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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q

(Mark one)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021.
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to _______________________

Commission File Number: 1-11917
FBL-20210331_G1.JPG
FBL FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Iowa 42-1411715
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
5400 University Avenue, West Des Moines, Iowa 50266-5997
(Address of principal executive offices) (Zip Code)
(515) 225-5400
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Class A Common Stock, without par value FFG New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
 Title of each class Outstanding at May 4, 2021
Class A Common Stock, without par value 24,385,109
Class B Common Stock, without par value 11,413

















(This page has been intentionally left blank.)



FBL FINANCIAL GROUP, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021
TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
2
Consolidated Statements of Operations
4
Consolidated Statements of Comprehensive Income
5
Consolidated Statements of Changes in Stockholders’ Equity
5
Consolidated Statements of Cash Flows
6
Notes to Consolidated Financial Statements
8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
32
Item 3. Quantitative and Qualitative Disclosures About Market Risk
52
Item 4. Controls and Procedures
52
PART II. OTHER INFORMATION
53
Item 1A. Risk Factors
53
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
54
Item 6. Exhibits
55
SIGNATURES
56
    


1

ITEM 1. FINANCIAL STATEMENTS

FBL FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands)
March 31,
2021 		December 31,
2020
Assets
Investments:
Fixed maturities - available for sale, at fair value (amortized cost 2021 - $7,322,930, 2020 - $7,179,303; and allowance for credit losses 2021 - $3,737, 2020 -$4,882)
$ 8,028,083  $ 8,283,687 
Equity securities at fair value (cost: 2021 - $83,432, 2020 - $82,999)
88,564  88,281 
Mortgage loans, net of allowance for credit losses (2021 - $1,585, 2020 - $1,553)
992,938  994,101 
Real estate 955  955 
Policy loans 191,580  195,666 
Short-term investments 42,252  63,062 
Other investments, net of allowance for credit losses (2021 - $929, 2020 - $929)
68,424  58,258 
Total investments 9,412,796  9,684,010 
Cash and cash equivalents 70,854  12,882 
Securities and indebtedness of related parties 90,722  88,445 
Accrued investment income 74,997  70,278 
Amounts receivable from affiliates 2,677  3,257 
Reinsurance recoverable 108,640  115,168 
Deferred acquisition costs 282,682  176,085 
Value of insurance in force acquired 2,239  2,304 
Current income taxes recoverable 12,232  16,732 
Other assets 155,996  152,929 
Assets held in separate accounts 686,968  674,182 
Total assets $ 10,900,803  $ 10,996,272 


2



FBL FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in thousands)
March 31,
2021 		December 31,
2020
Liabilities and stockholders’ equity
Liabilities:
Future policy benefits:
Interest sensitive products $ 5,874,009  $ 5,725,725 
Traditional life insurance and accident and health products 1,899,626  1,890,547 
Other policy claims and benefits 49,969  57,438 
Supplementary contracts without life contingencies 266,905  274,469 
Advance premiums and other deposits 285,569  271,082 
Amounts payable to affiliates 203  406 
Long-term debt 97,000  97,000 
Deferred income taxes 150,654  211,180 
Other liabilities 100,012  102,127 
Liabilities related to separate accounts 686,968  674,182 
Total liabilities 9,410,915  9,304,156 
Stockholders’ equity:
FBL Financial Group, Inc. stockholders’ equity:
Preferred stock, without par value, at liquidation value - authorized 10,000,000 shares, issued and outstanding 5,000,000 Series B shares
3,000  3,000 
Class A common stock, without par value - authorized 88,500,000 shares, issued and outstanding 24,385,109 shares in 2021 and 24,384,109 shares in 2020
151,134  151,061 
Class B common stock, without par value - authorized 1,500,000 shares, issued and outstanding 11,413 shares in 2021 and 2020
72  72 
Accumulated other comprehensive income 370,060  587,279 
Retained earnings 965,643  950,687 
Total FBL Financial Group, Inc. stockholders’ equity 1,489,909  1,692,099 
Noncontrolling interest (21) 17 
Total stockholders’ equity 1,489,888  1,692,116 
Total liabilities and stockholders’ equity $ 10,900,803  $ 10,996,272 

See accompanying notes.

3


FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands, except per share data)
Three months ended March 31,
2021 2020
Revenues:
Interest sensitive product charges $ 32,741  $ 31,720 
Traditional life insurance premiums 52,010  49,308 
Net investment income 100,111  74,917 
Net realized capital losses (869) (13,401)
Change in allowance for credit losses on investments 1,113  (12,261)
Other income 6,320  4,980 
Total revenues 191,426  135,263 
Benefits and expenses:
Interest sensitive product benefits 60,503  44,351 
Traditional life insurance benefits 49,848  46,208 
Policyholder dividends 1,605  2,529 
Underwriting, acquisition and insurance expenses 38,274  39,421 
Interest expense 1,213  1,213 
Other expenses 12,463  7,421 
Total benefits and expenses 163,906  141,143 
27,520  (5,880)
Income tax (expense) benefit (3,687) 3,081 
Equity income, net of related income taxes 3,780  228 
Net income (loss) 27,613  (2,571)
Net loss attributable to noncontrolling interest 67  56 
Net income (loss) attributable to FBL Financial Group, Inc. $ 27,680  $ (2,515)
Earnings (loss) per common share $ 1.13  $ (0.10)
Earnings (loss) per common share - assuming dilution $ 1.13  $ (0.10)

See accompanying notes.

4



FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(Dollars in thousands)
Three months ended March 31,
2021 2020
Net income (loss) $ 27,613  $ (2,571)
Other comprehensive loss (1)
Change in net unrealized investment gains/losses (217,486) (96,589)
Change in underfunded status of postretirement benefit plans 267  247 
Total other comprehensive loss, net of tax (217,219) (96,342)
Total comprehensive loss, net of tax (189,606) (98,913)
Comprehensive loss attributable to noncontrolling interest 67  56 
Total comprehensive loss applicable to FBL Financial Group, Inc. $ (189,539) $ (98,857)

(1)Other comprehensive loss is recorded net of deferred income taxes and other adjustments for assumed changes in deferred acquisition costs, value of insurance in force acquired, unearned revenue reserve and policyholder liabilities.


FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
(Dollars in thousands)
FBL Financial Group, Inc. Stockholders’ Equity
Series B Preferred Stock Class A and Class B Common Stock Accumulated Other Comprehensive Income Retained Earnings Non-
controlling Interest 		Total Stockholders’ Equity
Balance at January 1, 2020 $ 3,000 $ 152,733  $ 354,764  $ 975,260  $ 159  $ 1,485,916 
Cumulative effect of change in accounting principle related to current expected credit loss —  —  —  (2,685) —  (2,685)
Net loss - three months ended March 31, 2020 —  —  —  (2,515) (56) (2,571)
Other comprehensive loss —  —  (96,342) —  —  (96,342)
Stock-based compensation —  245  —  —  —  245 
Purchase of common stock —  (152) —  (657) —  (809)
Dividends on preferred stock —  —  —  (38) —  (38)
Dividends on common stock —  —  —  (49,333) —  (49,333)
Disbursements related to noncontrolling interest —  —  —  —  (61) (61)
Balance at March 31, 2020 $ 3,000 $ 152,826 $ 258,422  $ 920,032  $ 42  $ 1,334,322 
Balance at January 1, 2021 $ 3,000  $ 151,133  $ 587,279  $ 950,687  $ 17  $ 1,692,116 
Net income - three months ended March 31, 2021 —  —  —  27,680  (67) 27,613 
Other comprehensive loss —  —  (217,219) —  —  (217,219)
Stock-based compensation —  73  —  —  —  73 
Dividends on preferred stock —  —  —  (38) —  (38)
Dividends on common stock —  —  —  (12,686) —  (12,686)
Receipts related to noncontrolling interest —  —  —  —  29  29 
Balance at March 31, 2021 $ 3,000 $ 151,206 $ 370,060  $ 965,643  $ (21) $ 1,489,888 


See accompanying notes.


5



FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Three months ended March 31,
2021 2020
Operating activities
Net income (loss) $ 27,613  $ (2,571)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Interest credited to account balances 42,561  40,980 
Charges for mortality, surrenders and administration (33,564) (33,127)
Net realized (gains) losses on investments (244) 25,662 
Change in fair value of derivatives (12,901) 1,567 
Increase in liabilities for life insurance and other future policy benefits 17,728  21,183 
Deferral of acquisition costs (9,166) (9,155)
Amortization of deferred acquisition costs and value of insurance in force 8,554  9,597 
Change in reinsurance recoverable 5,902  688 
Provision for deferred income taxes (2,785) (6,958)
Other (7,244) (20,186)
Net cash provided by operating activities 36,454  27,680 
Investing activities
Sales, maturities or repayments:
Fixed maturities - available for sale 175,847  120,845 
Equity securities 1,366  699 
Mortgage loans 41,331  35,295 
Derivative instruments 4,753  9,451 
Policy loans 11,992  9,913 
Securities and indebtedness of related parties 10,458  841 
Other long-term investments 482  1,333 
Acquisitions:
Fixed maturities - available for sale (312,081) (203,333)
Equity securities (1,608) (2,149)
Mortgage loans (40,200) (15,750)
Derivative instruments (4,669) (5,804)
Policy loans (7,906) (10,551)
Securities and indebtedness of related parties (10,766) (3,990)
Other long-term investments (6,114) (6,100)
Short-term investments, net change 20,810  (17,715)
Purchases and disposals of property and equipment, net (3,768) (1,763)
Net cash used in investing activities (120,073) (88,778)



6



FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
Three months ended March 31,
2021 2020
Financing activities
Contract holder account deposits $ 259,492  $ 271,542 
Contract holder account withdrawals (105,235) (170,003)
Dividends paid (12,724) (49,371)
Proceeds from issuance of short-term debt —  10,000 
Issuance or repurchase of common stock, net 29  (762)
Other financing activities 29  (61)
Net cash provided by financing activities 141,591  61,345 
Increase in cash and cash equivalents 57,972  247 
Cash and cash equivalents at beginning of period 12,882  17,277 
Cash and cash equivalents at end of period $ 70,854  $ 17,524 
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ (1,213) $ (1,213)
Income taxes (37) (1,915)

See accompanying notes.

7

FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2021

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 months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021, especially when considering the risks and uncertainties associated with the novel coronavirus ("COVID-19") and the impact it may have on our business, results of operations and financial condition. We encourage you to refer to the notes to our consolidated financial statements included in Item 8 of our Form 10-K for the year ended December 31, 2020 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. Our estimates and assumptions could change in the future as more information becomes known about the impact of COVID-19. Our results of operations and financial condition may also be impacted by evolving regulatory, legislative and accounting interpretations and guidance.

Subsequent Event – Amendment to Merger Agreement – Proposed Affiliate Acquisition of Outstanding Shares

On May 2, 2021, the Company entered into an amendment (the Merger Agreement Amendment) to the Agreement and Plan of Merger, dated as of January 11, 2021 (the Original Agreement and, the Original Agreement as amended by the Merger Agreement Amendment, the Merger Agreement), by and among the Company, Farm Bureau Property & Casualty Insurance Company, an Iowa domiciled stock property and casualty insurance company (FBPCIC) and 5400 Merger Sub, Inc., an Iowa corporation (Merger Sub). Pursuant to the Merger Agreement, FBPCIC will acquire all of the outstanding Class A common shares, without par value, and Class B common shares, without par value (collectively, the Common Shares), of the Company that are not currently owned or controlled by FBPCIC or the Iowa Farm Bureau Federation, an Iowa non-profit corporation (IFBF), for $61.00 per share in cash. The Merger Agreement Amendment provided for an increase in the consideration to be received in exchange for the Common Shares in the amount of $5.00 per share, from $56.00 per share under the Original Agreement. IFBF and FBPCIC currently own approximately 61% of the outstanding Common Shares. The Merger Agreement provides for the merger of Merger Sub with and into the Company, with the Company surviving the merger (the Merger).

Consummation of the Merger is subject to certain specified closing conditions, including approval by the Company’s shareholders. The Company’s adjourned special meeting of shareholders to approve the proposal to adopt the Merger Agreement is expected to re-convene on May 21, 2021.

Also on May 2, 2021, FBPCIC, IFBF and Merger Sub entered into an amendment (the Rollover Agreement Amendment) to the Rollover Agreement, dated as of January 11, 2021 (as amended by the Rollover Agreement Amendment, the Rollover Agreement) by and among the same parties. Pursuant to the Rollover Agreement, FBPCIC and IFBF will contribute to Merger Sub all of their Common Shares in exchange for the number of shares of common stock of Merger Sub set forth therein, and to fund the Merger consideration, FBPCIC will contribute approximately $528 million in cash to Merger Sub in exchange for shares of common stock of Merger Sub and IFBF will contribute approximately $47 million in cash to Merger Sub in exchange for shares of preferred stock of Merger Sub.

With respect to Merger Sub, under the terms of the Merger Agreement, at the effective time of the Merger, the Common Shares held by Merger Sub will automatically be cancelled and will cease to exist, each common share of Merger Sub will be converted into one common share of the surviving corporation and each preferred share of Merger Sub will be converted into one share of newly-designated Series C Cumulative Non-Voting Preferred Stock of the surviving corporation. At the effective time of the Merger, the Common Shares that are not currently controlled by FBPCIC or IFBF (other than shares held by the Company in treasury or by any wholly-owned Company subsidiary, or held by Merger Sub or FBPCIC, or held by holders who have properly exercised dissenters’ rights under applicable Iowa law) will be converted into the right to receive the Merger

8
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consideration. Each share of Series B Cumulative Voting Preferred Stock of the Company will remain outstanding in accordance with its terms following the effective time of the Merger.

New Accounting Pronouncements
Description Date of adoption Effect on our consolidated financial statements or other significant matters
Standards adopted:
Financial instruments - credit impairment
In June 2016, the FASB issued guidance amending the accounting for the credit impairment of certain financial instruments. Under the new guidance, credit losses are estimated using an expected loss model under which an allowance for credit losses is established and reflected as a charge to earnings. The allowance is based on the probability of loss over the life of the instrument, considering historical, current and forecast information. The new guidance differs significantly from the incurred loss model used historically, and results in the earlier recognition of credit losses. Since changes in the allowance are reflected in earnings, the new guidance may increase the volatility of earnings as the assumptions used in estimating the allowance are revised. Our available-for-sale fixed maturities will continue to apply the incurred loss model; however, such losses will also be in the form of an allowance for credit losses rather than an adjustment to the cost basis of the security. The new guidance permits entities to recognize improvements in credit loss estimates on fixed maturity available-for-sale securities by immediately reducing the allowance through earnings.
January 1, 2020
Upon adoption using the modified retrospective approach, a cumulative effect adjustment of $2.7 million after offsets was recorded to retained earnings as of the first reporting period in which the new guidance was effective. The cumulative effect adjustment arose from the establishment of an allowance for credit losses on our mortgage loan investments totaling $3.1 million and reinsurance recoverable totaling $0.9 million, before offsets.
Standards not yet adopted:
Targeted improvements: long-duration contracts
In August 2018, the FASB issued guidance that will change the accounting for long-duration insurance contracts. The new guidance impacts several facets of the accounting for such contracts including the accounting for future policy benefits associated with traditional non-participating and limited payment insurance contracts as well as for guaranteed minimum benefits and the amortization model used for deferred acquisition costs. Disclosures as well as presentation of financial results will also change under the new guidance.
January 1, 2023
We are currently evaluating the impact of this guidance on our consolidated financial statements but expect the impact to the timing of profit emergence for the impacted insurance contracts to be significant. Adoption of certain portions of the guidance may be applied on a modified retrospective basis and others on a full retrospective basis.

Reinsurance Recoverable
The allowance for credit losses on our reinsurance recoverable is based on an estimate of credit losses that may occur over the life of the underlying ceded insurance business. We develop loss factors that are applied to the amounts due from each reinsurer, which considers the potential severity and likelihood of loss based on the relative risk profile of each reinsurer, our internal loss history and those of other organizations, along with economic forecasts. We also consider other sources of information regarding individual reinsurers, as applicable, including amounts past-due according to the terms of the reinsurance contracts. Reinsurance recoverable assets are reported in our consolidated balance sheets net of the allowance for credit losses. Amounts deemed to be uncollectible are written off against the allowance. Changes in the allowance are reported within the consolidated statement of operations as “Underwriting, acquisition and insurance expenses.”
Allowance on Reinsurance Recoverables
Three months ended March 31, 2021
(Dollars in thousands)
Beginning balance of the allowance for credit losses $ 857 
Change in allowance for credit losses (2)
Ending balance of the allowance for credit losses $ 855 

No reinsurance recoverables were considered past due as of March 31, 2021.

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2. Investment Operations

Fixed Maturity Securities
Available-For-Sale Fixed Maturity Securities by Investment Category
March 31, 2021
Amortized
Cost 		Gross
Unrealized
Gains (1) 		Gross
Unrealized
Losses (1) 		Allowance for Credit Losses Fair
Value
(Dollars in thousands)
Fixed maturities:
Corporate $ 3,653,387  $ 461,509  $ (20,335) $ (2,953) $ 4,091,608 
Residential mortgage-backed 655,275  47,433  (4,430) —  698,278 
Commercial mortgage-backed 1,014,949  74,024  (9,146) —  1,079,827 
Other asset-backed 729,904  23,360  (2,693) (784) 749,787 
United States Government and agencies 44,351  1,716  (6,822) —  39,245 
States and political subdivisions 1,225,064  147,496  (3,222) —  1,369,338 
Total fixed maturities $ 7,322,930  $ 755,538  $ (46,648) $ (3,737) $ 8,028,083 

December 31, 2020
Amortized
Cost 		Gross
Unrealized
Gains (1) 		Gross
Unrealized
Losses (1) 		Allowance for Credit Losses Fair
Value
(Dollars in thousands)
Fixed maturities:
Corporate $ 3,542,136  $ 704,586  $ (4,242) $ (4,213) $ 4,238,267 
Residential mortgage-backed 645,503  58,058  (1,442) —  702,119 
Commercial mortgage-backed 991,944  145,549  (1,160) —  1,136,333 
Other asset-backed 736,338  23,593  (4,511) (669) 754,751 
United States Government and agencies 35,174  2,887  (1,809) —  36,252 
States and political subdivisions 1,228,208  188,542  (785) —  1,415,965 
Total fixed maturities $ 7,179,303  $ 1,123,215  $ (13,949) $ (4,882) $ 8,283,687 

(1)Includes $2.0 million and $1.7 million as of March 31, 2021 and December 31, 2020, respectively, of net unrealized gains on impaired fixed maturities related to changes in fair value subsequent to the impairment date, which are included in AOCI.

The amount of accrued interest excluded from the amortized cost basis of fixed maturities and included in accrued investment income on the balance sheet totaled $70.5 million at March 31, 2021. Any fixed maturity delinquent on contractual payments over 90 days past due is placed on non-accrual status. If the fixed maturity is placed on non-accrual status the prior accrued interest income is reversed through net investment income. Interest income received on non-performing fixed maturities is generally recognized on a cash basis. Once fixed maturities are classified as non-accrual, the resumption of the interest accrual would commence only after all past due interest has been collected. There was no interest reversed during the three months ended March 31, 2021 or March 31, 2020.
Available-For-Sale Fixed Maturities by Maturity Date
March 31, 2021
Amortized
Cost
Fair Value
(Dollars in thousands)
Due in one year or less $ 138,639  $ 141,454 
Due after one year through five years 555,409  597,245 
Due after five years through ten years 741,256  825,787 
Due after ten years 3,487,498  3,935,705 
4,922,802  5,500,191 
Mortgage-backed and other asset-backed 2,400,128  2,527,892 
Total fixed maturities $ 7,322,930  $ 8,028,083 


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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. Fixed maturities not due at a single maturity date have been included in the above table in the year of final contractual maturity.
Net Unrealized Gains on Investments in Accumulated Other Comprehensive Income
March 31,
2021 		December 31,
2020
(Dollars in thousands)
Net unrealized appreciation on:
Fixed maturities - available for sale $ 708,890  $ 1,109,266 
Adjustments for assumed changes in amortization pattern of:
Deferred acquisition costs (215,329) (320,489)
Value of insurance in force acquired (10,196) (10,647)
Unearned revenue reserve 27,261  29,393 
Adjustments for assumed changes in policyholder liabilities (29,402) (51,001)
Provision for deferred income taxes (101,057) (158,869)
Net unrealized investment gains $ 380,167  $ 597,653 

Net unrealized investment gains exclude the allowance for credit losses.

Fixed Maturity Securities with Unrealized Losses by Length of Time without an Allowance for Credit Losses
March 31, 2021
Less than one year One year or more Total
Description of Securities
Fair Value 		Unrealized Losses (1)
Fair Value 		Unrealized Losses (1)  Fair Value Unrealized Losses (1) Percent of Total
(Dollars in thousands)
Fixed maturities:
Corporate $ 315,148  $ (17,622) $ 25,290  $ (2,713) $ 340,438  $ (20,335) 43.6  %
Residential mortgage-backed 109,483  (3,404) 16,521  (1,026) 126,004  (4,430) 9.5 
Commercial mortgage-backed 104,637  (9,146) —  —  104,637  (9,146) 19.6 
Other asset-backed 79,581  (939) 88,468  (1,754) 168,049  (2,693) 5.8 
United States Government and agencies 28,876  (6,822) —  —  28,876  (6,822) 14.6 
States and political subdivisions 79,155  (2,774) 2,553  (448) 81,708  (3,222) 6.9 
Total fixed maturities $ 716,880  $ (40,707) $ 132,832  $ (5,941) $ 849,712  $ (46,648) 100.0  %

December 31, 2020
Less than one year One year or more Total
Description of Securities Fair Value Unrealized Losses (1) Fair Value Unrealized Losses (1) Fair Value Unrealized Losses (1) Percent of Total
(Dollars in thousands)
Fixed maturities:
Corporate $ 39,363  $ (1,716) $ 22,677  $ (2,526) $ 62,040  $ (4,242) 30.5  %
Residential mortgage-backed 45,059  (520) 16,918  (922) 61,977  (1,442) 10.3 
Commercial mortgage-backed 26,829  (1,160) —  —  26,829  (1,160) 8.3 
Other asset-backed 113,439  (1,741) 67,128  (2,770) 180,567  (4,511) 32.3 
United States Government and agencies 23,630  (1,809) —  —  23,630  (1,809) 13.0 
States and political subdivisions 12,577  (372) 2,568  (413) 15,145  (785) 5.6 
Total fixed maturities $ 260,897  $ (7,318) $ 109,291  $ (6,631) $ 370,188  $ (13,949) 100.0  %

(1)Non-credit losses reported in AOCI are included with gross unrealized losses resulting in total gross unrealized losses for fixed maturities, available-for-sale being reported in the table.

Fixed maturities in the above tables include 381 securities from 303 issuers at March 31, 2021 and 119 securities from 95 issuers at December 31, 2020. Unrealized losses increased during the three months ended March 31, 2021 primarily due to an

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increase in U.S. treasury rates. We do not consider securities declines in fair value below amortized cost to be due to a credit loss when the market decline is attributable to factors such as interest rate movements, market volatility, liquidity or spread widening when recovery of all amounts due under the contractual terms of the security is anticipated. Based on our intent not to sell and our belief that we will not be required to sell these securities before recovery of their amortized cost basis, we do not consider these investments to have a credit loss allowance, and they do not require a loss allowance established at March 31, 2021. The following summarizes the more significant unrealized losses on fixed maturity securities by investment category as of March 31, 2021.

Corporate securities: The largest unrealized losses were in the utilities sector ($94.8 million fair value and $5.4 million unrealized loss) and in the energy sector ($42.1 million fair value and $3.3 million unrealized loss). The majority of losses is attributed to a general rise in treasury interest rates. The energy sector losses were attributable to credit spreads that remain wide which is associated with the decline in crude oil prices. Energy-related companies have been negatively impacted by the decline in oil prices due to a decrease in demand brought on by COVID-19.

Residential mortgage-backed securities: The unrealized losses on residential mortgage-backed securities were primarily due to price declines on legacy and newer issue bonds. The legacy bonds are still at an unrealized gain overall, but some individual securities remain at an unrealized loss. The newer issue residential mortgage-backed securities are comprised of bonds issued during and after 2013 with strong underwriting and collateral characteristics. Primarily, losses were attributable to credit spread widening which led to lower prices on some securities. These securities tend to have higher credit scores with higher credit enhancement and lower loan-to-value ratios which position them favorably against default during economic disruptions such as those caused by COVID-19.

Commercial mortgage-backed securities: The unrealized losses on commercial mortgage-backed securities were primarily due to spread widening. The wider spreads were caused by continued market uncertainty brought on by the COVID-19 virus for some securities. The contractual cash flows of these investments are based on mortgages backing the securities.

Other asset-backed securities: The unrealized losses on asset-backed securities (ABS) were primarily due to concerns regarding COVID-19 and the resulting impact on consumer and commercial loans. Spreads are generally back to pre-COVID levels. The majority of our ABS have a sequential-pay structure that increases credit support as the pool amortizes. The average life of our ABS is 2.7 years, down from 5.4 years at purchase. Average credit support for the portfolio has increased from 9% at time of purchase to 18%. Our ABS portfolio is rated approximately 72% NAIC-1.

The unrealized losses on collateralized loan obligations (CLO) are due to concerns regarding COVID-19 and the resulting impact on leveraged loans. Our CLO portfolio is of high quality, with 100% rated NAIC-1. Internal stress testing has indicated that the weighted average constant default rate (CDR) of our portfolio without suffering a loss is 17%. The CDR is the constant default rate (annually) that a CLO must suffer before our tranche takes its first dollar loss.

State, municipal and other governments: The unrealized losses on state, municipal and other government securities were primarily due to general spread widening relative to spreads at which we acquired the bonds, and uncertainty related to pandemic impacts on revenues in select sectors.

Our allowance for credit losses at March 31, 2021 includes two financial sector bonds experiencing ongoing weakness in operating performance. The allowance for these bonds was established as the difference between the amortized cost and present value of expected cash flows, which is equal to fair value. Our allowance for credit losses also includes an asset backed security due to the difference between the amortized cost and the present value of the expected cash flows.

We also continue to hold an allowance of $0.9 million on a promissory note held in other investments due to the possibility of not collecting the full balance of the note.

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Available-For-Sale Fixed Maturities Allowance for Credit Losses
Three months ended March 31, 2021
Corporate Other ABS Total
(Dollars in thousands)
Beginning balance $ 4,213  $ 669  $ 4,882 
Additions for credit losses not previously recorded —  115  115 
Net decrease to previously recorded allowance (1,260) —  (1,260)
Ending balance $ 2,953  $ 784  $ 3,737 

Three months ended March 31, 2020
Corporate
(Dollars in thousands)
Beginning balance $ — 
Additions for credit losses not previously recorded 12,146 
Net decrease to previously recorded allowance — 
Ending balance $ 12,146 

Mortgage Loans

Our mortgage loan portfolio consists 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 originate loans with an initial loan-to-value ratio that provides sufficient collateral to absorb losses should we be required to foreclose and take possession of the collateral.

The amount of accrued interest excluded from the cost basis of the mortgage loans and included in accrued investment income on the balance sheet totaled $3.4 million at March 31, 2021. Any loan delinquent on contractual payments is considered non-performing. Mortgage loans are placed on non-accrual status if the loan is over 90 days past due. If the loan is placed on non-accrual status the prior accrued interest income is reversed through net investment income. Interest income received on non-performing loans is generally recognized on a cash basis. Once mortgage loans are classified as non-accrual loans, the resumption of the interest accrual would commence only after all past due interest has been collected or the mortgage loan has been restructured such that the collection of interest is considered likely. At March 31, 2021 and December 31, 2020, there were no non-performing loans over 30 days past due on contractual payments. At March 31, 2021, we had committed to provide additional funding for mortgage loans totaling $21.6 million. These commitments arose in the normal course of business at terms that are comparable to similar investments.
Mortgage Loans by Collateral Type
March 31, 2021 December 31, 2020
Collateral Type Amortized Cost Percent of Total Amortized Cost Percent of Total
(Dollars in thousands)
Office $ 352,408  35.4  % $ 375,622  37.7  %
Retail 308,647  31.1     320,575  32.2    
Industrial 258,478  26.0     227,424  22.9    
Apartment 62,696  6.3     59,626  6.0    
Other 12,294  1.2     12,407  1.2    
Total $ 994,523  100.0  % $ 995,654  100.0  %


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Mortgage Loans by Geographic Location within the United States
March 31, 2021 December 31, 2020
Region of the United States Amortized Cost Percent of Total Amortized Cost Percent of Total
(Dollars in thousands)
South Atlantic $ 249,858  25.1  % $ 252,964  25.4  %
Pacific 183,490  18.5     181,743  18.3    
East North Central 158,576  15.9     147,342  14.8    
Mountain 114,998  11.6     107,833  10.8    
West North Central 95,361  9.6     94,044  9.4    
East South Central 61,879  6.2     75,540  7.6    
West South Central 60,719  6.1     65,808  6.6    
Middle Atlantic 52,093  5.2     52,512  5.3    
New England 17,549  1.8     17,868  1.8    
Total $ 994,523  100.0  % $ 995,654  100.0  %

Mortgage Loans by Loan-to-Value Ratio
March 31, 2021 December 31, 2020
Loan-to-Value Ratio Amortized Cost Percent of Total Amortized Cost Percent of Total
(Dollars in thousands)
0% - 50% $ 468,274  47.1  % $ 463,130  46.5  %
51% - 60% 305,305  30.7     309,477  31.1    
61% - 70% 200,132  20.1     202,114  20.3    
71% - 80% 20,812  2.1     20,933  2.1    
Total $ 994,523  100.0  % $ 995,654  100.0  %

The loan-to-value ratio is determined using the most recent appraised value. Appraisals are updated periodically when there is indication of a possible significant collateral decline or there are loan modifications or refinance requests.

Mortgage loans are rated internally to provide a current qualitative rating of each loan. We review the capital structure, collateral strength, physical occupancy, financial stability of the operating income stream, debt service coverage ratio, outstanding loan balance to estimated value of the collateral, property improvements and the financial strength of the borrower when determining the internal loan rating. Loans of high quality, low risk and with little concern of default or extension risk are rated an A; loans of moderate quality and moderate risk are rated a B; loans of low quality and high risk are rated a C, and loans for which there is concern of credit default are rated a W.
Mortgage Loans by Internal Rating and Year of Origination
March 31, 2021
2021 2020 2019 2018 2017 2016 & prior Total
Internal Rating Amortized Cost
(Dollars in thousands)
A $ 40,200  $ 103,159  $ 56,005  $ 117,268  $ 181,445  $ 465,423  $ 963,500 
B —  —  11,735  1,866  3,420  1,502  18,523 
C —  —  —  4,408  —  3,907  8,315 
W —  —  —  —  —  4,185  4,185 
Total $ 40,200  $ 103,159  $ 67,740  $ 123,542  $ 184,865  $ 475,017  $ 994,523 

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Mortgage Loans by Internal Rating and Year of Origination
December 31, 2020
2020 2019 2018 2017 2016 2015 & prior Total
Internal Rating Amortized Cost
(Dollars in thousands)
A $ 103,781  $ 56,288  $ 118,283  $ 189,257  $ 130,070  $ 362,346  $ 960,025 
B —  11,789  1,883  3,459  —  1,516  18,647 
C —  —  4,456  —  3,945  4,372  12,773 
W —  —  —  —  —  4,209  4,209 
Total $ 103,781  $ 68,077  $ 124,622  $ 192,716  $ 134,015  $ 372,443  $ 995,654 

Our allowance for credit losses on mortgage loans was estimated by incorporating historical internal information, historical industry averages, current conditions as well as conditions for a reasonable and supportable forecast that includes an estimated recessionary period. The loans are segmented by an internal risk rating as well as geographic region with an estimated loss ratio applied against each segment. For the years after our reasonable and supportable forecast period we graded the expected loss ratio over the estimated remaining recessionary period to our actual loss history. During the quarter ended March 31, 2021, our allowance did not change significantly from December 31, 2020 as the aggregate principal balance on our loans and other inputs into the model remained relatively stable. Amounts on mortgage loans deemed to be uncollectible are charged off and removed from the valuation allowance.
 Allowance for Credit Losses on Mortgage Loans
Three months ended March 31,
 2021  2020
(Dollars in thousands)
Beginning balance $ 1,553  $ 3,165 
Current period provision for expected credit losses 32  114 
Ending balance $ 1,585  $ 3,279 

Mortgage Loan Modifications

Our commercial mortgage loan portfolio can include loans that have been modified. We assess loan modifications on a loan-by-loan basis to evaluate whether a troubled debt restructuring has occurred. Generally, the types of concessions include reduction of the contractual interest rate to a below-market rate, extension of the maturity date and/or a reduction of accrued interest. The amount, timing and extent of the concession granted is considered in determining if an impairment loss is needed for the restructuring. There were no loan modifications during the three months ended March 31, 2021 or March 31, 2020.

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Realized Gains (Losses) - Recorded in Income
Three months ended March 31,
2021 2020
(Dollars in thousands)
Realized gains (losses) on investments
Fixed maturities:
Gross gains $ 148  $ 12 
Gross losses (868) (159)
Other —  (9)
(720) (156)
Net gains and (losses) recognized during the period on equity securities held at the end of the period (149) (13,231)
Net gains and (losses) recognized during the period on equity securities sold during the period —  (14)
Net losses recognized during the period on equity securities (149) (13,245)
Net realized losses (869) (13,401)
Decrease (increase) in allowances for credit losses:
Fixed maturity securities 1,145  (12,146)
Mortgage loans (32) (115)
Net realized gains (losses) on investments recorded in income $ 244  $ (25,662)

Proceeds from sales of fixed maturities totaled $4.7 million during the three months ended March 31, 2021 and $5.8 million during the three months ended March 31, 2020.

Realized gains and losses on sales of investments are determined based on specific identification.

Variable Interest Entities

We evaluate our variable interest entity (VIE) investees to determine whether the level of our direct ownership interest, our rights to manage operations, or our obligation to provide ongoing financial support are such that we are the primary beneficiary of the entity, and would therefore be required to consolidate it for financial reporting purposes. After determining that we have a variable interest, we review our involvement in the VIE to determine whether we have both the power to direct activities that most significantly impact the economic performance of the VIE, and the obligation to absorb losses or the rights to receive benefits that could be potentially significant to the VIE. This analysis includes a review of the purpose and design of the VIE as well as the role that we played in the formation of the entity and how that role could impact our ability to control the VIE. We also review the activities and decisions considered significant to the economic performance of the VIE and assess what power we have in directing those activities and decisions. Finally, we review the agreements in place to determine if there are any guarantees that would affect our maximum exposure to loss.

We have reviewed the circumstances surrounding our investments in VIEs, which consist of (i) limited partnerships or limited liability companies accounted for under the equity method included in securities and indebtedness of related parties and (ii) non-guaranteed federal low income housing tax credit (LIHTC) investments included in other assets. In addition, we have reviewed the ownership interests in our VIEs and determined that we do not hold direct majority ownership or have other contractual rights (such as kick out rights) that give us effective control over these entities resulting in us having both the power to direct activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE. The maximum loss exposure relative to our VIEs is limited to the carrying value and any unfunded commitments that exist for each particular VIE. We also have not provided additional support or other guarantees that were not previously contractually required (financial or otherwise) to any of the VIEs as of March 31, 2021 or December 31, 2020. Based on this analysis, none of our VIEs were required to be consolidated at March 31, 2021 or December 31, 2020.

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LIHTC investments take the form of limited partnerships or limited liability companies, which in turn invest in a number of low income housing projects. We use the proportional amortization method of accounting for these investments. The proportional amortization method amortizes the cost of the investment over the period in which the investor expects to receive tax credits and other tax benefits, and the resulting amortization is recognized along with the tax benefit as a component of federal income tax expense on our consolidated statements of operations.
VIE Investments by Category
March 31, 2021 December 31, 2020
Carrying Value Maximum Exposure to Loss Carrying Value Maximum Exposure to Loss
(Dollars in thousands)
LIHTC investments $ 28,761  $ 29,602  $ 31,382  $ 32,263 
Investment companies 69,064  149,559  66,326  138,413 
Real estate limited partnerships 15,109  14,727  13,398  14,869 
Other 482  482  491  491 
Total $ 113,416  $ 194,370  $ 111,597  $ 186,036 

In addition, we make passive investments in the normal course of business in structured securities issued by VIEs for which we are not the investment manager. These structured securities include all of the residential mortgage-backed securities, commercial mortgage-backed securities and other asset-backed securities included in our fixed maturity securities. Our maximum exposure to loss on these securities is limited to our carrying value of the investment. We have determined that we are not the primary beneficiary of these structured securities because we do not have the power to direct the activities that most significantly impact the entities’ economic performance.

Derivative Instruments

Our primary derivative exposure relates to purchased call options, which provide an economic hedge against the embedded derivatives in our indexed products. We also have embedded derivatives within our modified coinsurance agreements as well as an interest-only fixed maturity investment. We do not apply hedge accounting to any of our derivative positions, and they are held at fair value.
Derivatives Instruments by Type
March 31, 2021 December 31, 2020
(Dollars in thousands)
Assets
Freestanding derivatives:
Call options (reported in other investments) $ 28,111  $ 23,576 
Embedded derivatives:
Modified coinsurance (reported in reinsurance recoverable) 3,724  4,373 
Interest-only security (reported in fixed maturities) —  25 
Total assets $ 31,835  $ 27,974 
Liabilities
Embedded derivatives:
Indexed products (reported in liability for future policy benefits) $ 101,051  $ 106,852 
Modified coinsurance (reported in other liabilities) 296  320 
Total liabilities $ 101,347  $ 107,172 

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Derivative Income (Loss)
Three months ended March 31,
2021 2020
(Dollars in thousands)
Freestanding derivatives:
Call options $ 4,570  $ (22,163)
Embedded derivatives:
Modified coinsurance (626) (504)
Interest-only security 7  24 
Indexed products 8,950  21,076 
Total income (loss) from derivatives $ 12,901  $ (1,567)

Derivative income (loss) is reported in net investment income except for the change in fair value of the embedded derivatives on our indexed products, which is reported in interest sensitive product benefits.

We are exposed to credit losses on our call options in the event of nonperformance of the derivative counterparties. This credit risk is minimized by purchasing such agreements from financial institutions with high credit ratings (currently rated A or better by nationally recognized statistical rating organizations). We have also entered into credit support agreements with the counterparties requiring them to post collateral when net exposures exceed pre-determined thresholds that vary by counterparty. The net amount of such exposure is essentially the market value less collateral held for such agreements with each counterparty. The call options are supported by securities collateral received of $22.5 million at March 31, 2021, which is held in a separate custodial account. Subject to certain constraints, we are permitted to sell or re-pledge this collateral, but do not have legal rights to the collateral; accordingly, it has not been recorded on our balance sheet. We have elected to present our derivative receivables netted with the obligation to return cash collateral received on our balance sheet in other investments. We received cash collateral of $8.5 million included in cash and cash equivalents on our balance sheet as of March 31, 2021. At March 31, 2021, none of the collateral had been sold or re-pledged. As of March 31, 2021, our net derivative exposure recorded on the balance sheet without the off balance sheet collateral was $28.1 million.


3. Fair Values

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. As not all financial instruments are actively traded, various valuation methods may be used to estimate fair value. These methods rely on observable market data, or, if observable market data is not available, the best information available. Significant judgment may be required to interpret the data and select the assumptions used in the valuation estimates, particularly when observable market data is not available.

In the discussion that follows, we have ranked our financial instruments by the level of judgment used in the determination of the fair values presented above. The levels are defined as follows:

•Level 1 - Fair values are based on unadjusted quoted prices in active markets for identical assets or liabilities.

•Level 2 - Fair values are based on inputs, other than quoted prices from active markets, that are observable for the asset or liability, either directly or indirectly.

•Level 3 - Fair values are based on significant unobservable inputs for the asset or liability.

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. From time to time there may be movements between levels as inputs become more or less observable, which may depend on several factors including the activity of the market for the specific security, the activity of the market for similar securities, the level of risk spreads and the source from which we obtain the information.


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The following methods and assumptions were used in estimating the fair value of our financial instruments measured at fair value on a recurring basis:

Fixed maturities:

Level 1 fixed maturities consist of U.S. Treasury issues that are actively traded, allowing us to use current market prices as an estimate of their fair value.

Level 2 fixed maturities consist of corporate, mortgage- and asset-backed, United States Government agencies, state and political subdivisions and private placement corporate securities with observable market data, and in some circumstances recent trade activity. When quoted prices of identical assets in active markets are not available, we obtain prices from third-party pricing vendors. We have regular interaction with these vendors to ensure we understand their pricing methodologies and to confirm they are utilizing observable market information. Their methodologies vary by asset class and include inputs such as estimated cash flows, benchmark yields, reported trades, credit quality, industry events and economic events. Fixed maturities with validated prices from pricing services, which includes the majority of our public fixed maturities in all asset classes, are generally reflected in Level 2.

Also included in Level 2 are private placement corporate bonds with no quoted market prices available, for which an internal model using substantially all observable inputs or a matrix pricing valuation approach is used. In the matrix approach, securities are grouped into pricing categories that vary by sector, rating and average life. Each pricing category is assigned a risk spread based on studies of observable public market data. The expected cash flows of the security are then discounted back at the current Treasury curve plus the appropriate risk spread.

Level 3 fixed maturities include corporate, mortgage- and asset-backed and private placement corporate securities for which there is little or no current market data available. We use external pricing sources, or if prices are not available, we will estimate fair value internally. Fair values of private corporate investments in Level 3 are determined by reference to the public market, private transactions or valuations for comparable companies or assets in the relevant asset class when such amounts are available. For other securities for which an exit price based on relevant observable inputs is not obtained, the fair value is determined using a matrix calculation. Fair values estimated using matrix pricing methods rely on an estimate of credit spreads to a risk-free U.S. Treasury yield. Selecting the credit spread requires judgment based on an understanding of the security and may include a market liquidity premium. Our selection of comparable companies as well as the level of spread requires significant judgment. Increases in spreads used in our matrix models, or those used to value comparable companies, will result in a decrease in discounted cash flows used, and accordingly in the estimated fair value of the security.

We obtain fixed maturity fair values from a variety of external independent pricing services, including brokers, with access to observable data including recent trade information, if available. In certain circumstances in which an external price is not available for a Level 3 security, we will internally estimate its fair value. Our process for evaluation and selection of the fair values includes:

•We follow a “pricing waterfall” policy, which establishes the pricing source preference for a particular security or security type. The order of preference is based on our evaluation of the valuation methods used, the source’s knowledge of the instrument and the reliability of the prices we have received from the source in the past. Our valuation policy dictates that fair values are initially sought from third-party pricing services. If our review of the prices received from our preferred source indicates an inaccurate price, we will use an alternative source within the waterfall and document the decision. In the event that fair values are not available from one of our external pricing services or upon review of the fair values provided it is determined that they may not be reflective of market conditions, those securities are submitted to brokers familiar with the security to obtain non-binding price quotes. Broker quotes tend to be used in limited circumstances such as for newly issued, private placement corporate bonds and other instruments that are not widely traded. For those securities for which an externally provided fair value is not available, we use cash flow modeling techniques to estimate fair value.

•We evaluate third-party pricing source estimation methodologies to assess whether they will provide a fair value that approximates a market exit price.

•We perform an overall analysis of portfolio fair value movement against general movements in interest rates and spreads.


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•We compare period-to-period price trends to detect unexpected price fluctuations based on our knowledge of the market and the particular instrument. As fluctuations are noted, we will perform further research that may include discussions with the original pricing source or other external sources to ensure we agree with the valuation.

•We compare prices between different pricing sources for unusual disparity.

•We meet at least quarterly with our Investment Committee, the group that oversees our valuation process, to discuss valuation practices and observations during the pricing process.

Equity securities:

Level 1 equity securities consist of mutual funds that are actively traded, allowing us to use current market prices as an estimate of their fair value.

Level 2 equity securities consist of non-redeemable preferred stock. Estimated fair value for the non-redeemable preferred stock is obtained from external pricing sources using a matrix pricing approach.

Level 3 equity securities consist of non-redeemable preferred stock for which fair value estimates are based on the value of comparable securities that are actively traded. Increases in spreads used to value comparable companies, will result in a decrease in discounted cash flows used, and accordingly in the estimated fair value of the security.

In the case that external pricing services are used for certain Level 1 and Level 2 equity securities, our review process is consistent with the process used to determine the fair value of fixed maturities discussed above.

Other investments:

Level 2 other investments measured at fair value include call options with fair values based on counterparty market prices adjusted for a credit component of the counterparty, net of collateral received.

Cash, cash equivalents and short-term investments:

Level 1 cash, cash equivalents and short-term investments are highly liquid instruments for which historical cost approximates fair value.

Reinsurance recoverable:

Level 2 reinsurance recoverable includes embedded derivatives in our modified coinsurance contracts under which we cede or assume business. Fair values of these embedded derivatives are based on the difference between the fair value and the cost basis of the underlying fixed maturities, which are valued consistent with the discussion of fixed maturities above.

Assets held in separate accounts:

Level 1 assets held in separate accounts consist of mutual funds that are actively traded, allowing us to use current market prices as an estimate of their fair value.

Future policy benefits - indexed product embedded derivatives:

Indexed product contracts include embedded derivatives that are measured at fair value on a recurring basis. These embedded derivatives are a Level 3 measurement. The fair value of the embedded derivatives is based on the discounted excess of projected account values (including a risk margin) over projected guaranteed account values. The key unobservable inputs required in the projection of future values that require management judgment include the risk margin as well as our credit risk. Should the risk margin increase or the credit risk decrease, the discounted cash flows and the estimated fair value of the obligation will increase.


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Other liabilities:

Level 2 other liabilities include the embedded derivatives in our modified coinsurance contracts under which we cede business. Fair values for the embedded derivatives are based on the difference between the fair value and the cost basis of the underlying fixed maturities.
Valuation of our Financial Instruments Measured on a Recurring Basis by Hierarchy Levels
March 31, 2021
Quoted prices in active markets
for identical assets (Level 1) 		Significant other observable inputs
(Level 2) 		Significant unobservable inputs
(Level 3) 		Fair Value
(Dollars in thousands)
Assets
Fixed maturities:
Corporate securities $ —  $ 4,088,091  $ 3,517  $ 4,091,608 
Residential mortgage-backed securities —  676,535  21,743  698,278 
Commercial mortgage-backed securities —  1,071,985  7,842  1,079,827 
Other asset-backed securities —  744,117  5,670  749,787 
United States Government and agencies 30,135  9,110  —  39,245 
States and political subdivisions —  1,369,338  —  1,369,338 
Total fixed maturities 30,135  7,959,176  38,772  8,028,083 
Non-redeemable preferred stocks —  64,951  6,676  71,627 
Common stocks (1) 6,823  —  —  6,823 
Other investments —  28,111  —  28,111 
Cash, cash equivalents and short-term investments 113,106  —  —  113,106 
Reinsurance recoverable —  3,724  —  3,724 
Assets held in separate accounts 686,968  —  —  686,968 
Total assets $ 837,032  $ 8,055,962  $ 45,448  $ 8,938,442 
Liabilities
Future policy benefits - indexed product embedded derivatives $ —  $ —  $ 101,051  $ 101,051 
Other liabilities —  296  —  296 
Total liabilities $ —  $ 296  $ 101,051  $ 101,347 


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Valuation of our Financial Instruments Measured on a Recurring Basis by Hierarchy Levels
December 31, 2020
Quoted prices in active markets
for identical assets (Level 1) 		Significant other observable inputs
(Level 2) 		Significant unobservable inputs
(Level 3) 		Fair Value
(Dollars in thousands)
Assets
Fixed maturities:
Corporate securities $ —  $ 4,235,226  $ 3,041  $ 4,238,267 
Residential mortgage-backed securities —  702,119  —  702,119 
Commercial mortgage-backed securities —  1,128,199  8,134  1,136,333 
Other asset-backed securities —  733,561  21,190  754,751 
United States Government and agencies 25,901  10,351  —  36,252 
States and political subdivisions —  1,415,965  —  1,415,965 
Total fixed maturities 25,901  8,225,421  32,365  8,283,687 
Non-redeemable preferred stocks —  65,870  6,612  72,482 
Common stocks (1) 6,510  —  —  6,510 
Other investments —  23,576  —  23,576 
Cash, cash equivalents and short-term investments 75,944  —  —  75,944 
Reinsurance recoverable —  4,373  —  4,373 
Assets held in separate accounts 674,182  —  —  674,182 
Total assets $ 782,537  $ 8,319,240  $ 38,977  $ 9,140,754 
Liabilities
Future policy benefits - indexed product embedded derivatives $ —  $ —  $ 106,852  $ 106,852 
Other liabilities —  320  —  320 
Total liabilities $ —  $ 320  $ 106,852  $ 107,172 

(1)    A private equity fund with a fair value estimate of $10.1 million at March 31, 2021 and $9.3 million at December 31, 2020 using net asset value per share as a practical expedient, has not been classified in the fair value hierarchy above in accordance with fair value reporting guidance. This fund invests in senior secured middle market loans and had no remaining unfunded commitments at March 31, 2021 and unfunded commitments totaling $0.8 million at December 31, 2020. The investment is not currently eligible for redemption.

Level 3 Assets by Valuation Source - Recurring Basis
March 31, 2021
Third-party vendors Priced
internally 		Fair Value
(Dollars in thousands)
Corporate securities $ 991  $ 2,526  $ 3,517 
Residential mortgage-backed securities 19,800  1,943  21,743 
Commercial mortgage-backed securities 7,842  —  7,842 
Other asset-backed securities 4,295  1,375  5,670 
Non-redeemable preferred stocks —  6,676  6,676 
Total assets $ 32,928  $ 12,520  $ 45,448 
Percent of total 72.5  % 27.5  % 100.0  %

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Level 3 Assets by Valuation Source - Recurring Basis
December 31, 2020
Third-party vendors Priced
internally 		Fair Value
(Dollars in thousands)
Corporate securities $ —  $ 3,041  $ 3,041 
Commercial mortgage-backed securities 8,134  —  8,134 
Other asset-backed securities 17,876  3,314  21,190 
Non-redeemable preferred stocks —  6,612  6,612 
Total assets $ 26,010  $ 12,967  $ 38,977 
Percent of total 66.7  % 33.3  % 100.0  %

Quantitative Information about Level 3 Fair Value Measurements - Recurring Basis
March 31, 2021
Fair Value Valuation Technique Unobservable Input Range (Weighted Average)
(Dollars in thousands)
Assets
Corporate securities $ 3,517  Discounted cash flow Credit spread
0.55% - 3.94% (2.72%)
Commercial mortgage-backed securities 7,842  Discounted cash flow Credit spread
1.83% - 1.91% (1.87%)
Other asset-backed securities 4,251  Discounted cash flow Credit spread
2.80% - 7.25% (6.01%)
Residential mortgage-backed securities 19,800  Discounted cash flow Credit spread
0.88% - 1.00% (0.93%)
Non-redeemable preferred stocks 6,676  Discounted cash flow Credit spread
3.28% (3.28%)
Total assets $ 42,086 
Liabilities
Future policy benefits - indexed product embedded derivatives $ 101,051  Discounted cash flow Credit risk
Risk margin
0.40% - 1.30% (0.80%) 0.15% - 0.40% (0.25%)

December 31, 2020
Fair Value Valuation Technique Unobservable Input Range (Weighted Average)
(Dollars in thousands)
Assets
Corporate securities $ 3,041  Discounted cash flow Credit spread
5.95% - 19.41% (14.52%)
Commercial mortgage-backed securities 8,134  Discounted cash flow Credit spread
1.86% - 2.42% (2.18%)
Other asset-backed securities 13,564  Discounted cash flow Credit spread
2.10% - 9.75% (5.70%)
Non-redeemable preferred stocks 6,612  Discounted cash flow Credit spread
3.57% (3.57%)
Total assets $ 31,351 
Liabilities
Future policy benefits - indexed product embedded derivatives $ 106,852  Discounted cash flow Credit risk
Risk margin
0.35% - 1.45% (0.80%) 0.15% - 0.40% (0.25%)

The tables above exclude certain securities with the fair value based on non-binding broker quotes for which we could not reasonably obtain the quantitative unobservable inputs.

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Level 3 Financial Instruments Changes in Fair Value - Recurring Basis
March 31, 2021
Realized and unrealized gains (losses), net
Balance, December 31, 2020 Purchases Disposals Included in net income Included in other compre-hensive income Transfers into
Level 3 (1) 		Transfers
out of
Level 3 (1) 		Amort-ization included in net income Balance, March 31, 2021
(Dollars in thousands)
Assets
Corporate securities $ 3,041  $ 1,001  $ (2,547) $ (859) $ 604  $ 2,280  $ —  $ (3) $ 3,517 
Residential mortgage-backed securities —  21,868  —  —  (125) —  —  —  21,743 
Commercial mortgage-backed securities 8,134  —  (105) —  (187) —  —  —  7,842 
Other asset-backed securities 21,190  3,000  (89) —  (142) —  (18,289) —  5,670 
Non-redeemable preferred stocks 6,612  —  —  —  64  —  —  —  6,676 
Total assets $ 38,977  $ 25,869  $ (2,741) $ (859) $ 214  $ 2,280  $ (18,289) $ (3) $ 45,448 
Liabilities
Future policy benefits - indexed product embedded derivatives $ 106,852  $ 3,211  $ (4,868) $ (4,144) $ —  $ —  $ —  $ —  $ 101,051 

March 31, 2020
Realized and unrealized gains (losses), net
Balance, December 31, 2019 Purchases Disposals Included in net income Included in other compre-hensive income Transfers into
Level 3 		Transfers
out of
Level 3 (1) 		Amort-ization included in net income Balance, March 31, 2020
(Dollars in thousands)
Assets
Corporate securities $ 6,588  $ 6,983  $ (352) $ —  $ (154) $ —  $ (3,609) $ —  $ 9,456 
Commercial mortgage-backed securities 12,780  —  (98) —  (920) —  (4,556) —  7,206 
Other asset-backed securities 9,755  3,054  (49) —  (27) —  (8,000) (1) 4,732 
Non-redeemable preferred stocks 6,927  —  —  —  (70) —  —  —  6,857 
Total assets $ 36,050  $ 10,037  $ (499) $ —  $ (1,171) $ —  $ (16,165) $ (1) $ 28,251 
Liabilities
Future policy benefits - indexed product embedded derivatives $ 76,346  $ 4,891  $ (997) $ (19,169) $ —  $ —  $ —  $ —  $ 61,071 

(1)Transfers into Level 3 represent assets previously priced using an external pricing service with access to observable inputs no longer available and therefore, were priced using unobservable inputs. Transfers out of Level 3 include those assets that we are now able to obtain pricing from a third-party pricing vendor that uses observable inputs. The fair values of newly issued securities often require additional estimation until a market is created, which is generally within a few months after issuance. Once a market is created, as was the case for the majority of the security transfers out of the Level 3 category above, Level 2 valuation sources become available.

The Company has other financial assets and financial liabilities that are not carried at fair value but for which fair value disclosure is required. The following table presents the carrying value, fair value and fair value hierarchy level of these financial assets and financial liabilities.

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Valuation of our Financial Instruments Not Reported at Fair Value by Hierarchy Levels
March 31, 2021
Quoted prices in active markets
for identical assets (Level 1) 		Significant other observable inputs
(Level 2) 		Significant unobservable inputs
(Level 3) 		Fair Value Carrying Value
(Dollars in thousands)
Assets
Mortgage loans $ —  $ —  $ 1,057,936  $ 1,057,936  $ 992,938 
Policy loans —  —  249,453  249,453  191,580 
Other investments —  39,041  1,273  40,314  40,314 
Total assets $ —  $ 39,041  $ 1,308,662  $ 1,347,703  $ 1,224,832 
Liabilities
Future policy benefits $ —  $ —  $ 4,633,288  $ 4,633,288  $ 4,496,309 
Supplementary contracts without life contingencies —  —  280,318  280,318  266,905 
Advance premiums and other deposits —  —  276,848  276,848  276,848 
Long-term debt —  —  82,139  82,139  97,000 
Liabilities related to separate accounts —  —  685,970  685,970  686,968 
Total liabilities $ —  $ —  $ 5,958,563  $ 5,958,563  $ 5,824,030 

December 31, 2020
Quoted prices in active markets
for identical assets (Level 1) 		Significant other observable inputs
(Level 2) 		Significant unobservable inputs
(Level 3) 		Fair Value Carrying Value
(Dollars in thousands)
Assets
Mortgage loans $ —  $ —  $ 1,074,939  $ 1,074,939  $ 994,101 
Policy loans —  —  271,963  271,963  195,666 
Other investments —  33,409  1,273  34,682  34,682 
Total assets $ —  $ 33,409  $ 1,348,175  $ 1,381,584  $ 1,224,449 
Liabilities
Future policy benefits $ —  $ —  $ 4,739,739  $ 4,739,739  $ 4,348,539 
Supplementary contracts without life contingencies —  —  297,351  297,351  274,469 
Advance premiums and other deposits —  —  264,192  264,192  264,192 
Long-term debt —  —  80,975  80,975  97,000 
Liabilities related to separate accounts —  —  673,181  673,181  674,182 
Total liabilities $ —  $ —  $ 6,055,438  $ 6,055,438  $ 5,658,382 

Level 3 Financial Instruments Measured at Fair Value on a Nonrecurring Basis

Certain assets are measured at fair value on a nonrecurring basis, generally mortgage loans or real estate that have been deemed to be impaired during the reporting period. There were no mortgage loans or real estate impaired to fair value during the three months ended March 31, 2021 or March 31, 2020.


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4. Defined Benefit Plan

We participate with affiliates and an unaffiliated organization in defined benefit pension plans, including a multiemployer plan. Our share of net periodic pension cost for the plans is recorded as expense in our consolidated statements of operations.
Components of Net Periodic Pension Cost for FBL and Affiliates Combined - Multiemployer Plan
Three months ended March 31,
2021 2020
(Dollars in thousands)
Service cost $ 1,457  $ 1,304 
Interest cost 2,860  3,142 
Expected return on assets (5,647) (5,262)
Amortization of actuarial loss 3,720  2,789 
Net periodic pension cost $ 2,390  $ 1,973 
FBL Financial Group, Inc. share of net periodic pension costs $ 689  $ 629 

Components of Net Periodic Pension Cost for FBL and Affiliates Combined - Other Plans
Three months ended March 31,
2021 2020
(Dollars in thousands)
Service cost $ 88  $ 79 
Interest cost 165  220 
Amortization of actuarial loss 340  317 
Net periodic pension cost $ 593  $ 616 
FBL Financial Group, Inc. share of net periodic pension costs $ 362  $ 392 

5. Commitments and Contingencies

Legal Proceedings

In the normal course of business, we may be involved in litigation in which damages are alleged that are substantially in excess of contractual policy benefits or certain other agreements. We are not aware of any claims threatened or pending against FBL Financial Group, Inc. or any of its subsidiaries for which a material loss is reasonably possible.

Commitments for Partnership Investments and Private Corporate Bond Investments

At March 31, 2021, we have unfunded investment commitments to limited partnerships and limited liability companies of $95.8 million and privately placed corporate securities commitments of $11.3 million.


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6. Stockholders’ Equity

Share Repurchases

We periodically repurchase our Class A common stock under programs approved by our Board of Directors. These repurchase programs authorize us to make repurchases in the open market or through privately negotiated transactions, with the timing and terms of the purchases to be determined by management based on market conditions. Under these programs, we had no repurchases during the three months ended March 31, 2021 and 24,525 shares of stock for $0.8 million during the three months ended March 31, 2020. Completion of this program is dependent on market conditions and other factors. There is no guarantee as to the exact timing of any repurchases or the number of shares that we will repurchase. The share repurchase program may be modified or terminated at any time without prior notice. At March 31, 2021, $26.3 million remains available for repurchase under the active repurchase program. Under the Merger Agreement, we have agreed not to repurchase any additional shares of our capital stock from the date of the Merger Agreement through the closing of the Merger, subject to certain exceptions, including pursuant to our equity awards plans.
Dividends
Three months ended March 31,
2021 2020
Class A and B common stock:
Cash dividends per common share $ 0.52  $ 0.50 
Special cash dividend per common share —  1.50 
Total common stock dividends per share $ 0.52  $ 2.00 
Series B preferred stock dividends per share $ 0.0075  $ 0.0075 

Special cash dividends paid to our Class A and Class B common shareholders totaled $37.0 million for the three months ended March 31, 2020.

Reconciliation of Outstanding Common Stock
Class A Class B Total
Shares Dollars Shares Dollars Shares Dollars
(Dollars in thousands)
Outstanding at January 1, 2020 24,652,802  $ 152,661  11,413  $ 72  24,664,215  $ 152,733 
Stock-based compensation 2,500  245  —  —  2,500  245 
Purchase of common stock (24,525) (152) —  —  (24,525) (152)
Outstanding at March 31, 2020 24,630,777  $ 152,754  11,413  $ 72  24,642,190  $ 152,826 
Outstanding at January 1, 2021 24,384,109  $ 151,061  11,413  $ 72  24,395,522  $ 151,133 
Stock-based compensation 1,000  73  —  —  1,000  73 
Outstanding at March 31, 2021 24,385,109  $ 151,134  11,413  $ 72  24,396,522  $ 151,206 


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Accumulated Other Comprehensive Income, Net of Tax and Other Offsets
Unrealized Net Investment Gains (Losses) on Fixed Maturities Available-for-Sale (1) Underfunded Status of Postretirement Benefit Plans
Without Non-Credit Impairment Losses With Non-Credit Impairment Losses Total
(Dollars in thousands)
Balance at January 1, 2020 $ 363,020  $ 1,974  $ (10,230) $ 354,764 
Other comprehensive loss before reclassifications (104,594) (1,550) —  (106,144)
Reclassification adjustments 9,555  —  247  9,802 
Balance at March 31, 2020 $ 267,981  $ 424  $ (9,983) $ 258,422 
Balance at January 1, 2021 $ 596,335  $ 1,318  $ (10,374) $ 587,279 
Other comprehensive income (loss) before reclassifications (217,378) 291  —  (217,087)
Reclassification adjustments (399) —  267  (132)
Balance at March 31, 2021 $ 378,558  $ 1,609  $ (10,107) $ 370,060 

(1)Includes the impact of taxes, deferred acquisition costs, value of insurance in force acquired, unearned revenue reserves and policyholder liabilities. See Note 2 to our consolidated financial statements for further information.
Accumulated Other Comprehensive Income Reclassification Adjustments
Three months ended March 31, 2021
Unrealized Net Investment Gains (Losses) on Fixed Maturities Available-for-Sale (1) Underfunded Status of Postretirement Benefit Plans
Without Non-Credit Impairment Losses With Non-Credit Impairment Losses Total
(Dollars in thousands)
Realized capital losses on sales of fixed maturity securities $ 720  $ —  $ —  $ 720 
Change in allowance for credit losses on fixed maturity securities (1,145) —  —  (1,145)
Adjustments for assumed changes in deferred acquisition costs, value of insurance in force acquired, unearned revenue reserve and policyholder liabilities (80) —  —  (80)
Net actuarial loss —  —  338  338 
Reclassifications before income taxes (505) —  338  (167)
Income taxes 106  —  (71) 35 
Reclassification adjustments $ (399) $ —  $ 267  $ (132)

Three months ended March 31, 2020
Unrealized Net Investment Gains (Losses) on Fixed Maturities Available-for-Sale (1) Underfunded Status of Postretirement Benefit Plans
Without Non-Credit Impairment Losses With Non-Credit Impairment Losses Total
(Dollars in thousands)
Realized capital losses on sales of fixed maturity securities $ 147  $ —  $ —  $ 147 
Change in allowance for credit losses on fixed maturity securities 12,146  —  —  12,146 
Adjustments for assumed changes in deferred acquisition costs, value of insurance in force acquired, unearned revenue reserve and policyholder liabilities (198) —  —  (198)
Net actuarial loss —  —  313  313 
Reclassifications before income taxes 12,095  —  313  12,408 
Income taxes (2,540) —  (66) (2,606)
Reclassification adjustments $ 9,555  $ —  $ 247  $ 9,802 

(1)See Note 2 to our consolidated financial statements for further information.

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7. Earnings per Share

Computation of Earnings per Common Share
Three months ended March 31,
2021 2020
(Dollars in thousands, except per share data)
Numerator:
Net income attributable to FBL Financial Group, Inc. $ 27,680  $ (2,515)
Less: Dividends on Series B preferred stock 38  38 
Income available to common stockholders $ 27,642  $ (2,553)
Denominator:
Weighted average shares - basic 24,480,106  24,762,820 
Effect of dilutive securities - stock-based compensation 44  — 
Weighted average shares - diluted 24,480,150  24,762,820 
Earnings per common share $ 1.13  $ (0.10)
Earnings per common share - assuming dilution $ 1.13  $ (0.10)
There were no antidilutive stock options outstanding in any of the periods presented.


8. Segment Information

We analyze operations by reviewing financial information regarding our primary products that are aggregated into the Annuity and Life Insurance product segments. Our Corporate and Other segment consists of less significant business activities.
Our chief operating decision makers use pre-tax adjusted operating income to evaluate segment performance and allocate resources. Pre-tax adjusted operating income consists of pre-tax net income adjusted to exclude realized gains and losses on investments including the change in fair value of equity securities, the change in allowances for credit losses on investments, and the change in fair value of derivatives as the impact of these items can fluctuate greatly from period to period. These fluctuations make it difficult to analyze core operating trends. In addition, for derivatives not designated as hedges, there is a mismatch between the valuation of the asset and liability when deriving net income. For example, certain call options relating to our indexed annuity business are one-year assets while the embedded derivatives in the indexed contracts represent the rights of the contract holder to receive index credits over the entire period the indexed products are expected to be in force. We also exclude from pre-tax adjusted operating income, expenses related to the proposed merger discussed in Note 1 to the consolidated financial statements, as these expenses are not incurred in the normal course of our operations. Adjustments to pre-tax net income are net of amortization of unearned revenue reserves and deferred acquisition costs, as well as changes in interest sensitive product reserves. While not applicable for the periods reported herein, in determining pre-tax adjusted operating income we will also remove the impact of settlements or judgments arising from lawsuits, net of any recoveries from third parties, the cumulative effect of changes in accounting principles and discontinued operations.
Segment results are reported net of inter-segment transactions.

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Financial Information Concerning our Operating Segments
Three months ended March 31,
2021 2020
(Dollars in thousands)
Pre-tax adjusted operating income:
Annuity $ 14,016  $ 12,019 
Life Insurance 10,886  10,267 
Corporate and Other 1,431  219 
Total pre-tax adjusted operating income 26,333  22,505 
Adjustments to pre-tax adjusted operating income:
Proposed acquisition transaction expense (2,577) — 
Net realized gains/losses on investments (1) 340  (25,458)
Change in fair value of derivatives (1) 8,276  (2,582)
Pre-tax net income (loss) attributable to FBL Financial Group, Inc. 32,372  (5,535)
Income tax (expense) benefit (3,687) 3,081 
Tax on equity income (1,005) (61)
Net income (loss) attributable to FBL Financial Group, Inc. $ 27,680  $ (2,515)
Adjusted operating revenues:
Annuity $ 52,981  $ 54,654 
Life Insurance 112,404  107,215 
Corporate and Other 24,308  24,040 
189,693  185,909 
Net realized gains/losses on investments (1) 240  (25,666)
Change in fair value of derivatives (1) 1,493  (24,980)
Consolidated revenues $ 191,426  $ 135,263 

(1)Amounts are net of adjustments, as applicable, to amortization of unearned revenue reserves, deferred acquisition costs, interest sensitive product reserves and income taxes attributable to these items.

Interest expense is attributable to the Corporate and Other segment. Expenditures for long-lived assets were not significant during the periods presented above. Goodwill at March 31, 2021 and December 31, 2020 was allocated among the segments as follows: Annuity ($3.9 million) and Life Insurance ($6.1 million).

Equity income related to securities and indebtedness of related parties is attributable to the Life Insurance and Corporate and Other segments. The following chart provides the related equity income by segment.
Equity Income by Operating Segment
Three months ended March 31,
2021 2020
(Dollars in thousands)
Pre-tax equity income:
Life Insurance $ 4,524  $ 375 
Corporate and Other 261  (86)
Total pre-tax equity income 4,785  289 
Income taxes (1,005) (61)
Equity income, net of related income taxes $ 3,780  $ 228 

Premiums collected, which is not a measure used in financial statements prepared according to GAAP, includes premiums received on life insurance policies and deposits on annuities and universal life-type products. Premiums collected is a common life insurance industry measure of agent productivity. Net premiums collected totaled $153.0 million for the quarter ended March 31, 2021 and $154.0 million for the same period in 2020.

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Under GAAP, premiums on whole life and term life policies are recognized as revenues over the premium-paying period and reported in the Life Insurance segment. The following chart provides a reconciliation of life insurance premiums collected to those reported in the GAAP financial statements.
Reconciliation of Traditional Life Insurance Premiums, Net of Reinsurance
Three months ended March 31,
2021 2020
(Dollars in thousands)
Traditional and universal life insurance premiums collected $ 85,505  $ 82,635 
Premiums collected on interest sensitive products (31,746) (31,996)
Traditional life insurance premiums collected 53,759  50,639 
Change in due premiums and other (1,749) (1,331)
Traditional life insurance premiums as included in the consolidated statements of operations $ 52,010  $ 49,308 

There is no comparable GAAP financial measure for premiums collected on annuities and universal life-type products. GAAP revenues for those interest sensitive and variable products consist of various policy charges and fees assessed on those contracts, as summarized in the chart below.
Interest Sensitive Product Charges by Segment
Three months ended March 31,
2021 2020
(Dollars in thousands)
Annuity
Rider and other product charges $ 1,841  $ 1,530 
Surrender charges 273  356 
Total 2,114  1,886 
Life Insurance
Administration charges 5,715  5,443 
Cost of insurance charges 13,345  13,379 
Surrender charges 638  705 
Amortization of policy initiation fees 573  852 
Total 20,271  20,379 
Corporate and Other
Administration charges 1,147  1,184 
Cost of insurance charges 6,881  7,160 
Surrender charges 10  32 
Separate account charges 2,228  2,031 
Amortization of policy initiation fees 152  549 
Total 10,418  10,956 
Impact of net realized gains/losses on investments and change in fair value of derivatives on amortization of unearned revenue reserves (62) (1,501)
Interest sensitive product charges as included in the consolidated statements of operations $ 32,741  $ 31,720 


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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 insurance subsidiaries Farm Bureau Life Insurance Company (Farm Bureau Life) and Greenfields Life Insurance Company. Please read this discussion in conjunction with the accompanying consolidated financial statements and related notes. In addition, we encourage you to refer to our Form 10-K for the year ended December 31, 2020 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 may include 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 Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2020, and Part II within this report for additional information on the risks and uncertainties that may affect the operations, performance, development and results of our business.

Overview

We operate predominantly in the life insurance industry through our principal subsidiary, Farm Bureau Life. Farm Bureau Life markets individual life insurance policies and annuity contracts to Farm Bureau members and other individuals and businesses in the Midwestern and Western sections of the United States through an exclusive agency force. Other subsidiaries provide external wealth management services as well as investment management and other support services to our affiliated insurance companies. In addition, we manage two Farm Bureau affiliated property-casualty companies.

We analyze operations by reviewing financial information regarding our primary products that are aggregated in Annuity and Life Insurance product segments. In addition, our Corporate and Other segment includes our wealth management business, various support operations, corporate capital and other product lines that are not currently underwritten by the Company. We analyze our segment results based on pre-tax adjusted operating income, which excludes the impact of certain items that are included in pre-tax net income. Pre-tax adjusted operating income is the same basis used for segment reporting under U.S. generally accepted accounting principles (GAAP). We also analyze operations using adjusted operating income on a post-tax basis. Adjusted operating income on a post-tax basis is not a measure used in financial statements prepared in accordance with GAAP, but is a common life insurance industry measure of performance. We have included a reconciliation to the comparable GAAP measure herein. See Note 8 to our consolidated financial statements for further information regarding how we define our segments and pre-tax adjusted operating income.

We also include within our analysis “premiums collected,” another measure that is not used in financial statements prepared in accordance with GAAP, but is a common life insurance industry measure of agent productivity. See Note 8 to our consolidated financial statements for further information regarding this measure and its relationship to GAAP revenues.

Merger Agreement

On May 2, 2021, the Company entered into an amendment (the Merger Agreement Amendment) to the Agreement and Plan of Merger, dated as of January 11, 2021 (the Original Agreement and, the Original Agreement as amended by the Merger Agreement Amendment, the Merger Agreement), by and among the Company, Farm Bureau Property & Casualty Insurance Company, an Iowa domiciled stock property and casualty insurance company (FBPCIC) and 5400 Merger Sub, Inc., an Iowa corporation (Merger Sub). Pursuant to the Merger Agreement, FBPCIC will acquire all of the outstanding Class A common shares, without par value, and Class B common shares, without par value (collectively, the Common Shares), of the Company that are not currently owned or controlled by FBPCIC or the Iowa Farm Bureau Federation, an Iowa non-profit corporation (IFBF). IFBF and FBPCIC currently own approximately 61% of the outstanding Common Shares. Pursuant to the transactions contemplated by the Merger Agreement, each outstanding Common Share of the Company (other than shares held by the Company in treasury or by any wholly-owned Company subsidiary, or held by Merger Sub or FBPCIC, or held by holders who have properly exercised dissenters’ rights under applicable Iowa law) will be converted into the right to receive $61.00 per

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Common Share in cash, without interest and less any required withholding taxes. The Merger Agreement Amendment provided for an increase in the consideration to be received in exchange for the Common Shares in the amount of $5.00 per share, from $56.00 per share under the Original Agreement.

Consummation of the Merger is subject to certain specified closing conditions, including a non-waivable condition that the Merger Agreement be adopted by the affirmative vote of (i) holders of at least a majority of all outstanding Class A common shares and Series B preferred shares, voting together as a single class, (ii) holders of at least a majority of all outstanding Class B common shares and (iii) holders of at least a majority of all outstanding Common Shares held by all of the holders of outstanding Common Shares (excluding IFBF and its affiliates, FBPCIC and its affiliates, and the directors and officers of IFBF, FBPCIC and each of their respective affiliates), in each case, entitled to vote on such matter at a meeting of shareholders duly called and held for such purpose. The Company’s adjourned special meeting of shareholders to approve the proposal to adopt the Merger Agreement is expected to reconvene on May 21, 2021.

In addition, FBPCIC’s obligation to consummate the Merger is subject to the condition that no more than 5% of the Common Shares outstanding as of the effective time of the Merger (other than the Common Shares held by FBPCIC, IFBF, certain of their affiliates, their respective subsidiaries, the directors and officers of the foregoing persons and any holders of Common Shares which have failed to perfect, have effectively withdrawn or which otherwise have lost their rights to appraisal under Iowa law) shall have properly demanded and not withdrawn appraisal rights under Iowa law in connection with the Merger, as further described in the Merger Agreement. The obtaining of financing is not a condition to the obligations of FBPCIC or Merger Sub to effect the Merger.

Also on May 2, 2021, FBPCIC, IFBF and Merger Sub entered into an amendment (the Rollover Agreement Amendment) to the Rollover Agreement, dated as of January 11, 2021 (as amended by the Rollover Agreement Amendment, the Rollover Agreement) by and among the same parties. Pursuant to the Rollover Agreement, FBPCIC and IFBF will contribute to Merger Sub all of their Common Shares in exchange for the number of shares of common stock of Merger Sub set forth therein, and to fund the Merger consideration, FBPCIC will contribute approximately $528 million in cash to Merger Sub in exchange for shares of common stock of Merger Sub and IFBF will contribute approximately $47 million in cash to Merger Sub in exchange for shares of preferred stock of Merger Sub.

With respect to Merger Sub, under the terms of the Merger Agreement, at the effective time of the Merger, the Common Shares held by Merger Sub will automatically be cancelled and will cease to exist, each common share of Merger Sub will be converted into one common share of the surviving corporation and each preferred share of Merger Sub will be converted into one share of newly-designated Series C Cumulative Non-Voting Preferred Stock of the surviving corporation. At the effective time of the Merger, the Common Shares that are not currently controlled by FBPCIC or IFBF (other than shares held by the Company in treasury or by any wholly-owned Company subsidiary, or held by Merger Sub or FBPCIC, or held by holders who have properly exercised dissenters’ rights under applicable Iowa law) will be converted into the right to receive the Merger consideration. Each share of Series B Cumulative Voting Preferred Stock of the Company will remain outstanding in accordance with its terms following the effective time of the Merger.


Impact of COVID-19 and Recent Business Environment
Our business generally benefits from moderate to strong economic expansion. Conversely, a lackluster economy characterized by higher unemployment, lower family income, lower consumer spending, muted corporate earnings growth and lower business investment could adversely impact the demand for our products in the future. We also may experience a higher incidence of claims, lapses or surrenders of policies during such times. We cannot predict whether or when such actions may occur, or what impact, if any, such actions could have on our business, results of operations, cash flows or financial condition.
During the first quarter of 2021, the U.S. economy continued its recovery (S&P 500 was up +80% since March 23, 2020), driven by massive amounts of monetary and fiscal stimulus, optimism on vaccines and the reopening of the economy. This recovery follows the significant impact to the U.S. economy from COVID-19 beginning in the first quarter 2020, resulting in slowed economic growth, elevated unemployment and business interruption, particularly in the hospitality and travel sectors. Interest rates, which particularly impact our business declined significantly and continue to fluctuate. The following are key measures which partially illustrate the state of the U.S. economy:
•U.S. gross domestic product is estimated to have increased at an annual rate of 6.4% in the first quarter of 2021, compared to a 3.5% decrease during 2020.

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•U.S. unemployment decreased to 6.0% at March 31, 2021, compared to 6.7% at December 31, 2020.
•The yield on the 10-year U.S. Treasury Note increased to 1.74% at March 31, 2021, from 0.93% at December 31, 2020.

The impact of COVID-19 and economic conditions on our Company includes:

FBL Operations

We have provided flexibility for our workforce by allowing up to 50% of our employees to return to work in our facilities. However, our workforce continues to work predominantly from their homes. For those that choose to work in our facilities, proper social distancing and other safeguards have been put in place to provide for the safety of our workforce and minimize the risk of business interruption.

Financial results

While mortality experience was in line with expectations for the first quarter of 2021, we continue to see elevated death claims associated with COVID-19. We incurred death benefits, net of reinsurance and reserves released, with COVID-19 reported as a cause of death totaling $4.1 million during the first quarter of 2021. We do not have an estimate of how many of these death claims would have been reported in the quarter regardless of COVID-19.

Financial position

Higher U.S. Treasury interest rates resulted in an decrease in the fair value of our fixed maturity securities during the three-month period ended March 31, 2021. The decrease in fair value of our fixed maturity securities resulted in an decrease in our book value per common share to $60.95 at March 31, 2021 from $69.24 at December 31, 2020.

Our capital position remains strong, with Farm Bureau Life’s company action level risk-based capital ratio estimated to be 531% at March 31, 2021.

Liquidity

Our liquidity position remains strong with cash being generated by operations and financing activities. In addition, a significant portion of our liquid fixed maturity securities are in an unrealized gain position. See the “Investments” and “Liquidity and Capital Resources” discussions that follow.



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Results of Operations for the Periods Ended March 31, 2021 and 2020
Three months ended March 31,
2021 2020 Change
(Dollars in thousands, except per share data)
Net income (loss) attributable to FBL Financial Group, Inc. $ 27,680  $ (2,515) (1,201) %
Net income adjustments:
Proposed acquisition transaction expenses 2,577  —  —  %
Net realized gains/losses on investments (1) (269) 20,112  (101) %
Change in fair value of derivatives (1) (6,537) 2,039  (421) %
Adjusted operating income (2) $ 23,451  $ 19,636  19  %
Pre-tax adjusted operating income:
Annuity segment $ 14,016  $ 12,019  17  %
Life Insurance segment 10,886  10,267  6  %
Corporate and Other segment 1,431  219  553  %
Total pre-tax adjusted operating income 26,333  22,505  17  %
Income taxes on adjusted operating income (2,882) (2,869) —  %
Adjusted operating income (2) $ 23,451  $ 19,636  19  %
Earnings per common share - assuming dilution $ 1.13  $ (0.10) (1,230) %
Adjusted operating income per common share - assuming dilution (2) 0.96  0.79  22  %
Effective tax rate on adjusted operating income 11  % 13  %
Average invested assets, at amortized cost net of allowance for credit losses (3) $ 8,708,466  $ 8,479,853  3  %
Annualized yield on average invested assets (4) 4.75  % 4.72  %
Other data
Death benefits, net of reinsurance and reserves released, net of tax $ 27,577  $ 23,550  17  %
Estimated impact from separate account performance on amortization of deferred acquisition costs, deferred sales inducements and unearned revenue reserve, net of tax (5) 711  (2,686) (126) %
Other investment-related income included in net investment income (1)(6) 1,572  454  246  %

(1)Amounts are net of adjustments, as applicable, to amortization of unearned revenue reserves and deferred acquisition costs, as well as changes in interest sensitive product reserves and income taxes attributable to these items.
(2)Adjusted operating income is a non-GAAP measure of earnings, see the Overview section above for additional information.
(3)Average invested assets, including investments held as securities and indebtedness of related parties and cash equivalents, is the average of investment balances at the beginning of the reporting period and as of the end of each quarter throughout the reporting period. Average invested assets are used in the calculation of the annualized investment yield.
(4)Annualized yield is the actual annualized investment earnings during the reporting period divided by average invested assets. Annualized yield is used as a measure of investment performance during the reporting periods.
(5)Amounts represent the estimated effect of market performance of policyholder funds invested in the separate accounts on the value of deferred acquisition costs, deferred sales inducements and unearned revenue reserve, net of tax.
(6)Includes prepayment fee income and adjustments to the amortization of premium or discounts from changes in our payment speed assumptions on mortgage and other asset-backed securities.

Net income increased in the first quarter of 2021, compared to the prior year period, primarily due to increases from changes in realized gains and losses on investments and fair value of derivatives. In addition, net income and pre-tax adjusted operating income increased in the first quarter of 2021, compared to the prior year period, due to an increase in equity income and the impact of market performance on variable product deferred acquisition cost amortization and reserves associated with guaranteed living withdrawal benefits. These increases were partially offset by an increase in death benefits. See the discussion that follows for details regarding pre-tax adjusted operating income by segment.



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Footnotes applicable to the segment discussion that follows are summarized below:
(1)Premiums collected is a non-GAAP measure of sales production, see Note 8 to our consolidated financial statements for additional information.
(2)Average invested assets, including applicable investments held as securities and indebtedness of related parties and cash equivalents, is the average of investment balances at the beginning of the reporting period and as of the end of each quarter throughout the reporting period. Average invested assets are used in the calculation of the annualized investment yield.
(3)Includes prepayment fee income and adjustments to the amortization of premium or discounts from changes in our payment speed assumptions on mortgage and other asset-backed securities.
(4)Average aggregate individual annuity account value is a measure used to monitor business growth in our individual fixed and indexed annuity product lines and is calculated using a simple average of policyholder account values as of the beginning and end of the reporting period.
(5)Annualized yield is the actual annualized investment earnings during the reporting period divided by average invested assets. Annualized yield is used as a measure of investment performance during the reporting periods.
(6)Annualized average crediting rates consist of annualized interest credited and index credits applied to policyholders during the reporting period, along with amortization of call option costs and proceeds from sales or maturing call options associated with the call options that back our indexed products as a percentage of the simple average of policyholder account values as of the beginning of the reporting period and end of the reporting period, adjusted for interest credited during the period. Annualized average crediting rates along with annualized average investment yields provides a view of spread margin earned on the underlying products.
(7)Individual annuity withdrawal rate represents annualized withdrawal benefits incurred during the reporting period, excluding internal exchanges, as a percent of the simple average of related policy reserves at the beginning and end of the reporting period. The individual annuity withdrawal rate is a measure of customer retention.
(8)Average aggregate interest sensitive life account value is a measure used to monitor business growth in our universal life product lines and is calculated using a simple average of policyholder account values as of the beginning and end of the reporting period.
(9)Life insurance lapse and surrender rate represents the annualized face amount of policyholder lapses and surrenders, incurred during the reporting period, as a percent of the simple average of related insurance in force at the beginning and end of the reporting period. The life insurance lapse and surrender rate is a measure of customer retention.
(10)Average aggregate interest sensitive account value is a measure used to monitor business volume of our variable universal life and variable annuity product lines and is calculated using a simple average of policyholder account values allocated to the declared interest option as of the beginning and end of the reporting period.
(11)Amounts represent the estimated effect of market performance of policyholder funds invested in the separate accounts on actual and expected profits and the related impact on the value of deferred acquisition costs, deferred sales inducements and unearned revenue reserve.

Annuity Segment
Three months ended March 31,
2021 2020 Change
(Dollars in thousands)
Adjusted operating revenues:
Interest sensitive product charges $ 2,114  $ 1,886  12  %
Net investment income 50,867  52,768  (4) %
Total adjusted operating revenues 52,981  54,654  (3) %
Adjusted operating benefits and expenses:
Interest sensitive product benefits 30,667  33,883  (9) %
Underwriting, acquisition and insurance expenses:
Commissions net of deferrals 201  421  (52) %
Amortization of deferred acquisition costs 2,415  2,646  (9) %
Amortization of value of insurance in force 147  175  (16) %
Other underwriting expenses 5,535  5,510  —  %
Total underwriting, acquisition and insurance expenses 8,298  8,752  (5) %
Total adjusted operating benefits and expenses 38,965  42,635  (9) %
Pre-tax adjusted operating income $ 14,016  $ 12,019  17  %

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Annuity Segment - continued
Three months ended March 31,
2021 2020 Change
(Dollars in thousands)
Other data
Annuity premiums collected, direct (1) $ 55,666  $ 58,099  (4) %
Policy liabilities and accruals, end of period 4,657,666  4,528,280  3  %
Average invested assets, at amortized cost net of allowance for credit losses (2) 4,659,253  4,564,600  2  %
Other investment-related income included in net investment income (3) 1,984  705  181  %
Average aggregate individual annuity account value (4) 3,178,941  3,179,639  —  %
Earned spread on individual annuity products:
Annualized yield on average invested assets (5) 4.49  % 4.59  %
Annualized average crediting rate (6) 2.48  % 2.47  %
Spread 2.01  % 2.12  %
Individual annuity withdrawal rate (7) 3.8  % 5.2  %

Pre-tax adjusted operating income for the Annuity segment increased in the first quarter of 2021, compared to the prior year period, primarily due to the impact of market performance on reserves associated with guaranteed living withdrawal benefits and an increase in other investment-related income, partially offset by reduced spread income earned from lower yields on invested assets.

The average aggregate account value for individual annuity contracts in force at March 31, 2021 remained level with the prior year period as continued sales and the crediting of interest were largely offset by product benefits and withdrawals. Premiums collected were lower in the first quarter of 2021, compared to the prior year period, due to decreased sales of indexed annuity products, partially offset by increased sales of fixed rate deferred annuity products. Individual fixed rate deferred annuity collected premiums were $29.1 million in the first quarter of 2021, compared to $22.9 million in the first quarter of 2020. Indexed annuity collected premiums were $24.9 million in the first quarter of 2021, compared to $32.6 million in the first quarter of 2020. To increase spread income given lower indexed annuity sales, we have increased the issuance of funding agreements with the Federal Home Loan Bank (FHLB) during the three months ended March 31, 2021. Outstanding funding agreements with FHLB totaled $726.0 million at March 31, 2021, compared to $585.2 million at December 31, 2020 and $597.5 million at March 31, 2020.

The annualized average yield on invested assets for individual annuities decreased in the three months ended March 31, 2021, compared to the prior year period, primarily due to lower yields on new investment acquisitions from premium receipts and reinvestment of the proceeds from maturing investments, compared with the average existing portfolio yield. The annualized average yield decrease was partially offset by higher other investment-related income. See the “Financial Condition” section for additional information regarding the yields obtained on investment acquisitions. Annualized average crediting rates on our individual annuity products increased slightly in the three months ended March 31, 2021, compared to the prior year period, primarily due to increased amortization of call option costs supporting our indexed annuity products, partially offset by a decrease in interest credited due to changes in our mix of business in force.


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Life Insurance Segment
Three months ended March 31,
2021 2020 Change
(Dollars in thousands)
Adjusted operating revenues:
Interest sensitive product charges and other income $ 20,195  $ 20,332  (1) %
Traditional life insurance premiums 52,010  49,308  5  %
Net investment income 40,199  37,575  7  %
Total adjusted operating revenues 112,404  107,215  5  %
Adjusted operating benefits and expenses:
Interest sensitive product benefits:
Interest and index credits 11,095  7,843  41  %
Death benefits and other 17,156  16,371  5  %
Total interest sensitive product benefits 28,251  24,214  17  %
Traditional life insurance benefits:
Death benefits 29,798  26,098  14  %
Surrender and other benefits 11,120  10,142  10  %
Increase in traditional life future policy benefits 8,932  9,970  (10) %
Total traditional life insurance benefits 49,850  46,210  8  %
Distributions to participating policyholders 1,605  2,529  (37) %
Underwriting, acquisition and insurance expenses:
Commission expense, net of deferrals 5,184  4,832  7  %
Amortization of deferred acquisition costs 4,066  2,419  68  %
Amortization of value of insurance in force 369  370  —  %
Other underwriting expenses 16,717  16,749  —  %
Total underwriting, acquisition and insurance expenses 26,336  24,370  8  %
Total adjusted operating benefits and expenses 106,042  97,323  9  %
6,362  9,892  (36) %
Equity income, before tax 4,524  375  1,106  %
Pre-tax adjusted operating income $ 10,886  $ 10,267  6  %
Other data
Life premiums collected, net of reinsurance (1) $ 85,505  $ 82,635  3  %
Policy liabilities and accruals, end of period 3,253,413  3,106,864  5  %
Life insurance in force, end of period 64,040,179  61,852,616  4  %
Average invested assets, at amortized cost net of allowance for credit losses (2) 3,281,314  3,213,376  2  %
Other investment-related income included in net investment income (3) 283  59  380  %
Average aggregate interest sensitive life account value (8) 930,418  896,688  4  %
Interest sensitive life insurance spread:
Annualized yield on average invested assets (5) 5.26  % 4.99  %
Annualized average crediting rate (6) 3.99  % 3.87  %
Spread 1.27  % 1.12  %
Life insurance lapse and surrender rates (9) 4.3  % 4.5  %
Death benefits, net of reinsurance and reserves released $ 28,751  $ 25,668  12  %

Pre-tax adjusted operating income for the Life Insurance segment increased in the first quarter of 2021, compared to the prior year period, primarily due to increases in equity income and growth in business in force, partially offset by increases in death benefits, net of reinsurance and reserves released, and amortization of deferred acquisition costs.

Equity income can fluctuate from period to period, see ‘Equity Income’ section as follows for additional information.

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Amortization of deferred acquisition costs increased during the first quarter of 2021, compared to the prior year period, due to changes in actual and expected profits on the underlying business.

Death benefits, net of reinsurance and reserves released, increased in the first quarter of 2021, compared to the prior year period, due to an increase in the number of claims. Death benefits in the Life Insurance segment include COVID-19 related claims, net of reinsurance and reserves released, totaling $3.4 million for the first quarter of 2021 and $0.3 million in the first quarter of 2020.

The annualized average yield on invested assets for interest sensitive life insurance products increased in the three months ended March 31, 2021, compared to the prior year period, due to higher equity income, partially offset by lower yields on new investment acquisitions from premium receipts and reinvestment of the proceeds from maturing investments. See the “Financial Condition” section for additional information regarding the yields obtained on investment acquisitions. Annualized average crediting rates on our interest sensitive life insurance products increased in the three months ended March 31, 2021, compared to the prior year period, primarily due to increased amortization of call option costs supporting our indexed universal life products.

Corporate and Other Segment
Three months ended March 31,
2021 2020 Change
(Dollars in thousands)
Adjusted operating revenues:
Interest sensitive product charges $ 10,418  $ 10,956  (5) %
Net investment income 7,494  8,057  (7) %
Other income 6,396  5,027  27  %
Total adjusted operating revenues 24,308  24,040  1  %
Adjusted operating benefits and expenses:
Interest sensitive product benefits 9,303  7,626  22  %
Underwriting, acquisition and insurance expenses:
Commission expense, net of deferrals 658  699  (6) %
Amortization of deferred acquisition costs 526  5,055  (90) %
Other underwriting expenses 1,619  1,777  (9) %
Total underwriting, acquisition and insurance expenses 2,803  7,531  (63) %
Interest expense 1,213  1,213  —  %
Other expenses 9,886  7,421  33  %
Total adjusted operating benefits and expenses 23,205  23,791  (2) %
1,103  249  343  %
Net loss attributable to noncontrolling interest 67  56  20  %
Equity income (loss), before tax 261  (86) (403) %
Pre-tax adjusted operating income $ 1,431  $ 219  553  %
Other data
Average invested assets, at amortized cost net of allowance for credit losses (2) $ 767,899  $ 701,876  9  %
Other investment-related income included in net investment income (3) 136  4  3,300  %
Average aggregate interest sensitive account value (10) 365,836  358,936  2  %
Death benefits, net of reinsurance and reserves released 5,903  4,343  36  %
Estimated impact on pre-tax adjusted operating income from separate account performance on amortization of deferred acquisition costs, deferred sales inducements and unearned revenue reserve (11) 900  (3,400) (126) %

Pre-tax adjusted operating income increased for the Corporate and Other segment in the first quarter of 2021, compared to the prior year period, primarily due to a decrease in amortization of deferred acquisition costs resulting from the impact of market performance on our variable business, partially offset by increases in death benefits and other expenses.

Death benefits, net of reinsurance and reserves released, increased in the first quarter of 2021, compared to the prior year period, primarily due to an increase in the number of claims. Death benefits in the Corporate and Other segment include

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COVID-19 related claims, net of reinsurance and reserves released, totaling $0.7 million for the first quarter of 2021 and no noted impact in the first quarter of 2020.

Other income and other expenses include fees and expenses from sales of brokered products and operating results of our non-insurance subsidiaries, which include wealth management services, advisory, management and leasing activities. Other income and other expenses increased in the first quarter of 2021, compared to the prior year period, primarily due to expanding our wealth management business. The expansion of our wealth management business has increased administrative costs along with the costs of implementing a new delivery platform to allow for additional product offerings and an enhanced customer experience. Revenues associated with our wealth management business increased as we continue to develop this business, increasing $1.2 million in the first quarter of 2021, compared to the prior year period. Expenses, including commissions, associated with our wealth management expansion have increased $1.5 million in the first quarter of 2021, compared to the prior year period.

Equity Income

Equity income includes our proportionate share of gains and losses attributable to our ownership interest in partnerships, joint ventures and certain companies over which we exhibit some control but have a minority ownership interest. We consistently use the most recent financial information available to account for equity income. 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.

The level of gains and losses for these entities normally fluctuates from period to period depending on the prevailing economic environment, changes in the value of underlying investments held by the investment partnerships, the timing and success of initial public offerings or exit strategies, and the timing of the sale of investments held by the partnerships and joint ventures. Equity income, net of related taxes, was $3.8 million for the first quarter of 2021 and $0.2 million for the same period in 2020. See Note 8 to our consolidated financial statements for further information.

Income Taxes on Adjusted Operating Income

The effective tax rate on adjusted operating income was 10.9% for the first quarter of 2021, compared with 12.7% for the first quarter of 2020. The effective tax rates differ from the federal statutory rate of 21% primarily due to the impact of LIHTC investments and tax-exempt investment income.
Components of income tax
Three months ended March 31,
2021 2020
(Dollars in thousands)
Income tax benefit (expense) $ (3,687) $ 3,081 
Income tax expense on equity income (1,005) (61)
Income tax offset on net income adjustments 1,810  (5,889)
Income taxes on adjusted operating income $ (2,882) $ (2,869)
Income taxes on adjusted operating income before benefits of LIHTC investments $ (3,640) $ (3,752)
Amounts related to LIHTC investments 758  883 
Income taxes on adjusted operating income $ (2,882) $ (2,869)


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Impact of Adjustments to Net Income (Loss) Attributable to FBL
Three months ended March 31,
2021 2020
(Dollars in thousands)
Realized gains (losses) on investments and change in fair value of equity securities and derivatives $ 10,745  $ (28,069)
Proposed acquisition transaction expenses (2,577) — 
Offsets: (1)
Change in amortization (890) (176)
Reserve change on interest sensitive products (1,239) 205 
Income tax (1,810) 5,889 
Net impact of adjustments to net income (loss) $ 4,229  $ (22,151)
Net impact per common share - basic and assuming dilution $ 0.17  $ (0.89)

(1)The items excluded from adjusted operating income impact the amortization of deferred acquisition costs and unearned revenue reserve. Certain interest sensitive reserves as well as income taxes are also impacted.

Realized Gains (Losses) on Investments
Three months ended March 31,
2021 2020
(Dollars in thousands)
Realized gains (losses) on investments:
Realized gains $ 148  $ 12 
Realized losses (868) (182)
Change in unrealized gains/losses on equity securities (149) (13,231)
Total allowance for credit losses 1,113  (12,261)
Net realized investment gains (losses) $ 244  $ (25,662)

The level of realized gains (losses) is subject to fluctuation from period to period due to movements in credit spreads and prevailing interest rates, changes in the economic environment, the timing of the sales of the investments generating the realized gains and losses, as well as the timing of allowances, recovery of allowances and unrealized gains and losses on equity securities. See “Financial Condition - Investments” and Note 2 to our consolidated financial statements for details regarding our unrealized gains and losses on available-for-sale securities at March 31, 2021 and December 31, 2020.
Change in Allowances Recognized in Net Income
Three months ended March 31,
2021 2020
(Dollars in thousands)
Corporate securities:
Financial $ (1,260) $ 5,430 
Energy —  6,716 
Other asset-backed 115  — 
Mortgage loans 32  115 
Total allowance for credit (gains) losses reported in net income $ (1,113) $ 12,261 

See Note 2 “Investment Operations” to our consolidated financial statements for more detail on the allowance for credit losses.


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Financial Condition

Investments

Our investment portfolio decreased 2.8% to $9,412.8 million at March 31, 2021 compared to $9,684.0 million at December 31, 2020. The portfolio decrease is due in part to a $400.4 million decrease in the net unrealized appreciation of fixed maturities. The decrease in unrealized appreciation is primarily due to an increase in market yields during the first quarter of 2021. Additional details regarding securities in an unrealized gain or loss position at March 31, 2021 are included in the discussion that follows and in Note 2 to our consolidated financial statements. Details regarding investment impairments are discussed above in the “Realized Gains (Losses) on Investments” section under “Results of Operations.”
We manage the investment portfolio to optimize risk-adjusted yield within the context of prudent asset-liability management. We evaluate multiple cash flow testing scenarios as part of this process. The Company’s investment policy calls for investing primarily in high quality fixed maturities and commercial mortgage loans.

Fixed Maturity Acquisitions Selected Information
Three months ended March 31,
2021 2020
(Dollars in thousands)
Cost of acquisitions:
Corporate $ 186,536  $ 123,877 
Mortgage- and asset-backed 106,187  95,381 
United States Government and agencies 10,165  — 
Tax-exempt municipals 14,285  — 
Total $ 317,173  $ 219,258 
Effective annual yield 2.91  % 3.50  %
Credit quality
NAIC 1 designation 62.8  % 66.1  %
NAIC 2 designation 33.4  % 24.8  %
Non-investment grade 3.8  % 9.1  %
Weighted-average life in years 21.0 7.0
The table above summarizes selected information for fixed maturity purchases. The effective annual yield shown is the yield calculated to the “first-call” date. For non-callable bonds, the first-call date is the maturity date. The weighted-average life is calculated using scheduled pay-downs and expected prepayments for amortizing securities. For non-amortizing securities, the weighted-average life is equal to the stated maturity date.

A portion of the securities acquired during the three months ended March 31, 2021 and March 31, 2020 were acquired with the proceeds from advances on our funding agreements with the FHLB. The securities acquired to support these funding agreements often carry a lower average yield than securities acquired to support our other insurance products, due to the shorter maturity and relatively low interest rate paid on those advances. In addition, certain municipal securities acquired are exempt from federal income taxes, and accordingly have a higher actual return than reflected in the yields stated above. The average yield of the securities acquired, excluding the securities supporting the funding agreements and using a tax-adjusted yield for the municipal securities, was 3.13% during the three months ended March 31, 2021 and was 4.73% during the three months ended March 31, 2020.

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Investment Portfolio Summary
March 31, 2021 December 31, 2020
Carrying Value Percent Carrying Value Percent
(Dollars in thousands)
Fixed maturities - available for sale:
Public $ 5,920,167  62.9  % $ 6,139,811  63.4  %
144A private placement 1,809,025  19.2  1,823,768  18.8 
Private placement 298,891  3.2  320,108  3.3 
Total fixed maturities - available for sale 8,028,083  85.3  8,283,687  85.5 
Equity securities 88,564  0.9  88,281  0.9 
Mortgage loans 992,938  10.6  994,101  10.4 
Real estate 955  —  955  — 
Policy loans 191,580  2.0  195,666  2.0 
Short-term investments 42,252  0.5  63,062  0.7 
Other investments 68,424  0.7  58,258  0.5 
Total investments $ 9,412,796  100.0  % $ 9,684,010  100.0  %

As of March 31, 2021, 95.8% (based on carrying value) of the available-for-sale fixed maturities 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, 2021, no single non-investment grade holding exceeded 0.2% of total investments.
Credit Quality by NAIC Designation and Equivalent Rating
March 31, 2021 December 31, 2020
NAIC Designation Equivalent Rating (1) Carrying Value Percent Carrying Value Percent
(Dollars in thousands)
1 AAA, AA, A $ 5,163,977  64.3  % $ 5,440,737  65.7  %
2 BBB 2,532,172  31.5  2,516,020  30.4 
Total investment grade 7,696,149  95.8  7,956,757  96.1 
3 BB 261,219  3.3  256,122  3.1 
4 B 56,382  0.7  57,746  0.7 
5 CCC 10,046  0.1  10,036  0.1 
6 In or near default 4,287  0.1  3,026  — 
Total below investment grade 331,934  4.2  326,930  3.9 
Total fixed maturities - available for sale $ 8,028,083  100.0  % $ 8,283,687  100.0  %

(1)Equivalent ratings are based on those provided by nationally recognized rating agencies with some exceptions for certain residential mortgage, commercial mortgage- and asset-backed securities that are based on the expected loss of the security rather than the probability of default. This may result in a final designation being higher or lower than the equivalent credit rating.
See Note 2 to our consolidated financial statements for a summary of fixed maturities by contractual maturity date.

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Gross Unrealized Gains and Gross Unrealized Losses by Internal Industry Classification
March 31, 2021
Total 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 $ 351,378  $ 338,552  $ 44,589  $ 12,826  $ (1,110)
Capital goods 337,515  296,289  33,807  41,226  (1,167)
Communications 164,341  150,376  20,528  13,965  (809)
Consumer cyclical 190,240  178,485  15,337  11,755  (806)
Consumer non-cyclical 666,542  639,653  84,771  26,889  (2,803)
Energy 434,097  391,989  41,336  42,108  (3,268)
Finance 748,046  697,013  67,869  51,033  (2,659)
Transportation 141,417  124,199  12,194  17,218  (669)
Utilities 851,939  757,159  121,353  94,780  (5,414)
Technology 175,294  156,795  17,164  18,499  (839)
Other 30,799  20,660  2,561  10,139  (791)
Total corporate securities 4,091,608  3,751,170  461,509  340,438  (20,335)
Mortgage- and asset-backed securities 2,527,892  2,129,202  144,817  398,690  (16,269)
United States Government and agencies 39,245  10,369  1,716  28,876  (6,822)
States and political subdivisions 1,369,338  1,287,650  147,496  81,688  (3,222)
Total $ 8,028,083  $ 7,178,391  $ 755,538  $ 849,692  $ (46,648)

December 31, 2020
Total 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 $ 361,658  $ 358,786  $ 63,739  $ 2,872  $ (102)
Capital goods 343,285  341,328  55,049  1,957  (43)
Communications 165,105  160,706  29,896  4,399  (78)
Consumer cyclical 193,800  189,287  24,883  4,513  (473)
Consumer non-cyclical 710,628  704,598  136,956  6,030  (905)
Energy 442,603  419,114  56,920  23,489  (1,724)
Finance 773,430  764,564  96,649  8,866  (693)
Transportation 144,760  144,621  22,195  139  (5)
Utilities 902,980  893,310  188,764  9,670  (219)
Technology 178,839  178,734  26,636  105  — 
Other 21,179  21,179  2,899  —  — 
Total corporate securities 4,238,267  4,176,227  704,586  62,040  (4,242)
Mortgage- and asset-backed securities 2,593,203  2,323,830  227,200  269,373  (7,113)
United States Government and agencies 36,252  12,622  2,887  23,630  (1,809)
States and political subdivisions 1,415,965  1,400,820  188,542  15,145  (785)
Total $ 8,283,687  $ 7,913,499  $ 1,123,215  $ 370,188  $ (13,949)


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Credit Quality of Available-for-Sale Fixed Maturities with Unrealized Losses
March 31, 2021
NAIC 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 $ 624,584  73.5  % $ (32,814) 70.4  %
2 BBB 160,731  18.9  (8,689) 18.6 
Total investment grade 785,315  92.4  (41,503) 89.0 
3 BB 50,937  6.0  (3,797) 8.1 
4 B 13,437  1.6  (1,348) 2.9 
6 In or near default 3  —  —  — 
Total below investment grade 64,377  7.6  (5,145) 11.0 
Total $ 849,692  100.0  % $ (46,648) 100.0  %

December 31, 2020
NAIC 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 $ 269,478  72.8  % $ (6,871) 49.3  %
2 BBB 43,988  11.9  (1,397) 10.0 
Total investment grade 313,466  84.7  (8,268) 59.3 
3 BB 41,906  11.3  (3,317) 23.8 
4 B 14,812  4.0  (2,364) 16.9 
6 In or near default 4  —  —  — 
Total below investment grade 56,722  15.3  (5,681) 40.7 
Total $ 370,188  100.0  % $ (13,949) 100.0  %

Available-For-Sale Fixed Maturities with Unrealized Losses by Length of Time
March 31, 2021
Amortized Cost Gross Unrealized Losses
Fair Value
is Less than 75% of Cost 		Fair Value is
75% or Greater
than Cost 		Fair Value is Less than 75% of Cost Fair Value is
75% or Greater
than Cost
(Dollars in thousands)
Three months or less $ —  $ 601,885  $ —  $ (26,429)
Greater than three months to six months —  49,978  —  (2,045)
Greater than six months to nine months 25,532  80,015  (6,507) (5,725)
Greater than nine months to twelve months —  177  —  (1)
Greater than twelve months —  138,753  —  (5,941)
Total $ 25,532  $ 870,808  $ (6,507) $ (40,141)


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Available-For-Sale Fixed Maturities with Unrealized Losses by Length of Time
December 31, 2020
Amortized Cost Gross Unrealized Losses
Fair Value
is Less than 75% of Cost 		Fair Value is 75% or Greater than Cost Fair Value is Less than 75% of Cost Fair Value is
75% or Greater
than Cost
(Dollars in thousands)
Three months or less $ —  $ 63,287  $ —  $ (1,338)
Greater than three months to six months —  112,343  —  (3,572)
Greater than six months to nine months —  11,786  —  (180)
Greater than nine months to twelve months —  80,799  —  (2,228)
Greater than twelve months —  115,922  —  (6,631)
Total $ —  $ 384,137  $ —  $ (13,949)

Available-For-Sale Fixed Maturities with Unrealized Losses by Maturity Date
March 31, 2021 December 31, 2020
Carrying 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 $ 3,260  $ (65) $ 3,200  $ (133)
Due after one year through five years 7,124  (55) 9,224  (21)
Due after five years through ten years 52,595  (1,811) 14,260  (1,349)
Due after ten years 388,023  (28,448) 74,131  (5,333)
451,002  (30,379) 100,815  (6,836)
Mortgage- and asset-backed 398,690  (16,269) 269,373  (7,113)
Total $ 849,692  $ (46,648) $ 370,188  $ (13,949)

See Note 2 to our consolidated financial statements for additional analysis of these unrealized losses.

Mortgage- and Asset-Backed Securities

Mortgage-backed and other asset-backed 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. See Note 1 to our consolidated financial statements included in Item 8 of our Form 10-K for the year ended December 31, 2020 for more detail on accounting for the amortization of premium and accrual of discount on mortgage-backed and asset-backed securities.

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. We also have a partnership interest in one fund at March 31, 2021 and December 31, 2020, 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 balance sheets with a fair value of $0.8 million at March 31, 2021 and at December 31, 2020. We do not own any direct investments in subprime lenders.

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Mortgage- and Asset-Backed Securities by Collateral Type
March 31, 2021 December 31, 2020
Amortized Cost Carrying Value Percent
of Fixed Maturities 		Amortized Cost Carrying Value Percent
of Fixed Maturities
(Dollars in thousands)
Government agency $ 213,806  $ 233,951  2.9  % $ 202,989  $ 231,161  2.8  %
Prime 385,235  399,332  5.0  384,638  405,016  4.9 
Alt-A 54,758  64,722  0.8  56,717  66,139  0.8 
Subprime 115,684  124,862  1.6  118,705  127,302  1.5 
Commercial mortgage 1,014,949  1,079,827  13.5  991,944  1,136,333  13.7 
Collateralized loan obligation 223,861  222,582  2.8  219,481  217,162  2.6 
Non-mortgage 391,835  402,616  5.0  399,311  410,090  5.0 
Total $ 2,400,128  $ 2,527,892  31.6  % $ 2,373,785  $ 2,593,203  31.3  %

The mortgage- and asset-backed securities can be summarized into three broad categories: residential, commercial and other asset-backed securities.

The residential mortgage-backed portfolio includes government agency pass-through and collateralized mortgage obligation (CMO) securities. With a government agency 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” with varying stated maturities that provide sequential retirement of the bonds. While each tranche receives monthly interest payments, a subsequent tranche is not entitled to receive payment of principal until the entire principal of the preceding tranche is paid off. We primarily invest in sequential tranches, which allow us to manage cash flow stability and prepayment risk by the level of tranche in which we invest. 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. PAC bonds provide more predictable cash flows within a range of prepayment speeds and provide some protection against prepayment risk. TAC bonds provide protection from a rise in the prepayment rate due to falling interest rates. We generally do not purchase certain types of CMOs that we believe would subject the investment portfolio to excessive prepayment risk.
Residential Mortgage-Backed Securities by NAIC Designation and Origination Year
March 31, 2021
2004 & Prior 2005 to 2008 2009 & After Total
NAIC Designation Amortized
Cost 		Carrying
Value 		Amortized
Cost 		Carrying
Value 		Amortized
Cost 		Carrying
Value 		Amortized
Cost 		Carrying
Value
(Dollars in thousands)
1 $ 35,890  $ 37,586  $ 48,721  $ 63,544  $ 552,379  $ 578,002  $ 636,990  $ 679,132 
2 3,436  3,429  —  —  —  —  3,436  3,429 
3 583  566  123  121  2,370  2,410  3,076  3,097 
4 4,403  3,781  491  389  —  —  4,894  4,170 
5 —  —  6,876  8,447  —  —  6,876  8,447 
6 3  3  —  —  —  —  3  3 
Total $ 44,315  $ 45,365  $ 56,211  $ 72,501  $ 554,749  $ 580,412  $ 655,275  $ 698,278 

December 31, 2020
2004 & Prior 2005 to 2008 2009 & After Total
NAIC Designation Amortized
Cost 		Carrying
Value 		Amortized
Cost 		Carrying
Value 		Amortized
Cost 		Carrying
Value 		Amortized
Cost 		Carrying
Value
(Dollars in thousands)
1 $ 37,892  $ 40,008  $ 53,930  $ 67,889  $ 537,274  $ 577,319  $ 629,096  $ 685,216 
2 3,659  3,667  —  —  —  —  3,659  3,667 
3 591  567  139  136  —  —  730  703 
4 4,457  3,885  549  447  —  —  5,006  4,332 
5 —  —  7,008  8,197  —  —  7,008  8,197 
6 4  4  —  —  —  —  4  4 
Total $ 46,603  $ 48,131  $ 61,626  $ 76,669  $ 537,274  $ 577,319  $ 645,503  $ 702,119 

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The commercial mortgage-backed securities (CMBS) are primarily sequential securities. CMBS 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.
Commercial Mortgage-Backed Securities by NAIC Designation and Origination Year
March 31, 2021
2004 & Prior 2005 to 2008 2009 & After Total
NAIC Designation Amortized
Cost 		Carrying
Value 		Amortized
Cost 		Carrying
Value 		Amortized
Cost 		Carrying
Value 		Amortized
Cost 		Carrying
Value
(Dollars in thousands)
1 $ 7,262  $ 8,046  $ 91,567  $ 106,622  $ 846,498  $ 890,599  $ 945,327  $ 1,005,267 
2 —  —  40,875  45,032  21,521  22,129  62,396  67,161 
3 —  —  —  —  7,226  7,399  7,226  7,399 
Total (1) $ 7,262  $ 8,046  $ 132,442  $ 151,654  $ 875,245  $ 920,127  $ 1,014,949  $ 1,079,827 

December 31, 2020
2004 & Prior 2005 to 2008 2009 & After Total
NAIC Designation Amortized
Cost 		Carrying
Value 		Amortized
Cost 		Carrying
Value 		Amortized
Cost 		Carrying
Value 		Amortized
Cost 		Carrying
Value
(Dollars in thousands)
1 $ 7,396  $ 8,453  $ 91,675  $ 113,610  $ 823,004  $ 934,637  $ 922,075  $ 1,056,700 
2 —  —  41,084  49,229  21,544  22,987  62,628  72,216 
3 —  —  —  —  7,242  7,417  7,242  7,417 
Total (1) $ 7,396  $ 8,453  $ 132,759  $ 162,839  $ 851,790  $ 965,041  $ 991,945  $ 1,136,333 

(1)    The CMBS portfolio included government agency-backed securities with a carrying value of $849.7 million at March 31, 2021 and $911.4 million at December 31, 2020. Also included in the CMBS portfolio are military housing bonds totaling $157.6 million at March 31, 2021 and $170.0 million at December 31, 2020. These bonds are used to fund the construction of multi-family homes on United States military bases. The bonds are backed by a first mortgage lien on residential military housing projects.

The other asset-backed securities are backed by both residential and non-residential collateral. The collateral for residential 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, auto installment loans, aircraft leases, middle market and syndicated business loans, timeshare receivables and trade and account receivables. The majority of these securities are high quality, short-duration assets with limited cash flow variability.

Our CLO portfolio included in other asset-backed securities is high quality, with all of the securities rated NAIC-1. Internal stress testing has indicated that the weighted average constant default rate (CDR) of our portfolio without suffering loss is 17%. The CDR is the constant default rate (annually) that a CLO must suffer before our tranche takes its first dollar loss.
Other Asset-Backed Securities by NAIC Designation and Origination Year
March 31, 2021
2004 & Prior 2005 to 2008 2009 & After Total
NAIC Designation Amortized
Cost 		Carrying
Value 		Amortized
Cost 		Carrying
Value 		Amortized
Cost 		Carrying
Value 		Amortized
Cost 		Carrying
Value
(Dollars in thousands)
1 $ 2,940  $ 2,906  $ 115,494  $ 126,588  $ 467,101  $ 471,695  $ 585,535  $ 601,189 
2 —  —  —  —  124,602  129,932  124,602  129,932 
3 2,092  1,951  —  —  11,994  12,054  14,086  14,005 
4 1,116  1,185  —  —  2,838  2,533  3,954  3,718 
5 —  —  —  —  1,727  943  1,727  943 
Total $ 6,148  $ 6,042  $ 115,494  $ 126,588  $ 608,262  $ 617,157  $ 729,904  $ 749,787 


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Other Asset-Backed Securities by NAIC Designation and Origination Year
December 31, 2020
2004 & Prior 2005 to 2008 2009 & After Total
NAIC Designation Amortized
Cost 		Carrying
Value 		Amortized
Cost 		Carrying
Value 		Amortized
Cost 		Carrying
Value 		Amortized
Cost 		Carrying
Value
(Dollars in thousands)
1 $ 3,196  $ 3,120  $ 118,478  $ 129,822  $ 471,367  $ 475,762  $ 593,041  $ 608,704 
2 —  —  —  —  123,376  127,292  123,376  127,292 
3 2,204  2,045  —  —  11,965  11,995  14,169  14,040 
4 1,179  1,256  —  —  2,846  2,401  4,025  3,657 
5 —  —  —  —  1,727  1,058  1,727  1,058 
Total $ 6,579  $ 6,421  $ 118,478  $ 129,822  $ 611,281  $ 618,508  $ 736,338  $ 754,751 

State and Political Subdivision Securities

State and political subdivision securities totaled $1,369.3 million, or 17.1% of total fixed maturities, at March 31, 2021, and $1,416.0 million, or 19.2% of total fixed maturities at December 31, 2020 and include investments in general obligation, revenue 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. Our municipal bonds are well diversified by type and geography with the top exposure being water and sewer revenue bonds. Our municipal bond holdings were trading at 111.8% of amortized cost at March 31, 2021. We do not hold any Puerto Rico-related bonds. Exposure to the state of Illinois and municipalities within the state accounted for 1.1% of our total fixed maturities at March 31, 2021. As of March 31, 2021, our Illinois-related portfolio holdings were rated investment grade and were trading at 117.6% of amortized cost.

Mortgage Loans

Mortgage loans totaled $992.9 million at March 31, 2021 and $994.1 million at December 31, 2020. Our mortgage loans are diversified as to property type, location and loan size, and are collateralized by the related properties. The total number of commercial mortgage loans outstanding was 213 at March 31, 2021 and 212 at December 31, 2020. In the first three months of 2021, new loans ranged from $2.9 million to $14.7 million in size, with an average loan size of $6.7 million, an average loan term of 13 years and an average net yield of 3.26%. 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 4.3% that are interest-only loans as of March 31, 2021. At March 31, 2021, the average loan-to-value of the current outstanding principal balance using the most recent appraised value was 49.9% and the weighted average debt service coverage ratio was 1.7 based on the results of our 2019 annual study. See Note 2 to our consolidated financial statements for further discussion regarding our mortgage loans.


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Other Assets and Liabilities
March 31,
2021 		December 31,
2020 		Percentage change
Selected other assets:
Cash and cash equivalents 70,854  12,882  450.0  %
Reinsurance recoverable 108,640  115,168  (5.7) %
Deferred acquisition costs 282,682  176,085  60.5  %
Other assets 155,996  152,929  2.0  %
Assets held in separate accounts 686,968  674,182  1.9  %
Selected other liabilities:
Future policy benefits 7,773,635  7,616,272  2.1  %
Other policyholder funds 602,443  602,989  (0.1) %
Deferred income taxes 150,654  211,180  (28.7) %
Other liabilities 100,012  102,127  (2.1) %
Liabilities held in separate accounts 686,968  674,182  1.9  %

Cash and cash equivalents increased primarily due to normal fluctuations in timing of payments made and received. Deferred acquisition costs increased compared to the prior year end primarily due to a $105.2 million decrease in the impact of the change in net unrealized appreciation on fixed maturity securities during the period. Assets and liabilities held in separate accounts increased due to investment earnings, partially offset by charges, surrenders and benefits on this closed block of business.

Future policy benefits increased primarily due to increases in our funding agreements with the FHLB. Deferred income taxes decreased primarily due to the tax impact of the change in unrealized appreciation/depreciation on investments.


Stockholders’ Equity
March 31,
2021 		December 31,
2020 		Percentage change
(dollars in thousands, except per share data)
Total FBL Financial Group, Inc. stockholders’ equity $ 1,489,909  $ 1,692,099  (11.9) %
Common stockholders’ equity 1,486,909  1,689,099  (12.0) %
Book value per share $ 60.95  $ 69.24  (12.0) %
Less: Per share impact of accumulated other comprehensive income 15.17  24.08  (37.0) %
Book value per share, excluding accumulated other comprehensive income (1) $ 45.78  $ 45.16  1.4  %

(1)Book value per share excluding accumulated other comprehensive income is a non-GAAP financial measure. Since accumulated other comprehensive income fluctuates from quarter to quarter due to unrealized changes in the fair value of investments caused principally by changes in market interest rates, we believe this non-GAAP financial measure provides useful supplemental information.

Our stockholders’ equity decreased compared to the prior year end primarily due to the change in unrealized appreciation on fixed maturity securities during the period and dividends paid, partially offset by net income.



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Liquidity and Capital Resources

Cash Flows

During the first three months of 2021, our operating activities generated cash flows totaling $36.5 million, consisting of net income of $27.6 million adjusted for non-cash operating revenues and expenses netting to $8.9 million. We used cash of $120.1 million in our investing activities during the 2021 period. The primary uses were $383.3 million of investment acquisitions, mostly in fixed maturity securities, partially offset by $246.2 million in sales, maturities and repayments of investments. Our financing activities provided cash of $141.6 million during the 2021 period. The primary financing source was $259.5 million in receipts from interest sensitive products credited to policyholder account balances, which was offset by $105.2 million for return of policyholder account balances on interest sensitive products and $12.7 million for dividends paid to stockholders. The change in policyholder account balances includes a net increase of $140.8 million in funding agreements with the FHLB during the first three months of 2021.

Sources and Uses of Capital Resources

Parent company cash inflows from operations consist primarily of fees that it charges various subsidiaries and affiliates for management of their operations, expense reimbursements and tax settlements from subsidiaries and affiliates, investment income, and dividends from subsidiaries, if declared and paid. Revenue sources for the parent company during the three months ended March 31, 2021 included management fees from subsidiaries and affiliates totaling $2.0 million and dividends of $12.5 million. Cash outflows are principally for salaries, taxes and other expenses related to providing management services, contributions to non-insurance subsidiaries, dividends on outstanding stock, stock repurchases and interest on our parent company debt. During the first quarter 2021, our parent company also incurred $2.6 million in expenses related to the proposed merger transaction discussed in Note 1 to our consolidated financial statements.

We paid regular cash dividends on our common and preferred stock during the three-month period ended March 31 totaling $12.7 million in 2021 and $12.4 million in 2020. In addition, we paid a special $1.50 per common share cash dividend totaling $37.0 million in March 2020. Under the Merger Agreement, the Company is permitted to declare and pay, and has agreed to declare and pay, quarterly cash dividends of $0.52 per share of common stock. Common stock dividend rates are analyzed quarterly and are dependent upon our capital and liquidity positions. In addition, alternative uses of excess capital may impact future dividend levels. Assuming these quarterly dividend rates, the common and preferred dividends would total approximately $38.2 million for the remainder of 2021. The parent company expects to have sufficient resources and cash flows to meet its interest and dividend payments throughout 2021. The parent company had available cash and investments totaling $28.1 million at March 31, 2021. The parent company expects to rely on available cash resources, dividends from Farm Bureau Life and management fee income to make dividend payments to its stockholders, interest payments on its debt and to fund any capital initiatives such as stock repurchases. In addition, our parent company and Farm Bureau Life have entered into a reciprocal line of credit arrangement, which provides additional liquidity for either entity up to $20.0 million. We had no material commitments for capital expenditures as of March 31, 2021.

As discussed in Note 6 to our consolidated financial statements, we have periodically taken advantage of opportunities to repurchase our outstanding Class A common stock through Class A common stock repurchase programs approved by our Board of Directors. At March 31, 2021, $26.3 million remains available for repurchase under the current Class A common stock repurchase program. Under this program, we had no repurchases during the three months ended March 31, 2021. Completion of this program is dependent on market conditions and other factors. There is no guarantee as to the exact timing of any repurchases or the number of shares that we will repurchase. The share repurchase program may be modified or terminated at any time without prior notice. Under the Merger Agreement, we have agreed not to repurchase any additional shares of our capital stock from the date of the Merger Agreement through the closing of the Merger, subject to certain exceptions, including pursuant to our equity awards plans.

Interest payments on our debt totaled $1.2 million for the three months ended March 31, 2021 and March 31, 2020. Interest payments on our debt outstanding at March 31, 2021 are estimated to be $3.6 million for the remainder of 2021.

Farm Bureau Life’s cash inflows primarily consist of premiums; deposits to policyholder account balances; income from investments; sales, maturities and calls of investments; and repayments of investment principal. Farm Bureau Life’s cash outflows are primarily related to withdrawals of policyholder account balances, investment purchases, payment of policy acquisition costs, policyholder benefits, income taxes, current operating expenses and dividends. Life insurance companies generally produce a positive cash flow that may be measured by the degree to which cash inflows are adequate to meet benefit

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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. Continuing operations and financing activities from Farm Bureau Life relating to interest sensitive products provided funds totaling $199.8 million for the three months ended March 31, 2021 and $135.8 million for the prior year period.

Farm Bureau Life’s ability to pay dividends to the parent company is limited by law to earned profits (statutory unassigned surplus) as of the date the dividend is paid, as determined in accordance with accounting practices prescribed by insurance regulatory authorities of the State of Iowa. At December 31, 2020, Farm Bureau Life’s statutory unassigned surplus was $494.6 million. There are certain additional limits on the amount of dividends that may be paid within a year without approval of the Insurance Division, Department of Commerce of the State of Iowa as discussed in Note 7 to our consolidated financial statements included in Item 8 of our Form 10-K for the year ended December 31, 2020. During the remainder of 2021, the maximum amount legally available for distribution to the parent company without further regulatory approval is $74.9 million.

We manage the amount of capital held by our insurance subsidiaries to ensure they meet regulatory requirements. State laws specify regulatory actions if an insurer’s risk-based capital (RBC) ratio, a measure of solvency, falls below certain levels. The NAIC has a standard formula for annually assessing RBC based on the various risk factors related to an insurance company’s capital and surplus, including insurance, business, asset and interest rate risks. The insurance regulators monitor the level of RBC against a statutory “authorized control level” RBC at which point regulators have the option to assume control of the insurance company. The company action level RBC is 200% of the authorized control level and is the first point at which any action would be triggered. Our adjusted capital and RBC is reported to our insurance regulators annually based on formulas that may be revised throughout the year. We estimate our adjusted capital and RBC quarterly; however, these estimates may differ from actual results. As of March 31, 2021, Farm Bureau Life’s statutory total adjusted capital is estimated at $721.5 million, resulting in an RBC ratio of 531%, based on company action level capital of $135.9 million.

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. COVID-19 continues to have a significant impact to the U.S. economy. Although there have been economic impacts associated with COVID-19, we expect to continue generating sufficient funds from operations to maintain sufficient liquidity. Our investment portfolio at March 31, 2021, included $42.3 million of short-term investments, $70.9 million of cash and cash equivalents and $1,861.6 million in carrying value of U.S. Government and U.S. Government agency backed securities that could be readily converted to cash at or near carrying value. In addition, Farm Bureau Life is a member of the FHLB, which provides a source for additional liquidity, if needed. This membership allows us 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 the market value of eligible collateral, our level of statutory admitted assets and excess reserves and our willingness or capacity to hold activity-based FHLB common stock.

Merger Agreement

Under the Merger Agreement, we are required to pay a termination fee of up to $20.1 million, if the Merger Agreement is terminated in specified circumstances, and reimburse the out-of-pocket expenses of FBPCIC, Merger Sub and their respective affiliates up to a maximum of $5.3 million, if the Merger Agreement is terminated in specified circumstances.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risks of Financial Instruments
 
There have been no material changes in the market risks from the information provided in “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Form 10-K for the fiscal year ended December 31, 2020.

The COVID-19 pandemic presents additional uncertainty to financial markets. See Item II, Management’s Discussion and Analysis, “Impact of COVID-19 and Recent Business Environment.”



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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 (the Act) 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. While changes have taken place in our internal controls during the quarter ended March 31, 2021, 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 1A. RISK FACTORS

The performance of our company is subject to a variety of risks that you should review. Occurrence of these risks could materially affect our business, results of operations or financial condition, cause the trading price of our common stock to decline materially or cause our actual results to differ materially from those expected or those expressed in any forward looking statements made by or on behalf of the Company. Please refer to Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

We are supplementing the risk factors previously disclosed in such report as follows:

Risks relating to the proposed Merger

The proposed Merger may not be completed within the expected timeframe, or at all, and the failure to complete the Merger could adversely affect our business and the market price of our common stock.

On May 2, 2021, we entered into the Merger Agreement Amendment, which amended the Original Agreement. The Merger Agreement is an executory contract subject to closing conditions beyond our control, and there is no guarantee that these conditions will be satisfied in a timely manner or at all.

Completion of the Merger is subject to various conditions, including the adoption of the Merger Agreement by the affirmative vote of (i) holders of at least a majority of all outstanding Class A common shares and Series B preferred shares, voting together as a single class, (ii) holders of at least a majority of all outstanding Class B common shares and (iii) holders of at least a majority of all outstanding Common Shares held by all of the holders of outstanding Common Shares (excluding IFBF and its affiliates, FBPCIC and its affiliates, and the directors and officers of IFBF, FBPCIC and each of their respective affiliates), in each case, entitled to vote on such matter at a meeting of shareholders duly called and held for such purpose (the Required Shareholder Vote), among other things. If any of the conditions to the proposed Merger are not satisfied (or waived by the other party), the Merger may not be completed. In addition, the Merger Agreement may be terminated under certain specified circumstances, including if the Merger has not been consummated on or prior to July 11, 2021 (unless automatically extended to September 11, 2021 if all closing conditions are satisfied other than receipt of the required regulatory consents). Failure to complete the Merger could adversely affect our business and the market price of our common stock in a number of ways, including the following:

•If the Merger is not completed, and there are no other parties willing and able to acquire the Company at a price of $61.00 per share or higher, on terms acceptable to us, our stock price may decline as our stock has recently traded at prices based on the proposed per share consideration for the Merger.

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•We have incurred, and will continue to incur, significant costs, expenses and fees for professional services and other transaction costs in connection with the proposed Merger, for which we will have received little or no benefit if the Merger is not completed. Many of these fees and costs will be payable by us even if the Merger is not completed and may relate to activities that we would not have undertaken other than to complete the Merger.
•A failed Merger may result in negative publicity and a negative impression of us in the investment community.
•Upon termination of the Merger Agreement by FBPCIC under specified circumstances, we would be required to pay a termination fee of $20,127,059.
•Upon termination of the Merger Agreement by the Company or FBPCIC because the Required Shareholder Vote is not obtained, we would be required to pay FBPCIC $5,279,229 as a reimbursement of expenses.

The Merger Agreement contains provisions that could discourage or make it difficult for a third party to acquire us prior to the completion of the proposed Merger.

The Merger Agreement contains provisions that restrict our ability to entertain a third party proposal to acquire us. These provisions include the general prohibition on initiating, soliciting, or knowingly facilitating or assisting any inquiries or the making of any proposal or offer that is, or would reasonably be expected to lead to, any acquisition proposal, subject to certain exceptions. We are also required to pay a termination fee of up to $20,127,059 if the Merger Agreement is terminated in specified circumstances, including if our board of directors takes certain actions recommending against the Merger. These provisions might discourage an otherwise-interested third party from proposing an acquisition proposal, even one that may be deemed of greater value than the proposed Merger to our shareholders. Furthermore, even if a third party elects to propose an acquisition, our obligation to pay a termination fee may result in that third party offering a lower value to our shareholders than such party might otherwise have offered.


ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(c) Issuer Repurchases of Equity Securities

We had no issuer repurchases of equity securities for the quarter ended March 31, 2021. We have $26.3 million available under the repurchase program announced on March 1, 2018, which will expire March 31, 2022. The program authorizes us to make repurchases of Class A common stock in the open market or through privately negotiated transactions, with the timing and terms of the purchases to be determined by management based on market conditions. Completion of the program is dependent on market conditions and other factors. There is no guarantee as to the exact timing of any repurchases or the number of shares, if any, that we will repurchase. The share repurchase program may be modified or terminated at any time without prior notice. Under the Merger Agreement, we have agreed not to repurchase any additional shares of our capital stock from the date of the Merger Agreement through the closing of the Merger, subject to certain exceptions, including pursuant to our equity awards plans.


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ITEM 6. EXHIBITS

(a) Exhibits:
2.1
2.1(a)
2.2
2.2(a)
10.1*+
10.2*+
10.3
31.1+
31.2+
32+
101+ Interactive Data Files formatted in iXBRL (Inline eXtensible Business Reporting Language) from FBL Financial Group, Inc.’s Quarterly Report on Form 10-Q for the period ended March 31, 2021 as follows: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statement of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Financial Statements
104 Cover Page Interactive Data File formatted as iXBRL (Inline eXtensible Business Reporting Language) and contained in Exhibit 101.
+ Filed herewith
* 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 6, 2021                

FBL FINANCIAL GROUP, INC.
By /s/ Daniel D. Pitcher
Daniel D. Pitcher
Chief Executive Officer (Principal Executive Officer)
By /s/ Donald J. Seibel
Donald J. Seibel
Chief Financial Officer and Treasurer (Principal Financial Officer)
By /s/ Anthony J. Aldridge
Anthony J. Aldridge
Chief Accounting Officer (Principal Accounting Officer)


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