Globe Life Annual Report 2004

FY2004 Annual Report · Globe Life

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 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

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

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)

(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

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

387
181
109
97

350
47% 165
99
28%
86
25%

47%
28%
25%

35
27
3
4

79%
10%
11%

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.

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

350
117
127
106

315
33% 107
36% 114
93
30%

34%
36%
30%

60
25
15
19

42%
26%
33%

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.

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

304
141
89
74

304
46% 144
93
29%
68
24%

47%
31%
22%

164
119
26
19

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 %

First Year Collected Premium

Underwriting Margin:

Premium
Policy Obligations
Acquisition Expenses

Underwriting Margin

LIFE

HEALTH

2004

2003

2004

2003

68
33
28
6

49%
41%
9%

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 %

First Year Collected Premium

Underwriting Margin:

Premium
Policy Obligations
Acquisition Expenses

Underwriting Margin

LIFE

HEALTH

2004

2003

2004

2003

187
88
57
42

47%
30%
23%

166
77
50
39

46%
30%
24%

101
41
33
27

40%
32%
27%

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.

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.

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

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)

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

$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%

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

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Torchmark Corporation
2001 Third Avenue South
Birmingham, Alabama 35233