FBL Uses Swaps To Battle Shrinking Fixed Annuity Spreads

By Allison Bell

July 31, 2003 at 08:00 PM

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NU Online News Service, July 31, 2003, 1:17 p.m. EDT – FBL Financial Group Inc., West Des Moines, Iowa, is the latest life insurer to comment in its second-quarter earnings release about the difficulty of managing fixed annuity assets.

The parent company of Farm Bureau Life Insurance Company and EquiTrust Life Insurance Company is reporting $22 million in net income for the second quarter on $176 million in revenue, up from $12 million in net income on $126 million in revenue for the third quarter of 2002.

The results for the latest quarter include $4.5 million in realized gains on investments and $100 million in net investment income, up from $5.8 million in realized investment losses and $83 million in net investment income for the comparable quarter in 2002.

The results also include $11 million in derivatives income, up from $8.7 million in derivatives losses.

FBL let sales of fixed annuities increase 14%.

Some other insurers cut back on fixed annuity sales during the second quarter because of worries that the spreads, or the gaps between the rates that insurers pay annuity holders and the rates insurers earn on their own investments, were too narrow.

FBL Chief Executive Bill Oddy says in a statement included in the earnings release that FBL is also worrying about narrow spreads.

"We at FBL are challenged to maintain our investment spreads in this low interest rate environment and are utilizing interest rate swaps, as appropriate, in the asset liability management process for our fixed annuity portfolio," Oddy says.

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