FBL Financial Group, Inc.
Q2 2008 Earnings Call Transcript

Published: 19 Aug 2008

[Operator:]

Good day everyone and welcome to the FBL Financial Group second quarter 2008 earnings conference call. Today’s call is being recorded. At this time, for opening remarks and introductions I would like to turn the conference over to Ms. Kathleen Till Stange. Please go ahead.

[Kathleen Till Stange:]

Thank you. Good morning and welcome to FBL Financial Group’s conference call to discuss second quarter 2008 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, John Paule, Executive Vice President of EquiTrust Life, and Jim Brannen, Chief Financial Officer. Also present and available to answer any questions you may are Rich Kypta, Executive Vice President, Farm Bureau Life, General Counsel and Secretary, 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 the call includes certain non-GAAP financial measures. These items are reconciled to GAAP in our second quarter earnings release and quarterly financial supplement, both of which may be found on our website. Today’s call is also 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.

[Jim Noyce:]

Thanks Kathleen. Good morning everyone and thank you for joining us on today’s call. As you saw from the press release, it was somewhat of a mixed quarter. Our second quarter operating income results of $0.70 per share were well ahead of the disappointing operating results of $0.50 per share for the first quarter of this year. Jim Brannen will get into the details when he covers the financial results, but from a very high level we had couple of items that cost us a few pennies or so this quarter. Unlocking on DAC and deferred sales inducements cost us $0.01 per share on an operating basis and investment prepayment fees were essentially nonexistent. Given that these worked against us, we feel the overall results was reasonably good. On a net income basis, results for the quarter were not positive, with a net loss of $0.56 per share. This is primarily the result of one group of securities that were deemed other-than-temporarily impaired. Jim Brannen will provide more details on these impairments, but I want to tell you that with these impairments we now feel like we've addressed the group of assets, which were causing us the most concern. Another issue that may impact our business is the SEC's proposed rule on index annuities. I've asked John Paule to speak on the call today about what's happening there and what we are doing to respond. Then, Jim Brannen will review the quarterly results, investments, and capital position. But before we do that, I'll discuss sales and other highlights from the quarter. A strong point during the quarter was sales. In total, premiums collected were up 66% from the second quarter of last year to $694 million with increased sales levels at both Farm Bureau Life and EquiTrust Life. First, for Farm Bureau Life. Following a 9% increase in the first quarter of this year, Farm Bureau Life had an 18% increase in premiums collected for the second quarter. So they have had a great first half of the year from a production standpoint. Traditional annuity sales continued to be strong again this quarter with sales up 76%. Traditional and universal life insurance sales were up 2%, which is positive given that life sales have been at record levels for the last few years. And variables sales were down 16%, which is not surprising given the volatile equity markets this year. Our Farm Bureau Life agents continue to focus on needs-based selling to the Farm Bureau niche marketplace using our full line of life insurance and annuity products, which meet the needs of our policyholders in various stages of their lives and economic scenarios. Our universal life product with a secondary guarantee, which was introduced in the first quarter, has been well received by agents and customers. Farm Bureau Life was recently recognized as one of the Ward's Top 50, which is their list of the 50 top performing life insurance companies in the United States. This is the 12th consecutive year Farm Bureau Life has received this recognition. Farm Bureau Life's strong affinity and brand awareness provides FBL with unique market proposition and competitive advantage. With this foundation, Farm Bureau Life continues to deliver solid earnings and steady growth, while at the same time generating capital for FBL. Now, I'll turn to our EquiTrust Life independent channel, which had premiums collected of $538 million during the quarter, which was a significant increase of 93% over the second quarter of 2007. Of this $538 million of sales, 30% was from index annuities, 6% from immediate annuities and 64% from our multi-year guarantee annuity product. This mix of business for the quarter reflects several things. First, our index annuity sales, while significant at $160 million, were down 28% from the second quarter of last year. We've been in a period of time where many index annuity crediting strategies are not paying off and clients are attracted to products offering a guaranteed return, which has further increased the interest in our multi-year product. At the same time, our lack of an income rider on our index products may have been impacting sales levels. Just last week we introduced the EquiTrust Income for Life rider. This rider offers guaranteed lifetime income, while still maintaining all of the benefits of the fixed deferred annuity. We feel that our rider is competitive with that of other carriers. Sales of our single premium immediate annuity continue to rise at a steady pace and in the second quarter accounted for $31 million of premiums collected. Sales of our multi-year guarantee annuity during the quarter were significant, with second quarter sales of $347 million, which is well above the level of $44 million in the second quarter of 2007. This business is extremely rate sensitive, and at times when our rates compete favorably with other products vying for the same dollars, like bank CDs, the product has generated very high levels of production. With the steeper yield curve, beginning on May 9th, we were able to offer a 5% guarantee on our five-year MYGA. This rate drove significant sales volume for the quarter. Jim Brannen will be discussing our capital position in his comments, but given this high rate of growth and related use of capital, we are taking steps to limit our growth. For example, with our five-year MYGA product, we lowered the rate to 4.85% on July 7th. We still expect to generate growth in FBL's asset base, although it may be a slower growth trajectory, plus we expect the margins to be higher. Now, I'll turn it over to John Paule to discuss the SEC's proposed rule on index annuities. While we don't know what will happen, it certainly is possible that in the future we will have a more regulated environment for index annuities. Whatever the outcome is with this proposed rule, I am confident we will be able to adapt our EquiTrust business model as necessary and continue to thrive. With that, I will turn it over to John.

[John Paule:]

Thanks Jim. I'll walk you through what has happened on the regulatory front, our position on the rule, and what we are doing at this point in time. On June 25th, the SEC published for public comments proposed Rule 151A, which would require index annuities to be regulated by the SEC. Under this proposed rule, index annuities would be considered a type of security, and all agents selling the product would need to be registered representatives affiliated with a licensed broker dealer. We expected the SEC to come out with clarification, but along with most of the industry did not expect anything quite this far-reaching. We issued a news release shortly after Rule 151A was announced stating that we oppose SEC regulation of index annuities. The proposed rule is too far-reaching and it’s inconsistent with existing law, given that index annuities are traditional fixed annuities which fall under the jurisdiction of state insurance departments. The primary reason we are opposing the proposed rule has to do with risk transfer. With an index annuity, the amount of interest credited is tied to the performance of an index, in our case, the S&P 500. The amount of interest credited that an annuitant receives is impacted by the performance of this index, but only to the extent that it is above the minimum. We still bear the counterparty risk for the call option purchased to fund the index performance plus all of the investment risks associated with the general account. And as evidenced by the impairments taking place in the industry this year, these investment risks are significant and include default risk, interest rate risk, liquidity risk, disintermediation and prepayment risk. We also believe that the state insurance department initiatives adopted in the last few years address most of the concerns expressed by the SEC. Suitability regulations, disclosure requirements, continuing education requirements, and other state initiatives adopted over the last several years have substantially reduced the problems referenced by the SEC in its release accompanying the proposed rule. We are taking several steps to address Rule 151A. Internally, at EquiTrust Life, we are working on plans and alternatives for doing business under the proposed rule. And externally, we are working with state regulators, industry groups, outside counsel, and other index annuity writers to develop plans to challenge adoption of this rule. As you know, the comment on this proposed rule runs until September 10th and we do plan to submit a comment letter to the SEC. We're confident we can transition to an SEC regulated environment if the proposed rule is approved. We understand the regulated environment as EquiTrust Life and Farm Bureau Life are both variable product writers and have experience with registered investment products. We also have an active affiliated broker dealer with EquiTrust Marketing Services. There is always the possibility that the SEC may withdraw the proposed rule. But if the rule is adopted, the SEC indicated there would be a 12-month period between publication and the final rule becoming effective. We believe this would allow us adequate time to implement changes necessary for compliance. Our desire is for the SEC to work with state insurance departments and the NAIC, to learn of the work already done and the regulations already in place. Index annuity products have been an important source of growth for FBL, but they are not the only product family offered by EquiTrust Life. As Jim mentioned in his comments, EquiTrust Life also sells multi-year guarantee annuities and immediate annuities and we estimate that 10% of FBL's 2007 operating income of $3.15 per common share was attributable to EquiTrust Life's direct index annuities. In just a few short years, EquiTrust Life has built a strong and valuable business model that has demonstrated its ability to produce top and bottom line results. The company has produced a portfolio of products and built an independent distribution system. The scalable foundation is based on best practices and regardless of the outcome of the SEC actions, we are confident in our ability to adapt and be successful. With that, I will turn it over to Jim Brannen for the financial review. Jim?

[Jim Brannen:]

Thanks John, good morning everyone. This morning I am going to be covering three topics - our financial results, our investment portfolio, including the impairments taken this quarter, and our capital position. To begin with, our results. With operating income of $0.70 per share it was a solid quarter and a definite improvement when compared to our first quarter operating results. Again, this is in spite of a couple of things working against us that Jim mentioned. Now, the biggest reason for the improvement from first quarter is mortality experience this quarter. That’s in line with our expectations. Our death benefits for the quarter totaled $24.6 million. That compares to $29.4 million in the first quarter of this year. We have had an average of $23.4 million for the last five quarters. Our investment income increased 11% for the quarter, primarily due to an increase in our invested assets. This quarter investment income didn’t benefit from fee income like it did in the second quarter of 2007 when we had investment fee income of $3 million. Spreads increased this quarter on all product segments, but are still under pressure in some. As of June 30th, spreads on our exclusive annuity business increased a couple of basis points to 163 statutory basis. However, that’s below our target of – on this business of 178 basis points. We did take crediting rate decreases on this business in March and April due to the investment yield decreases in our fixed-for-floating interest swaps back in the business. Despite these actions, we continue to see some spread pressure on this line as some of the business, primarily our older acquired blocks, are at guaranteed rates. And much of this business is also out of its surrender charge period, so we are sensitive about maintaining crediting rates that provide enough to existing policyholders so that the business is persistent. For our direct universal life business, our spread on a statutory basis increased by four basis points during the quarter to 194. We remain well above our target of this business of 182 basis points. Spread for our EquiTrust Life independent channel fixed rate annuity business increased by one basis point during the quarter to 99 on a statutory basis at June 30, which is above our target of 94 basis points for an excess of five. Spreads on our EquiTrust Life direct index annuity business also improved during the quarter with an increase of seven basis points to 228 basis points on a statutory basis. Now, that’s positive and it’s the second quarter in a row that spreads on this business have increased. We are still below the targeted 235. Some of the relief during the quarter came from our higher investment yields as well as option cost coming down a bit due to volatility in the second quarter. Unlocking on deferred policy acquisition costs and deferred sales inducements on several blocks of business this quarter with various mortality, withdrawal, and surrender assumptions updated on our actual experience. This unlocking decreased operating income by $0.01 per share and the decrease really consist of an increase in deferred sales inducement amortization offset – or partially offset by a decrease in amortization of deferred acquisition cost. With our earnings release yesterday, we reiterated our 2008 income guidance of $2.70 to $2.85 per common share. We expect full year operating income to be within this range, but given our results for the first half of the year, our outlook, and the current economic environment, we now steer towards the lower end of the range. Now, I'll turn to investments and the other-than-temporary impairments we took this quarter. Our realized losses totaled $74 million, which amounted to $42.6 million after tax and other offsets. Included in the amount are gross impairments of $78 million. The large majority of this relates to one group of assets, our alternative A asset-backed securities with second lien home equity loan collateral that was wrapped by FGIC. These securities were all triple-A rated when we purchased them and the pricing on this group of assets has deteriorated from around 53 at the end of the first quarter to an average of 32 at the end of the second quarter. Even though these securities are still performing, given the price deterioration, the current level of losses in the deals further downgrades of FGIC by the rating agencies it’s our desire to after disclosing potential issues for these securities last quarter, we are happy that we have addressed these investments that were giving us the most concern. And during July we were opportunistic and sold three of these impaired investments, where three of 13 of these impaired investments were prices had significantly improved from June 30th, and we’ll record a $2.2 million gain from them in the third quarter. Pricing on the remainder of those securities is similar, at July 31st to June 30 levels but we did see underlying losses in the deals slowing during the month of July, which is a good sign. Now, I'll review some other aspects of our investment portfolio. 24% of our investments are comprised of mortgage and asset-backed securities. These securities have a carrying value of $2.7 billion and an unrealized loss of $222 million. Aside from the impairments we took this quarter, we are comfortable with the performance of the underlying collateral of these securities. We have expanded the investment disclosure in our Form 10-Q and provided additional detail on these securities including collateral type, vintage years, ratings, and additional enhancement via insurance. Our investment portfolio's allocation to structured product hit its peak in ‘04 and has been declining since that time as we put most of our new money into corporate bonds. Majority of our residential mortgage backed securities are in the 2003 and 2004 vintage years where subordination has increased since origination. These securities are agency or private-label issues and are all fixed rate with no exposure to adjustable rate mortgages. In addition, the majority of our residential mortgage backed securities are simple structures, pass-throughs, sequential payers, or PACs. Again, we have got minimal exposure to subprime securities. At June 30th, we had three securities with market values totaling $26 million. This exposure is small and represents only two-tenths of a percent of our total investments. These subprime issues are all performing well. They are all triple-A rated, fixed rate and were originated in 2005. The quality of our overall portfolio remains high. Over 96% of our fixed maturity securities are investment grade and this percentage has actually increased a little over the past year. We are monitoring our portfolio very closely and have a formal process in place for determining other-than-temporary impairments. All securities that have a market value 15% less than carrying value automatically go on our watch list. At the end of the quarter, we had securities with gross unrealized loss of $635 million, with much of this having been in unrealized loss position for more than a year. Now this really reflects the fact we’ve had tremendous growth in assets over the last several years due to the growing sales at EquiTrust Life. These investments were put in on a low interest rate environment. The unrealized losses reflect interest rate changes that have occurred. All securities on our watch list are reviewed in detail to determine if they should be impaired. In addition to the decline in price and the length of time the price it went down, we are looking at other things like cash flows, our intent to hold to maturity, and other facts and circumstances specific to the security. Now, while our watch list has definitely grown, the majority of it has to do with spread widening and the level of interest rates. We have performed a detailed analysis and believe that the securities with credit specific issues comprise a small part of our watch list. Given interest rates due to the timing when many of our securities are purchased, many of them will remain in an unrealized loss position while still performing for quite some time. Our impairment process is reviewed by external auditors and the audit committee of the Board. While we are not pleased to take the impairments this quarter, we feel they reflect our honest assessment of the market. We are particularly glad to have the issue of the FGIC wrapped impairments addressed. That's not to say that we could not have future impairments, particularly given the fact we have got an investment portfolio of over $11 billion, and have some unrealized losses embedded in it, and that the credit cycle may continue to deteriorate. Lastly, I'll discuss our capital position. At June 30th, our total capitalization, excluding AOCI, was over $1.2 billion. Farm Bureau Life continues to be a steady producer of capital, while EquiTrust Life, given its high production levels, has been a net user of capital. At the end of the first quarter we had cash and investments of $55 million at the Holding Company. In order to support the growth at EquiTrust, approximately one half of that was contributed to EquiTrust at the end of June and the remainder will be contributed in the third quarter. We continue to target the capital levels required for our ‘A’ ratings for A.M. Best and Standard & Poor's. At June 30th, we estimate that Farm Bureau Life has approximately $46 million of excess capital and EquiTrust Life, after the infusion of available capital at the Holding Company, has a very small capital need. In order to have more than sufficient capital to support our operations, we are working to expand our bank line and expect any incremental borrowings to be less than $100 million. Our debt-to-total capitalization ratio with equity credit for our trust preferreds, was 17.7% with securities at cost, so we have adequate room in there to increase that leverage. At the same time, we are obtaining this additional capital, we are also taking steps to allow our businesses to become more self-sustaining from a capital perspective. Given the current high cost of raising additional capital beyond this bank debt, we believe that this is prudent given the existing environment. As Jim mentioned, we have slowed top line growth at EquiTrust will managing our multi-year guaranteed business for smoother and more predictable growth, along with increased product profitability and/or less risk. We're also evaluating other alternatives, such as reinsurance. To conclude, the current economic environment is challenging, but manageable. With our solid business fundamentals, I'm confident that we will navigate through these challenging times very well. With that, we’ll now turn the call over to operator and open it up to any questions that you might have.

[Operator:]

Thank you, sir. The question-and-answer session will be conducted electronically. (Operator instructions) We’ll go first to Steven Schwartz with Raymond James

[Steven Schwartz:]

Hey everybody, good morning.

[Jim Noyce:]

Hi Steve.

[Jim Brannen:]

Good morning, Steve.

[Steven Schwartz:]

A couple of questions. It’s kind of related to SEC 151A. I was reading in this week’s NU I gather maybe you know something about it and could share, maybe not, FINRA 08-24 this would be a notice to members with regards to fixed annuities. There is some fear there that that can be interpreted for it to consider fixed annuities as a security as well. Do you know anything about that?

[John Paule:]

Steve, this is John. I do not. You know clearly there was some concern with Rule 151A that in its broadest interpretation it could include all fixed annuities but the reference to the FINRA rule, I am not familiar with.

[Steven Schwartz:]

Okay. Fair enough. It was in this week’s National Underwriter. Just a quick numbers question. Was the timing difference on index annuities between index credits and proceeds from option settlements, was that positive or negative in the quarter? And did the AEL book of business play a role in this quarter? I think if I remember correctly, it had a negative effect in the first quarter.

[Jim Brannen:]

Steve, this is Jim. Thanks for the question. If I understand the first part of your question in terms of excess hedge – was it excess benefit or own options—

[Steven Schwartz:]

Yes. (inaudible)

[Jim Brannen:]

Yes. It was a tick up from where we were at in the first quarter and Don’s are you pulling a number. Okay. It’s not a number (inaudible) with me, was a tick up from where we were at in the first quarter but not as high as the run rate had been in the previous quarters.

[Steven Schwartz:]

Okay. And then AEL?

[Jim Brannen:]

AEL was positively impacted this quarter by some positive DAC unlocking but overall in terms of their core contribution to the quarter I would say it’s a similar run rate to the last couple of quarters.

[Steven Schwartz:]

Now Yes now I – okay, but I was talking about – wasn’t – was many of the (inaudible) but wasn’t there an issue with some of their – and I imagine it still is, but some of the policies that had reinsured from AEL were under water.

[Jim Brannen:]

Yes, they are at their guarantees in terms of what the option budget can afford to purchase and so you will – will you continue to purchase guaranteed amounts which does create spread compression and that’s why you will se the last couple of quarters at a run rate that has been a little bit less rate.

[Steven Schwartz:]

Okay. Alright great thanks.

[Operator:]

We’ll go next to Jukka Lipponen with KBW.

[Jukka Lipponen:]

Good morning. First of all, on the index annuities can you remind us what percent of your – the agents that are selling index annuities are already registered?

[John Paule:]

Sure, Jukka, this John Paule. We’ve recently done some survey work and we are confident that we have between 50% and 60% of our appointed agents that have either series 6 or series 7 licenses.

[Jukka Lipponen:]

And on – and then the – my other question was in the Farm Bureau the annuity sales pickup, can you give us a little more color what helped that pickup in annuity sales there?

[Rich Kypta:]

This is Rich Kypta. That was primarily a result of the interest rate environment and the steepening of the yield curve. It’s typical in the industry in a period like that fixed annuity sales increased at the same time we suffered some offsetting decrease in variable annuities sales due to the downturn in equity markets but overall it was a net plus on the fixed annuity side.

[Jukka Lipponen:]

And the other question I forgot to ask with respect to the index annuities at EquiTrust, this – just the fact that the SEC made this proposal, are you seeing any impact on index annuity sales there?

[John Paule:]

Jukka, we have not seen any impact on sales – on the index annuity sales subsequent to Rule 151A being proposed. I know that question has been some interest as to whether there will be (inaudible) sale on the products that we have not seen them.

[Jim Brannen:]

It might be somewhat masked by the fact that we think that we have seen some pressure on our sales in that product because we haven’t had the income rider available to date and we did get that issue August 1st.

[John Paule:]

Jukka, the other thing I might just come back and hit on that question regarding the percentage of reps that are registered, that 50% to 60% number is higher than what we had previously thought based on information that we are getting from the marketing organization. And I would also add that it’s consistent with the number that Jack Marrion associated with the Advantage Compendium has stated is – it’s his estimate for the industry.

[Jukka Lipponen:]

Okay, great. Thank you.

[Operator:]

(Operator instructions) We’ll go next to Forrest Henman [ph] with Woltofson & Company [ph].

[Forrest Henman:]

Hi, a couple of questions. Can you disclose what the risk-based capital ratios were for the – at the end of the quarter?

[Jim Brannen:]

Sure. Got it handy, Don?

[Don Seibel:]

Yes, the company action level risk-based capital for Farm Bureau Life was 376 and the company action level risk-based capital for EquiTrust Life was 348 at June 30th.

[Forrest Henman:]

Alright. And then I had a couple of questions on the impairments that we took in just the portfolio in general. How much additional exposure do we have to second lien products?

[Jim Brannen:]

Well, we still have the book value on the securities that we impaired during the quarter. So there is some book value exposure there. We have three additional securities that are second lien securities that are wrapped by MBIA and one that’s by AMBAC. And I am not sure if I have—

[Kathleen Till Stange:]

I would direct you to our 10-Q that was filed yesterday and we expanded the disclosure and the investment section that we have given a lot more detail on breaking out residential mortgage backed, asset backed securities. So there is a table on Page 43 of the 10-Q, if you would like to take a look at that shows the other asset backed securities. Those are primarily your home equity loans and we break that out by (inaudible) year and show the difference between cost and carrying value and then the collateral types so you can see what portion is prime versus Alt-A and then the little subprime that we have.

[Forrest Henman:]

Alright. And how much more exposure do we have to FGIC?

[Jim Noyce:]

Well, it’s about $35 million based on the market value as of June 30th.

[Forrest Henman:]

Alright. And then –

[Jim Noyce:]

And actually that’s probably come down some because of the couple that we sold during July.

[Forrest Henman:]

Alright. And I guess I need a little help understanding the impairment on FGIC. Is – am I correct that FGIC is – it’s still solvent, is that right and not bankrupt, is that right?

[Jim Noyce:]

Yes, that’s correct and in fact on some of the assets that we impaired they were actually making and continue to make payments on those.

[Forrest Henman:]

Alright. And I guess I am having trouble understanding that. So if they are paying we are just basing the impairment on the market price is that the reasoning behind the impairment or do we think that FGIC is going to go bankrupt and then it won't pay on the insurance?

[Jim Brannen:]

We have analyzed these underlying (inaudible) and the loss rates of the underlying deals and how much support FGIC would have to provide. We also look at downgrades of FGIC during the quarter. It appears to us that the pricing in the securities are not pricing and much support in the marketplace for FGIC to be there long term. Based on our independent pricing we believe that the market pricing is reflective that FGIC would be unable to for a long term make those payments. Now they are – you are right, they are currently making those payments. There is several of those securities for FGIC is not required to make those payments because the deals are still performing. But we looked deep into the deals and the cash flows of the deals and where we stand in the individual tranches, and how long a time it would be. We bought tranches to match our liability flows and how long we would have to rely on FGIC or the deals to have supporting cash flows before we started receiving principal payments. And that’s why we have made that decision.

[Forrest Henman:]

Alright. So—

[Jim Noyce:]

All of it’s driven by the accounting rules and what the requirements are there with regards to at what point in time you do for accounting purposes have to write these down and impair them and so essentially everything we impaired in the first quarter is still performing assets too as far paying their cash flows and things like that, I believe that—

[Forrest Henman:]

Alright, so—

[Jim Brannen:]

And a little more color on that. If we come to the conclusion during the quarter that we are not going to get a 100% of the par amount back we are forced by the rules to mark it to market on the value at the balance sheet daily that’s not –we think that that is the value we will ultimately realize.

[John Paule:]

And in that kind of (inaudible) I mean the three that we’d sold they were on average priced in the at June 30th priced in the higher 20s and the hedge funds showed up in a couple of weeks later and those securities sold in the low-to-mid 40s. So—

[Forrest Henman:]

Alright. I guess just to further clarify, so hypothetically if FGIC were in a strong capital position would we have been required to write those products down as much as we did or--?

[Jim Brannen:]

No, I mean the fact of the matter is that FGIC was in a very strong position. These securities were originally triple-A rated when they were issued and part of the triple-A rating certainly relied on the ratings of FGIC at the time.

[Forrest Henman:]

Alright. And we did sell two or three of those in July. What’s the strategy for the remaining 10 or 11 that we have? Are we looking to sell those or will we hold those?

[Jim Brannen:]

It hasn’t been much of a marketplace, so there really hasn’t been a decision to make at this point.

[Forrest Henman:]

Alright. Thanks guys.

[Jim Noyce:]

Thank you.

[Operator:]

And we’ll go with a follow-up from Jukka Lipponen with KBW.

[Jukka Lipponen:]

Yes, back on to those same securities, the impaired ones. So, what are your own expectations at this point in terms of the ultimate losses on a cash basis on those securities?

[Jim Brannen:]

That’s a good question, Jukka. You know we are in a tranche were again principal payment won't start for several years on most of those securities and so it’s a very, very long term deal. And to answer the question, we have to know how long the current pace of losses continue in the underlying deals. I mean if losses start to lighten up, these deals can heal themselves and we could actually make hold on cash flow being in the senior tranches with the deals. One of the things I would point to but is very anecdotal was June losses on the underlying deals bite [ph] pretty heavily. And July losses have backed off. If that’s the beginning of lower loss levels then I will start to feel about the cash flow, long term cash flow of those particular securities. But it’s really about the underlying losses and if they continue or not and whether FGIC’s stays there to support.

[Jukka Lipponen:]

And can you give us some color in terms of – if you assume that FGIC were to go bankrupt, where do you stand in the line of creditors with these wraps?

[Jim Brannen:]

Actually I think we are (inaudible) on all of it.

[Jukka Lipponen:]

Okay, thank you.

[Operator:]

And there appear to be no further questions at this time. I would like to turn the conference back over to 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 third quarter 2008 earnings release on November 6th and conference call on November 7th. Please feel free to give us a call if you have any individual follow-up questions. Thanks.

[Operator:]

Again, that does conclude today’s conference call. Thank you for your participation. You may disconnect at this time.