FORWARD-LOOKING STATEMENTS
This report may contain forward-looking statements about our operations, anticipated performance and other similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor under the Securities Act of 1933 and the Securities Exchange Act of 1934 (the "Exchange Act") for forward-looking statements. The forward-looking statements are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and/or projected. Such forward-looking statements are based on current expectations, estimates, forecasts and projections about our company, the industry in which we operate, and beliefs and assumptions made by management. Words such as "expects," "anticipates," "intends," "plans," "believes," "continues," "seeks," "estimates," "predicts," "should," "could," "may," "will continue," "might," "hope," "can" and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed in such forward-looking statements. Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in Part II Item 1A "Risk Factors" of this document. Among other factors that could cause our actual outcomes and results to differ are:
• The impact of the current unprecedented volatility in the financial markets, including the duration of the credit crisis and the effectiveness of governmental solutions.

• The adequacy of our loss reserves established for Hurricane Katrina, which are based on management estimates.

• Additional government and Nasdaq Stock Market LLC policies relating to corporate governance, and the cost to comply.

• Changing rates of inflation.

• The valuation of invested assets.

• The valuation of pension and other postretirement benefit obligations.

• The calculation and recovery of deferred policy acquisition costs.

• The ability to maintain and safeguard the security of our data.

• The resolution of regulatory issues and litigation pertaining to and arising out of Hurricane Katrina.

• Our relationship with our reinsurers.

• Our relationship with our agents.

• The pricing of our products.

• The adequacy of the reinsurance coverage that we purchase.

These are representative of the risks, uncertainties and assumptions that could cause actual outcomes and results to differ materially from what is expressed in forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report or as of the date they are made. Except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission (the "SEC"), we do not have any intention or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates are defined as those that are reflective of significant judgments and uncertainties and that potentially may result in materially different results under different assumptions and conditions. Our discussion and analysis of our results of operations and financial condition is based upon our Consolidated Financial Statements, which we have prepared in accordance with GAAP. As we prepare these financial statements, we must make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates. Our critical accounting estimates are: the valuation of investments; the valuation of reserves for losses, claims, and loss settlement expenses; the valuation of reserves for future policy benefits; and the calculation of the deferred policy acquisition costs asset. These critical accounting estimates are more fully described in our Management's Discussion and Analysis of Results of Operations and Financial Condition presented in our Annual Report on Form 10-K for the year ended December 31, 2008.

OVERVIEW AND OUTLOOK
Our Business
We operate property and casualty and life insurance businesses, marketing our products through independent agents. Although we maintain a broad geographic presence that includes most of the United States, more than half of our property and casualty premiums were written in Iowa, Texas, Missouri, Louisiana and Colorado for the six-month period ended June 30, 2009. More than three-fourths of our life insurance premiums were written in Iowa, Nebraska, Minnesota, Wisconsin and Illinois for the six-month period ended June 30, 2009. We conduct our operations through two distinct segments: property and casualty insurance and life insurance. We manage these segments separately because they generally do not share the same customer base, and they each have different pricing and expense structures. We evaluate segment profit or loss based upon operating and investment results. Segment profit or loss described in the following sections of the Management's Discussion and Analysis is reported on a pre-tax basis.
Financial Overview
The insurance market remained challenging in the second quarter of 2009; however our total stockholders' equity increased by $11.4 million or 1.8 percent from December 31, 2008. The increase was the result of a modest improvement in the fixed income markets, which led to an increase in our unrealized investment gains. Book value per share increased from $24.10 at December 31, 2008 to $24.56 at June 30, 2009.
In the first half of 2009, our property and casualty results deteriorated due primarily to a decrease in earned premiums and an increase in loss settlement expenses. The decline in our earned premiums was not unexpected in the current market cycle and economic downturn. The increase in our loss settlement expenses was due to an increase in products liability and construction defect claims. This is somewhat reflective of the type of business we write (e.g., construction and manufacturing), as products liability and construction defect claims tend to result in costly insurance settlements. To manage litigation and other settlement expenses, our underwriting department is taking steps to ensure proper pricing and adequate loss control on accounts, while our claims department is closely monitoring costs related to outside attorneys. In addition to the year over year increase in loss settlement expenses, we experienced a trend of increasing costs due to Hurricane Katrina claims. We continue to settle lawsuits related to Hurricane Katrina, but the legal environment in New Orleans has become increasingly challenging. To address the increasing uncertainty associated with claims being litigated in the Louisiana courts, we increased our reserves for losses that occurred in prior years by $12.4 million for the six-month period ended June 30, 2009.
Despite the state of the insurance and investment markets, our core book of business performed reasonably well in the second quarter of 2009; our claims frequency decreased from the first quarter of 2009, while claims severity slowly increased from the prior quarter. The frequency of our non-catastrophe losses in the second quarter of 2009 was comparable to the same period of 2008. We also experienced a reduction in catastrophe losses, without the effect of Hurricane Katrina litigation, during the three-month period ended June 30, 2009, which totaled $7.1 million as compared to $13.4 million for the same period of 2008. In the six-month period ended June 30, 2009, the investment market continued to be challenging, with other-than-temporary investment write-downs totaling $18.1 million. A portion of the write-downs related to fixed maturity securities resulted from information that became public subsequent to the end of the second quarter. In the future, there remains a potential for additional investment write-downs on certain holdings if the economic downturn persists.

Net investment income decreased $.5 million or 1.7 percent and $5.3 million or 9.4 percent for the three- and six-month periods ended June 30, 2009, respectively, as compared to the same periods in 2008. This decrease was due to lower market interest rates earned on our investment portfolio and agency bonds called during 2009, the proceeds of which we reinvested at a lower interest rate than was previously available. Also contributing to the decrease were changes in the fair value of certain investments in limited liability partnerships, which we account for under the equity method of accounting, with our portion of the partnership's earnings recorded in investment income. Our largest investment is in a partnership fund that invests in U.S. subregional banks.
In the life segment, quarter and year-to-date results were negatively impacted by the other-than-temporary investment write-downs. However, annuity and life insurance business generated pre-tax income of $3.2 million for the quarter compared to $4.3 million in the second quarter of 2008. Year-to-date, the annuity and life insurance business generated pre-tax income of $8.1 million; the same amount as recorded year-to-date through June 2008.

RESULTS OF OPERATIONS
Consolidated Financial Highlights

                               Three Months Ended June 30,                  Six Months Ended June 30,
(In Thousands)              2009           2008            %            2009           2008            %

Revenues
Net premiums earned       $ 119,671      $ 123,274          -2.9 %    $ 237,992      $ 246,217          -3.3 %
Investment income, net
of investment expenses       27,359         27,844          -1.7         50,630         55,899          -9.4
Realized investment
gains (losses)              (13,153 )          944           N/A        (16,641 )         (210 )         N/A
Other income                    169            184          -8.2            328            383         -14.4

                          $ 134,046      $ 152,246         -12.0 %    $ 272,309      $ 302,289          -9.9 %


Benefits, Losses and
Expenses
Losses and loss
settlement expenses       $  90,558      $ 100,707         -10.1 %    $ 176,636      $ 168,189           5.0 %
Future policy benefits        5,874          5,360           9.6          9,262         11,206         -17.3
Amortization of
deferred policy
acquisition costs            28,795         32,029         -10.1         58,201         64,555          -9.8
Other underwriting
expenses                      9,970          5,568          79.1         18,456         12,488          47.8
Disaster charges and
other related
expenses, net of
recoveries                     (188 )        3,753        -105.0           (546 )        3,753        -114.5
Interest on
policyholders'
accounts                     10,397         10,217           1.8         20,169         20,663          -2.4

                          $ 145,406      $ 157,634          -7.8 %    $ 282,178      $ 280,854           0.5 %

Income (loss) before
income taxes              $ (11,360 )    $  (5,388 )      -110.8      $  (9,869 )    $  21,435        -146.0
Federal income tax
expense (benefit)            (6,026 )       (3,865 )       -55.9         (7,805 )        2,831        -375.7

Net Income (Loss)         $  (5,334 )    $  (1,523 )      -250.2 %    $  (2,064 )    $  18,604        -111.1 %

Property and Casualty Insurance Segment Results

                                           Three Months Ended June 30,            Six Months Ended June 30,
(In Thousands)                              2009                 2008               2009               2008
Net premiums written (1)               $      120,413       $      121,069      $     235,062       $  244,512

Net premiums earned                    $      109,458       $      115,014      $     218,672       $  228,366
Losses and loss settlement expenses           (86,394 )            (98,126 )         (168,673 )       (161,739 )
Amortization of deferred policy
acquisition costs                             (26,244 )            (29,071 )          (53,142 )        (58,722 )
Other underwriting expenses                    (7,475 )             (3,987 )          (13,926 )         (8,632 )

Underwriting loss                      $      (10,655 )     $      (16,170 )    $     (17,069 )     $     (727 )

Investment income, net of
underwriting expenses                           9,082                9,268             15,130           18,060
Realized investment gains (losses)             (7,631 )              1,205             (8,348 )          1,332
Other income (loss)                                17                  (18 )               45              (29 )
Disaster charges and other related
expenses, net of recoveries                       188               (3,753 )              546           (3,753 )

Income (loss) before income taxes      $       (8,999 )     $       (9,468 )    $      (9,696 )     $   14,883

GAAP Ratios:
Loss ratio                                       78.9 %               85.3 %             77.1 %           70.8 %
Expense ratio (2)                                30.8                 28.8               30.7             29.5

Combined ratio (1)                              109.7 %              114.1 %            107.8 %          100.3 %
Combined ratio (without
catastrophes) (1)                               103.2                102.4              103.2             93.1

(1) Please refer to the Statutory and Other Non-GAAP Financial Measures section of this report for further explanation of this measure.

(2) The GAAP expense ratio does not include disaster charges and other related expenses, net of recoveries.

Net premiums earned decreased by $5.6 million or 4.8 percent and $9.7 million or 4.2 percent for the three- and six-month periods ended June 30, 2009, due primarily to continuing competition in the insurance market, as well as the nonrenewal of business that did not meet our underwriting guidelines. Our premium writings have also been affected by the downturn in the economy, specifically related to our surety business and the residential contracting business in our western states.
In the second quarter of 2009, we experienced flat premium levels in our commercial lines business and an average of low single-digit percentage increases in rate levels in our personal lines business. Our policy retention rate remained strong in both the personal and commercial lines of business; however, all regions continued to experience downward pressure on renewal premiums for medium and large accounts, as well as smaller accounts in some instances. In the second quarter, we were successful in writing new business and we observed a stabilization of overall pricing levels for new business during the quarter. Though the decreases in our premium levels were relatively modest in the second quarter, premium levels have been decreasing gradually in some lines of business since the third quarter of 2004. Approximately half of the rate filings approved for our company in the three-month period ended June 30, 2009 were for low single-digit percentage rate increases, rather than decreases, which may be an indication that the "soft" market cycle will bottom out in 2009. Losses and loss settlement expenses improved by 12.0 percent in the second quarter of 2009, as catastrophe losses decreased by nearly half as compared to the second quarter of 2008. However, year-to-date, losses and loss settlement expenses increased by 4.3 percent as compared to the same period of 2008, driven by settlement expenses related to products liability and construction defect claims. Overall, claims frequency decreased during the second quarter of 2009 from the first quarter of 2009, while claims severity rose slightly during this same period.
Amortization of deferred policy acquisition costs decreased 9.7 percent in the three-month period ended June 30, 2009 and 9.5 percent for the six-month period ended June 30, 2009 as compared to the same periods in 2008. The decrease in premiums written and corresponding unearned premium resulted in a reduction of the deferred acquisition costs asset and related amortization.

The deterioration in our property and casualty underwriting results led to an increase in other underwriting expenses in the second quarter and year-to-date as we expensed more acquisition costs in 2009 as compared to the same periods in 2008. The extent to which underwriting expenses are deferred to future periods is dependent upon our loss ratio.
The following table displays our premiums earned, losses and loss settlement expenses and loss ratio by line of business for the six-month periods ended June 30, 2009 and 2008.

                                                                   Six Months Ended June 30,
                                                   2009                                                  2008
                                               Losses & Loss                                         Losses & Loss
(In Thousands)               Premiums           Settlement             Loss        Premiums           Settlement             Loss
Unaudited                     Earned         Expenses Incurred        Ratio         Earned         Expenses Incurred        Ratio
Commercial lines
Other liability (1)          $  61,637      $            49,221          79.9 %    $  67,348      $            33,187          49.3 %
Fire and allied lines (2)       51,021                   48,535          95.1         54,624                   61,417         112.4
Automobile                      48,773                   32,636          66.9         49,981                   35,186          70.4
Workers' compensation           26,154                   21,166          80.9         25,998                   14,533          55.9
Fidelity and surety             10,142                    1,171          11.5         10,152                    1,479          14.6
Miscellaneous                      425                      118          27.8            421                      (36 )        (8.6 )

Total commercial lines       $ 198,152      $           152,847          77.1 %    $ 208,524      $           145,766          69.9 %


Personal lines
Fire and allied lines (3)    $  10,787      $             8,479          78.6 %    $  10,629      $             7,678          72.2 %
Automobile                       6,269                    4,922          78.5          6,303                    5,322          84.4
Miscellaneous                      173                      266         153.8            157                      904           N/A

Total personal lines         $  17,229      $            13,667          79.3 %    $  17,089      $            13,904          81.4 %

Reinsurance assumed          $   3,291      $             2,159          65.6 %    $   2,753      $             2,069          75.2 %

Total                        $ 218,672      $           168,673          77.1 %    $ 228,366      $           161,739          70.8 %

(1) "Other liability" is business insurance covering bodily injury and property damage arising from general business operations, accidents on the insured's premises and products manufactured or sold.

(2) "Fire and allied lines" includes fire, allied lines, commercial multiple peril and inland marine.

(3) "Fire and allied lines" includes fire, allied lines, homeowners and inland marine.

Life Insurance Segment Results

                                           Three Months Ended June 30,              Six Months Ended June 30,
(In Thousands)                              2009                 2008               2009                2008
Revenues
Net premiums written (1)               $        7,266       $        8,143      $      13,463       $      17,567

Net premiums earned                    $       10,213       $        8,260      $      19,320       $      17,851
Investment income, net                         18,277               18,576             35,500              37,839
Realized investment losses                     (5,522 )               (261 )           (8,293 )            (1,542 )
Other income                                      152                  202                283                 412

Total Revenues                         $       23,120       $       26,777      $      46,810       $      54,560

Benefits, Losses and Expenses
Losses and loss settlement expenses    $        4,164       $        2,581      $       7,963       $       6,450
Future policy benefits                          5,874                5,360              9,262              11,206
Amortization of deferred policy
acquisition costs                               2,551                2,958              5,059               5,833
Other underwriting expenses                     2,495                1,581              4,530               3,856
Interest on policyholders' accounts            10,397               10,217             20,169              20,663

Total Benefits, Losses and Expenses    $       25,481       $       22,697      $      46,983       $      48,008


Income (Loss) Before Income Taxes      $       (2,361 )     $        4,080      $        (173 )     $       6,552

(1) Please refer to the Statutory and Other Non-GAAP Financial Measures section of this report for further explanation of this measure.

Net premiums earned increased 23.6 percent in the second-quarter and 8.2 percent year-to-date 2009 due to an increase in sales of our single premium immediate annuity and single premium whole life products.

Deferred annuity deposits were $67.1 million in the second quarter of 2009, compared with $34.1 million in the same period of 2008. Year to date, deferred annuity deposits were $130.5 million in 2009, compared with $62.5 million in 2008. The significant increase in our annuity deposits in 2009 is due to increased sales, as more consumers choose to invest their money in products with guaranteed rates of return. We expect our annuity sales to continue to increase throughout the year. Deferred annuity deposits are not recorded as a component of net premiums written or net premiums earned; however, the money is invested to generate investment income.
The increase in annuity sales and a reduction in withdrawals contributed to a net cash inflow related to our annuity business of $37.2 million in the second quarter of 2009, compared with a net cash outflow of $14.1 million in the second quarter of 2008. Year to date, net cash inflow was $56.6 million in 2009, versus net cash outflow of $25.4 million in 2008. The reduction in annuity withdrawals resulted from fewer annuities coming due for renewal in the first six months of 2009, as compared with the same period in 2008. We expect this trend to continue throughout 2009.
Loss and loss settlement expenses rose 61.3 percent in the second quarter of 2009 and 23.5 percent year-to-date 2009, compared to the same periods in 2008, due to an increase in policy benefits incurred for our traditional life insurance products. The amount of policy benefits incurred may fluctuate due to the unexpected nature of death benefits; however, these benefits have historically tended to level out throughout the year. However, we do anticipate an increase in loss and loss settlement expense in 2009 compared to 2008 due to increased sales of single premium whole life insurance in recent years and a maturing block of older traditional products.
Though liability for future policy benefits increased slightly in the second quarter of 2009, it decreased by 17.4 percent for the first six months of 2009 due to the reduction in claims from our continuing run-off of credit life and credit accident and health business, which we ceased writing in 2004. On May 1, 2009, we introduced a new annuity product, the four-year Single Premium Deferred Annuity, which offers all the benefits of our other annuities - including a competitive and guaranteed rate of return - but with a shorter time commitment. This new product has already proven to be popular among consumers in the economic downturn, and the potential for continued growth with this product exists. In September, we plan to introduce two new whole life products that members of our agency force requested to better meet the needs of their customers.
Investment Portfolio
Our invested assets at June 30, 2009 totaled $2,202.9 million, compared to $2,095.8 million at December 31, 2008. At June 30, 2009, fixed maturity securities comprised 93.2 percent of our investment portfolio, while equity securities accounted for 4.9 percent of the value of our portfolio. Because the primary purpose of the investment portfolio is to fund future claims payments, we utilize a conservative investment philosophy, investing in a diversified portfolio of high quality, intermediate-term taxable corporate bonds, taxable U.S. government bonds and tax-exempt U.S. municipal bonds. Concentration
We develop our investment strategies based on a number of factors, including estimated duration of reserve liabilities, short- and long-term liquidity needs, projected tax status, general economic conditions, expected rates of inflation and regulatory requirements. We manage our portfolio based on investment guidelines approved by management, which comply with applicable statutory regulations.

The concentration of our investment portfolio at June 30, 2009 is presented in the following table:

                                   Property & Casualty                      Life
                                    Insurance Segment                 Insurance Segment                      Total
                                                  Percent                          Percent                          Percent
(Dollars in Thousands)                            of Total                         of Total                         of Total
Fixed maturities(1)            $    751,352            85.9 %    $ 1,289,962            97.0 %    $ 2,041,314            92.8 %
Equity securities                    96,108            11.0           11,566             0.9          107,674             4.9
Trading securities                   11,247             1.3                -             0.0           11,247             0.5
. . .