambac
                  NR (2)
                  
                  $
                  —
                  
                  
                  $
                  16,800
                  
                  
                  $
                  16,800
                  
                  
                  $
                  —
                  
                  
                  $
                  16,674
                  
                  
                  $
                  16,674Assured Guaranty Ltd.
                  AAA
                  
                  9,930
                  
                  
                  —
                  
                  
                  9,930
                  
                  
                  9,569
                  
                  
                  —
                  
                  
                  9,569FGIC
                  NR (2)
                  
                  —
                  
                  
                  26,100
                  
                  
                  26,100
                  
                  
                  —
                  
                  
                  24,184
                  
                  
                  24,184MBIA Insurance Corporation
                  BB+
                  
                  14,147
                  
                  
                  11,406
                  
                  
                  25,553
                  
                  
                  14,192
                  
                  
                  11,104
                  
                  
                  25,296Total with insurance
                  
                  24,077
                  
                  
                  54,306
                  
                  
                  78,383
                  
                  
                  23,761
                  
                  
                  51,962
                  
                  
                  75,723Uninsured:GNMA
                  
                  
                  287,658
                  
                  
                  —
                  
                  
                  287,658
                  
                  
                  306,021
                  
                  
                  —
                  
                  
                  306,021FHLMC
                  
                  
                  254,849
                  
                  
                  2,722
                  
                  
                  257,571
                  
                  
                  251,499
                  
                  
                  2,751
                  
                  
                  254,250FNMA
                  
                  
                  148,015
                  
                  
                  39
                  
                  
                  148,054
                  
                  
                  146,835
                  
                  
                  41
                  
                  
                  146,876Other
                  
                  
                  1,140,965
                  
                  
                  233,434
                  
                  
                  1,374,399
                  
                  
                  1,145,294
                  
                  
                  78,119
                  
                  
                  1,223,413Total
                  
                  
                  $
                  1,855,564
                  
                  
                  $
                  290,501
                  
                  
                  $
                  2,146,065
                  
                  
                  $
                  1,873,410
                  
                  
                  $
                  132,873
                  
                  
                  $
                  2,006,283
  (1)
                  Rating in effect as of March 31, 2010.(2)
                  No formal published rating.
   Collateralized Debt Obligations
  Collateralized debt obligation  investments are included in the corporate securities portfolio. Our investments in collateralized debt obligations are backed by credit default swaps with no home equity exposure. These securities had a carrying value of $3.3 million and unrealized loss of $14.7 million at March 31, 2010 and a carrying value of $12.9 million and unrealized loss of $14.6 million at December 31, 2009. The carrying value decreased due to the sale of two of the securities in 2010. The unrealized loss is attributable to one security that we have stress tested and determined that future principal losses are not expected based on reasonable adverse conditions.
  State, Municipal and Other Government Securities
  State, municipal and other government securities include investments in general obligation, revenue, military housing and municipal housing bonds. Our investment strategy is to utilize municipal bonds in addition to corporate bonds, as we believe they provide additional diversification and have historically low default rates compared with similarly rated corporate bonds. We evaluate the credit strength of the underlying issues on both a quantitative and qualitative basis, excluding insurance, prior to acquisition. The majority of the municipal bonds we hold are investment grade credits without consideration of insurance. The insolvency of one or more of the credit enhancing entities would be a meaningful short-term market liquidity event, but would not dramatically increase our investment portfolio's risk profile.
   Equity Securities
  Equity securities totaled $70.1 million at March 31, 2010 and $60.2 million at December 31, 2009. Gross unrealized gains totaled $3.0  million and gross unrealized losses totaled $3.1 million at March 31, 2010. At December 31, 2009, gross unrealized gains totaled $2.5 million and gross unrealized losses totaled $4.7  million on these securities. The unrealized losses are primarily attributable to perpetual preferred securities from issuers in the financial sector. We believe these losses are due to concerns regarding the quality of the assets the issuers hold and uncertainty regarding when these securities will be called. These securities are similar to fixed maturities as they provide periodic cash flows, contain call features and are similarly rated and priced like long-term callable bonds. We do not intend to sell or believe we will be required to sell these securities before their anticipated recovery; therefore, we do not consider them to be other-than-temporarily impaired at March 31, 2010.
   
    Table of Contents
 March 31, 2010
  Mortgage Loans
  Mortgage loans totaled $1,286.2 million at March 31, 2010 and $1,293.9 million at December 31, 2009. Our mortgage loans are diversified as to property type, location and loan size, and are collateralized by the related properties. There were two mortgages more than 60 days delinquent as of March 31, 2010 with a carrying value of $4.4 million and one delinquent mortgage loan as of December 31, 2009 with a carrying value of $1.5 million. The total number of commercial mortgage loans outstanding was 333 at March 31, 2010 and 332  at December 31, 2009. Our mortgage lending policies establish limits on the amount that can be loaned to one borrower and require diversification by geographic location and collateral type. The majority of our mortgage loans amortize principal, with 6.7% that are interest only loans at March 31, 2010. At March 31, 2010, the average loan-to-value of the current outstanding principal balance to the appraised value at origination was 56.4% and the weighted average debt service coverage ratio was 1.52.
  Mortgage Loans by Collateral TypeMarch 31, 2010
                  
                  December 31, 2009Collateral Type
                  
                  Carrying Value
                  
                  Percent of Total
                  
                  Carrying Value
                  
                  Percent of Total(Dollars in thousands)Retail
                  
                  $
                  447,852
                  
                  
                  34.8
                  %
                  
                  $
                  449,159
                  
                  
                  34.7
                  %Industrial
                  
                  406,767
                  
                  
                  31.6
                  
                  
                  402,239
                  
                  
                  31.1Office
                  
                  400,008
                  
                  
                  31.1
                  
                  
                  410,723
                  
                  
                  31.7Other
                  
                  31,587
                  
                  
                  2.5
                  
                  
                  31,815
                  
                  
                  2.5Total
                  
                  $
                  1,286,214
                  
                  
                  100.0
                  %
                  
                  $
                  1,293,936
                  
                  
                  100.0
                  %
  Mortgage Loans by Geographic Location within the United StatesMarch 31, 2010
                  
                  December 31, 2009Region of the United States
                  
                  Carrying Value
                  
                  Percent of Total
                  
                  Carrying Value
                  
                  Percent of Total(Dollars in thousands)South Atlantic
                  
                  $
                  330,926
                  
                  
                  25.7
                  %
                  
                  $
                  331,441
                  
                  
                  25.6
                  %East North Central
                  
                  246,311
                  
                  
                  19.2
                  
                  
                  247,298
                  
                  
                  19.1Pacific
                  
                  241,937
                  
                  
                  18.8
                  
                  
                  243,966
                  
                  
                  18.9West North Central
                  
                  161,719
                  
                  
                  12.6
                  
                  
                  165,468
                  
                  
                  12.8Mountain
                  
                  118,599
                  
                  
                  9.2
                  
                  
                  117,267
                  
                  
                  9.1West South Central
                  
                  64,382
                  
                  
                  5.0
                  
                  
                  65,297
                  
                  
                  5.0Other
                  
                  122,340
                  
                  
                  9.5
                  
                  
                  123,199
                  
                  
                  9.5Total
                  
                  $
                  1,286,214
                  
                  
                  100.0
                  %
                  
                  $
                  1,293,936
                  
                  
                  100.0
                  %
  Mortgage Loans by Loan-to-Value Ratio (1)March 31, 2010
                  
                  December 31, 2009Carrying Value
                  
                  Percent of Total
                  
                  Carrying Value
                  
                  Percent of Total(Dollars in thousands)0% - 50%
                  $
                  384,207
                  
                  
                  29.9
                  %
                  
                  $
                  378,082
                  
                  
                  29.2
                  %50%- 60%
                  310,114
                  
                  
                  24.1
                  
                  
                  303,357
                  
                  
                  23.560% - 70%
                  435,152
                  
                  
                  33.8
                  
                  
                  453,170
                  
                  
                  35.070% - 80%
                  140,072
                  
                  
                  10.9
                  
                  
                  130,258
                  
                  
                  10.180% - 90%
                  16,669
                  
                  
                  1.3
                  
                  
                  23,835
                  
                  
                  1.890% - 100%
                  —
                  
                  
                  —
                  
                  
                  5,234
                  
                  
                  0.4Total
                  $
                  1,286,214
                  
                  
                  100.0
                  %
                  
                  $
                  1,293,936
                  
                  
                  100.0
                  %
  (1)
                  Loan-to-Value Ratio at origination
 Table of Contents
 March 31, 2010
 Mortgage Loans by Year of OriginationMarch 31, 2010
                  
                  December 31, 2009Carrying Value
                  
                  Percent of Total
                  
                  Carrying Value
                  
                  Percent of Total(Dollars in thousands)2010
                  $
                  4,300
                  
                  
                  0.3
                  %
                  
                  $
                  —
                  
                  
                  —
                  %2008
                  200,589
                  
                  
                  15.6
                  
                  
                  201,714
                  
                  
                  15.62007
                  282,791
                  
                  
                  22.0
                  
                  
                  284,327
                  
                  
                  22.02006
                  186,754
                  
                  
                  14.5
                  
                  
                  188,007
                  
                  
                  14.52005 and prior
                  611,780
                  
                  
                  47.6
                  
                  
                  619,888
                  
                  
                  47.9Total
                  $
                  1,286,214
                  
                  
                  100.0
                  %
                  
                  $
                  1,293,936
                  
                  
                  100.0
                  %
  Mortgage loans are considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to contractual terms of the loan agreement. At March 31, 2010 and December 31, 2009, we held a valuation allowance for two impaired loans totaling $0.7 million.
  Derivative Instruments
  Derivative instruments totaling $60.9 million at March 31, 2010 and $44.0 million at December 31, 2009 consist primarily of call options supporting our index annuity business net of collateral received from counterparties.
   Asset-Liability Management
  Our asset-liability management program includes (i) designing and developing products that encourage persistency and help ensure targeted spreads are earned and, as a result, create a stable liability structure, and (ii) structuring the investment portfolio with duration and cash flow characteristics consistent with the duration and cash flow characteristics of our insurance liabilities. The weighted average life of the fixed maturity and mortgage loan portfolio based on market values and excluding convertible bonds, was approximately 9.0 years at March 31, 2010 and 9.3  years at December 31, 2009. The effective duration of the fixed maturity and mortgage loan portfolios backing our annuity products was 6.3  at March 31, 2010 and 6.4 at December 31, 2009. The effective duration of our annuity liabilities was approximately 6.4  at March 31, 2010 and December 31, 2009.
   Other Assets
  Deferred policy acquisition costs decreased 8.6% to $1,006.6 million and deferred sales inducements decreased 9.8% to $324.5 million at March 31, 2010 primarily due to the impact of the change in unrealized appreciation/depreciation on fixed maturity securities. The impact of unrealized appreciation/depreciation on fixed maturity securities increased deferred policy acquisition costs $103.4 million at March 31, 2010 and $196.1  million at December 31, 2009, and increased deferred sales inducements $62.1 million at March 31, 2010 and $96.0  million at December 31, 2009. Other assets increased 66.8% to $56.6 mil lion primarily due to increases in receivables for securities sold.
   Liabilities
  Policy liabilities and accruals increased 2.0% to $11,746.0 million at March 31, 2010 primarily due to an increase in the volume of Farm Bureau Life's interest sensitive business in force. Our deferred income tax liability increased primarily due to the change in unrealized appreciation/depreciation on fixed maturity securities. Other liabilities increased 15.9% to $101.2 million primarily due to increases in payables for securities purchased.
 
  Stockholders' Equity
  FBL Financial Group, Inc. stockholders' equity increased 11.6% to $972.4 million at March 31, 2010, compared to $871.2 million at December 31, 2009. This increase is primarily attributable to the change in the unrealized appreciation/depreciation on fixed maturity securities.
  At March 31, 2010, FBL's common stockholders' equity was $969.4 million, or $ 31.51  per share, compared to $868.2 million or $28.49 per share at December 31, 2009. Included in stockholders' equity per common share is $1.15 at March 31, 2010 and
  
    Table of Contents
 March 31, 2010
  $3.89 at December 31, 2009 attributable to accumulated other comprehensive loss.
   Liquidity and Capital Resources
   Cash Flows
  During 2010, our operating activities generated cash flows totaling $131.2 million . This is primarily due to net income of $18.0 million adjusted for non-cash operating revenues and expenses netting to $113.2 million. We used cash of $209.8 million in our investing activities during the 2010 period. The primary uses were $425.0 million of investment acquisitions, mostly in fixed maturity securities, partially offset by $215.4 million in sales, maturities or the repayment of investments. Our financing activities provided cash of $111.6 million during the 2010 period. The primary sources were $380.5 million in receipts from interest sensitive and index products credited to policyholder account balances, partially offset by $268.3 million for return of policyholder account balances on interest sensitive and index products .
   Sources and Uses of Capital Resources
  Parent company cash inflows from operations consists primarily of (i) dividends from subsidiaries, if declared and paid, (ii) fees that it charges the various subsidiaries and affiliates for management of their operations, (iii) expense reimbursements from subsidiaries and affiliates, (iv) proceeds from the exercise of employee stock options, (v) proceeds from borrowings, (vi) tax settlements between the parent company and its subsidiaries and (vii) investment income. Revenue sources for the parent company during the three months ended March 31, 2010 included management fees from subsidiaries and affiliates of $1.4 million. Cash outflows are principally for salaries, taxes and other expenses related to providing these management services, dividends on outstanding stock and interest and principal repayments on our parent company debt.
  The Life Companies' cash inflows consist primarily of premium income, deposits to policyholder account balances, income from investments, sales, maturities and calls of investments, repayments of investment principal and proceeds from call option settlements. 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' continuing operations and financing activities relating to interest sensitive and index products provided funds totaling $244.1 million for the three months ended March 31, 2010 and $92.5 million for the 2009 period.
  EquiTrust Life had net cash outflows from operations and financing activities totaling $0.9 million for the three months ended March 31, 2010, primarily due to a reduction in sales to preserve capital as outlined in the "Impact of Recent Business Environment" section above. At March 31, 2010, EquiTrust Life had cash and short-term investments on hand totaling $164.1  million and fixed maturity securities in an unrealized gain position totaling $3,325.4 million. See the "Market Risks of Financial Instruments" section in our 2009 Annual Report on Form 10-K for additional discussion regarding EquiTrust Life's 2009 surrender activity.
  The ability of the Life 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. During the remainder of 2010, the maximum amount legally available for distribution to FBL Financial Group, Inc., without further regulatory approval, is $73.7 million from Farm Bureau Life and $27.3 million from EquiTrust Life.
  FBL Financial Group, Inc. expects to rely on available cash resources and dividends from Farm Bureau Life to make dividend payments to its stockholders and interest payments on its debt. The parent company had available cash and investments totaling $20.8  million at March 31, 2010. We anticipate that FBL Financial Group, Inc. will receive dividends totaling $15.0 m illion from Farm Bureau Life and $3.5 million from other non-life insurance subsidiaries during the remainder of 2010.
  Interest payments on our debt totaled $6.5 million for the three months ended March 31, 2010 and $7.4 million for the 2009 period. In the first quarter of 2009, we repaid the outstanding borrowings on our line of credit and terminated that agreement. Interest payments on our debt outstanding at March 31, 2010 are estimated to be $17.7 million for the remainder of 2010. We paid cash dividends on our common and preferred stock during the three-month period totaling $1.9  million in 2010 and $3.8 million in 2009. It is anticipated that quarterly cash dividend requirements for the second quarter of 2010 will be $0.0075 per Series B redeemable preferred share and $ 0.0625 p er common share. The level of common stock dividends will be analyzed
  
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  quarterly and will be dependent upon our capital and liquidity positions. Assuming a dividend rate of $0.0625 p er common share, the common and preferred dividends would total approximately $5.8 million during the remainder of 2010. The Company is licensed by the Iowa Farm Bureau Federation (IFBF), our majority shareholder, to use the "Farm Bureau" and "FB" designations and pays royalty fees to the IFBF as a result of this royalty agreement. The royalty agreement provides an option for the IFBF to terminate the agreement when FBL's quarterly common stock dividend is less than $0.10 per share. Assuming no further reduction in the quarterly dividend, the IFBF has agreed to temporarily forgo its right of termination thro ugh August 31, 2010 a nd we anticipate they will continue to forgo such right thereafter.
  We manage the amount of our capital to be consistent with statutory and rating agency requirements. As of March 31, 2010, we estimate that we have sufficient capital in the life insurance subsidiaries, combined with capital at the holding company, to meet our rating objectives. However, this capital may not be sufficient if significant future losses are incurred or market conditions provide limited access to additional capital.
  As of March 31, 2010, we had no material commitments for capital expenditures.
  On a consolidated basis, we anticipate that funds to meet our short-term and long-term capital expenditures, cash dividends to stockholders and operating cash needs will come from existing capital and internally generated funds. However, there can be no assurance that future experience regarding benefits and surrenders will be similar to historic experience since benefits and surrender levels are influenced by such factors as the interest rate environment, our financial strength ratings, the economy and other factors that impact policyholder behavior. O ur investment portfolio at March 31, 2010, included $218.2 million of short-term investments, $44.7 million of cash and $1,149.9 million in ca rrying value of U.S. Government and U.S. Government agency backed securities that could be readily converted to cash at or near carrying value. In addition, Farm Bureau Life and EquiTrust Life are members of the Federal Home Loan Bank (FHLB), which provides a source for additional liquidity if needed. This membership allows the companies to utilize fixed or floating rate advances offered by the FHLB and secured by qualifying collateral. Our total capacity to utilize such advances is impacted by multiple factors including total market value of eligible collateral , level of statutory admitted assets and excess reserves and o ur willingness or capacity to hold activity-based FHLB common stock.
   Contractual Obligations
  In the normal course of business, we enter into insurance contracts, financing transactions, lease agreements or other commitments which are necessary or beneficial to our operations. These commitments may obligate us to certain cash flows during future periods. There have been no material changes to our total contractual obligations since December 31, 2009.
   Recently Adopted Accounting Changes
  See Note 1 to our consolidated financial statements for a discussion of recent accounting pronouncements that have been implemented during 2010 and those that have been issued and will be implemented in the future.
    ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  There have been no material changes in the market risks of our financial instruments since December 31, 2009.
   ITEM 4. CONTROLS AND PROCEDURES
  At the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.  Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
  Our internal control over financial reporting changes from time-to-time as we modify and enhance our systems and processes to meet our dynamic needs. Changes are also made as we strive to be more efficient in how we conduct our business. Any
  
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  significant changes in controls are evaluated prior to implementation to help ensure the continued effectiveness of our internal controls and internal control environment. While changes have taken place in our internal controls during the quarter ended March 31, 2010, there have been no changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
   PART II. OTHER INFORMATION
      ITEM 6. EXHIBITS
  (a)  Exhibits:
  3(ii)
                  
                  Second Restated and Amended Bylaws, as amended through February 17, 201010.1
                  
                  Form of Restricted Stock Agreement, dated as of February 16, 2010 between the Company and each of James P. Brannen, Charles T. Happel, Kevin R. Slawin and Bruce A. Trost *10.2
                  
                  Form of Restricted Stock Agreement, dated February 17, 2010 between the Company and James E. Hohmann *10.3
                  
                  Bonus Restricted Stock Agreement dated March 5, 2010 between the Company and James E. Hohmann *31.1
                  
                  Certification Pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
                  
                  Certification Pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
                  
                  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* Exhibit relates to a compensatory plan for management or directors


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     SIGNATURES
  Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
   Date:  May 5, 2010
   FBL FINANCIAL GROUP, INC.By
                  /s/ James E. HohmannJames E. HohmannChief Executive Officer (Principal Executive Officer)By
                  /s/ James P. BrannenJames P. BrannenChief Financial Officer (Principal Financial and Accounting Officer)