Globe Life
Annual Report 2004

Plain-text annual report

 Annual Report Corporate Headquarters Torchmark Corporation 2001 Third Avenue South Birmingham, Alabama 35233 (205) 325-4200 www.torchmarkcorp.com Annual Meeting of Shareholders 10:00 a.m. CDT, Thursday, April 28, 2005 Westin Stonebriar Resort 1549 Legacy Drive Frisco, Texas 75034 The proceedings will be webcast live and in replay on the Investor Relations page of the Torchmark Corporation website. The Company’s Annual Meeting will be conducted in accordance with its Shareholder Rights Policy. A copy of this policy can be obtained on the Company’s website, or by contacting the Corporate Secretary at the Torchmark Corporation headquarters address. Investor Relations Contact: Joyce L. Lane Phone: (972) 569-3627 Fax: (972) 569-3282 E-Mail: jlane@torchmarkcorp.com Individual Stock Ownership Information: (205) 325-4270 Toll-Free Stock Transfer Number: (866) 557-8699 Independent Auditors Deloitte & Touche LLP 2200 Ross Avenue Suite 1600 Dallas, Texas 75201 Stock Exchange Listings New York Stock Exchange Symbol: TMK The International Stock Exchange, London, England Indenture Trustee for Senior Debentures and ⅞ and ⅜ Notes J.P. Morgan Bondholder Services P.O. Box 2320 Dallas, Texas 75221-2320 Toll-Free Number: (800) 275-2048 www.jpmorgan.com/bondholder Indenture Trustee for ¼ Notes The Bank of New York 505 North 20th Street, Suite 950 Birmingham, Alabama 35203 Attention: Corporate Trust Administration Toll-Free Number: (800) 254-2826 www.bankofny.com/corptrust Torchmark Capital Trust Preferred Securities Torchmark Capital Trust I and II, Delaware business trust subsidiaries of Torchmark, have issued a total of 5,000,000 7¾% Trust Preferred Securities (liquidation amount $25 per Trust Preferred Security). The Trust Preferred Securities trade through Depository Trust Company under global certificates listed on the New York Stock Exchange (Torchmark Capital Trust I NYSE symbol: TMKPRT; Torchmark Capital Trust II NYSE symbol: TMKPRS). Stock Transfer Agent and Shareholder Assistance The Bank of New York Shareholder Relations Department P.O. Box 11258 Church Street Station New York, New York 10286 Toll-Free Number: (866) 557-8699 Toll-Free Hearing Impaired Number: (888) 269-5221 Outside the U.S.: (610) 382-7833 E-Mail: Shareowner@bankofny.com www.stockbny.com Dividend Reinvestment Torchmark maintains a dividend reinvestment plan for all holders of its common stock. Under the plan, shareholders may reinvest all or part of their dividends in additional shares of common stock and may also make periodic additional cash payments of up to $3,000 toward the purchase of Torchmark stock. Participation is voluntary. More information on the plan may be obtained from the Stock Transfer Agent by calling: toll-free (866) 557-8699 or by writing: The Bank of New York, Dividend Reinvestment Department, P.O. Box 1958, Newark, NJ 07101. Automatic Deposit of Dividends Automatic deposit of dividends is available to shareholders who wish to have their dividends directly deposited into the financial institution of their choice. Authorization forms may be obtained from the Stock Transfer Agent by calling toll-free (866) 557-8699. Participation is voluntary. Corporate Governance The Company timely submitted to the New York Stock Exchange a Section 303A (12)(a) CEO Certification without qualification in 2004. In 2004, Torchmark also filed with the Securities and Exchange Commission the CEO/CFO Certifications required by Section 302 of the Sarbanes- Oxley Act as Exhibits to its Form 10-K. Torchmark Corporation Website On the home page at www.torchmarkcorp.com are links to the web pages of: (cid:127) Torchmark’s principal subsidiaries (cid:127) Torchmark’s Annual Reports (cid:127) Employment (cid:127) Investor Relations The Investor Relations page contains a menu with links to many topics of interest to investors and other interested third parties: (cid:127) About Torchmark (cid:127) Annual Reports, SEC forms 10-K and Proxy Statements (cid:127) News Releases and Stock Quotes (cid:127) SEC Filings (cid:127) Financial Reports and Other Financial Information (cid:127) Officers and Directors (cid:127) Torchmark Calendar (cid:127) Management Presentations (cid:127) Conference Calls on the Web (cid:127) Corporate Governance including: - Shareholder Rights Policy - Code of Business Conduct and Ethics - Code of Ethics for CEO and Senior Financial Officers - Corporate Governance Guidelines - Audit Committee Charter - Compensation Committee Charter - Governance & Nominating Committee Charter - Employee Complaint Procedure - How to Contact the Board of Directors (cid:127) Annual Meeting of Shareholders (cid:127) Stock Transfer Agent and Shareholder Assistance (cid:127) Dividend Reinvestment (cid:127) Automatic Deposit of Dividends (cid:127) Contact Information Financial Highlights* In thousands, except percentage and per share amounts OPERATIONS: Total Premium Total Revenue Net Operating Income Annualized Life Premium in Force Annualized Health Premium in Force Diluted Average Shares Outstanding Net Operating Income as a Return On Average Common Equity PER COMMON SHARE: Net Operating Income Shareholders‘ Equity at Year End 2004 2003 % CHNG. $2,471,900 $2,375,783 3,071,542 473,432 1,523,335 1,056,451 111,908 2,930,998 446,383 1,449,290 1,064,428 115,377 16.2% 16.3% 4.0 4.8 6.1 5.1 (0.7) (3.0) $4.23 27.45 $3.87 25.06 9.3 9.5 * Certain financial data differ from the comparable GAAP financial data. Reconciliations to GAAP financial data are presented on pages 10-11. Table of Contents Financial Highlights . . . . . . . . . . . . . . 1 Letter to Shareholders . . . . . . . . . . . . 2 Board of Directors, Officers and Officers of Subsidiaries. . . . . . . . 9 Operating Summary . . . . . . . . . . . . .10 Condensed Balance Sheet . . . . . . . .11 1 Letter to Shareholders* 2004 was another good year for Torchmark. Net operating income increased 6% to $473 million; on a per share basis, net operating income increased 9% to $4.23. Underwriting income, which is premium income less the funding of current and future benefits and less expenses, increased 8%. Excess investment income, which is net investment income less the interest paid or credited on interest- bearing liabilities, increased 4%. Capital was managed effectively, including the repurchase of stock, which enhances the current and future value of the investment of our shareholders. Financial Review Key Components of Net Operating Income 2 Insurance Underwriting Income Excess Investment Income Other Income Tax 2004 $400.9 330.5 (9.6) (248.5) Net Operating Income $473.4 $446.4 $ MILLIONS 2003 % CHNG $371.8 317.6 (10.2) (232.8) 8 4 (6) 7 6 DILUTED OPERATING EARNINGS PER SHARE 2004 $3.58 2.95 (0.09) (2.22) $4.23 2003 $3.22 2.75 (0.09) (2.02) $3.87 % CHNG 11 7 0 10 9 First year premiums are the premiums received for policies that are in their first policy year, and they are a measure of the new business generated within our distribution systems. Life insurance first year premiums increased 6% to $236 million, and health insurance first year premiums increased 13% to $165 million. Total life insurance premiums increased 6% to $1.4 billion. Underwriting margin, which is the premium income less the amounts required to fund current and future benefits and to amortize acquisition expenses, increased 8% to $352 million. Total health insurance premiums increased 1% to $1.0 billion, and underwriting margin increased 6% to $175 million. Annuity margin increased 32% to $14 million, and other income was $2 million. Our administrative expenses increased 8% to $142 million. Underwriting income increased 8% to $401 million. Net investment income increased 4% to $577 million. Required interest on net policy liabilities increased 4% to $213 million, and financing costs increased 11% to $33 million. Therefore, excess investment income increased 4% to $331 million. When valuing fixed maturity assets at amortized cost instead of market, our objective being to hold these assets until maturity, our book value was $27.45 per share, our debt to capital ratio was 22.3%, and our net operating income as a return on equity was 16.2%. * Certain financial data differ from the comparable GAAP financial data. Reconciliations to GAAP financial data are presented on pages 10-11. Torchmark Corporation (cid:127) Letter to Shareholders Direct Response Operation In millions, except % First Year Collected Premium Underwriting Margin: Premium Policy Obligations Acquisition Expenses Underwriting Margin LIFE HEALTH 2004 2003 2004 2003 $ 74 387 181 109 97 %* %* $ 63 350 47% 165 99 28% 86 25% 47% 28% 25% $ 9 35 27 3 4 %* 79% 10% 11% $ 8 28 22 3 3 %* 78% 9% 12% * Percent of Premium First year premiums increased 18% to $83 million. Total premiums increased 11% to $422 million, and underwriting margin increased 12% to $101 million. With respect to life insurance, ours is the largest direct response operation in the U. S., and the primary vehicle is direct mail. We obtain mailing lists that meet the selection criteria for the products we offer, and then we reduce the lists using our own demographic data related to household incomes and past response rates. All printing and lettershop work are done internally, including the making of envelopes. We pre-sort the mail into carrier route zip codes, and then truck it to the various regional postal centers throughout the country. The results are mailings that have the lowest possible packaging and postal costs and the highest probability of response rates that will generate the desired underwriting margin. 3 The life insurance issued in recent years has greater margins than the overall in force business. This has been a result of constant testing of products and pricing structures in order to maximize return on investment. The evidence is reflected in the financial results; for 2003 and 2004, premiums increased 11% and 10%, respectively, but underwriting margin increased 14% and 12%. For 2005, we expect another outstanding year in our Direct Response operation, with continued impressive growth in premiums and even greater growth in underwriting margin. American Income Agency Operation In millions, except % First Year Collected Premium Underwriting Margin: Premium Policy Obligations Acquisition Expenses Underwriting Margin LIFE HEALTH 2004 2003 2004 2003 $ 77 350 117 127 106 %* %* $ 73 315 33% 107 36% 114 93 30% 34% 36% 30% $ 13 60 25 15 19 %* 42% 26% 33% $ 12 56 23 14 19 %* 41% 25% 34% * Percent of Premium First year premiums increased 5% to $90 million. Total premiums increased 10% to $409 million, and underwriting margin increased 11% to $125 million. Letter to Shareholders (cid:127) Torchmark Corporation American Income is a “union label” company with union members not only in the home office, but also in the sales force. With the endorsement of unions at the local level, the sales force markets products to union membership. American Income is one of only two “union label” U. S. life insurance companies, and American Income is clearly the leader with respect to individual life and health insurance. After growing the sales force by over 300 agents in 2003, the agent count dropped by over 200 agents in 2004; American Income ended the year with 2,090 agents. There are two means by which a sales force will decline: (1) agent dissatisfaction, and (2) reduced recruiting efforts. We were guilty on both counts in 2004. At the beginning of the year, we aggressively raised minimum production levels for agent bonuses, which are a significant portion of compensation. The result was an immediate drop in the agent count. Although we corrected the problem, the damage was done and we ended the first quarter with a net loss of 260 agents. To make matters worse, our recruiting efforts declined and resulted in only a net addition of 60 agents for the last nine months of the year. In short, we erred, and first year premiums grew only 5%. The good news is that we accelerated the recruiting momentum late in the year, and we aren’t changing the bonus standards for 2005. American Income is an excellent distribution system operating in a niche market. We are in position for impressive growth in agents for 2005, with increasing growth in first year premium and continuing growth in total premiums and underwriting margin. 4 Liberty National Exclusive Agency Operation In millions, except % First Year Collected Premium Underwriting Margin: Premium Policy Obligations Acquisition Expenses Underwriting Margin LIFE HEALTH 2004 2003 2004 2003 $ 40 304 141 89 74 %* %* $ 40 304 46% 144 93 29% 68 24% 47% 31% 22% $ 10 164 119 26 19 %* %* $ 9 164 72% 125 30 16% 10 11% 76% 18% 6% * Percent of Premium Although first year premiums were flat at $50 million and total premiums were flat at $468 million, underwriting margin increased 20% to $92 million. Early in 2004 a significant change in the distribution system was implemented. The subsidization of new agent compensation, a practice that doesn’t exist in our other agent distribution systems, was eliminated. The initial result was fewer new agents entering the sales force, and consequently, a decline in total agents since natural attrition wasn’t being offset with new agents. Subsidizing new agent compensation was not achieving acceptable results with respect to growth in agents or associated costs. From the beginning of the year to the end of the third quarter, the agent count declined from almost 2,200 agents to 1,660 agents. It took awhile for the sales force management to adjust to hiring new agents without a minimum income guarantee. But recruiting efforts increased later in the year and the agent count at year end was 1,775. Torchmark Corporation (cid:127) Letter to Shareholders The reduction in acquisition expenses favorably impacted the underwriting margin. Even though life insurance premiums were flat relative to the prior year, acquisition expenses declined by $4 million. And the lower acquisition expenses were a key factor in the 9% increase in life insurance underwriting margin. In last year’s annual report we described the changes in 2003 at Liberty National to improve the quality of business being issued. This year we have described some of the changes made to improve underwriting margin. For the most part, the major changes are behind us. Going forward into 2005, we expect growth in agents and growth in life insurance premiums. The life insurance underwriting margin is expected to grow not only in dollars, but also as a percentage of the premium income. The health insurance underwriting margin improved in 2004. Nonetheless, the margin continued to be pressured by the cancer business subject to a 1994 class action settlement. This business, which represented over 40% of Liberty’s health premiums, experienced a paid claims loss ratio equal to 109% of the premiums. At this writing, we are in the process of implementing a court-approved solution to problems that exist with respect to this closed block of business. The solution entails both reduced premiums paid by customers and reduced benefits paid by the company. This block of business will never be a source of profit to Liberty, but going forward it should no longer be a source of loss. United American General Agency and Branch Office Operations In millions, except % 5 First Year Collected Premium Underwriting Margin: Premium Policy Obligations Acquisition Expenses Underwriting Margin LIFE HEALTH 2004 2003 2004 2003 $ 10 68 33 28 6 %* 49% 41% 9% $ 14 71 34 29 9 %* 48% 40% 12% $ 134 791 507 151 133 %* %* $ 117 786 64% 502 19% 151 17% 132 64% 19% 17% * Percent of Premium First year premiums increased 9% to $143 million. Total premiums were flat at $858 million, and underwriting margin declined 1% to $139 million. With respect to health insurance, our operations market (a) supplemental health insurance products to individuals who are under the age of 65, and (b) Medicare supplement products to individuals age 65+ who are on Medicare. First year premiums for underage 65 insurance increased 44% to $87 million. There are two reasons for the high demand for the products: (1) the availability of individual Major Medical insurance is disappearing as carriers withdraw these products from the marketplace, and (2) employers continue to cut back employee group health insurance benefits. The wide variety of products offered by United American provide either basic protection against the expenses of the majority of hospital confinements and out-patient hospital treatments or fill the gaps created by employer cutbacks. Letter to Shareholders (cid:127) Torchmark Corporation Medicare supplement first year premiums declined 18% to $46 million. Since the standardized plans were introduced in 1992, which require all carriers to sell the same products, the most popular plan has been what is known as Plan F. Basically, it pays all hospital and medical expenses not paid by Medicare. The typical annual premium for a 65-year old has risen from $1,200 in 1992, to $2,500 in 2005, and as premiums have risen the product naturally has become extremely price sensitive. In fact, a trend is developing whereby seniors elect to self-insure, an election that was rare in the past. The real problem is the fact that the Plan F has evolved from an insurance plan to a very expensive “pre- payment” plan. Nearly all seniors have hospital/medical expenses in a calendar year, and providing 100% coverage for the first several hundreds of dollars of such expenses not paid by Medicare doesn’t make good sense, especially if the carrier’s premium is loaded for a 65% claims loss ratio. The Medicare supplement problem hasn’t been a sudden surprise. We have seen it developing for years, but unfortunately, the existing federally mandated standardized plans didn’t provide a solution...until recently. In 2005 United American will begin introducing a High-Deductible Plan F (HDF). In round dollars, the first $1,700 of hospital/medical expenses in a calendar year not paid by Medicare will also not be covered by HDF, but all such expenses in excess of $1,700 will be paid by HDF. The annual premium for the product will be approximately $700. No matter if an individual has a few hundred dollars of hospital/medical expenses not paid by Medicare or if the expenses are thousands of dollars, the HDF is obviously superior to the old Plan F. United American will be back into the Medicare Supplement “insurance” business instead of the expensive “pre-payment” plan business. Going forward into 2005, we expect continued demand for our underage 65 supplemental health insurance products, and we are excited about our prospects in the Medicare Supplement market. Military and Other Life Agency Operations In millions, except % 6 First Year Collected Premium Underwriting Margin: Premium Policy Obligations Acquisition Expenses Underwriting Margin LIFE HEALTH 2004 2003 2004 2003 $ 27 187 88 57 42 %* 47% 30% 23% $ 24 166 77 50 39 %* 46% 30% 24% $ 8 101 41 33 27 %* 40% 32% 27% $ 7 103 39 34 30 %* 38% 33% 29% * Percent of Premium With respect to our Military operations, first year premiums increased 13% to $27 million. Total premiums increased 12% to $187 million, and underwriting margin increased 7% to $42 million. The underwriting margin was adversely affected by the continuing hostile activities in Iraq and Afghanistan. Paid claims directly related to these hostilities were $4.0 million in 2004 versus $1.1 million in 2003. All of our Military business is generated through one independent agency, First Command, headquartered in Fort Worth, Texas. First Command is represented by almost 1,000 agents in over 200 offices located on or near military installations in the U. S. and abroad. The agency markets its products exclusively to commissioned and non- Torchmark Corporation (cid:127) Letter to Shareholders commissioned military officers and their families. The integrity of First Command and its commitment to customers is extraordinary. The quality of the business written is second to none in the industry. Current persistency rates (and they just keep improving with every passing year) are such that the 84% of the business issued will still be in force on its fifth policy anniversary. None of the other Torchmark distribution systems has 84% of the business issued still in force on its first, let alone fifth policy anniversary. First Command and Torchmark have been partners since 1982, and although Torchmark is one of several companies represented by First Command, over the years we have earned an increasing portion of the new business produced by the agency. Going forward, we will continue to strive to earn even more of their business as they grow their operations. Administrative Expenses Insurance administrative expenses increased 8% to $142 million. As a percentage of premiums, administrative expenses were 5.7%, up slightly from last year due primarily to higher litigation expenses. Litigation expenses were $7.5 million versus $4.9 million in the prior year. But given that most of our Waddell & Reed litigation expenses, which were $4.3 million for the year, should be behind us, and noting the Liberty cancer class settlement, we expect a decline in litigation expenses for the coming year. Investments Our investment portfolio is concentrated in investment grade fixed-maturity assets. Fixed-maturity assets on an amortized cost basis represented 94% of our invested assets. Fixed-maturity assets will likely continue to be an increasing percentage of our invested assets; we simply aren’t comfortable with alternative investments. The average credit rating quality of the fixed-maturity portfolio was BBB+ as rated by Standard & Poor’s and Baa1 as rated by Moody’s. 7 Net investment income increased 4% to $577 million. The interest required on net interest-bearing liabilities increased 5% to $246 million. Therefore, excess investment income was $331 million. Because of our stock repurchase program, comparing the yearly change in excess investment income is misleading. A better comparison is on a per-share basis; as such, excess investment income increased 7%.  Investment Income In millions, except percent and per share amounts (1) From Invested Assets Supporting: Net Interest-Bearing Policy Liabilities: Policy Reserves DAC Net Debt Interest Rate Swaps (2) From Remaining Invested Assets Per Diluted Share Increase over 2003 TOTAL * REQUIRED EXCESS $370 (157) 213 56 (23) 0 $246 $2.20 8% $69 3 23 236 $331 $2.95 7% $282 59 0 236 $577 $5.15 8% * 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. Letter to Shareholders (cid:127) Torchmark Corporation Share Repurchase Program During the year we repurchased 5.2 million shares of our outstanding stock at a cost of $268 million. Since the stock repurchase program began in 1986, we have repurchased 134.5 million shares at a total cost of over $2.5 billion. In the past five years we have repurchased 26 million shares at a cost of almost $970 million. Obviously, we believe our stock has been undervalued. We believe it still is, and we expect to continue the stock repurchase program since it is a means of increasing shareholder intrinsic value. Outlook In 2005, we expect increasing positive results in all of the distribution systems in Torchmark; premiums will increase, and the percentage growth in underwriting margins should exceed that in premiums. We will effectively manage our administrative expenses. We expect our investment operations will do well, but nevertheless, we will hope for higher interest rates that will give us a greater spread over the yields that we must pay/credit on our interest bearing liabilities. And, as previously stated, we expect further repurchases of our stock. We expect 2005 to be another good year for Torchmark. 8 Mark S. McAndrew Chairman of Insurance Operations C.B. Hudson Chairman and Chief Executive Officer Torchmark cautions you that this Letter to Shareholders may contain forward-looking statements within the meaning of the federal securities law. These prospective statements reflect management’s current expectations, but are not guarantees of future performance. Accordingly, please refer to Torchmark’s cautionary statement regarding forward-looking statements, and the business environment in which the Company operates, contained in the Company’s Form 10-K for the period ended December 31, 2004, found on the following pages and on file with the Securities and Exchange Commission. Torchmark specifically disclaims any obligation to update or revise any forward-looking statement because of new information, future developments or otherwise. Torchmark Corporation (cid:127) Letter to Shareholders Officers of Subsidiaries AMERICAN INCOME LIFE Roger Smith Chief Executive Officer and President GLOBE LIFE Mark S. McAndrew President and Chief Executive Officer Glenn D. Williams Executive Vice President LIBERTY NATIONAL LIFE Anthony L. McWhorter President and Chief Executive Officer UNITED AMERICAN Vern D. Herbel President and Chief Executive Officer Larry D. Strong Executive Vice President and Chief Marketing Officer, General Agency Division Andrew W. King President of Branch Office Marketing Division UNITED INVESTORS LIFE Anthony L. McWhorter President and Chief Executive Officer 9 Directors Charles e. adair Partner of Cordova Ventures, Montgomery, Alabama David L. Boren President of the University of Oklahoma, Norman, Oklahoma Joseph M. Farley Of Counsel in the Birmingham, Alabama law firm of Balch & Bingham LLP C.B. Hudson Chairman and Chief Executive Officer of Torchmark Joseph L. Lanier, Jr. Chairman of the Board and Chief Executive Officer of Dan River Incorporated, Danville, Virginia Mark S. McAndrew Chairman of Insurance Operations of Torchmark Harold T. McCormick Chairman and Chief Executive Officer of Bay Point Yacht and Country Club, Panama City, Florida; Retired President of Wheelabrator Technologies, Inc. Sam R. Perry Attorney, Austin, Texas George J. Records Chairman of Midland Financial Co., Oklahoma City, Oklahoma R.K. Richey Chairman of the Executive Committee of the Board of Directors of Torchmark, Plano, Texas Lamar C. Smith Chairman and Chief Executive Officer of First Command Financial Services, Inc., Fort Worth, Texas Paul J. Zucconi Retired Partner of KPMG LLP, Plano, Texas Officers C.B. Hudson Chairman and Chief Executive Officer Mark S. McAndrew Chairman of Insurance Operations Tony G. Brill Executive Vice President and Chief Administrative Officer Gary L. Coleman Executive Vice President and Chief Financial Officer Larry M. Hutchison Executive Vice President and General Counsel Anthony L. McWhorter Executive Vice President Rosemary J. Montgomery Executive Vice President and Chief Actuary Russell B. Tucker Executive Vice President and Chief Investment Officer Michael J. Klyce Vice President and Treasurer Joyce L. Lane Vice President, Investor Relations Carol A. McCoy Vice President, Associate Counsel and Secretary Spencer H. Stone Controller Frank M. Svoboda Vice President, Director of Tax David F. Thorndike Vice President Directors and Officers (cid:127) Torchmark Corporation Operating Summary Unaudited and amounts in thousands except per share amounts TWELVE MONTHS ENDED DECEMBER 31, 2004 2003 % INCR (DECR) 10 Underwriting Income Life: Premium Net policy obligations Commissions and acquisition expenses Underwriting margin Health: Premium Net policy obligations Commissions and acquisition expenses Underwriting margin Annuity underwriting margin Total underwriting margin Other income Insurance administration expenses Underwriting income Excess Investment Income Tax-equivalent net investment income Required interest on: Net policy liabilities: Policy reserves Deferred acquisition costs Debt Total excess investment income Corporate expenses Pre-tax operating income Income tax Net Operating Income Operating EPS on a diluted basis Diluted average shares outstanding Reconciliation of Net Operating Income to Net Income: Net operating income Non operating items, net of tax: Realized gains/(losses) Realized gains/(losses) - interest rate swaps Tax refund Interest on tax settlements Realized gains/(losses) - sale of airplane Change in accounting principle Net Income EPS on a diluted basis 6% 8% 1% 6% 8% 8% 4% 4% 6% 6% 9% $1,395,490 (600,889) (442,424) 352,177 1,048,666 (678,143) (195,941) 174,582 13,964 540,723 1,833 (141,620) 400,936 $1,310,460 (566,567) (418,342) 325,551 1,034,031 (671,998) (197,669) 164,364 10,607 500,522 2,582 (131,314) 371,790 576,675 552,973 (370,128) 156,808 (32,812) 330,543 (9,575) 721,904 (248,472) $473,432 $4.23 111,908 (351,177) 145,279 (29,469) 317,606 (10,234) 679,162 (232,779) $446,383 $3.87 115,377 $473,432 $446,383 4,615 (5,332) 3,003 0 0 (7,163) $468,555 $4.19 (9,106) (10,122) 0 3,511 (525) 0 $430,141 $3.73 The Operating Summary 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 accompanying SEC Form 10-K. Torchmark Corporation (cid:127) Operating Summary Condensed Balance Sheet Unaudited and amounts in thousands AT DECEMBER 31, 2004 2003 Assets: Fixed maturities at amortized cost * 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 and trust preferred securities Other liabilities Separate account liabilities Shareholders’ equity, excluding FAS 115 * Total liabilities and shareholders’ equity Actual shares outstanding: Basic Diluted Book value (shareholders’ equity, excluding FAS 115) per diluted share Net operating income as a return on average equity, excluding FAS 115 Average equity, excluding FAS 115 Debt to capital ratio, excluding FAS 115 $ 8,065,402 98,863 46,508 383,021 2,620,657 378,436 453,048 1,594,278 $ 13,640,213 $ 7,063,723 779,350 170,354 694,685 315,760 1,594,278 3,022,063 $ 13,640,213 107,944 110,075 27.45 16.2% 2,927,299 22.3% $ $ *Reconciliation of Torchmark management’s view of selected financial measures to comparable GAAP measures: 3,022,063 Shareholders’ equity, excluding FAS 115 $ Effect of FAS 115: Increase fixed maturities Decrease deferred acquisition costs Increase accrued income taxes Shareholders’ equity Other comparable GAAP measures: Fixed maturities Deferred acquisition costs Total assets Shareholders’ equity Accrued income taxes Book value (shareholders’ equity) per diluted share Net income as a return on average equity Average equity Debt to capital ratio 649,296 (37,325) (214,190) 3,419,844 8,714,698 2,583,332 14,252,184 3,419,844 993,540 31.07 14.1% 3,311,563 20.2% $ $ $ 11 $ $ $ $ $ $ 7,472,003 64,354 130,185 405,049 2,456,657 378,436 270,932 1,693,900 12,871,516 6,636,669 697,223 182,448 698,042 109,241 1,693,900 2,853,993 12,871,516 112,715 113,887 25.06 16.3% 2,740,959 23.6% $ 2,853,993 630,807 (36,798) (207,903) 3,240,099 8,102,810 2,419,859 13,465,525 3,240,099 905,126 28.45 14.0% 3,077,941 21.4% $ $ $ This Condensed Balance Sheet has been prepared in the manner Torchmark management, industry analysts, rating agencies and financial institutions use to evaluate the financial position of the company. It differs from the Consolidated Balance Sheets found in the accompanying SEC Form 10-K. Condensed Balance Sheet (cid:127) Torchmark Corporation This page left intentionally blank. Torchmark Corporation 2001 Third Avenue South Birmingham, Alabama 35233 www.torchmarkcorp.com 

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