FBL Financial Group, Inc.
Q3 2008 Earnings Call Transcript

Published: 7 Nov 2008

[Operator:]

Good day everyone, and welcome to the FBL Financial Group Third Quarter 2008 Earnings Results Conference Call. This call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to FBL's Investor Relations Vice President, Ms. Kathleen TillStange. Please go ahead.

[Kathleen TillStange:]

Thank you. Good morning, and welcome to FBL Financial Group's conference call to discuss third quarter 2008 earnings. If you don't already have a copy, our earnings release and financial supplement maybe 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 Charlie Happel, Vice President, Investment; Rich Kypta, Executive Vice President of Farm Bureau; John Paule, Executive Vice President of EquiTrust Life; and Don Seibel, Vice President of 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 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 include certain non-GAAP financial measures. These items are reconciled to GAAP in our third quarter earnings release and our quarterly financial supplement, both of which may be found on our website. Today’s call is being simulcast on FBL’s website. Shortly after today’s call you will find a transcript of today's prepared comments and an audio replay of the call, on our site. It is my pleasure to now turn the call over to CEO, Jim Noyce.

[Jim Noyce:]

Thank you, Kathleen. Good morning everyone. Thank you for joining us on today’s call. Probably goes without saying, but the current economic conditions and market turmoil have created some challenges for FBL just like everyone else. Fundamentally and operationally, our companies are strong and continued to perform and serve their respective markets. Jim Brannen will discuss our financial results, but overall they were acceptable considering current extraordinary market conditions. Operating income came in at $0.62 per share and net income was $0.37 per share. We did have a $12.7 million of impairments after tax and offsets, which brought our net income down. These impairments primarily related to some of the headline names Lehman and Washington Mutual. I would like to take moment to tell you strategically how we are dealing with the current environment and its impact on us. Our focus primarily is on two things, #1, we are managing within our means from a capital perspective and in a moment I will update you on our activities to slow the sales growth at EquiTrust Life in order to achieve this first goal. Second, raising additional capital not for growth, but to make sure we do have what we call dry powder for additional financial flexibility. This so we have the capital necessary for at least the A rating which we target. In addition to having excess capital in the event there are any future investment impairments. In that regard we have successfully secured $100 million of new debt capital, which Jim will discuss in more detail. During the past quarter, we have been taking steps to slow our growth at EquiTrust Life. With it significant growth over the last several years, EquiTrust Life has been a net user of capital. Given the environment we are in right now, EquiTrust Life maturity and scale, our desired is for it to be self sustained from a capital perspective. During the third quarter we took three rate decreases at EquiTrust Life and a channel. These actions reduced premiums collected from $252 million in July to $141 million in August and $103 million in September. Our goal was and is to level off at a run rate of $180 million per quarter which equates to $720 million annually. Our modeling indicates this amount is break even from a capital perspective under neutral market conditions. At the end of September and October, we took further rate actions and additionally increased minimum required policy amounts. We move closer to achieving our desire level of premiums collected for the month of October, and for the last two weeks are at those desired levels. Our pending count was 890 at the end of October compared to 2563 at the end of June. These numbers are telling and demonstrate that we have been successful of reducing sales to levels that will allow EquiTrust Life to support its production with internally generated capital. These steps were taken systematically in order to maintain the value of our EquiTrust Life distribution. While we are attempting to have sales levels at capital neutral position, we still expect to generate growth in EquiTrust Life's assets to date, plus we expect the margins to be higher. Next I will move on to Rule 151A. In our last conference call John Paule provided an update on the SEC's proposed Rule 151A. Since that time the SEC reopened the common period for a 30 day extension. We opposed the proposed Rule and participated in a correlation of index annuity writers' actively lobbied congressional leaders and members of the SEC during the third quarter. The majority of the comments the SEC received were objections to the idea of the SEC's sharing oversight of index annuities with state regulators. (Inaudible) that the products are clearly insurance not securities and that the concerns expressed by the SEC are being addressed by changes in state insurance regulation of the product. We continue to work on our plans and options in the events that the SEC adopted this regulation. Whatever the outcome, I am confident we will be able to adopt our EquiTrust Life business model. Now I will turn to our ratings, during the quarter our subsidiaries were downgraded by AM Best A-minus excellent with a negative outlook and our rating of A-strong was affirmed by Standard & Poor's, when a negative outlook was added. These rating changes coincide with recent changes by both AM Best and Standard & Poor's and their outlooks for the entire life insurance industry to negative from stable. Both of these ratings are very important to our companies, and while we are not happy with the downgrade both Farm Bureau Life and EquiTrust Life are operating fine with A-minus excellent ratings from AM Best. I am disappointed with the decision regarding our ratings both of our companies currently have strong capital level. Jim Brannen will discuss our capital levels, but according to the AM Best preferred model at the end of the third quarter Farm Bureau Life's held capital at AM Best indicative rating level of A++ and EquiTrust Life held capital at AM Best indicative rating level of A+. AM Best expressed concerns regarding a high level of growth in our newly reserves particularly at EquiTrust Life. As we've communicated to you on our second quarter conference call as we've regularly communicated AM Best we have previously implemented business plans that deal with our concerns and as you can tell from my earlier discussion we have been successful with these plans. We remain committed to maintaining the capital levels necessary for A or better ratings from AM Best and Standard & Poor's and the business plans we are currently executing are consistent with restoring our AM Best excellent ratings. I have already discussed EquiTrust Life sales and now I want to comment on Farm Bureau Life. For the quarter Farm Bureau Life had premiums collected of $147.3 million which is an increase of 41%. Traditional annuity sales continued to be strong again this quarter and we are up 155%. Traditional and universal life insurance premiums collected were up 5% and variable sales were down 16% which is not surprising given the volatile equity markets. Our concern over limiting sales does not extend to Farm Bureau Life as its sales levels are much more consistent. Farm Bureau Life has long been capital sustaining and regularly generates excess capital. Farm Bureau Life's strong affinity and brand awareness continue to provide FBL with the unique market position and competitive advantage. Particularly during these times of market volatility and economic stress, our Farm Bureau agents and full line of life insurance and annuity products provide value and support to the niche market place of Farm Bureau members. As I mentioned this week we secured $100 million of debt capital from affiliated Farm Bureau entities. This positive development was made possible because of our Farm Bureau relationships. Because of all that is going on with financial markets and the economy 2008 has been a challenging year for FBL as it has been for the entire industry. I am proud of the way our employees and agents have been able to adopt to this difficult environment. This will allow us to navigate through the remainder of 2008 and into 2009, as we continue to act prudently for the benefit of our shareholders and policyholders. With this, I will turn it over to Jim Brannen for the financial review. Jim.

[James Brannen:]

Thanks Jim. Good morning everybody. This morning I will be covering three topics, our financial results, our investment portfolio and unrealized losses and our capital position. As Jim indicated our operating income is $0.62 per share that’s below our expectation, but given what is happening in the financial markets right now, I consider them to be solid. The reasons for the shortfall from expectations mainly come from two items, mortality experience higher than our expectations and results from our variable segment being impacted by the decline in the equity markets. As you know, mortality experience can fluctuate from quarter to quarter. Our death benefits for the third quarter this year totaled 27.5 million that compares to 21 million in the third quarter of last year and an average of 23.4 million for the last five quarters. These increased death benefits are due to adverse term and variable universal life experience. Our analysis shows an average number of death claims but a higher than average base amount this quarter. We have analyzed these results by geographic location, underwriting policy type et cetera, [don’t relates] anything other than normal quarterly fluctuation here. Death benefits were $0.06 per share higher than our expectations. The other main difference from expectations was increased deck amortization for our variable segment due to decline in the equity markets. Now for our (inaudible) Bureau business we utilize reversion to the mean approach in the calculation of that and have a long-term growth separate account growth rate assumption of 8.6%. We have a restriction on the calculated mean reversion rate that it can't differ from the long-term growth rate assumption by more than a collar of 2%. Since we are currently hitting the upper collar on the mean reversion in this case 10.6 we increase deck amortization in the third quarter by 3.2 million which is $0.07 a share. As you might know we don’t consider this data locking since we have not really revised our long-term growth rate assumption. We still feel like our long-term assumptions by asset class are appropriate. At this time, don’t try to make any changes to our variable deck models in the fourth quarter. Now turn to a few other components of operating results, investment income increased 16% for the quarter that’s primarily due to increase in invested assets. (inaudible) September 30 increase from June 30 for our annuity segments, but declined slightly for our traditional universal life segment. At 9/30 spreads on our exclusive annuity business increased 8 basis points to a spread of 171 basis points. That’s very positive but the business is still slightly below our targeted 175. The increased spreads on the business effective October 1, we did take an additional 15 basis points on our largest block of Farm Bureau Life annuity products. Our universal life businesses are spread on a statutory basis decreased by a basis point during the quarter to 193 that’s well above our target of 181 on this business. We are in excess of 12 basis points. Our independent direct fixed rate annuity business increased 2 basis points during the quarter to 101 which is above our targeted of 94 or in excess of 7 basis points. Spreads finally on our independent direct index annuity business also improved this quarter, but this increase of 9 basis points we hit our target at 237. We view this to be very positive and it’s a third quarter in a row the spread for this business have increased. The improvement during the quarter came primarily from lower option costs, it really reflects more expensive option we purchased in '06 and '07 that were maturing and were being replaced with much expensive options in 2008. I'm locking deferred policy acquisition costs, deferred sales inducement occurred on several blocks of Farm Bureau Life during the quarter. Various mortality, withdraw surrender assumptions were updated based on our actual experience. The unlocking really increased the operating income by one penny per share. With earnings announcement yesterday, we stated we are withdrawing our 2008 earnings guidance. Volatility in the marketplace, general economic financial market conditions make it difficult for us to accurately estimate earnings for the remainder of the year. Taking up the higher than average mortality experience and the lower variable results for the third quarter we have been roughly$0.75 per share in a normal environment. Not to say we are in a normal environment and equity markets continue to deteriorate and that will affect our variable segment likely in the fourth quarter plus we'll have higher interest expense due to the additional debt which also impacts both going forward. Now I'll turn to other than temporary impairments that took for the quarter, I realized losses total 27.2 million, which amounted to 12.7 million after tax and other offsets. Include in here are gross impairments of 26.3 million, the majority of that amount relates to Lehman and Wa Mu, which totaled 16.9 ,million on a pre tax basis. We also had 5.7 million pre tax impairment related to (inaudible) bank, it's a nice lending bank that was taken over by that government. I'll take another minute and walk through our investment portfolio for you. At the end of the third quarter, we had investments total $12.3 billion. These investments are diversified by asset class industry individual issue; portfolio of high quality of more than 96% of the fix maturities being investment grade. We are just going in terms of sector waiting and security selections we have limits in place for each credit exposure. I would say this one is very important, but it also has not made it immune to losses particularly whether we find ourselves impairing formerly AAA rated securities. I'll break our investments down by category and comment on each starting with the credit category. This category consists of corporate and municipal bonds over the past several years. Most of our new money has been invested in investment grade corporate bonds we work to decrease our exposure to structured securities. Corporate bonds surprised of $5.3 billion or 47% of the portfolio 93% of these were investment grid. Our largest sector within the corporate bonds is our financial service sector. Our investments in financials include a diversified mix of banks including international, large U.S. and regional. This sector we also had exposure to commercial REIT bonds. If I know that these are commercial RIET with hard assets backing them and we don't have residential REIT's in here. Corporate securities portfolio includes five CDO's. September 30, these CDO's had a carrying value of $14.6 million and an unrealized loss of 37.4 million. These CDO's are backed by investment grade credit default swaps, no home equity exposure and a rate AA. Our review analysis indicates the securities could withstand more defaults without incurring any principal defaults on our issues. The credit category also includes investment in muni bonds. We have got 1.4 billion or 12% our portfolio in Munies. Our strategies to utilize these as a substitute for corporate bonds, we believe they provide addition diversification. Historically a very low default rates when you compare them to corporate. We underwrite the securities based on the underlying credit quality of the bond just like we do for corporate securities. In other words we do not rely on the insurance rep to make our investment decision on these. Our government securities totaled 301 million that represents 2.7% of the portfolio. The majority of these are callable agencies. Our structured securities make up 2.7 billion or 23.9% of the portfolio. We breakdown in the residential mortgage backs at 16% and the assets 6.5% other assets backs at 1.4%. Our allocation the structure products hit its peak in 2004. It has been declining since that time as we are putting most of our new money into corporate bond. We did take some other temporary impairments for our other asset-backed securities in the third quarter. We didn’t take any additional impairments in this category in the third quarter. Given the impairments today, we are comfortable with the performance of the underlying collateral and the securities. The majority of our residential mortgage backs are in the 2004 and prior vintage years. The subordination has increased since origination. These securities are agency private label issues, all of them are fixed rate, no exposure to any adjustable rate mortgages. The majority of our residential mortgage backs are very simple structures due to direct pass-throughs, richer payers, tax structures. And within structure product category, I mentioned we have minimal exposure to subprime securities. At the end of September, we had subprime with the market value of 23 million and that’s all representing two-tenths of a percent of our total investments. All these are AAA rated, fixed rate and originated in 2005 performing loan. Our commercial mortgage loans totaled 1.3 billion and represent 11.7% of the portfolio. These are well diversified by geography and property types. They’ve got an average loan to value of 59%. We underwrite these very conservatively and have a long history of extremely low delinquency rates with no loans currently in default. We do not have a loss in our commercial mortgage loans for more than three years. Well, that’s no guarantee of our future performance, I think it gives you a feel for how conservatively we are right now. During the recent period, there has been very little new issuance to invest in and most of our new money has been invested in treasuries. We are maintaining higher than average liquidity at this time. September 30, we had securities with gross unrealized losses of approximately $1 billion, but much of this having been in an unrealized position for more than a year. This reflects the fact that we have had tremendous growth in asset over the last several years due to growing sales at EquiTrust Life. These investments were made in a low interest rate environment and realized losses reflect primarily interest rate changes that have occurred since then. We have analyzed these securities in detail, all the securities with a market value of 15% less than its carrying value. Automatically go on our watch list to see if they should be compared. Our analysis indicate that of this total unrealized loss, the lion share relates to investment grade debt securities where values have declined from widening of credit spread to unprecedented levels rather than specific credit deterioration. Finally, I’ll comment on our capital levels and our recent debt financing. During third quarter, we borrowed additional 14 million on our bank line of credit bringing it to 60 million. Also as a short term measure, we entered into a $20 million note with a property casualty affiliate, Farm Bureau Mutual Insurance Company. With these borrowings and the existing cash that we had at the holding company, we are able to contribute 55 million from the holding company to EquiTrust Life. At the end of the quarter, we estimate that Farm Bureau Life has approximately 30 million of excess capital and EquiTrust Life has the appropriate level of capital for their A ratings. Those estimates are based on the most stringent rating agency threshold, which for us is the S&P model. Despite currently having an A minus ratings, we still target the A level and manage our companies with significant excess capital necessary for those A ratings. At the end of the third quarter, our estimated RBC was 350 for Farm Bureau Life and 383 for EquiTrust Life. We have the ability to contribute additional capital as necessary due to the additional 100 million in financing that Jim mentioned. That financing incurred this week when we issued three year notes at 9.25% payable to those affiliates. One note was for 75 million issued to Farm Bureau Mutual and one for 25 million was issued to an investment affiliate of the Iowa Farm Bureau Federation, a majority shareholder. These are three-year notes and they are pre-payable. Our desire is to replace these notes with longer-term debt capital and receive liquidity return to the marketplace. A portion of the proceeds of these notes will be used to repay the $20 million short-term debt that was borrowed from Farm Bureau Mutual during the third quarter. This financing adds to our capital raise and will be used to maintain the stability of our financial position. At this time, as Jim mentioned, it’s not our intention to use the capital for growth. At quarter-end, our debt-to-total cap ratio with equity credit for our trust preferreds was 19.8% with securities at cost. Pro forma these capital changes, the leverage ratio increases to 24.5%. That’s still a level where we feel comfortable. That concludes my prepared remarks. We’ll now turn the call over to the operator and open it up to any questions that you might have.

[Operator:]

Thank you. (Operator Instruction). We will go first to Bob Glasspiegel with Langen McAlenney.

[Bob Glasspiegel:]

Good morning. As I calculate your pro forma debt to capital for the 100 million of debt, it looks like you are 43%. Is there an upward bound where we start to get nervous? Any constituencies?

[James Brannen:]

Hi good morning Bob, this is Jim Brannen.

[Bob Glasspiegel:]

Hi, Jim.

[James Brannen:]

Yes, I am not sure how you are calculating and I mean, I am assuming those debts with securities in market and no equity credit whatsoever for the….

[Bob Glasspiegel:]

Great. Just a simple thing debt to capital ratio it might look relative to the covenants?

[James Brannen:]

Yeah, well. The only comment we have on that capital with the securities cost and certainly wouldn’t include everything that you are including. So we are long away from the issue with regards to at any evidence on leverage ratio.

[Bob Glasspiegel:]

Okay. The third quarter was sort of a walk in the park compared to the fourth quarter to date, you gave us a few comments on hedging, which I think you seemed to be relatively comfortable both in the sales trends, anything on attacking or sort of bond portfolio to market from interim basis that would helpful to let us know what happened this quarter. And is there any sort of shocks that we hopefully work the way out of that we can be nervous.

[James Brannen:]

I guess the only thing I will mention with regards kind of the broad category through out there. One of the process if you are on a October 31st pricing and I think most people when they thought about how bond portfolios were being priced at 9

[Bob Glasspiegel:]

Yes.

[James Brannen:]

Okay, you know that I – the same thing that occurred in the third quarter with regards the back amortization on the variable block if, obviously we are balanced of September 30. So that same situation would occur again does effect current again.

[Bob Glasspiegel:]

My first cut through models are minor loss in Q4, she wouldn’t dissuade me for thinking Q4 look somewhere to Q4 if nothing changes from here?

[James Brannen:]

When you say minor loss in variable?

[Bob Glasspiegel:]

In variable, similar to third quarter. I mean, no loss is minor in your mind.

[James Brannen:]

Exactly, I think the best we can do is kind of an estimation, at this point on impact the reverse demand of the equity market. And a couple data points on is about a 10% decline during the quarter at about a $3.2 million additional impact of backing amortization. An estimate of fourth quarter might be if you had as 20% decrease in an equity market or accounts value, you should say a separate account values might have about a $5 million impact on additional backing amortization. We are not predicting where we end the quarter on values, but just trying to give you a sense of how that work.

[Bob Glasspiegel:]

Your openness in transparency is very much appreciated. Thank you.

[James Brannen:]

Thank you Bob.

[Operator:]

We will go next to Steven Schwartz with Raymond James & Associates.

[Steven Schwartz:]

Hi everybody. Just I want to followup on Bob's question with the acknowledgment that I always confuse myself here. The agenda is – as I understand it you are using, rationally, you’ve got a 200 basis point quarter above your 8.6%, but you didn’t do an unlocking. So what we look – we are looking at retrospective adjustments here where you have gone to the top of 10.6%? And that’s we are going to stay for the conceivable period? But at some point, you might go back to an 8.6? And therefore that would be an official unlock? Am I understanding this correctly?

[James Brannen:]

I think you would made official unlock unless you actually changed your long term assumption and that year ago your period outsider the caller probably before you made inclusion the long term equity market are return assumptions should be changed. So that is when we would call it an unlocking. Right now, because we have an 8.6% assumption, somewhere in our profit model else we can take from 8.6 up 10.6 or down 2% as well. Continue on with those models to the extend it bumped out of there, it goes through current period amortization. Not an unlocking only because it's not a long-term assumption change yet.

[Steven Schwartz:]

Okay. I heard you better on the speaker phone for whatever reason. Can you hear me?

[James Brannen:]

Yes.

[Steven Schwartz:]

Okay. Following up on something else. Do you have any; do you have any debt coming due? I mean do you know what that schedule is?

[Jim Noyce:]

Yeah. We are repaying a piece of short-term debt.

[Steven Schwartz:]

Thank you. I know that.

[Jim Noyce:]

In the third quarter. And then really, about two years out I believe, I don't know the exact date. But it's October '10 is what our bank revolver would come due and that would be the next piece. Then we issued 10-year securities in '04 and '07.

[Steven Schwartz:]

Okay. Did you, you are kind of going out. Did you touch on, you mentioned sub prime. Did you touch on the structured securities and all day paper in your official remarks?

[Jim Noyce:]

I mean, we talked about percentage allocated to structure, structured paper. We didn't specifically identify all although we have detailed it to consider queue considerably in this quarter again.

[Steven Schwartz:]

Okay, alright. I'll check that out again. Okay, thank you.

[Jim Noyce:]

Thanks Steven and nice day.

[Operator:]

(Operator Instructions). Next we will go to Jukka Lipponen with KBW.

[Jukka Lipponen:]

Good morning all. First again sort of developments quarters to date, the option cost for your equity index products I assume are quite a bit high given the (inaudible) that we have had in this quarter?

[Jim Noyce:]

I think (inaudible) two pieces you know, volatility has dried it up. But certainly our rate changes in order to help limit production have also provided some benefit we are not buying that big of an option either. So I don't have specific numbers post quarter end. But we have got both those things coming into play.

[Jukka Lipponen:]

Okay. Then this terms of the impairments and looking at the aging schedule that you have in the queue. I know it is not purely just based on securities being in a position for a certain amount of time. But that how should we sort of think about potential impairments once we get through, get to year end?

[Jim Brannen:]

That's a good question, Jukka. I think my first answer would be, if there was anything that we know specifically today has already ben taken. And with the marketplace the way it is and the world the way that it is, I think that all companies with portfolios of all qualities will see additional impairments in the credit cycle. But specifically between now and year end, I don't have anything to point you to.

[Jukka Lipponen:]

Okay. And then in terms of the watch list within your bond portfolio, how is that trending?

[Jim Brannen:]

We defined watch list as anything priced at 85 or below. So as credit spreads widened it continues to get to be a very long list we had to do a lot more work in identifying that list. And what we do is we will still look at every security. But we really try to isolate the list into securities that have previously been impaired one category. Securities we that we have specific credit concerns about another category and then all the rest that would really kind of prices would compute based on how general spreads are widened from period to period. And that's the lion's share of the list. The list that has specific credit concerns, I would say quarter-over-quarter for the last several quarters has continue to grow. I think just as the marketplace has turned the way it has.

[Jukka Lipponen:]

And lastly, EquiTrust Life profit growth given that you are slowing down the sales, you said you expect asset balances still to grow and you expect higher margins. So and now you are not providing ’09 guidance at the moment, but should we expect that profit growth potentially wouldn’t be impacted much?

[Jim Noyce:]

Certainly there is some counterbalance and with less asset growth for sure, but I think that the spread widening that we have done so far to achieve the target sales. But in the near term a very positive in terms of profit. There is all kinds of pressures on profits coming from other places just based on the current environment though, but the equity markets on the variable for sure, that capital market, the cost of additional capital and the fact that we are really just focused on really stabilizing the balance sheet as well. So there is other offsetting factors. What I would say in the short term in that segment you are right, I think as long as (inaudible) our capital spending level is going to be pretty profitable for new business. Now that’s only a small portion of what’s already on the books there and what’s already on the books, profits are going to have pretty similar profiles instead of what they have now.

[Jukka Lipponen:]

Thank you.

[Operator:]

We will take a follow-up from Steven Schwartz with Raymond James and Associates.

[Steven Schwartz:]

Yeah. Hi everybody again. Maybe John can talk to, which products are that are being deemphasized in EquiTrust for example, are you still in the (inaudible) market, have you sworn off of that? Which products are being managed here?

[John Paule:]

Thanks for the question, Steve. During the third quarter, the changes that we took clearly have the largest impact on the mega block. But I would tell you that the changes that we have made relative to writing policy minimums as an example have been across the Board. So we have really tried to slow all of the business, but I would say clearly it’s been the mega business because it represented such a large percentage of the total earlier that has been the most effective.

[Steven Schwartz:]

Okay. John, maybe you can talk about where are you these days on crediting rates for the index products?

[John Paule:]

Yes. Just bear with me for a minute and I think I can get that for you. I am going to just pick on market power because it’s the largest percentage of sales in the index portfolio. Our fixed rate is 3.25, point to point cap is 7, one-year averaging is 8, one-year average participation is 45%, monthly cap is 2.4%.

[Steven Schwartz:]

And are you thinking in this environment that these come down?

[John Paule:]

Well, in this environment, do they come down will be driven by option costs.

[Steven Schwartz:]

Well, let me ask you this. When was the last time these were updated?

[John Paule:]

Last time we took a decrease in market power was on the 19th of September, so we did take reductions during the third quarter.

[Steven Schwartz:]

Okay.

[Jim Noyce:]

I think it continues to hold pretty well at those rates based on current volatility.

[Steven Schwartz:]

Okay. Alright. Back to on the deck, if – just so I understand what’s going on here, you said 10% equal 3.2 million, presumably you were hinting that since we are down 20 it’s obviously going to be bigger than 3.2, but had we been at given the way you do things, had we been up 2% will be 3. – for the fourth quarter, had we been up [2%] if we finished up 2% for the fourth quarter, would that 3.2 million go away.

[Jim Noyce:]

You mean, would it reverse the third quarter's 3.2 million?

[Steven Schwartz:]

Not reverse.

[Jim Noyce:]

Or would the answer be zero in the fourth?

[Steven Schwartz:]

Yes that's what I ma asking.

[Jim Brannen:]

We wouldn't have additional amortization but we would not recover the 3.2 million that we had to take in the third quarter.

[Steven Schwartz:]

Right. It would be the normal amount.

[Jim Brannen:]

Right.

[Steven Schwartz:]

Yes, that is what I wanted to know. Thanks.

[Operator:]

We'll take a follow-up from Jukka Lipponen with KBW.

[Jukka Lipponen:]

Hi there. The question for John. How was your distribution responded to the various rates and other actions you have taken at the I could trust life.

[John Paule:]

You know, clearly slowing the business has been painful on a number of fronts. I would tell you, also, that the competitive market for the [Micah] product during third quarter remained strong. There were plenty of alternative outlets for the distribution to go to plenty of 5% plus 5 year rate carriers out there. So that may have minimized it because they had other places they could go. I think just the general market turmoil that was taking place during the quarter sort of provided some cover for us as we made rate decreases. But it's clearly difficult to slow your business and have the distribution participate in that with you and we are managing through that as best we can.

[Jukka Lipponen:]

Thank you.

[Operator:]

And with no further questions in the queue, I would like to turn the conference back to our speakers for any additional or closing comments.

[Kathleen TillStange:]

Thank you for your interest in FBL Financial Group and for participating in today's call. Please mark your calendars for our fourth quarter 2008 earnings release on February 5 and the conference call on February 6. Please feel free to give us a call if you have any individual follow up questions. Thank you.

[Operator:]

This concludes today's conference. We appreciate your participation. You may now disconnect.