FBL Financial Group, Inc.
Q4 2007 Earnings Call Transcript

Published: 22 Feb 2008

[Operator:]

Good day, everyone, and welcome to the FBL Financial Group fourth quarter 2007 earnings conference call. Today’s call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Ms. Kathleen Till Stange.

[Kathleen Till Stange:]

Thank you. Good morning, and welcome to FBL Financial Group’s conference call to discuss fourth quarter 2007 earnings. If you don’t already have a copy, our earnings release and financial supplement may be found on our website at www.fblfinancial.com. Presenting on today’s call are Jim Noyce, Chief Executive Officer and Jim Brannen, Chief Financial Officer. Also present and available to answer any questions you may have are John Paule, Executive Vice President of EquiTrust Life; JoAnn Rumelhart, Executive Vice President of Farm Bureau Life; Rich Kypta, Senior Vice President and General Counsel; and Don Seibel, Vice President-Finance. Some of the comments made during this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. There are a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied. Factors that could cause actual results to differ materially are discussed in our filings with the SEC. Comments during this call also include certain non-GAAP financial measures. These items are reconciled to GAAP in our fourth quarter earnings release and our quarterly financial supplement both of which may be found or our website. Today’s call is being simulcast on FBL’s website shortly after today’s call. On our site you will find a transcript of today’s prepared comments and an audio replay of the call. It is my pleasure to now turn the call over to CEO, Jim Noyce.

[James W. Noyce:]

Thank you, Kathleen. Good morning and welcome to all of you on today’s call. We had another outstanding quarter to wrap up 2007 with net income of $0.39 per share and operating income of $0.82 per share. I am pleased to say that despite all of the turbulence and volatility in the marketplace, we were able to again this year deliver record operating earnings. This quarter we set a new high for operating income at $0.82 per share and a new record high for full year operating results of $3.15, well above our original operating income guidance of $2.80 to $2.95 that we gave in January of 2007. With this earnings announcement we also gave full year 2008 operating income guidance of a range from $3.15 to $3.30 per share. So as you can see, our outlook for 2008 is also positive. In a moment, Jim Brannen will be discussing our sales and earnings results for the quarter as well as our earnings guidance in more detail. Usually I devote my conference call comments to sales and other activities, but given that markets are so volatile and the majority of the questions and concerns regarding financial services companies lately have to do with investment issues, I thought it would be worthwhile for me to devote most of my time today to our investment portfolio and the strength of our balance sheet. At year-end 2007, we had investments totaling $11.1 billion. These investments are diversified by asset class, industry, and individual issue. Our portfolio is of high quality, with more than 96% of our fixed maturity securities being investment grade. We are very disciplined in terms of sector weightings and security selection. We manage our credit exposure on an enterprise-wide basis and have a formal Investment Committee and a formal Credit Committee in place. These committees, which meet regularly, are responsible for setting limits for each credit exposure. I’ll break these investments down by category and comment on each, starting with government securities. Our government securities total $554 million and comprise 5% of our portfolio. The majority of these are callable agency securities. Next we have the credit category, consisting of corporate and municipal bonds. Over the past several years most of our new money has been invested in investment grade corporate bonds as we work to decrease our exposure to structured securities. Corporate bonds, which includes public utilities, currently comprise $5 billion or 45.2% of our portfolio. 93% of these are investment grade and are well diversified by industry and individual issue. We also include investments in municipal bonds in the credit category. We have $1.3 billion or 11.2% of our portfolio in municipal bonds. Our strategy is to utilize municipal bonds as a substitute for corporate bonds, as we believe they provide additional diversification and have historically low default rates when compared with corporates. We underwrite these securities based on the underlying credit quality of the bond, just like we do corporate securities, and do not rely on the insurance RAP in our investment decisions. We consider any added insurance protection to be icing on the cake. The majority of the municipal bonds we hold are investment grade credits without consideration of insurance. While the insolvency of a bond insurer would be a meaningful short-term liquidity event, I don’t see it as dramatically increasing our investment portfolio’s risk profile. As an aside, we do not directly own any fixed income or equity investments of bond insurers. The next category of investments in our portfolio is commercial mortgage loans. These total $1.2 billion and represent 11% of our investment portfolio. These are seasoned and well diversified by geography and property type. We underwrite these very conservatively, have a long history of extremely low delinquency rates, and none are currently in default. The final category of investments that I’ll mention is structured securities, which with all of the subprime and default news, has been the hot topic lately. These structured products make up $2.7 billion or 24.1% of our investment portfolio. They break down into residential mortgage-backed securities, which are 16.7%; commercial mortgage-backed securities at 5.1%; and asset-backed securities at 2.3%. This allocation to structured products is relatively high compared to other life insurance companies. We purchased these securities when we felt they offered a very attractive risk return scenario and they have served us well. Our investment portfolio’s allocation to structured products hit its peak in 2004 and has been declining since that time as we put most of our new money into corporate bonds. Therefore, this structured portfolio is seasoned with most securities in the 2003 and 2004 vintage years with subordination that has increased since origination. Additionally, much of our residential mortgage-backed portfolio has collateral with lower loan to value ratios than more recent vintage years because the loans were originated before much of the run-up in real estate values and there have been principal pay downs. Our residential mortgage-backed securities are agency or private label issues. All of them are fixed rate, AAA rated, and the majority are very simple structures, either direct pass throughs, sequential payers, or PAC structures. The commercial and other asset-backed securities are primarily sequential securities. Our commercial mortgage-backed securities have cash flows that are less sensitive to interest rate changes than residential mortgage-backed securities because of the prepayment restrictions on many of the underlying commercial mortgage loans. Our other asset-backed securities are made up primarily of home-equity loans. Within this structured product category, we do have some minimal exposure to subprime securities. At year-end, we had three subprime securities with a market value totaling $29 million. This exposure is small and represents only three-tenths of 1% of our total investments. These subprime issues are all AAA-rated, fixed rate and were originated in 2005. We also have exposure to Alt-A securities with a market value totaling $729 million. All are fixed rate, all but $12 million are AAA-rated, and the majority are vintage years 2004 and earlier. While I certainly can make no promises that the fundamental issues causing the problems in the subprime market will not leak into the Alt-A and prime market, I am comfortable with our structured product portfolio for several reasons. First, it is all fixed rate, in other words we have no exposure to adjustable rate mortgages. I believe this is a key differentiating factor. We have never been comfortable with adjustable rate mortgages, as some of the lending practices and economics just didn’t make sense to us. So we’ve avoided this category, and now are glad we did. Second, these are primarily older vintage years, which are seasoned and the subordination has increased. Third, the majority of the asset-backed securities, which have more potential issues or problems, are wrapped. And, for all of our investments, not just structured products, we have extensive risk management procedures in place. We will obviously monitor very closely the subprime and Alt-A exposures that we have. Not surprisingly, our watch list of potential impairments has grown. In particular, we are closely monitoring one CDO, which has some subprime collateral exposure and has been impacted by the loss of market liquidity. While I cannot guarantee that we’ll never have any losses, I can tell you that I feel very well positioned with our current high quality and diverse investment portfolio. Next, I want to mention an announcement that we made a few weeks ago. JoAnn Rumelhart, Executive Vice President of Farm Bureau Life, will be retiring from FBL after nearly 30 years with the company. We will miss JoAnn and her dedication and leadership, but I am confident that Farm Bureau Life will continue to grow and succeed. Rich Kypta, FBL’s Senior Vice President and General Counsel, will be assuming management of Farm Bureau Life in addition to his current responsibilities. He has extensive operational experience, most recently with Aviva USA and prior to that AEGON. To conclude, 2007 was a very successful year for FBL Financial Group as demonstrated by the record operating results achieved. We have the strategies in place for continued success in 2008 and beyond. We have proven growth strategies with our solid base in the Farm Bureau Life marketplace and our growing EquiTrust Life independent distribution channel. With these strategies, a strong balance sheet, and our capital strength, we remain excited and optimistic about the outlook for FBL Financial Group. With that, I will turn it over to Jim Brannen for the financial review.

[James P. Brannen:]

A highlight to the quarter, in addition to the record operating income achieved, was sales. Farm Bureau Life achieved record levels of production, despite a slowdown in annuity sales, and EquiTrust Life was able to beat its full year production target of $1.4 billion, despite weak sales in the first half of the year. EquiTrust Life ended the year with the total 2007 premiums collected of $1.57 billion. For the fourth quarter, premiums collected totaled $630 million. Farm Bureau Life achieved a 4% increase in premiums collected with total quarterly premiums of $113 million. The good news here is that our traditional and universal life insurance sales continued to increase and were up 8% from the year-ago quarter. Variable product sales were also very strong, up 22% for the quarter. At the same time, traditional annuity sales in this channel were down 18% from the year-ago quarter. This reflects competition from products like bank CDs, and is also correlated to the increased variable sales by our Farm Bureau Life agents. Sales levels at EquiTrust Life were also excellent this quarter. Our EquiTrust Life independent channel achieved total premiums collected for the quarter of $505 million, which is an 11% increase from the fourth quarter of 2006. This was made up of $284 million of fixed rate annuities and $221 million of index annuities. The fixed rate annuity business is rate sensitive and we are very nimble in making rate changes, as dictated by rates we are able to earn on our investments. During the fourth quarter, because of the interest rate environment, we made rate decreases on this product three times. Our products are priced competitively and for profitability, but at times that can cause sales to fluctuate a bit more. EquiTrust Life’s index annuity sales were solid for the quarter at $221 million, which is up 4% from the third quarter of ‘07. The competitive environment for index annuities continues to be intense. In October, we added a monthly sum cap index crediting method to our MarketTen products and also added it in December to our popular MarketPower Bonus product. The response to date has been positive. Going forward each year we would expect continued incremental growth from our EquiTrust Life independent channel business. Based on the current economic and interest rate environment, for 2008 we would expect sales to be roughly the same level as achieved in 2007. We will continue to strive to achieve the right balance between sales growth and profitability. Now I’ll turn to earnings results for the quarter, which were record operating income of $0.82 per share and net income of $0.39 per share. Now, again this quarter, there was a large difference between operating income and net income, and this is primarily due to FAS 133 which is the accounting standard that requires derivatives to be recorded at market. As you know, results from this standard are often volatile, which is one of the reasons why it is backed out of our net income in determining operating income. At times, the application of FAS 133 generates significant income, while at times, like this quarter, it generates additional expense. This quarter the FAS 133 adjustment was primarily due to a decrease in the discount rate that’s used in calculating the embedded derivatives in our index annuity reserves, and that resulted in a significant reduction to net income. Let me turn to operating income and highlight some of the items that impacted our results this quarter. On top of the list, mortality experience was favorable again this quarter. Death benefits totaled $20.2 million, which was better than our expectations and lower than the $23.7 in the fourth quarter of ‘06. Our investment income increased 13% for the quarter, primarily due to an increase in invested assets. Each quarter we typically earn investment fee income; that was true again in this quarter, but it was less than the fourth quarter 2006. Fee income from bond calls and prepayments as well as the impact from FAS 91 for the reversal of net discount accretion on mortgage and asset-backed securities totaled $2.5 million, that’s a decline from the $4.1 million in the fourth quarter of 2006, but much higher than the $700,000 recorded in the third quarter. Earnings from our EquiTrust Life independent channel totaled $0.12 a share, which is in line with our expectations. This business continues to grow and contributed $0.46 per share to operating income for 2007, that’s more than double the 2006 level of $0.20 per share. Finally our effective tax rate was lower than our expectations this quarter due to larger dividends, received deductions, and lower than anticipated state income taxes. Next, let me turn to spreads. As of year-end, our exclusive annuity business increased by one basis point to a spread of 170 on a statutory basis, but remains below our target for this business of 181. We took a 15 basis point rate decrease on our primary Farm Bureau Life fixed annuity product during the quarter as investment yields on this business have continued to decline. For our direct universal life business, our spread on a statutory basis increased by one basis point to 192, which remains above our target spread of 182. The spread for our EquiTrust Life independent channel fixed rate annuity business declined three basis points during the quarter to 94 basis points on a statutory basis as of the end of the year but still five basis points above our target. We continued to sell a significant amount of multi-year guarantee annuity business and in this quarter we were able to do it profitably. Spread for our EquiTrust Life direct index annuity business tightened during the quarter and is currently below our target spread. Spread on this business was 217 at year-end compared to our target of the business at 232 basis points. There is continued pressure coming from elevated option costs, naturally caused by the increased market volatility. Because of these increased option costs, we’ve implemented three rate decreases during the quarter in order to operate closer to our target spread. Jim has already discussed the quality of our investment portfolio extensively, but I’d like to add a reminder that we price long-term assumed default rates into our products and we take that into consideration as we manage our spreads. And this is reflected in the portfolio yields and the spread that we report in our quarterly financial supplement and the numbers that I am talking about here today. Our capital position remains strong. As the end of the year, our total capitalization exceeded $1.2 billion and we had cash and investments of $52 million at the holding company. In December, we made a $50 million capital contribution from FBL to EquiTrust in order to support its growing operations. We continue to exceed the capital levels required for our A ratings from A.M. Best and Standard & Poor’s. And our total debt-to-total capitalization ratio continues to be at a reasonable level of 25.2% at year-end 2007, and it’s even less than that when you take into consideration the equity credit given for our trust preferreds. Lastly, I’ll make comment on the earnings guidance that we gave in conjunction with the fourth quarter earnings announcement. As a reminder, we don’t provide net income guidance, only operating income guidance, primarily due to the volatility associated with FAS 133. We expect operating income for 2008 to be within a range of $3.15 to $3.30 per share. Our Farm Bureau Life business continues to grow at a steady pace and produce solid results. Our EquiTrust Life business continues to grow, and as this business matures, it becomes a greater contributor to our bottom line results. Spread management will continue to be a challenge and the key for 2008, but the recent steepening of the yield curve does provide the possibility of some relief. And then this guidance range contemplates a more normalized mortality experience compared to the favorable mortality experience that we enjoyed in 2007. To conclude, I feel really great with where we are at right now. We’re obviously very pleased with the record results from the quarter and we’re optimistic in our outlook for 2008. With that, I will now turn the call back over to the operator and open it up to any questions that you might have.

[Operator:]

We’ll go first to Bob Glasspiegel - Langen McAlenney.

[Bob Glasspiegel:]

I was wondering if you would be kind enough to just give us a little bit of a discussion on how your hedging has evolved and what you’re doing now that you didn’t used to do, whether there were any holes in as we’ve gone through volatile markets. You mentioned hedging costs have gone up, which is certainly understandable. Are there refinements that you can do to offset the bigger hurdles that you’re facing? And finally just other things you can do to deal with FAS 133 that might mitigate this realized gains and loss element to it?

[James Brannen:]

Maybe the second one is the easiest. We feel like that in terms of the SEC reporting requirements and FAS 133, we’re following to the letter of the law.

[Bob Glasspiegel:]

There’re some companies that are considering ‘should we do uneconomic things to deal with FAS 133, pay something to mitigate it?’ You’ll just let the volatility fall as it may?

[Donald Seibel:]

As Jim mentioned in his comments, one of the big drivers of the volatility is the risk free interest rate, and there are different ways to come up with risk free interest rate, spot curve, other metrics, and we currently use the Treasury spot to come up with those risk-free interest rates and we are challenging whether or not there’s another source that could provide us with less volatile results, and we’re talking to our auditors about different ways of doing the calculation to reduce the volatility reported, but we’re not pursuing anything from an economic perspective, it’s more from an accounting perspective.

[James Brannen:]

And having said that that would be marginal relief. As interest rates move as fast as they’ve been moving recently, you would still see volatility in the FAS 133 results.

[Bob Glasspiegel:]

Got you.

[James W. Noyce:]

As far as the hedging programs themselves, Bob, we really since we started the EquiTrust business have utilized static hedging and we hedge 100% of the risk with regards to the indexed annuities that we purchase through options. So, it’s 100% static hedging and that’s what we’ve done since the beginning. We have been taking a look at dynamic hedging. I think we may have mentioned that in the past, but at this point have not moved in that direction.

[Bob Glasspiegel:]

So, basically no holes have popped up, the only issue is increased volatility raises the cost.

[James W. Noyce:]

That raises the cost.

[Bob Glasspiegel:]

So, you’ve got to pass it on to your customers and there’s been no problem in market acceptance.

[James W. Noyce:]

The things that we can move in response to that are the cap and the participation rates and when we do that, that does have an impact on competitiveness of the product and therefore the sales. I think that’s part of the explanation why indexed annuity sales did not grow in 2007. It’s because of that higher cost.

[Bob Glasspiegel:]

So the rest of the world isn’t as quick at making the adjustments or is it a competition issue or is it a demand issue? Are your caps less customer friendly versus competitors, or is it just the market won’t buy it when the caps have been adjusted to the same rate?

[John Paule:]

In the first quarter, roughly half of the fixed index annuity business was placed in the monthly sum cap option and that’s not an option that we had available to us. That is something that dynamic hedging can support from a competitive standpoint, as Jim said, that’s something that we’re taking a look at. We have announced monthly sum cap on some selected products in the fourth quarter. We did that because we were being de-selected against by not having the feature at all. Surprisingly enough, the monthly sum cap that we had was maybe more competitive than we thought it might have been, and I’m not sure what that implies with the rest of the market but it’s helped us.

[Operator:]

We’ll go next to Steven Schwartz - Raymond James.

[Steven Schwartz:]

A quick follow-up on those questions. John, monthly sum cap, is that the strategy goes up like two percent a month or it can go down as much as possible, but you can never be negative for the year, is that what we’re talking about?

[John Paule:]

Yes.

[Steven Schwartz:]

Okay. Maybe this is a better question for Jim Brannen. Jim, do you know, the last time you made changes to the crediting rates on the index annuities or your participation rates and caps, where was the VIX at that time?

[James Brannen:]

That’s a really good question. The VIX as you know has been historically high throughout the quarter, and we made three rate changes, I don’t have the numbers in front of me, Steven, but it was extremely high.

[Steven Schwartz:]

At the time that you made it? I mean the VIX is now trading around 27, 28, you think you may have made it when the VIX was higher?

[James Brannen:]

The only thing I can do is offer to get back to you on the dates that they actually became effective.

[Steven Schwartz:]

Okay.

[James Brannen:]

Of course, it does take a few days after we make a decision to implement a rate change. I’ll tell you that the VIX has moved enough throughout the quarter that the decision date and implementation date the VIX may have been different even, but I don’t know.

[John Paule:]

I can give you the effective date for the rate changes in the fourth quarter. October 30, November 16, and December 5. We do have that VIX information; I just don’t have it with me either today.

[Steven Schwartz:]

I can look it up on my screen. The reason why I ask is it strikes me, maybe John you can comment on this, that the environment for index annuities may be improving. Yes, the VIX hasn’t come down, but on the other hand short-term rates have come down and that should make the options cheaper, right? And then CD rates have come down. So, I’m just a little bit surprised that you’re looking at total annuity sales of being equal or maybe you’re thinking that the multi-year guarantee will go down, but the index annuity will go up. Can you comment on that?

[John Paule:]

Maybe one thought to those that you’ve already expressed Steve is the idea that these fixed index annuities tend to work inversely with the variable product marketplace and when you think back to the time when this fixed index annuity market was growing rapidly and then it began to soften was the time when the variable product started to take off. And one might think that with the volatility that we saw in the last half of the year in the market and the uncertainty with the economy that the variable products may not be in vogue as much going forward and it could present an opportunity for the fixed index annuity which has some upside potential with limited downside. There’s also probably some upside on the fixed side as well, I think one of the reasons that we’re somewhat cautious about that is while we’re getting a steepening of the yield curve which is definitely helpful on the short-term side from the bank CD competition, the absolute level of interest rate still is very, very low. That doesn’t bode as well for the fixed annuity environment today at least.

[Operator:]

We’ll go next to Richard Sbaschnig - Oppenheimer & Company

[Richard Sbaschnig:]

Just wondered if you could comment on any other changes in the index annuity competitive environment. Mainly what I’m getting at, there’s going to be some potential changes to Allianz’s product line and how that might affect things?

[John Paule:]

I’m not privy to what Allianz may or may not be doing with their product line. First part of your question again was?

[Richard Sbaschnig:]

Just any other comments you have with regarding the competitive environment for index annuities.

[John Paule:]

I would just say in general there’s a healthy level of competition. When we entered the marketplace, I think we were the 33rd or 34th competitor in that space; now there’s in excess of 50, so clearly it’s more crowded. When you look at the index market in total it’s been, for the most part, pretty flat the last couple years. Some might even contend down a bit so that you’ve got more people competing for a fixed number of dollars out there. So that would tend to drive the competition. But, I would also tell you that, I think EquiTrust is in a pretty unique position when it comes to where it is in its life cycle. We’ve demonstrated that we can grow up a distribution force roughly about 5,000 agents a year, we’ve got roughly 20,000 right now, competitors that have two or three times the number of agents who don’t have that same level of advantage. There are some things that we’re doing to start to extend just the idea that we can grow business through adding agents to the idea that we’re going to do things with the base of agents that we have to drive additional levels of effectiveness and maybe higher levels of productivity. Again I think we’re in a unique position because we haven’t been doing that before, so that will be new to us where most of the other competitors out there have already been doing that sort of thing for some period of time. So, as a relatively new entrant, I think we’re uniquely positioned and have some advantages that we’re going to be able to exploit going forward.

[James W. Noyce:]

Those are some good points, John. I think I would add to that that we have moved in to be consistently in the top ten. We haven’t seen the fourth quarter, so we don’t know exactly where we ranked for the fourth quarter, but we’ve become a player, so our name is well known among the marketing organizations and agents, as well. So, I feel good about all of those things, too.

[John Paule:]

Absolutely.

[Richard Sbaschnig:]

Okay, and also, on the investments, with regard to the municipal bond portfolio, do you have any sense for, if the bond insurers do in fact go down, what would be the effect in terms of the market value of your bond holdings and any potential impact that that might have on book value?

[James Brannen:]

I don’t know that I could be able to quantify that for you. That would be speculation. The points that I would make again with repeating what Jim said is that we try to underwrite these to the yields that we would want in our corporate bond portfolio. We don’t look at the insurance wrapper. We look at being an investment grade without them. I do think obviously if the bond insurers went away and the wraps went away that there would be a temporary liquidity issue for everybody who was holding those securities and that’s without a doubt. And in that temporary time period, I don’t know what the fair values would do. Likely it would be way less than what we would ultimately want to achieve as holders of those bonds for the long term.

[Richard Sbaschnig:]

Okay. Also on your commercial mortgage loan portfolio, given the changes we’ve seen, have you seen any change in that market? Is it now maybe more attractive to commit new money to that or is it less attractive and just what are you seeing there?

[John Paule:]

Relatively maybe a little bit more attractive. Because of the way we underwrite on them, our ability to closely monitor each individual commercial mortgage loan because the way we put them on the books, I feel good about those, and the thing about it is, it’s a longer process, obviously, to do a more commercial mortgage loan than it is buying a bond or mortgage-backed securities. So, it’s hard to grow that as a percentage of the total portfolio, but we’re very comfortable with the portfolio that we have and we’ll continue to add those to the books that are at least equal to the current allocation. I think for most of our product, our portfolio allocation is in the low teen up to 15% that we’re willing to commit to commercial mortgages that we underwrite.

[Richard Sbaschnig:]

Okay. In terms of your underwriting methods that you use for the commercial mortgage loan portfolio, I wonder if you can just speak to that and basically what I’m getting at, and I’m not necessarily even asking for a hard number, but even just a general sense for, how many loans are maybe interest only or maybe don’t have a personal guarantee?

[John Paule:]

Our commercial mortgage loan...?

[Richard Sbaschnig:]

Yes, on the commercial mortgage loan (inaudible).

[John Paule:]

I would have to check for sure, but I don’t think any of them are interest only. They’re all amortizing loans. The specific criteria with regards to personal guarantees would depend on the nature of the property and the nature of the borrower and things like that, but it certainly becomes a factor if and when we feel like it’s necessary and appropriate.

[James W. Noyce:]

The long-term track record is another thing to mention. The folks that are doing our underwriting have been doing this for us for many, many years and their long-term default rate has been right at or near zero.

[Richard Sbaschnig:]

Got it. Thank you very much.

[Operator:]

We’ll go next to Jukka Lipponen - KBW.

[Jukka Lipponen:]

First of all, with respect to the guidance, it implies fairly modest growth on top of the 2007 earnings. So can you give us some color why it seems perhaps somewhat more modest earnings growth than one might have expected?

[James W. Noyce:]

I think it’s really a singular story and that really is the excellent mortality results that we achieved during 2007. When we developed our guidance and ranges, we certainly looked to widen out that view to a longer-term view and that’s really the biggest driver. There’s pretty nice growth in the underlying businesses on both sides, EquiTrust and Farm Bureau Life in those projections, if in fact you take a longer view on mortality.

[Jukka Lipponen:]

And what are you thinking and assuming in terms of spreads in the guidance?

[James W. Noyce:]

That’s a good point. We have assumed that we’ll continue to, on an overall basis, make our spreads. We know that that’s going to be a challenge throughout the year based on the environment, but we’re committed to do that.

[Jukka Lipponen:]

And then in terms of the 11% ROE target, I forget now whether you had put any kind of timeframe, and can you give us an update in terms of how should we expect you to move towards that?

[John Paule:]

I don’t know that we have a specific timeframe on it, Jukka. It’s the level that we price all of our products, so as we’re making target spreads and as EquiTrust continues to move towards achieving that higher level of ROE, we’ll continually advance towards what we believe. Now you have to normalize that for some of the same things that Jim talked about with regards to having a great year on mortality and things like that as well. So, it’s a target that we continue to move towards. I don’t have specific time frames as to when we would achieve it.

[Jukka Lipponen:]

And lastly, were there some favorable tax items in this quarter?

[James Brannen:]

Yes, there was two items that I point to. One would be the dividends received deduction that we receive, and that’s mainly on the assets that are held in separate accounts, so equity securities, mutual funds, dividends that are received in the separate accounts. But the strong equity performance of year ago and the dividend timing of a lot of those mutual funds, there was a lot of dividend flow in the fourth quarter that increased that deduction for us. And then state income taxes for a year on a trued-up basis came in a little lower than what we had projected on our inter-company effective rates for state taxes. So those are the two things.

[Jukka Lipponen:]

And can you qualify those for me?

[James Brannen:]

I can in total at about $0.04.

[Jukka Lipponen:]

Okay. Thank you.

[Operator:]

And there appear to be no further questions at this time. I’d like to turn the call back to Ms. Kathleen Till Stange for any additional or closing comments.

[Kathleen Till Stange:]

Thank you for your interest in FBL Financial Group and for participating in today’s call. Please mark your calendars for our first quarter 2008 earnings release on May 8 and conference call on May 9. Please fell free to give us a call if you have any individual follow-up questions. Thank you.