Financial Highlights
(In thousands except percent and per share amounts)
TORCHMARK CORPORATION
Operations:
2000
1999
% Change
Total Premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,046,210
$ 1,884,086
Total Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,515,894
2,226,895
Net Operating Income* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
365,292
341,167
Annualized Life Premium In Force . . . . . . . . . . . . . . . . . . . . .
1,200,144
1,130,609
Annualized Health Premium In Force . . . . . . . . . . . . . . . . . . .
1,004,299
884,358
Diluted Average Shares Outstanding . . . . . . . . . . . . . . . . . . .
128,353
133,986
Net Operating Income As A Return
On Average Common Equity** . . . . . . . . . . . . . . . . . . . . . . . .
16.3% 16.2%
Per Common Share:
Net Operating Income* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2.85
$ 2.55
Shareholders’ Equity At Year End ** . . . . . . . . . . . . . . . . . . . .
18.53
16.32
8.6
13.0
7.1
6.2
13.6
(4.2)
11.8
13.5
Net Operating Income Per Common Share*
$2.85
$2.55
$2.29
$1.94
$1.67
$3.00
$2.00
$1.00
‘96
‘97
‘98
‘99
‘00
* Excludes realized investment gains and losses and the related adjustment to deferred acquisition costs, equity in Vesta earnings for periods prior to 1999,
discontinued operations, a 1999 nonrecurring charge and other nonoperating items as described on page 10.
** Includes fixed maturity investments at amortized cost.
Letter To Shareholders
2000 was an excellent year for Torchmark. We achieved two significant milestones: (1) our annu-
alized premium issued (new sales) surpassed the $.5 billion mark; and (2) our premium income surpassed
the $2 billion mark.
On a per-share basis, we met our goals of double-digit growth in underwriting income and excess
investment income, as well as earnings from operations. We attained these goals by remaining focused
on providing protection-type insurance products to our target markets in middle income America, by grow-
ing the sales and premium income in all of our distribution systems, by remaining expense and service
conscious and by managing our capital to include the repurchase of our stock.
FINANCIAL REVIEW
Key Components of Net Operating Income Per Diluted Share
Insurance Underwriting Income $2.77
2000
Excess Investment Income
Other
Income Tax
1 .77
( .23)
(1.46)
Net Operating Income, Excluding
Nonrecurring Charge
2.85
Nonrecurring Charge
1999
$2.49
1.61
( .25)
(1.30)
2.55
(.10)
Net Operating Income
$2.85 $2.45
%
11
10
(8)
12
12
For 2000, our net operating income per share increased 12% to $2.85 compared with $2.55 in
1999.
Annualized premium issued increased 21% to $543 million. Premium income increased 9% to
$2.046 billion. Underwriting margins (premium income less policy obligations and acquisition expenses)
increased 6% to $463 million; underwriting income (underwriting margins plus other income less
administrative expenses) increased 7% to $356 million. On a per-share basis, underwriting income
increased 11% to $2.77.
Our excess investment income, which is our net investment income less the interest we credit or
pay on our net interest-bearing liabilities, increased 5% to $227 million. Excess investment income would
have been higher were it not for our stock repurchase program where we acquired 5.8 million shares
during the year at a total cost of $135 million. On a per-share basis, excess investment income increased
10% to $1.77.
Net operating income as a return on equity was 16.3%. Book value per share (excluding the effect
of reporting the investment portfolio at market value) increased 14% to $18.53.
2
INSURANCE DISTRIBUTION
United American Exclusive Agency Operation ___________________________
(in millions, except %)
Life
_____________________________
Health
___________________________
2000
____________
$
____
*
____
1999
___________
$
____
*
____
2000
___________
$
____
*
____
1999
___________
$
____
*
____
Annualized Premium:
Sales
In Force
5
21
Underwriting Margin:
Premium
Policy Obligations
Acquisition Expenses 7
19
10
51%
34%
5
22
19
10
6
53%
33%
145
311
254
162
49
64%
19%
103
231
195
120
40
62%
20%
Underwriting Margin
3
15%
3
14%
43
17%
35
18%
* % of Premium
Our Branch Office operation had an outstanding year. Annualized premium issued increased 39%
to $150 million. Premium income increased 28% to $274 million, and underwriting margins increased 22%
to $46 million.
The primary reason for our sales growth was the growth in our sales force. Our branch managers
increased 10% to 85, middle management increased 22% to 243, and the total sales force increased 56%
to 3,661. Over 80% of our sales force has been with the company less than one year. We will continue
in our efforts to recruit and train new agents, but we also look forward to continued growth in the number
of our mature agents (agents who have been with the company over one year) and the higher level of
individual production that comes with tenure.
With respect to health insurance, over 95% of the issued business and over 90% of the premium
income were from Medicare supplements. Medicare supplement coverage is the only time-proven means
that financially enables seniors to receive high quality medical care with freedom of choice as to the
provider of care. Record numbers of seniors are voluntarily and involuntarily leaving HMOs (health main-
tenance organizations). The HMOs have experienced difficulty in controlling the costs related to care. The
growing senior population and their demand for better health care services ensures the continuing need
for Medicare supplement coverages.
3
United American General Agency Operation _________________________
(in millions, except %)
Annualized Premium:
Sales
In Force
Underwriting Margin:
Premium
Policy Obligations
Acquisition Expenses
Life
____________________________
Health
_____________________________
2000
____________
$
____
*
____
1999
__________
*
___
$
____
2000
___________
$
____
*
____
1999
___________
$
____
*
____
26
53
43
19
17
44%
41%
13
43
38
17
15
46%
40%
85
467
442
276
86
62%
20%
68
444
427
266
83
62%
20%
Underwriting Margin
7
15%
5
14%
80
18%
77
18%
* % of Premium
Annualized premium issued through our independent General Agency operation increased 36% to
$111 million. Premium income increased 4% to $485 million, and underwriting margins increased 5% to
$87 million. Unlike prior years when health insurance dominated both sales and sales growth, 2000 was
a year in which both our life and our health insurance operations experienced impressive results.
Health insurance annualized premium issued increased 25% to $85 million, and premium income
increased 4% to $442 million. Almost 70% of the issued business and over 90% of the premium income
were from Medicare supplements.
Annualized life insurance premium issued was $26 million, almost twice as much as in the prior
year. Premium income increased 14% to $43 million. Furthermore, the percentage of premium margins in
our life insurance operations is growing. Several years ago our margins were too low as a result of high-
er than expected mortality experience. We repriced our products and altered our underwriting methods.
The net result is that the business we are currently issuing has higher expected underwriting margins.
Therefore, as we continue to grow our premium income, we can expect greater growth in underwriting
margins.
We have always welcomed general agencies of all sizes to represent our products, and we will
continue to do so. But in recent years we have put additional efforts into developing relationships with larg-
er and more experienced agencies that may write even larger volumes of new business with the aid of our
marketing support. In addition, these larger agencies have learned the advantages of representing an
underwriter that is both financially strong and less likely to make abrupt changes that could disrupt their
businesses. United American has such a reputation.
4
Liberty National Agency Operation _________________________________
(in millions, except %)
Life
____________________________
Health
____________________________
2000
____________
$
____
*
____
1999
___________
$
____
*
____
2000
___________
$
____
*
____
1999
___________
$
____
*
____
Annualized Premium:
Sales
In Force
54
312
Underwriting Margin:
294
Premium
134
Policy Obligations
Acquisition Expenses 88
46%
30%
51
307
288
133
83
46%
29%
10
163
151
106
27
70%
18%
10
149
144
103
27
72%
19%
Underwriting Margin
71
24%
72
25%
18
12%
14
10%
* % of Premium
Annualized premium issued through our Liberty National Agency operation increased 4% to $64
million. Premium income increased 3% to $446 million, and underwriting margins increased 4% to $90
million.
We ended the year with 2,032 agents in our 107 district offices located in six states in the south-
eastern part of the country. Although we grew our sales force by 7% during the year, which was more
growth in agents than in any of the last ten years, our life insurance sales only grew 4% to $54 million of
annualized premium issued. As a result, our objective for 2001 is to grow our agent count by at least 10%
to well over 2,200 agents.
For the past several years our health insurance margins have suffered from a block of cancer busi-
ness that was subject to a class action settlement in 1994. As a result of the settlement, benefits were
increased substantially, but the Company was prohibited from increasing premiums until 1997. This block
of business, which represented about 50% of Liberty’s health premiums for 2000, has experienced very
high claims loss ratios and reduced health underwriting margins to a low of 10% of premium in 1999.
Fortunately, 2000 was a reversal of the downward trend as the underwriting margins increased to 12% of
premium income. We will continue to monitor this business and implement rate increases that should
gradually increase our underwriting margins to more acceptable levels.
5
American Income Agency Operation _______________________________
(in millions, except %)
Life
____________________________
Health
____________________________
2000
____________
$
____
*
____
1999
___________
$
____
*
____
2000
___________
$
____
*
____
1999
___________
$
____
*
____
Annualized Premium:
Sales
In Force
57
245
Underwriting Margin:
231
Premium
81
Policy Obligations
Acquisition Expenses 86
35%
37%
54
231
217
76
80
35%
37%
Underwriting Margin
65
28%
62
28%
* % of Premium
9
48
48
19
12
18
39%
24%
37%
8
47
48
19
11
17
40%
24%
36%
Annualized premium issued through the American Income Agency operation increased 5% to $65
million. Premium income and underwriting margins increased 5% to $279 million and $83 million, respec-
tively.
American Income is a "union label" company. The sales force, with the endorsement of unions at
the local level, sells life and supplemental health insurance to union members.
During the year, we increased our sales force 13% to 1,352 agents. The growth in agents was a
reversal of a downward trend that began in 1998. The turnaround in agent count is the result of imple-
menting recruiting standards similar to those in the United American Branch Office operation. Going
forward into 2001, we believe that our operation is not only positioned for another double-digit growth
rate in agents, but also for a double-digit growth rate in sales.
Direct Response Operations ______________________________________
(in millions, except %)
Life
____________________________
Health
____________________________
2000
____________
$
____
*
____
1999
___________
$
____
*
____
2000
___________
$
____
*
____
1999
___________
$
____
*
____
Annualized Premium:
Sales
In Force
113
306
Underwriting Margin:
268
Premium
Policy Obligations
122
Acquisition Expenses 75
46%
28%
96
283
246
112
65
46%
26%
4
16
15
12
1
82%
6%
4
13
12
10
1
82%
6%
Underwriting Margin
71
26%
69
28%
2
12%
1
12%
* % of Premium
6
Annualized premium issued through our Direct Response operations increased 16% to $116
million. Premium income increased 10% to $283 million, and underwriting margins increased 3% to
$72 million.
In recent years, including 2000, we have aggressively expanded our life insurance sales.
As a result, we put some business on the books that has not generated acceptable returns on investment
– not by design, it just worked out that way. But in 2000, our objective was to produce new life business
that, in total, generated underwriting margins of no less than 26% of premium and returns on investment of
no less than 20%. We believe we accomplished this objective.
Late in the year we implemented some simple underwriting changes. (They must be simple
considering that we are issuing just under 900,000 policies per year.) We believe these changes may have
a significant impact on the mortality experience of our new life business. Although these changes will
reduce our ratio of issued policies to applications received, we believe the rejected business would have
produced future claims well in excess of the premium income that would have been generated had we
issued those policies. Although a few years must pass before we can confirm our expectations, these
changes may not only increase our underwriting margins, but also allow us to enter target markets which
we had previously abandoned.
Going forward into 2001, we will expand our sales efforts in those areas that produce high returns,
and continue to identify and withdraw from areas that produce unacceptable returns on investment.
Our objective for the coming year is to generate new sales that have overall margins and returns on
investment greater than those generated in 2000.
Other Independent Agency Operations _____________________________
(in millions, except %)
Annualized Premium:
Sales
In Force
Underwriting Margin:
Premium
Policy Obligations
Acquisition Expenses
Life
____________________________
1999
2000
___________
___________
$
____
*
____
$
____
*
____
37
262
227
96
76
42%
34%
37
243
210
85
71
40%
34%
Underwriting Margin
55
24%
54
26%
* % of Premium
Annualized premium issued through our Other Independent Agency operations increased 1% to
$37 million. Premium income increased 8% to $227 million, and underwriting margins increased 2% to
$55 million.
Our primary independent agency relationship is our military operation which is comprised of a large
agency that sells exclusively to commissioned and noncommissioned military officers and their families.
7
This agency is responsible for over 50% of the sales, premiums, and underwriting margins of our Other
Independent Agency operations. The military agency writes for several other insurers, but over the past
ten years we have earned an increasingly larger portion of this agency's life production. From receiving
about 20% of their total production in the early 90's, our share was in excess of 50% of their total produc-
tion in 2000. We will strive to earn more of their production and the production of our other independent
partners in the future. In addition, we will continue to seek new partners for the sale of life insurance.
ADMINISTRATIVE EXPENSES
Insurance administrative expenses increased 7% to $112 million. However, as a percentage
of premium income, administrative expenses declined from 5.6% in 1999 to 5.5% in 2000.
Torchmark has long been recognized as a low cost administrator of business. Our efficiency is
derived from our dedication to simplifying procedures and then automating them. These actions not only
reduce costs, but also improve service to customers, both policyholders and agents.
The new technology available to us today is more user-friendly and more flexible – and it is
dramatically less expensive. We intend to utilize this new technology to make even greater strides
in improving service and reducing costs.
INVESTMENTS
2000 Investment Income
(in millions, except % and per share amounts)
(1) Invested Assets Supporting:
Total *
Required
Excess
Net Interest-Bearing Policy Liabilities:
Life and Health Insurance
Annuities
Debt
(2) Remaining Invested Assets
$190
39
$149
35
$ 41
4
68
184
70**
(2)
--
184
$481 $254
$227
Per Diluted Share $3.75 $1.98 $1.77
Increase Over 1999 10% 9% 10%
* For illustrative purposes only, total investment income has been allocated pro rata based upon the net liabilities.
Torchmark does not specifically allocate assets to liabilities.
** Consists of interest on debt and dividends on monthly
income preferred securities.
Our investment strategy is to maximize the positive difference between investment yield and
required yield on our net liabilities, and to avoid uncompensated risk. Our investment portfolio is concen-
trated in high quality fixed-maturity assets, which represented 86% of our invested assets at year-end.
The average credit rating quality of the fixed-maturity portfolio was A- as rated by Standard & Poor's and
A2 as rated by Moody's.
8
On a tax equivalent basis (i.e., recognizing that certain bonds are subject to lower federal taxes),
our net investment income was $481 million. Excess investment income is the difference between our net
investment income and the interest required on our net interest-bearing liabilities. Required investment
income was $254 million, resulting in excess investment income of $227 million.
Because of our stock repurchase program and our debt reduction efforts, comparing the change
in excess investment income from one year to the next is misleading. A better comparison is on a
per-share basis. Although excess investment income increased 5% in 2000, the increase was 10%
on a per-share basis.
As a general rule, the operating results of insurance companies are adversely affected by rising
interest rates. This rule does not apply to Torchmark. Our cash generating abilities and the characteris-
tics of our liabilities and invested assets assures us of continued growth in excess investment income,
especially in periods of rising interest rates.
SHARE REPURCHASE PROGRAM
During the year we repurchased 5.8 million shares or 4% of our outstanding stock for a total
of $135 million. Since 1986, we have repurchased 47% of our outstanding stock, and we expect to
continue our repurchase program into the future as a means of enhancing shareholder intrinsic value.
OUTLOOK
In 2001, we expect that all six of our distribution systems will experience continued growth in
premium income and underwriting margins, we expect administrative expenses to decline as a percent-
age of premium income and we expect continued growth in our underwriting income. The cash that we
generate within our operations will also grow, and we will utilize the cash to increase our invested assets,
to reduce our higher cost debt and/or to repurchase our stock. Our goal will be to continue to increase the
intrinsic value of our shareholders’ stock. We expect 2001 to be another excellent year for Torchmark.
C. B. Hudson
Chairman, President and Chief Executive Officer
Torchmark cautions you that the Letter to Shareholders above contains forward-looking statements provided
for general guidance purposes only. Accordingly, you are referred to the Company’s cautionary statement regarding
forward-looking statements contained in our Form 10-K for the fiscal year ended December 31, 2000, which is on file
with the Securities and Exchange Commission and is a matter of public record.
9
Condensed Consolidated Statement of Net Operating Income
(Unaudited and in thousands except per share amounts)
Revenue:
Life premium
Health premium
Other premium
Total
Investment income:
Taxable equivalent basis
Taxable equivalent adjustment
Other income
Total revenue
Benefits and expenses:
Policy obligations:
Life
Health
Other
Commissions and acquisition expenses:
Life
Health
Other
Interest on net policy liabilities:
Life
Health
Other
Insurance administrative expenses
Corporate expenses
Interest on debt and dividends on MIPS
Amortization of goodwill
Income taxes
Total benefits and expenses
Twelve months ended
December 31,
2000
1999
$1,082,904
911,156
52,150
_________
2,046,210
$ 1,018,869
824,816
40,401
_________
1,884,086
481,081
(8,655)
4,650
_________
2,523,286
458,824
(11,487)
3,348
_________
2,334,771
461,720
575,286
(2,937)
349,437
174,754
25,212
434,182
518,518
(3,814)
320,282
161,666
18,520
148,393
829
34,564
111,817
9,369
70,309
12,075
187,166
_________
2,157,994
137,875
4,676
34,455
104,903
10,166
66,431
12,075
173,669
_________
1,993,604
Net operating income, excluding the 1999 nonrecurring charge
$ 365,292
_________
_________
$ 341,167
_________
_________
%
Incr
(Decr)
6 %
10
29
____
9
5
____
8
6
11
(23)
9
8
36
8
(82)
--
7
(8)
6
--
8
____
8 %
7 %
Net operating income, excluding the 1999 nonrecurring charge,
per diluted share
$ 2.85 $
2.55
12 %
Diluted average shares outstanding
128,353
133,986
Net operating income, excluding the 1999 nonrecurring charge
Nonrecurring charge, net of tax
Non operating items, net of tax:
Realized losses and related DAC adjustment
Gain on sale of equipment
Discontinued operations - Waddell & Reed
Gain on redemption of debt
Change in accounting principle
Net income
$ 365,292
--
$ 341,167
(13,423)
(3,459)
--
--
202
--
_________
$ 362,035
_________
_________
(72,131)
3,317
(1,060)
--
16,086
_________
$ 273,956
_________
_________
The Condensed Consolidated Statement of Net Operating Income has been prepared in the manner Torchmark management uses to
evaluate the operating results of the company. It differs from the Consolidated Statement of Operations found in the attached SEC Form
10-K, primarily by the reclassification of interest on net policy liabilities and the exclusion of the nonoperating items listed above.
10
Condensed Consolidated Balance Sheet
(Amounts in thousands)
At December 31,
2000
1999
$ 5,949,515
135,635
134,125
287,017
2,075,319
390,509
249,023
3,741,415
___________
$ 12,962,558
___________
___________
$ 5,679,795
114,628
110,978
296,850
1,893,322
402,584
219,832
3,413,675
___________
$ 12,131,664
___________
___________
Assets:
Fixed maturities
Cash and short-term investments
Mortgages and real estate
Other investments
Deferred acquisition costs
Goodwill
Other assets
Separate account assets
Total assets
Liabilities and shareholders' equity:
Policy liabilities
Accrued income taxes
Short-term debt
Long-term debt
Other liabilities
Separate account liabilities
Monthly income preferred securities (MIPS)
Shareholders' equity
Total liabilities and shareholders’ equity
$ 5,523,016
423,327
329,148
365,989
183,908
3,741,415
193,395
2,202,360
___________
$ 12,962,558
___________
___________
$ 5,252,427
309,271
418,394
371,555
179,681
3,413,675
193,324
1,993,337
___________
$ 12,131,664
___________
___________
Actual shares outstanding:
Basic
Diluted
126,389
127,339
131,996
132,348
Excluding the fair value adjustment under Accounting Standard FAS 115:
$ 2,154,386
Shareholders’ equity
Book value per common share
$16.32
Return on equity 16.3% 16.2%
Debt to capital ratio 21.5% 25.2%
$ 2,341,584
$18.53
Annualized life and health premium in force:
Life
Health
Total
$ 1,200,144
1,004,299
___________
$ 2,204,443
$ 1,130,609
884,358
___________
$ 2,014,967
The complete financial statements are found in the attached SEC Form 10-K with additional schedules and footnotes thereto.
11
Directors
Officers
David L. Boren
President of the University of Oklahoma
Norman, OK
Joseph M. Farley
Of Counsel in the Birmingham,
Alabama law firm of Balch & Bingham LLP
Louis T. Hagopian
Retired Chairman of the Board and
Chief Executive Officer of NW Ayer, Inc.
New York, NY
C.B. Hudson
Chairman, President and Chief
Executive Officer of Torchmark
Joseph L. Lanier, Jr.
Chairman of the Board and Chief
Executive Officer of Dan River
Incorporated, Danville, VA
Mark S. McAndrew
Chairman, President and Chief Executive
Officer of United American, Globe and
American Income
Harold T. McCormick
Chairman and Chief Executive Officer
of Bay Point Yacht and Country Club
Panama City, FL
George J. Records
Chairman of Midland Financial Co.
Oklahoma City, OK
C.B. Hudson - Chairman , President and Chief Executive Officer
Tony G. Brill - Executive Vice President and
Chief Administrative Officer
Gary L. Coleman - Executive Vice President and
Chief Financial Officer
Michael K. Fagin - Vice President
Larry M. Hutchison - Executive Vice President and General Counsel
Michael J. Klyce - Vice President and Treasurer
Joyce L. Lane - Vice President, Investor Relations
Mark S. McAndrew - Executive Vice President
Carol A. McCoy - Associate Counsel and Corporate Secretary
Anthony L. McWhorter - Executive Vice President
Rosemary J. Montgomery - Executive Vice President and
Chief Actuary
Spencer H. Stone - Controller
David F. Thorndike - Vice President
Russell B. Tucker - Vice President
SUBSIDIARY OFFICERS
American Income Life
Mark S. McAndrew - Chairman, President and
Chief Executive Officer
Roger Smith - Executive Vice President and Sales Director
Globe Life
Mark S. McAndrew - Chairman, President and
Chief Executive Officer
George B. Burke - Executive Vice President
Glenn D. Williams - Executive Vice President
Liberty National Life
Anthony L. McWhorter - Chairman, President and
Chief Executive Officer
Vurl E. Duce - Executive Vice President and Chief Marketing Officer
R.K. Richey
Chairman of the Executive Committee
of the Board of Directors of Torchmark
United American
Mark S. McAndrew - Chairman, President and
Chief Executive Officer
Lamar C. Smith
Chairman and Chief Executive Officer
of United Services Planning Association and
Independent Research Agency
Fort Worth, TX
Gene P. Grimland - President of General Agency Marketing Division
Andrew W. King - President of Branch Office Marketing Division
United Investors Life
Anthony L. McWhorter - Chairman, President and
Chief Executive Officer
12