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FBL Financial Group Inc. Reports Operating Results (10-Q)

November 05, 2009 | About:
10qk

10qk

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FBL Financial Group Inc. (FFG) filed Quarterly Report for the period ended 2009-09-30.

FBL FINANCIAL GROUP INC. is a holding company and hrough its subsidiaries underwrites markets and distributes life insurance annuities property-casualty insurance and mutual funds to individuals and small businesses in 15 midwestern and western states. The Company has exclusive marketing arrangements with the state Farm Bureau Federations in its territory and targets sales to approximately 700000 Farm Bureau member families and other rural small town andsuburban residents through an exclusive agency force. The Company offers a full range of life insurance products. Fbl Financial Group Inc. has a market cap of $601.1 million; its shares were traded at around $19.73 with a P/E ratio of 12.7 and P/S ratio of 0.9. The dividend yield of Fbl Financial Group Inc. stocks is 1.3%. Fbl Financial Group Inc. had an annual average earning growth of 9.1% over the past 10 years.

Highlight of Business Operations:

The increase in the withdrawal rate for the Traditional Annuity - Independent Distribution segment in 2009 is primarily due to the impact of low U.S. Treasury yields on the MVA feature for our direct fixed annuity products, which provided an environment where contract holders could surrender with smaller net surrender charges. Additional details on this feature are discussed above in the "Impact of Recent Business Environment" section. Surrender benefits on the EquiTrust Life direct fixed annuity contracts paid during 2009 by month were as follows: January - $88.9 million, February - $65.7 million, March - $147.6 million, April - $187.6 million, May - $96.0 million, June - $69.4 million, July - $43.0 million, August - $28.9 million and September - $32.5 million.

Net income attributable to FBL Financial Group, Inc. (FBL Net Income) was $15.9 million in the third quarter of 2009 compared to $11.2 million for the 2008 period and was $38.8 million for the nine-months ended September 30, 2009 compared to $1.1 million for the 2008 period. As discussed in detail below, the increase in the third quarter was primarily due to a decrease in impairment losses on investments and improved mortality experience, partially offset by the impact of the change in unrealized gains and losses on derivatives. The increase for the nine-month period was primarily due to realized capital gains on the sale of investments, a decrease in impairment losses on investments and the impact of an increase in the volume of business in force in the Traditional Annuity - Exclusive Distribution and Traditional and Universal Life Insurance segments. These items were partially offset by the impact of the change in unrealized gains and losses on derivatives and increased surrenders in the Traditional Annuity - Independent Distribution segment. The increase in volume of business in force is quantified by summarizing the face amount of insurance in force for traditional life products or account values of contracts in force for interest sensitive products. The face amount of life insurance in force represents the gross death benefit payable to policyholders and account value represents the value of the contract to the contract holder before application of surrender charges or reduction for any policy loans outstanding. The following discussion provides additional details on the items impacting FBL Net Income.

Effective October 1, 2009, we entered into an agreement with EMC National Life Company (EMCNL), under which EMCNL recaptured a block of annuity and life insurance policies with reserves totaling $249.8 million. We originally assumed this business as part of a closed block transaction in 2001. An after-tax gain of approximately $9.4 million ($0.31 per basic and diluted common share) will be recorded in the fourth quarter of 2009 in connection with this transaction. The forgone after-tax earnings from this block of business, after reinvestment of proceeds, are approximately $0.7 million per quarter.

Surrender charges totaled $11.2 million for the third quarter of 2009 and $59.0 million for the nine months ended September 30, 2009 compared to $9.4 million and $23.9 million in the 2008 periods. Surrender charges increased due to the impact of MVAs on certain products sold by our EquiTrust Life independent distribution, as discussed in the "Impact of Recent Business Environment" section above.

Net investment income, which excludes investment income on separate account assets relating to variable products, decreased 0.9% in the third quarter of 2009 to $180.2 million and increased 4.7% to $547.0 million for the nine-month period. The decrease for the quarter is primarily due to the decrease in short-term rates and holding higher cash and short-term investment balances in order to maintain a more liquid position for financial flexibility, partially offset by an increase in average invested assets. The increase in the nine-month period is primarily due to an increase in average invested assets. Average invested assets in the nine-month period of 2009 increased 5.6% to $12,347.8 million (based on securities at amortized cost) from $11,688.8 million in the 2008 period, principally due to net premium inflows from the Life Companies during the twelve-month period ended September 30, 2009. The annualized yield earned on average invested assets decreased to 6.09% in the nine months ended September 30, 2009 from 6.11% in the respective 2008 period. The decrease in yield is primarily due to holding higher cash and short-term investment balances. In addition, short-term interest rates have declined significantly. The yield on our primary short-term investment account was less than 0.1% at September 30, 2009 compared to 1.9% at September 30, 2008.

Fee income from bond calls, tender offers and mortgage loan prepayments totaled $2.1 million in the nine months ended September 30, 2009 compared to $1.7 million in the respective 2008 period. Net investment income also includes $1.8 million in the nine months ended September 30, 2009 compared to ($0.3) million in the 2008 respective period from the change in net discount accretion on mortgage and asset-backed securities resulting from changing prepayment speed assumptions at the end of each period.

Read the The complete ReportFFG is in the portfolios of Richard Pzena of Pzena Investment Management LLC.

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