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- 1. We Protect Livelihoods and Futures FIRST QUARTER 2018 UPDATE FBL Financial Group, Inc. May 3, 2018
- 3. 3 FBL Financial Group, Inc. – Notable Accomplishments Record net income and record non‐ GAAP operating income for 2017 Increased regular quarterly dividend and paid a special dividend last several years $81 million returned to shareholders via dividends in 2017 Total shareholder return* of 1,509% since 1996 IPO * Through 4/30/18
- 4. 4 Agenda Company Overview Competitive Advantages Financial Overview
- 7. 7 Agenda Company Overview Competitive Advantages Financial Overview
- 9. FBL Financial Group’s exclusive Farm Bureau agent distribution channel drives local market trust, engagement and long‐term relationships. 9 Farm Bureau’s Multiline Exclusive Agents COMPETITIVE ADVANTAGES Agents connect with current and potential clients through active engagement in their local communities, and through a robust multi‐ channel marketing program. 1,825 exclusive Farm Bureau agents and agency managers Supported by 1,217 sales associates Agents build and grow their businesses, positively impacting sales
- 10. Increased Agent Productivity 8‐Managed States 7‐Partner States Total Agents and Agency Managers While total agent count has declined slightly, agent productivity has increased. $0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 +68% Collected Premium per Agent 2005 1Q-2018* Collected premium per Agent has increased 68% since 2005, reflecting higher productivity and effectiveness of producer organizations. *3/31/18 YTD annualized COMPETITIVE ADVANTAGES 10 0 250 500 750 1000 1250 1500 1750 2000 1,849 1,862 1,840 1,825 2015 2016 2017 1Q18
- 12. 12 Rural / Agricultural Connection: An Advantage COMPETITIVE ADVANTAGES FBL Financial Group benefits from close ties to the unique needs of the agricultural market and affinity with the Farm Bureau brand. Target market is Farm Bureau member farmers, ranchers and agriculture‐affiliated individuals and businesses in rural areas, small cities and select small metro areas FBL’s managed property casualty operations rank No. 2 nationally in farmowners market share and No. 1 in six of FBFS’s eight PC states Our Farm and Ranch Succession Seminars drive interest in life insurance ─ Current and future farm owners gain valuable information about estate tax and buy/sell options ─ Individual meetings follow each seminar, generating case analyses and solutions
- 14. Life Insurance Portfolio Product Line Variations within Product Line Term Simple Term Choice Term Return of Premium Term Permanent Whole Life Universal Life and ULSG Indexed Universal Life Annuity Portfolio Fixed Single Premium Immediate Annuity Interest Builder Deferred Annuity Flexible Premium Indexed Annuity 14 Diversified Product Mix COMPETITIVE ADVANTAGES In addition to our own manufactured products, we allow our agents to sell certain third party products (health insurance and select other products) as an accommodation to our agents and customers. Farm Bureau Life agents offer an array of individual life insurance and annuity products, and focus on needs‐ based selling to provide customers with products appropriate for various life stages and economic scenarios. Annuities 59% Life Insurance 41% March 2018 statutory reserves
- 15. Life premiums collected increased 4% in the first quarter 2018, reflecting growing Indexed Universal Life sales. Life Insurance Sales $0 $50 $100 $150 $200 $250 $300 2015 2016 2017 1Q17 YTD 1Q18 YTD (Millions) NOTE: Amounts shown are total premiums collected. COMPETITIVE ADVANTAGES 15 +4%
- 16. Annuity Sales $0 $50 $100 $150 $200 $250 $300 $350 $400 2015 2016 2017 1Q17 YTD 1Q18 YTD Annuity premium collected for first quarter 2018 declined compared to first quarter 2017, but increased more than 15% from the fourth quarter 2017. (Millions) NOTE: Amounts shown are total premiums collected. COMPETITIVE ADVANTAGES 16 ‐3%
- 17. This new initiative will allow agents to add more value, enhance the customer experience and further strengthen the agent/customer relationship. Value Add for Customers and Agents To date a limited number of mutual funds have been offered Initiative will significantly enhance offerings Complements product and service offerings provided by Farm Bureau Financial Services agents Diversify Earnings To add a diversified earnings stream to FBL Financial Group Costs associated with initiative build out in 2018 Implementation To be implemented in phases ─ Phase 1 ‐ New mutual fund platform ─ Phase 2 ‐ Conversion of existing mutual fund business ─ Phase 3 ‐ Introduce financial planning and managed account platform ─ Phase 4 ‐ New role of Farm Bureau wealth management advisor COMPETITIVE ADVANTAGES 17 Farm Bureau Wealth Management
- 18. Company Overview Competitive Advantages Financial Overview 18 Agenda
- 19. 19 Tax Cuts and Jobs Act of 2017 FINANCIAL OVERVIEW $46.4 Federal statutory tax rate changed from 35% to 21%, effective for 2018. 4Q17 Net Income Impact $85.8 million ($3.42 per share) benefit from the re‐measurement of net deferred tax liabilities using the reduced corporate tax rate 2018 Effective Tax Rate Estimated to be 17‐20% Compares to 31.7% for 2017, excluding the benefit of the Tax Act Assessing opportunities provided by lower rate
- 20. NOTE: Non‐GAAP operating income excludes the initial impact of changes in federal statutory income tax rates and tax laws, realized gains and losses on investments, and the change in net unrealized gains and losses on derivatives and equity securities. FBL had strong earnings in the first quarter of 2018, with net income of $0.94 per share and non‐GAAP operating income of $1.10 per share. (Per Common Share) $4.53 $4.28 $7.75 $1.05 $0.94 $4.19 $4.25 $4.32 $1.08 $1.10 $0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00 2015 2016 2017 1Q17 1Q18 Net Income Operating 20 Net Income and Non‐GAAP Operating Income FINANCIAL OVERVIEW
- 21. NOTE: Non‐GAAP operating income excludes the initial impact of changes in federal statutory income tax rates and tax laws, realized gains and losses on investments, and the change in net unrealized gains and losses on derivatives and equity securities. First quarter earnings reflect growth in profitable business, the benefit of other investment‐related income of $0.11 per share and a lower effective tax rate due to the Tax Cuts and Jobs Act of 2017. (Per Common Share) $4.19 $4.25 $4.32 $1.08 $1.10 $0.00 $1.00 $2.00 $3.00 $4.00 $5.00 2015 2016 2017 1Q17 1Q18 21 Record First Quarter Non‐GAAP Operating Income FINANCIAL OVERVIEW
- 23. 1% 2% 3% 4% 5% 6% 7% 2012 2013 2014 2015 2016 2017 1Q18 23 1.91% 13% of annuity business is above the minimum guaranteed crediting rate Below target of 2.00% * Point‐in‐time spreads at the balance sheet date. 6% of universal life business is above the minimum guaranteed crediting rate Target of 1.46% 47% of business at guaranteed rate is earning or exceeding target spreads Annuity Spreads* Universal Life Spreads* Yield Crediting Rate Spread 1% 2% 3% 4% 5% 6% 7% 2012 2013 2014 2015 2016 2017 1Q18 1.40% Despite the pressure on investment yields, we have been proactively managing spreads. Successfully Managing Spreads FINANCIAL OVERVIEW
- 24. Trust preferred securities, 5%, due 2047 $ 97,000 Preferred stock 3,000 Common stockholder’s equity, excluding AOCI 1,074,930 Total capitalization, excluding AOCI 1,174,930 Accumulated other comprehensive income 186,222 Total capitalization, including AOCI $ 1,361,152 Leverage ratio (50% equity credit for trust preferreds) 3.6% As of March 31, 2018 (Thousands) Following the capital management transactions of the last several years, total capitalization is $1.4 billion. 24 Total Capitalization of $1.4 Billion FINANCIAL OVERVIEW Farm Bureau Life consistently generates excess capital Excess capital estimated to be $170 million at 3/31/18
- 25. $0.00 $0.10 $0.20 $0.30 $0.40 $0.50 1Q13 25 Capital Actions: Regular Quarterly Dividends FBL has significantly increased its quarterly dividend rate over the last several years with the most recent increase in first quarter 2018. Regular Quarterly Dividend Rate Dividend yield of 2.4% as of 4/30/18 Dividend increases reflect FBL’s confidence in its business and desire to return cash to FBL’s shareholders 1Q14 3Q15 1Q16 1Q17 33% CAGR FINANCIAL OVERVIEW 1Q18
- 26. 26 Capital Actions: Periodic Special Dividends FINANCIAL OVERVIEW $34.6 $39.7 $41.8 $44.0 $46.0 $0 $20 $40 $60 $80 $100 2014 2015 2016 2017 2018* Regular Dividend Special Dividend $89.2 $49.5 $49.7 $91.5 $37.4 $81.4 $37.3 $83.3 (Millions) Total Common Stock Dividends Paid In addition to regular quarterly cash dividends, FBL has paid special dividends from time to time. $2.00 per share special dividend paid in 3Q13, 1Q15 and 1Q16 $1.50 per share special dividend paid in 1Q17 and 1Q18 * Based on current shares outstanding. 1Q18 dividend paid, but 2Q, 3Q and 4Q dividends have not yet been declared nor approved by the Board of Directors.
- 27. In order to utilize FBL’s excess capital, we have repurchased FBL shares over the last several years, but repurchases have slowed. 27 Capital Actions: Stock Repurchases FINANCIAL OVERVIEW $46.4 Share repurchases of $242.5 million in 2012 and 2013. Limited repurchases in 2014‐2017 due to: ─ Increase in stock price (previously buying stock back below book value) ─ Less willing sellers ─ Impact on public float $50 million stock repurchase authorization announced March 1, 2018 ─ Available to offset dilution from stock option exercises ─ Flexibility to repurchase FBL shares as opportunities arise ─ 99,312 shares repurchased in 1Q‐2018
- 28. Farm Bureau Life’s capital position remains very strong. The decrease in 2018 reflects funds paid from Farm Bureau Life to the holding company to fund the special dividend. 545% 570% 544% 552% 543% 200% 250% 300% 350% 400% 450% 500% 550% 600% 2014 2015 2016 2017 1Q18 Farm Bureau Life Insurance Company RBC is company action level. 28 Risk Based Capital Ratio Strong FINANCIAL OVERVIEW
- 29. 66.1% 30.4% 3.5% A or Higher BBB Below Investment Grade Investments are well diversified by individual issue, industry and asset class. Investments by Type Investment Quality Portfolio as of March 31, 2018 41.3% 25.0% 17.7% 11.3% 0.4% 2.3% 2.0% Corporate Bonds Mortgage and Asset‐backed Securities State and Political Subdivisions Commercial Mortgage Loans Short‐term Investments Policy Loans Others FINANCIAL OVERVIEW 29 High Quality, Diversified $8.6 Billion Investment Portfolio
- 30. $969 million commercial mortgage loan portfolio is well‐diversified by property type and geographic location. Long history of extremely low delinquency rates with current portfolio performing well. Underwritten internally No single‐family, hotel, apartment, construction or agricultural loans At March 31, 2018, there were no delinquent loans Pacific 15% Mountain 11% W.N. Central 13% W.S. Central 9% E.N. Central 9% E.S. Central 7% Mid Atlantic 2% S. Atlantic 30% Collateral Type as of March 31, 2018 FINANCIAL OVERVIEW 43% 30% 21% 6% Office Retail Industrial Other 30 Diversified $969 Million Commercial Loan Portfolio N.E. 4%
- 31. BV, excluding AOCI BV, including AOCI 31 Book Value Per Common Share FINANCIAL OVERVIEW $47.34 $50.05 $51.16 $43.28$44.16 $40.70 $41.54 $42.18 $55.59 $50.78 $0 $10 $20 $30 $40 $50 $60 1Q17 2Q17 3Q17 4Q17 1Q18 Book value totaled $50.78 including AOCI and $43.28 excluding AOCI at March 31, 2018. $1.50 per share special dividend paid to shareholders in 1Q17 $1.50 per share special dividend paid to shareholders in 1Q18
- 32. FBL Financial Group, Inc. – Why Invest Record earnings results Risk profile; exclusive agents Attractive niche market Balanced business: life insurance & annuities 543% RBC Active capital management ─ Estimated $170M excess capital ─ 2.4% dividend yield ─ 4 special dividends paid since 2013 32 *RBC is Company Action Level As of 3/31/2018
- 33. We Protect Livelihoods and Futures www.fblfinancial.com www.fbfs.com
- 34. FBL Leadership: Experienced Executive Management Team James P. (Jim) Brannen Chief Executive Officer Years at FBL: 27 Years in industry: 33 Donald J. (Don) Seibel Chief Financial Officer Years at FBL: 22 Years in industry: 33 2012: Named CEO 2007: Named CFO, CAO & Treasurer 2000: Named VP ‐ Finance 1991: Joined FBL as Tax Manager B.B.A., University of Iowa Member, American Institute of CPAs Member, Iowa Society of CPAs Past President – Federation of Iowa Insurers Board and Committee Service – — Greater Des Moines Partnership — Great Western Bancorp, Inc. — Iowa Business Council — Property Casualty Insurers Assoc. of America 2012: Named CFO and Treasurer 2007: Named VP ‐ Finance 2002: Named VP ‐ Accounting 1996: Joined FBL as GAAP Financial Accounting Manager B.B.A., Iowa State University Certified Public Accountant ─ Member, American Institute of CPAs ─ Chartered Global Management Accountant ─ Fellow, Life Office Management Institute Boards of Directors ─ Variety ‐ the Children’s Charity of Iowa ─ Greater Des Moines Habitat for Humanity Charles T. Happel Chief Investment Officer Years Experience: FBL – 32 Industry – 34 Lori K. Geadelmann General Counsel Years Experience: FBL– 25 Industry – 25 Raymond W. Wasilewski Chief Operating Officer – Life Companies Years Experience: FBL – 21 Industry – 24 Daniel D. Pitcher Chief Operating Officer – Property Casualty Companies Years Experience: FBL – 20 Industry – 35 D. Scott Stice Chief Marketing Officer Years Experience: FBL – 5 Industry – 28 Casey C. Decker Chief Information Officer Years Experience: FBL – 14 Industry – 14 Nicholas C. Gerhart Chief Administrative Officer Years Experience: FBL – 1 Industry – 7 APPENDIX
- 35. 35 Reconciliation of Net Income to Non‐GAAP Operating Income APPENDIX Reconciliation of Net Income Attributable to FBL to Operating Income Year ended December 31, 2018 2017 2017 2016 2015 Net income attributable to FBL 23,631$ 26,433$ 194,327$ 107,223$ 113,527$ Adjustments: Initial impact of the Tax Act 1,069 - (85,797) Net realized gains/losses on investments (a) (b) 2,424 554 2,381 713 (8,498) Change in net unrealized gains/losses on derivatives (a) 509 1 (2,549) (1,485) (141) Non-GAAP Operating Income (c) 27,633$ 26,988$ 108,362$ 106,451$ 104,888$ Non-GAAP Operating income per common share assuming dilution (c) 1.10$ 1.08$ 4.32$ 4.25$ 4.19$ Book value 50.78$ 47.34$ 55.59$ 47.61$ 45.61$ Less: Per share impact of accumulated other comprehensive income 7.50 6.64 11.43 6.01 4.62 Book value, excluding accumulated other comprehensive income (d) 43.28$ 40.70$ 44.16$ 41.60$ 40.99$ Three months ended March 31, (dollars in thousands, except per share data) (a) Net of adjustments, as applicable, to amortization of unearned revenue reserves, deferred acquisition costs, deferred sales inducements, value of insurance inforce acquired, interest sensitive policy reserves and income taxes attributable to these items. (b) Beginning in 2018, the change in net unrealized gains/losses on equity securities is included as an adjustment to net income. (c) In addition to net income, FBL has consistently utilized non-GAAP operating income, a financial measure common in the life insurance industry that is not prepared in accordance with U.S. generally accepted accounting principles (GAAP), as a primary economic measure to evaluate its financial performance. Non-GAAP operating income equals net income attributable to FBL Financial Group adjusted to exclude the initial impact of changes in federal statutory income tax rates and tax laws, realized gains and losses on investments, and the change in net unrealized gains and losses on derivatives and equity securities, which can fluctuate greatly from period to period. These fluctuations make it difficult to analyze core operating trends. In addition, for derivatives not designated as hedges, there is a mismatch between the valuation of the asset and liability when deriving net income (loss). Specifically, call options relating to indexed business are one-year assets while the embedded derivatives in the indexed contracts represent the rights of the contract holder to receive index credits over the entire period the indexed annuities are expected to be in force. This non-GAAP measure is used for goal setting, determining short-term incentive compensation and evaluating performance on a basis comparable to that used by many in the investment community. FBL Financial Group believes the combined presentation and evaluation of non-GAAP operating income, together with net income, provides information that may enhance an investor's understanding of FBL Financial Group's underlying results and profitability. (d) Book value per share excluding accumulated other comprehensive income is a non-GAAP measure. Accumulated other comprehensive income totaled $186.2 million at March 31, 2018 and $285.0 million at December 31, 2017. Since accumulated other comprehensive income fluctuates from quarter to quarter due to unrealized changes in market value of investments causes principally by changes in market interest rates, FBL Financial Group believes this non-GAAP financial measure provides useful supplemental information.