GL 10-Q Quarterly Report June 30, 2016

GL 10-Q Quarter ended June 30, 2016

GLOBE LIFE INC.

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10-Q 1 tmk201610-qq2document.htm 10-Q Q2 2016 Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



(Mark one)
ý	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended June 30, 2016

¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period from _________to_________

Commission File Number 1-8052

TORCHMARK CORPORATION

(Exact name of registrant as specified in its charter)



DELAWARE		63-0780404
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3700 South Stonebridge Drive, McKinney, Texas		75070
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (972) 569-4000

NONE

Former name, former address and former fiscal year, if changed since last report.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No ý

Indicate the number of shares outstanding for each of the issuer’s classes of common stock, as of the last practicable date.



	CLASS		OUTSTANDING AT July 29, 2016
	Common Stock, $1.00 Par Value		119,768,489

Table of Contents

INDEX



		Page
PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Comprehensive Income	3
	Condensed Consolidated Statements of Equity	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
	Note 1—Significant Accounting Policies	6
	Note 2—New Accounting Standards	6
	Note 3—Supplemental Information about Changes to Accumulated Other Comprehensive Income	7
	Note 4—Investments	9
	Note 5—Discontinued Operations	15
	Note 6—Income Taxes	17
	Note 7—Debt Transactions	18
	Note 8—Postretirement Benefits	18
	Note 9—Earnings Per Share	19
	Note 10—Business Segments	20

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	48

Item 4.	Controls and Procedures	48

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	49

Item 1A.	Risk Factors	49

Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	49

Item 6.	Exhibits	49

Table of Contents

PART I–FINANCIAL INFORMATION



Item 1.	Condensed Consolidated Financial Statements

TORCHMARK CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Amounts in thousands)



	June 30, 2016			December 31, 2015
Assets
Investments:
Fixed maturities—available for sale, at fair value (amortized cost: 2016—$13,778,254 ;2015–$13,251,871)	$	15,440,090		$	13,758,024
Policy loans	501,555			492,462
Other long-term investments	58,377			38,438
Short-term investments	48,581			54,766
Total investments	16,048,603			14,343,690
Cash	49,678			61,383
Accrued investment income	216,443			209,915
Other receivables	358,686			344,552
Deferred acquisition costs	3,698,449			3,617,135
Goodwill	441,591			441,591
Other assets	509,790			522,104
Assets related to discontinued operations	250,800			312,843
Total assets	$	21,574,040		$	19,853,213
Liabilities and Shareholders’ Equity
Liabilities:
Future policy benefits	$	12,544,683		$	12,245,811
Unearned and advance premiums	72,649			67,021
Policy claims and other benefits payable	265,712			272,898
Other policyholders’ funds	96,184			95,988
Total policy liabilities	12,979,228			12,681,718
Current and deferred income taxes payable	1,887,091			1,450,888
Other liabilities	349,631			380,158
Short-term debt	286,011			490,129
Long-term debt (estimated fair value: 2016–$1,278,375; 2015–$856,291)	1,133,928			743,733
Liabilities related to discontinued operations	60,393			51,035
Total liabilities	16,696,282			15,797,661
Commitments and Contingencies
Preferred stock, par value $1 per share–Authorized 5,000,000 shares; outstanding: -0- in 2016 and in 2015	—			—
Common stock, par value $1 per share–Authorized 320,000,000 shares; outstanding: (2016–130,218,183 issued, less 10,365,271 held in treasury and 2015–130,218,183 issued, less 7,848,231 held in treasury)	130,218			130,218
Additional paid-in capital	489,726			482,284
Accumulated other comprehensive income	989,157			231,947
Retained earnings	3,817,666			3,614,369
Treasury stock, at cost	(549,009		)	(403,266		)
Total shareholders’ equity	4,877,758			4,055,552
Total liabilities and shareholders’ equity	$	21,574,040		$	19,853,213

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

TORCHMARK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in thousands except per share data)



	Three Months Ended June 30,						Six Months Ended June 30,
	2016 ⁽¹⁾			2015 ⁽²⁾			2016 ⁽¹⁾			2015 ⁽²⁾
Revenue:
Life premium	$	548,590		$	520,038		$	1,092,741		$	1,033,380
Health premium	237,252			232,409			472,949			461,082
Other premium	13			37			25			78
Total premium	785,855			752,484			1,565,715			1,494,540
Net investment income	201,642			194,823			398,695			386,419
Realized investment gains	4,005			2,613			4,298			2,732
Other income	382			691			803			1,360
Total revenue	991,884			950,611			1,969,511			1,885,051
Benefits and expenses:
Life policyholder benefits	369,342			347,364			732,202			687,065
Health policyholder benefits	153,261			151,198			306,036			299,227
Other policyholder benefits	8,882			9,754			18,220			19,799
Total policyholder benefits	531,485			508,316			1,056,458			1,006,091
Amortization of deferred acquisition costs	117,245			111,738			236,051			222,398
Commissions, premium taxes, and non-deferred acquisition costs	62,854			59,132			124,456			116,237
Other operating expense	57,846			55,588			115,275			110,951
Interest expense	23,110			19,114			42,479			38,174
Total benefits and expenses	792,540			753,888			1,574,719			1,493,851

Income before income taxes	199,344			196,723			394,792			391,200
Income taxes	(60,050		)	(64,196		)	(121,924		)	(127,895		)
Income from continuing operations	139,294			132,527			272,868			263,305

Discontinued operations:
Income (loss) from discontinued operations, net of tax	(865		)	(5,417		)	(10,406		)	(14,547		)
Net income	$	138,429		$	127,110		$	262,462		$	248,758

Basic net income per share:
Continuing operations	$	1.16		$	1.05		$	2.26		$	2.08
Discontinued operations	(0.01		)	(0.04		)	(0.09		)	(0.11		)
Total basic net income per common share	$	1.15		$	1.01		$	2.17		$	1.97

Diluted net income per share:
Continuing operations	$	1.13		$	1.04		$	2.22		$	2.06
Discontinued operations	—			(0.04		)	(0.09		)	(0.12		)
Total diluted net income per common share	$	1.13		$	1.00		$	2.13		$	1.94

Dividends declared per common share	$	0.14		$	0.14		$	0.28		$	0.27

(1) Due to the adoption of ASU 2016-09, certain balances related to excess tax benefits from stock compensation were adjusted prospectively as described in Note 2—New Accounting Standards.

(2) Certain prior year balances were adjusted to give effect to discontinued operations as described in Note 5—Discontinued Operations .

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

TORCHMARK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Amounts in thousands)



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Net income	$	138,429		$	127,110		$	262,462		$	248,758

Other comprehensive income (loss):

Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period	695,984			(935,288		)	1,161,141			(668,706		)
Reclassification adjustment for (gains) losses on securities included in net income	(3,983		)	(1,479		)	(4,296		)	(1,598		)
Reclassification adjustment for amortization of (discount) and premium	(1,204		)	(1,599		)	(2,568		)	(3,271		)
Foreign exchange adjustment on securities recorded at fair value	593			1,295			1,048			(1,263		)
Unrealized gains (losses) on securities	691,390			(937,071		)	1,155,325			(674,838		)
Unrealized gains (losses) on other investments	1,225			(3,470		)	1,883			(2,327		)
Total unrealized investment gains (losses)	692,615			(940,541		)	1,157,208			(677,165		)
Less applicable (taxes) benefits	(242,401		)	328,996			(404,990		)	236,865
Unrealized investment gains (losses), net of tax	450,214			(611,545		)	752,218			(440,300		)

Unrealized gains (losses) attributable to deferred acquisition costs	(2,681		)	2,953			(5,450		)	3,605
Less applicable (taxes) benefits	938			(1,034		)	1,907			(1,262		)
Unrealized gains (losses) attributable to deferred acquisition costs, net of tax	(1,743		)	1,919			(3,543		)	2,343

Foreign exchange translation adjustments, other than securities	5,382			(4,845		)	7,142			(13,536		)
Less applicable (taxes) benefits	(1,898		)	1,774			(2,438		)	4,503
Foreign exchange translation adjustments, other than securities, net of tax	3,484			(3,071		)	4,704			(9,033		)

Pension adjustments	2,656			3,653			5,894			7,472
Less applicable (taxes) benefits	(929		)	(1,278		)	(2,063		)	(2,615		)
Pension adjustments, net of tax	1,727			2,375			3,831			4,857

Other comprehensive income (loss)	453,682			(610,322		)	757,210			(442,133		)
Comprehensive income (loss)	$	592,111		$	(483,212	)	$	1,019,672		$	(193,375	)

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

TORCHMARK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited)

(Amounts in thousands except per share data)



	Preferred Stock		Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Total Shareholders’ Equity

Balance at January 1, 2015	$	—	$	134,218	$	457,613	$	997,452		$	3,376,846		$	(268,663	)	$	4,697,466
Other Comprehensive income (loss)							(442,133		)	248,758						(193,375		)
Common dividends declared ($0.27 per share)										(34,004		)				(34,004		)
Acquisition of treasury stock													(211,567		)	(211,567		)
Stock-based compensation					8,189					(2,132		)	8,983			15,040
Exercise of stock options					10,989					(20,753		)	42,260			32,496
Balance at June 30, 2015	$	—	$	134,218	$	476,791	$	555,319		$	3,568,715		$	(428,987	)	$	4,306,056



Balance at January 1, 2016	$	—	$	130,218	$	482,284	$	231,947		$	3,614,369		$	(403,266	)	$	4,055,552
Other Comprehensive income (loss)							757,210			262,462						1,019,672
Common dividends declared ($0.28 per share)										(33,766		)				(33,766		)
Acquisition of treasury stock													(202,975		)	(202,975		)
Stock-based compensation					7,442					(2,224		)	8,771			13,989
Exercise of stock options										(23,175		)	48,461			25,286
Balance at June 30, 2016	$	—	$	130,218	$	489,726	$	989,157		$	3,817,666		$	(549,009	)	$	4,877,758

Table of Contents

TORCHMARK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands)



	Six Months Ended June 30,
	2016			2015
Cash provided from operating activities	$	604,935		$	454,121

Cash provided from (used for) investing activities:
Investments sold or matured:
Fixed maturities available for sale—sold	51,299			14,287
Fixed maturities available for sale—matured, called, and repaid	92,475			213,989
Other long-term investments	1,394			431
Total long-term investments sold or matured	145,168			228,707
Acquisition of investments:
Fixed maturities—available for sale	(651,267		)	(541,875		)
Other long-term investments	(21,762		)	(1,886		)
Total investments acquired	(673,029		)	(543,761		)
Net (increase) in policy loans	(9,093		)	(7,844		)
Net (increase) decrease in short-term investments	6,185			(12,813		)
Net change in payable or receivable for securities	(711		)	4,980
Additions to property and equipment	(6,740		)	(13,949		)
Investment in low-income housing interests	(9,260		)	(11,954		)
Cash from (used for) investing activities	(547,480		)	(356,634		)

Cash provided from (used for) financing activities:
Issuance of common stock	25,286			21,507
Cash dividends paid to shareholders	(33,478		)	(33,306		)
Repayment of 6.375% Notes	(250,000		)	—
Issuance of Term Loan	100,000			—
Issuance of 6.125% Junior Subordinated Debentures	300,000			—
Issue expenses of debt offering	(9,638		)	—
Net borrowing (repayment) of commercial paper	45,010			148,970
Excess tax benefit from stock option exercises ⁽¹⁾	—			10,989
Acquisition of treasury stock	(202,975		)	(211,567		)
Net receipts (payments) from deposit-type product	(38,193		)	(42,815		)
Cash provided from (used for) financing activities	(63,988		)	(106,222		)

Effect of foreign exchange rate changes on cash	(5,172		)	5,565
Net increase (decrease) in cash	(11,705		)	(3,170		)
Cash at beginning of year	61,383			66,019
Cash at end of period	$	49,678		$	62,849

(1) Due to the prospective adoption of ASU 2016-09, the excess tax benefits from stock option exercises of $7 million at June 30, 2016 were presented as a component of operating activities in the same manner as other cash flows related to income taxes. The 2015 balance of $11 million , under the previous guidance, remains in the financing activities section. See further discussion at Note 2—New Accounting Standards.

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

TORCHMARK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note 1—Significant Accounting Policies

Basis of Presentation: The accompanying condensed consolidated financial statements of Torchmark Corporation (Torchmark or alternatively, the Company) have been prepared in accordance with the instructions to Form 10-Q. Therefore, they do not include all of the annual disclosures required by accounting principles generally accepted in the United States of America (GAAP). However, in the opinion of management, these statements include all adjustments, consisting of normal recurring adjustments, which are necessary for a fair presentation of the condensed consolidated financial position at June 30, 2016 , and the condensed consolidated results of operations, comprehensive income, and cash flows for the periods ended June 30, 2016 and 2015 . The interim period condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements that are included in the Form 10-K filed with the Securities Exchange Commission (SEC) on February 26, 2016.

Note 2—New Accounting Standards

Accounting Pronouncements Adopted

ASU 2014-15 : In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40) (ASU 2014-15). This accounting standard requires management to perform interim and annual assessments of the entity's ability to continue its business operations within one year of the date of issuance of its financial statements. The Company must then provide certain disclosure if there is substantial doubt about its ability to continue as a going concern. As of January 1, 2016, the Company adopted this standard with no impact to the financial statements.

ASU 2016-09 : In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09) to simplify certain aspects of accounting for share-based payment award transactions including: (a) income tax consequences; (b) classification in the statement of cash flows; and (c) accounting for forfeitures. Torchmark elected to early adopt this standard as of January 1, 2016, as permitted. This new accounting standard primarily affects Torchmark's computations of net income and diluted shares outstanding and thus earnings per share.

While the intent of the adoption of this guidance is simplification, inherent changes in future share prices and volume of stock option exercises are expected to result in increased volatility in net income and earnings per share in future periods. As provided by the new standard, the adoption is prospective and thus will impact only 2016 and future periods.

Below is a listing of the effects of the adoption of this guidance:

•

Condensed consolidated statement of operations: For the three months ended June 30, 2016 , the Company recorded $5 million in excess tax benefits as a component of income taxes, which resulted in an increase in net income as compared with the three months ended June 30, 2015 when the excess tax benefits of $6 million were recorded as a component of additional paid-in capital on the balance sheet. For the six months ended June 30, 2016 , the Company recorded $7 million in excess tax benefits as a component of income taxes as compared with $11 million recorded as a component of additional paid-in-capital on the balance sheet for the same period in the prior year.

•

Weighted average diluted shares: The weighted average diluted shares outstanding were adjusted to exclude excess tax benefits from the assumed proceeds in the diluted shares calculation. This change resulted in diluted weighted average shares outstanding of 122.7 million for the quarter ended June 30, 2016 , as compared with 121.9 million under the previous guidance. For the six months ended June 30, 2016 , the weighted average diluted shares outstanding were 123.0 million as compared with 122.3 million under the previous guidance.


•	Earnings per share: The adoption resulted in a $0.03 increase in earnings per share for the three months ended June 30, 2016 and a $0.04 increase for the six months ended June 30, 2016 .


•	Condensed consolidated statement of cash flows: The excess tax benefits related to share-based payments of $7 million were presented as a component of operating activities in the same manner as other cash flows

Table of Contents

TORCHMARK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note 2—New Accounting Standards (continued)

related to income taxes. In prior years, the excess tax benefits were reclassified from operating activities to financing activities. The prior period amounts were not adjusted.

Accounting Pronouncements Not Yet Adopted

ASU 2016-02: In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842), (ASU 2016-02) which requires all lessees to report a right-of-use asset and a lease liability for most leases. For lessors, the standard modifies the classification criteria and the accounting for sales-type and direct financing leases. The standard will become effective for the Company beginning January 1, 2019 and will require recognizing and measuring leases at the beginning of the earliest period presented using a modified retrospective approach. Early adoption is permitted. The Company is currently evaluating the standard to determine its impact.

ASU 2016-13: In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13) to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments as well as to change the loss impairment methodology for available-for-sale debt securities. The standard will become effective on January 1, 2020. The applicable section of the standard related to debt securities requires a prospective transition. The Company does not expect the adoption to have a significant impact on the financial statements.

Note 3—Supplemental Information about Changes to Accumulated Other Comprehensive Income

An analysis of the change in balance by component of Accumulated Other Comprehensive Income is as follows for the three and six month periods ended June 30, 2016 and 2015 .

Components of Accumulated Other Comprehensive Income



	Three Months Ended June 30, 2016
	Available for Sale Assets			Deferred Acquisition Costs			Foreign Exchange			Pension Adjustments			Total
Balance at April 1, 2016	$	634,337		$	(6,915	)	$	4,847		$	(96,794	)	$	535,475
Other comprehensive income (loss) before reclassifications, net of tax	453,586			(1,743		)	3,484			69			455,396
Reclassifications, net of tax	(3,372		)	—			—			1,658			(1,714		)
Other comprehensive income (loss)	450,214			(1,743		)	3,484			1,727			453,682
Balance at June 30, 2016	$	1,084,551		$	(8,658	)	$	8,331		$	(95,067	)	$	989,157

	Three Months Ended June 30, 2015
	Available for Sale Assets			Deferred Acquisition Costs			Foreign Exchange			Pension Adjustments			Total
Balance at April 1, 2015	$	1,261,518		$	(10,334	)	$	11,424		$	(96,967	)	$	1,165,641
Other comprehensive income (loss) before reclassifications, net of tax	(609,544		)	1,919			(3,071		)	—			(610,696		)
Reclassifications, net of tax	(2,001		)	—			—			2,375			374
Other comprehensive income (loss)	(611,545		)	1,919			(3,071		)	2,375			(610,322		)
Balance at June 30, 2015	$	649,973		$	(8,415	)	$	8,353		$	(94,592	)	$	555,319

TORCHMARK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note 3—Supplemental Information about Changes to Accumulated Other Comprehensive Income (continued)

Components of Accumulated Other Comprehensive Income



	Six Months Ended June 30, 2016
	Available for Sale Assets			Deferred Acquisition Costs			Foreign Exchange			Pension Adjustments			Total
Balance at January 1, 2016	$	332,333		$	(5,115	)	$	3,627		$	(98,898	)	$	231,947
Other comprehensive income (loss) before reclassifications, net of tax	756,680			(3,543		)	4,704			514			758,355
Reclassifications, net of tax	(4,462		)	—			—			3,317			(1,145		)
Other comprehensive income (loss)	752,218			(3,543		)	4,704			3,831			757,210
Balance at June 30, 2016	$	1,084,551		$	(8,658	)	$	8,331		$	(95,067	)	$	989,157

	Six Months Ended June 30, 2015
	Available for Sale Assets			Deferred Acquisition Costs			Foreign Exchange			Pension Adjustments			Total
Balance at January 1, 2015	$	1,090,273		$	(10,758	)	$	17,386		$	(99,449	)	$	997,452
Other comprehensive income (loss) before reclassifications, net of tax	(437,135		)	2,343			(9,033		)	117			(443,708		)
Reclassifications, net of tax	(3,165		)	—			—			4,740			1,575
Other comprehensive income (loss)	(440,300		)	2,343			(9,033		)	4,857			(442,133		)
Balance at June 30, 2015	$	649,973		$	(8,415	)	$	8,353		$	(94,592	)	$	555,319

Reclassifications out of Accumulated Other Comprehensive Income are presented below for the three and six month periods ended June 30, 2016 and 2015 .

Reclassification Adjustments



	Three Months Ended June 30,						Six Months Ended June 30,						Affected line items in the Statement of Operations
	2016			2015			2016			2015			Affected line items in the Statement of Operations
Unrealized investment gains (losses) on available for sale assets:
Realized (gains) losses	$	(3,983	)	$	(1,479	)	$	(4,296	)	$	(1,598	)	Realized investment gains (losses)
Amortization of (discount) premium	(1,204		)	(1,599		)	(2,568		)	(3,271		)	Net investment income
Total before tax	(5,187		)	(3,078		)	(6,864		)	(4,869		)
Tax	1,815			1,077			2,402			1,704			Income Taxes
Total after tax	(3,372		)	(2,001		)	(4,462		)	(3,165		)
Pension adjustments:
Amortization of prior service cost	120			82			240			163			Other operating expenses
Amortization of actuarial gain (loss)	2,431			3,571			4,863			7,128			Other operating expenses
Total before tax	2,551			3,653			5,103			7,291
Tax	(893		)	(1,278		)	(1,786		)	(2,551		)	Income Taxes
Total after tax	1,658			2,375			3,317			4,740
Total reclassifications (after tax)	$	(1,714	)	$	374		$	(1,145	)	$	1,575

Table of Contents

TORCHMARK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note 4—Investments

Portfolio Composition:

A summary of fixed maturities available for sale by cost or amortized cost and estimated fair value at June 30, 2016 is as follows:

Portfolio Composition as of June 30, 2016



	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value ⁽¹⁾		% of Total Fixed Maturities ⁽²⁾
Bonds:
U.S. Government direct, guaranteed, and government-sponsored enterprises	$	380,528	$	33,040	$	(432	)	$	413,136	3
States, municipalities, and political subdivisions	1,277,303		184,320		(199		)	1,461,424		10
Foreign governments	22,468		2,773		—			25,241		—
Corporates, by sector:
Financial	2,800,108		388,055		(48,336		)	3,139,827		20
Utilities	1,950,172		377,501		(7,370		)	2,320,303		15
Energy	1,566,871		114,956		(83,315		)	1,598,512		10
Other corporate sectors	5,250,898		701,948		(55,123		)	5,897,723		39
Total corporates	11,568,049		1,582,460		(194,144		)	12,956,365		84
Collateralized debt obligations	62,174		13,617		(11,728		)	64,063		—
Other asset-backed securities	56,914		1,989		—			58,903		—
Redeemable preferred stocks, by sector:
Financial	382,195		52,900		(4,754		)	430,341		3
Utilities	28,623		1,994		—			30,617		—
Total redeemable preferred stocks	410,818		54,894		(4,754		)	460,958		3
Total fixed maturities	$	13,778,254	$	1,873,093	$	(211,257	)	$	15,440,090	100

(1) Amounts reported on the balance sheet.

(2) At fair value.

Table of Contents

TORCHMARK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note 4—Investments (continued)

A schedule of fixed maturities available for sale by contractual maturity date at June 30, 2016 is shown below on an amortized cost basis and on a fair value basis. Actual maturity dates could differ from contractual maturities due to call or prepayment provisions.



	Amortized Cost		Fair Value
Fixed maturities available for sale:
Due in one year or less	$	48,012	$	48,366
Due from one to five years	612,267		666,057
Due from five to ten years	1,047,056		1,175,885
Due from ten to twenty years	4,027,521		4,622,554
Due after twenty years	7,922,723		8,802,523
Mortgage-backed and asset-backed securities	120,675		124,705
	$	13,778,254	$	15,440,090

Selected information about sales of fixed maturities available for sale is as follows.



Six Months Ended June 30,
	2016			2015
Proceeds from sales	$	51,299		$	14,287
Gross realized gains	3,556			82
Gross realized losses	(214		)	(104		)

Table of Contents

TORCHMARK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note 4—Investments (continued)

Fair Value Measurements :

The following table represents the fair value of fixed maturities available for sale measured on a recurring basis.



Fair Value Measurements at June 30, 2016 Using:
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value
Bonds:
U.S. Government direct, guaranteed, and government-sponsored enterprises	$	18		$	413,118		$	—		$	413,136
States, municipalities, and political subdivisions	—			1,461,424			—			1,461,424
Foreign governments	—			25,241			—			25,241
Corporates, by sector:
Financial	—			3,076,036			63,791			3,139,827
Utilities	12,008			2,168,991			139,304			2,320,303
Energy	—			1,569,212			29,300			1,598,512
Other corporate sectors	—			5,560,953			336,770			5,897,723
Total corporates	12,008			12,375,192			569,165			12,956,365
Collateralized debt obligations	—			—			64,063			64,063
Other asset-backed securities	—			58,903			—			58,903
Redeemable preferred stocks, by sector:
Financial	10,168			420,173			—			430,341
Utilities	—			30,617			—			30,617
Total redeemable preferred stocks	10,168			450,790			—			460,958
Total fixed maturities	$	22,194		$	14,784,668		$	633,228		$	15,440,090
Percent of total	0.1		%	95.8		%	4.1		%	100		%

Table of Contents

TORCHMARK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note 4—Investments (continued)

The following table represents an analysis of changes in fair value measurements using significant unobservable inputs (Level 3).

Analysis of Changes in Fair Value Measurements Using

Significant Unobservable Inputs (Level 3)



	Six Months Ended June 30, 2016
	Collateralized Debt Obligations			Corporates ⁽¹⁾			Total
Balance at January 1, 2016	$	70,382		$	530,806		$	601,188
Total gains or losses:
Included in realized gains/losses	—			—			—
Included in other comprehensive income	(4,831		)	24,291			19,460
Acquisitions	—			15,800			15,800
Sales	—			—			—
Amortization	2,639			8			2,647
Other ⁽²⁾	(4,127		)	(1,740		)	(5,867		)
Transfers in and/or out of Level 3 ⁽³⁾	—			—			—
Balance at June 30, 2016	$	64,063		$	569,165		$	633,228
Percent of total fixed maturities	0.4		%	3.7		%	4.1		%

	Six Months Ended June 30, 2015
	Collateralized Debt Obligations			Corporates ⁽¹⁾			Total
Balance at January 1, 2015	$	63,232		$	512,714		$	575,946
Total gains or losses:
Included in realized gains/losses	—			—			—
Included in other comprehensive income	13,531			(8,426		)	5,105
Acquisitions	—			19,400			19,400
Sales	—			—			—
Amortization	2,810			7			2,817
Other ⁽²⁾	(5,905		)	(1,666		)	(7,571		)
Transfers in and/or out of Level 3 ⁽³⁾	—			—			—
Balance at June 30, 2015	$	73,668		$	522,029		$	595,697
Percent of total fixed maturities	0.5		%	3.7		%	4.2		%

(1) Includes redeemable preferred stocks.

(2) Includes capitalized interest, foreign exchange adjustments, and principal repayments.

(3) Considered to be transferred at the end of the period. Transfers into Level 3 occur when observable inputs are no longer available. Transfers out of Level 3 occur when observable inputs become available.

Table of Contents

TORCHMARK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note 4—Investments (continued)

Other-Than-Temporary Impairments:

Based on the Company's evaluation of its fixed maturities available for sale in an unrealized loss position in accordance with the other-than-temporary impairment (OTTI) policy, the Company concluded that there were no other-than-temporary impairments during the three or six month periods ended June 30, 2016 and 2015 , respectively.

As of quarter end, previously written down securities remaining in the portfolio were carried at a fair value of $56 million , or less than 1% of the fair value of the fixed maturity available for sale portfolio. Torchmark is continuously monitoring the market conditions impacting its portfolio. Additionally, Torchmark has the ability and intent to hold these investments to recovery, and does not expect to be required to sell any of its securities.

Unrealized Loss Analysis:

The following table discloses information about fixed maturities available for sale in an unrealized loss position.



	Less than Twelve Months	Twelve Months or Longer	Total
Number of issues (CUSIP numbers) held:
As of June 30, 2016	43	126	169
As of December 31, 2015	480	75	555

Torchmark’s entire fixed maturity portfolio consisted of 1,573 issues at June 30, 2016 and 1,565 issues at December 31, 2015 . The weighted average quality rating of all unrealized loss positions as of June 30, 2016 was BB+ .

Table of Contents

TORCHMARK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note 4—Investments (continued)

The following table discloses unrealized investment losses by class and major sector of fixed maturities available for sale at June 30, 2016 for the period of time in a loss position. Torchmark considers these investments to be only temporarily impaired.

Analysis of Gross Unrealized Investment Losses

At June 30, 2016



	Less than Twelve Months					Twelve Months or Longer					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Investment grade securities:
Bonds:
U.S. Government direct, guaranteed, and government-sponsored enterprises	$	39	$	—		$	1,543	$	(432	)	$	1,582	$	(432	)
States, municipalities and political subdivisions	—		—			699		(9		)	699		(9		)
Corporates, by sector:
Financial	67,965		(6,462		)	80,657		(4,848		)	148,622		(11,310		)
Utilities	—		—			101,395		(7,370		)	101,395		(7,370		)
Energy	141,343		(4,750		)	336,085		(40,163		)	477,428		(44,913		)
Other corporate sectors	70,799		(3,130		)	194,464		(11,226		)	265,263		(14,356		)
Total corporates	280,107		(14,342		)	712,601		(63,607		)	992,708		(77,949		)
Redeemable preferred stocks, by sector:
Financial	3,995		(5		)	—		—			3,995		(5		)
Total redeemable preferred stocks	3,995		(5		)	—		—			3,995		(5		)
Total investment grade securities	284,141		(14,347		)	714,843		(64,048		)	998,984		(78,395		)
Below investment grade securities:
Bonds:
States, municipalities and political subdivisions	—		—			363		(190		)	363		(190		)
Corporates, by sector:
Financial	—		—			68,751		(37,026		)	68,751		(37,026		)
Energy	22,465		(1,337		)	98,134		(37,065		)	120,599		(38,402		)
Other corporate sectors	77,363		(11,922		)	159,670		(28,845		)	237,033		(40,767		)
Total corporates	99,828		(13,259		)	326,555		(102,936		)	426,383		(116,195		)
Collateralized debt obligations	—		—			8,272		(11,728		)	8,272		(11,728		)
Redeemable preferred stocks, by sector:
Financial	—		—			22,394		(4,749		)	22,394		(4,749		)
Total redeemable preferred stocks	—		—			22,394		(4,749		)	22,394		(4,749		)
Total below investment grade securities	99,828		(13,259		)	357,584		(119,603		)	457,412		(132,862		)
Total fixed maturities	$	383,969	$	(27,606	)	$	1,072,427	$	(183,651	)	$	1,456,396	$	(211,257	)

Table of Contents

TORCHMARK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note 5—Discontinued Operations

At December 31, 2015, Torchmark met the criteria to account for its Medicare Part D Prescription Drug Plan business as a discontinued operation. Historically, the business was a reportable segment. Subsequent to the end of the quarter and effective July 1, 2016, Torchmark entered into an agreement to sell its Medicare Part D Prescription Drug Plan business to SilverScript Insurance Company, a subsidiary of CVS Health Corporation (collectively, the "Buyer"). Management believes this sale will allow the Company to better focus on its core protection life and health insurance businesses, and provide additional capital.

The initial purchase price was based on the number of enrollees as of the end of the second quarter and will be adjusted based on the number of enrollees as of January 1, 2017 as determined by Center for Medicare Services (CMS) in March 2017. The net proceeds from the sale, including selling costs, are expected to approximate the $17 million of deferred acquisition costs related to the Medicare Part D business as of June 30, 2016 . Accordingly, the net impact of the sale on Torchmark’s financial statements is expected to be insignificant.

Torchmark will retain certain assets and liabilities related to the Medicare Part D business including all corresponding profits or losses for the 2016 plan year. The Buyer will assume the rights and obligations related to the business for all subsequent plan years. To ensure an orderly transition, Torchmark will administer the plans for the remainder of 2016, and the Buyer will be responsible for administration of the plans beginning in 2017. The remaining assets and liabilities reflected on the Torchmark balance sheet related to discontinued operations are receivables and payables that are expected to be settled in the ordinary course of business during 2016 and 2017.

At June 30, 2016 , Torchmark recorded the business as a discontinued operation. The net assets related to discontinued operations at June 30, 2016 and December 31, 2015 were as follows:



	June 30, 2016		December 31, 2015
Assets:
Due premiums	$	8,107	$	8,041
Risk sharing receivable	301		—
Other receivables ⁽¹⁾	225,708		287,765
Deferred acquisition costs	16,684		17,037
Total assets related to discontinued operations	250,800		312,843

Liabilities:
Unearned and advance premiums	3,150		806
Policy claims and other benefits payable	12,751		12,309
Risk sharing payable	23,536		23,837
Current and deferred income taxes payable	18,155		13,604
Other	2,801		479
Total liabilities related to discontinued operations	60,393		51,035

Net assets	$	190,407	$	261,808

(1) At June 30, 2016 , receivables included $201 million from Centers for Medicare and Medicaid Services (CMS) and $25 million from drug manufacturer rebates. At December 31, 2015 , the comparable amounts were $193 million and $95 million , respectively.

TORCHMARK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note 5—Discontinued Operations (continued)

Income from discontinued operations for the three and six months ended June 30, 2016 and 2015 was as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Revenue:
Health premium	$	56,774		$	83,083		$	111,473		$	171,175

Benefits and expenses:
Health policyholder benefits	51,871			83,977			113,352			178,099
Amortization of deferred acquisition costs	932			1,166			1,940			1,769
Commissions, premium taxes, and non-deferred acquisition expenses	3,792			4,886			8,901			11,049
Other operating expense	1,510			1,389			3,290			2,638
Total benefits and expenses	58,105			91,418			127,483			193,555

Income (loss) before income taxes for discontinued operations	(1,331		)	(8,335		)	(16,010		)	(22,380		)
Income taxes	466			2,918			5,604			7,833
Income (loss) from discontinued operations	$	(865	)	$	(5,417	)	$	(10,406	)	$	(14,547	)

Operating cash flows of the discontinued operations for the six months ended June 30, 2016 and 2015 were as follows:



	Six Months Ended June 30,
	2016		2015
Net cash provided from (used for) discontinued operations	$	60,995	$	(86,112	)

Table of Contents

TORCHMARK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note 6—Income Taxes

The effective income tax differed from the expected 35% rate as shown below:



	Three Months Ended June 30,
	2016			%		2015			%
Expected income taxes	$	69,770		35.0		$	68,853		35.0
Increase (reduction) in income taxes resulting from:
Low income housing investments	(4,829		)	(2.4	)	(4,724		)	(2.4	)
Share-based awards	(4,194		)	(2.2	)	—			—
Other	(697		)	(0.4	)	67			—
Income tax expense from continuing operations	$	60,050		30.0		$	64,196		32.6

	Six Months Ended June 30,
	2016			%		2015			%
Expected income taxes	$	138,177		35.0		$	136,920		35.0
Increase (reduction) in income taxes resulting from:
Low income housing investments	(9,657		)	(2.4	)	(9,447		)	(2.4	)
Share-based awards	(6,166		)	(1.6	)	—			—
Other	(430		)	(0.1	)	422			0.1
Income tax expense from continuing operations	$	121,924		30.9		$	127,895		32.7

The effective income tax rates for the three and six months ended June 30, 2016 differed from the effective income tax rates for the same periods ended June 30, 2015 primarily as a result of the Company adopting ASU 2016-09 as of January 1, 2016. As a result of the adoption, the excess tax benefits related to share-based awards are now recorded through income tax expense rather than additional paid-in capital. See Note 2—New Accounting Standards for further discussion.

Table of Contents

TORCHMARK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note 7—Debt Transactions

Issuance of long term debt. On April 5, 2016, Torchmark completed the issuance and sale of $300 million in aggregate principal of Torchmark’s 6.125% Junior Subordinated Debentures due 2056. The debentures were sold pursuant to Torchmark’s shelf registration statement on Form S-3, filed September 25, 2015. The net proceeds from the sale of the debentures were $290 million , after giving effect to the underwriting discount and estimated expenses of the offering of the debentures. Torchmark used the net proceeds from the offering of the debentures to repay the $250 million outstanding principal, plus accrued interest of $8 million , on the 6.375% Senior Notes that were due June 15, 2016. The remaining proceeds will be used for general corporate purposes, including capital or other financing at our insurance subsidiaries, if necessary.

Term loan agreement. On May 17, 2016, Torchmark amended its credit facility to include, as a part of the facility, the issuance of a $100 million term loan and to extend the maturity date of the entire credit facility to May 2021. The term loan will be repaid on a redemption schedule which provides for quarterly installments that escalate each annual period with a balloon payment of $75 million due in May 2021. Interest is computed and paid monthly at 125 basis points plus 1 month LIBOR. In accordance with the agreement, Torchmark is subject to certain covenants regarding capitalization. As of June 30, 2016 , the Company was in full compliance with these covenants.

Note 8—Postretirement Benefit Plans

The following tables present a summary of post-retirement benefit costs by component.

Components of Post-Retirement Benefit Costs



	Three Months Ended June 30,
	Pension Benefits						Other Benefits
	2016			2015			2016		2015
Service cost	$	3,894		$	3,991		$	—	$	—
Interest cost	5,432			5,004			212		204
Expected return on assets	(5,782		)	(5,323		)	—		—
Amortization:
Prior service cost	120			82			—		—
Actuarial (gain) loss	2,423			3,534			8		37
Direct recognition of expense	—			—			20		151
Net periodic benefit cost	$	6,087		$	7,288		$	240	$	392

	Six Months Ended June 30,
	Pension Benefits						Other Benefits
	2016			2015			2016		2015
Service cost	$	7,788		$	7,981		$	—	$	—
Interest cost	10,864			10,006			424		407
Expected return on assets	(11,564		)	(10,646		)	—		—
Amortization:
Prior service cost	240			163			—		—
Actuarial (gain)/loss	4,847			7,068			16		60
Direct recognition of expense	—			—			54		327
Net periodic benefit cost	$	12,175		$	14,572		$	494	$	794

TORCHMARK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note 8—Postretirement Benefits (continued)

The following table presents assets at fair value for the defined-benefit pension plans at June 30, 2016 and the prior-year end.

Pension Assets by Component



	June 30, 2016			December 31, 2015
	Amount		%	Amount		%
Corporate debt	$	156,603	48	$	146,381	47
Other fixed maturities	281		—	270		—
Equity securities	124,419		38	123,428		40
Short-term investments	22,540		7	15,593		5
Guaranteed annuity contract	17,313		5	17,082		6
Other	5,593		2	4,842		2
Total	$	326,749	100	$	307,596	100

The liability for the funded defined-benefit pension plans was $412 million at June 30, 2016 and $406 million at December 31, 2015 . During the six months ended June 30, 2016 , the Company made $12 million in cash contributions to the qualified pension plans. Torchmark expects to make total cash contributions to these plans during 2016 in an amount not to exceed $20 million . With respect to the Company’s non-qualified supplemental retirement plan, life insurance policies on the lives of plan participants have been established with an unaffiliated carrier to fund a portion of the Company’s obligations under the plan. These policies, as well as investments deposited with an unaffiliated trustee, were previously placed in a Rabbi Trust to provide for payment of the plan obligations. At June 30, 2016 , the combined value of the insurance policies and investments in the Rabbi Trust to support plan liabilities were $84 million , compared with $79 million at year end 2015 . Since this plan is non-qualified, the values of the insurance policies and investments are recorded as Other assets in the Condensed Consolidated Balance Sheets and are not included in the chart of plan assets above. The liability for the non-qualified pension plan was $69 million at June 30, 2016 and $67 million at December 31, 2015 .

Note 9—Earnings Per Share

A reconciliation of basic and diluted weighted-average shares outstanding is as follows:



	Three Months Ended June 30,		Six Months Ended June 30,
	2016	2015	2016	2015
Basic weighted average shares outstanding	120,479,938	125,816,943	120,980,372	126,465,420
Weighted average dilutive options outstanding	2,267,910	1,622,698	2,055,407	1,553,309
Diluted weighted average shares outstanding	122,747,848	127,439,641	123,035,779	128,018,729
Antidilutive shares	—	—	18,158	—

As discussed earlier in Note 2—New Accounting Standards , the Company adopted ASU 2016-09 on January 1, 2016. The adoption resulted in an adjustment to the weighted average diluted shares outstanding to exclude excess tax benefits from the assumed proceeds in the diluted shares calculation. This change has been applied prospectively and resulted in diluted weighted average shares outstanding of 122.7 million for the quarter ended June 30, 2016 , as compared with 121.9 million under the previous guidance. For the six months ended June 30, 2016 , the diluted weighted average shares outstanding were 123.0 million as compared with 122.3 million under the previous guidance.

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TORCHMARK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note 10—Business Segments

Torchmark's reportable segments are based on the insurance product lines it markets and administers: life insurance, health insurance, and annuities. These major product lines are set out as reportable segments because of the common characteristics of products within these categories, comparability of margins, and the similarity in regulatory environment and management techniques. Torchmark's chief operating decision makers evaluate the overall performance of the operations of the Company in accordance with these segments.

Annuity revenue is classified as “Other premium.” Management’s measure of profitability for each insurance segment is insurance underwriting margin, which is underwriting income before other income and insurance administrative expenses. It represents the profit margin on insurance products before administrative expenses, and is calculated by deducting net policy obligations (claims incurred and change in reserves), commissions and other acquisition expenses from premium revenue. Torchmark further views the profitability of each insurance product segment by the marketing groups that distribute the products of that segment: direct response, independent agencies, or captive agencies.

Torchmark’s management prefers to evaluate the performance of its underwriting and investment activities separately, rather than allocating investment income to the underwriting results. As such, the investment function is presented as a stand-alone segment. The investment segment includes the management of the investment portfolio, debt, and cash flow. Management’s measure of profitability for this segment is excess investment income, which is the income earned on the investment portfolio less the required interest on net policy liabilities and financing costs. Financing costs include the interest on Torchmark’s debt. Other income and insurance administrative expense are classified in a separate Other segment.

The majority of the Company’s required interest on net policy liabilities (benefit reserves less the deferred acquisition cost asset) is not credited to policyholder accounts. Instead, it is an actuarial assumption for discounting cash flows in the computation of benefit reserves and the amortization of the deferred acquisition cost asset. Investment income required to fund the required interest on net policy liabilities is removed from the investment segment and applied to the insurance segments to eliminate the effect of the required interest from the insurance segments. As a result, the investment segment measures net investment income against the required interest on net policy liabilities and financing costs, while the insurance segments simply measure premiums against benefits and expenses. We believe this presentation facilitates a more meaningful analysis of the Company’s underwriting and investment performance as the underwriting results are based on premiums, claims, and expenses and are not affected by unanticipated fluctuations in investment yields.

As noted, Torchmark’s “core operations” are insurance and investment management. The insurance segments issue policies for which premiums are collected for the eventual payment of policy benefits. In addition to policy benefits, operating expenses are incurred including acquisition costs, administrative expenses, and taxes. Because life and health contracts can be long term, premium receipts in excess of current expenses are invested. Investment activities, conducted by the investment segment, focus on seeking quality investments with a yield and term appropriate to support the insurance product obligations. These investments generally consist of fixed maturities, and, over the long term, the expected yields are taken into account when setting insurance premium rates and product profitability expectations. As a result, fixed maturities are generally held for long periods to support the liabilities, and Torchmark generally expects to hold investments until maturity. Dispositions of investments occur from time to time, generally for reasons such as credit concerns, calls by issuers, or other factors.

Dispositions are sometimes required in order to maintain the Company’s investment policies and objectives. Investments are also occasionally written down as a result of other-than-temporary impairment, as discussed in Note 4—Investments . Torchmark does not actively trade investments. As a result, realized gains and losses from the disposition and write down of investments are generally incidental to operations and are not considered a material factor in insurance pricing or product profitability. While from time to time these realized gains and losses could be significant to net income in the period in which they occur, they generally have a limited effect on the yield of the total investment portfolio. Further, because the proceeds of the disposals are reinvested in the portfolio, the disposals have little effect on the size of the portfolio and the income from the reinvestments is included in net investment income. Therefore, management removes realized investment gains and losses from results of core operations when evaluating

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TORCHMARK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note 10—Business Segments (continued)

the performance of the Company. For this reason, these gains and losses are excluded from Torchmark’s operating segments.

Torchmark accounts for its stock options and restricted stock under current accounting guidance requiring stock options and stock grants to be expensed based on fair value at the time of grant. Management considers stock compensation expense to be an expense of the Parent Company. Therefore, stock compensation expense is treated as a corporate expense in Torchmark’s segment analysis.

The following tables set forth a reconciliation of Torchmark’s revenues and operations by segment to its pretax income and each significant line item in its Condensed Consolidated Statements of Operations .

Reconciliation of Segment Operating Information to the Consolidated Statement of Operations



	Three Months Ended June 30, 2016
	Life			Health			Annuity			Investment			Other & Corporate			Adjustments				Consolidated
Revenue:
Premium	$	548,590		$	237,252		$	13												$	785,855
Net investment income										$	201,642									201,642
Other income													$	422		$	(40	)	(2)	382
Total revenue	548,590			237,252			13			201,642			422			(40		)		987,879
Expenses:
Policy benefits	369,342			153,261			8,882													531,485
Required interest on reserves	(143,625		)	(18,251		)	(12,506		)	174,382										—
Required interest on DAC	44,476			5,766			205			(50,447		)								—
Amortization of acquisition costs	93,663			22,102			1,480													117,245
Commissions, premium taxes, and non-deferred acquisition costs	41,130			21,753			11									(40		)	(2)	62,854
Insurance administrative expense ⁽¹⁾													48,413							48,413
Parent expense													2,379							2,379
Stock compensation expense													7,054							7,054
Interest expense										23,110										23,110
Total expenses	404,986			184,631			(1,928		)	147,045			57,846			(40		)		792,540
Subtotal	143,604			52,621			1,941			54,597			(57,424		)	—				195,339
Nonoperating items																—				—
Measure of segment profitability (pretax)	$	143,604		$	52,621		$	1,941		$	54,597		$	(57,424	)	$	—			195,339
Deduct applicable income taxes																				(58,649		)
Segment profits after tax																				136,690
Add back income taxes applicable to segment profitability																				58,649
Add (deduct) realized investment gains (losses)																				4,005
Pretax income per Consolidated Statements of Operations																				$	199,344

(1) Administrative expense is not allocated to insurance segments.

(2) Elimination of intersegment commission.

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TORCHMARK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note 10—Business Segments (continued)



	Three Months Ended June 30, 2015 ⁽³⁾
	Life			Health			Annuity			Investment			Other & Corporate			Adjustments				Consolidated
Revenue:
Premium	$	520,038		$	232,409		$	37												$	752,484
Net investment income										$	194,823									194,823
Other income													$	742		$	(51	)	(2)	691
Total revenue	520,038			232,409			37			194,823			742			(51		)		947,998
Expenses:
Policy benefits	347,364			151,198			9,754													508,316
Required interest on reserves	(137,430		)	(17,151		)	(13,387		)	167,968										—
Required interest on DAC	43,139			5,690			294			(49,123		)								—
Amortization of acquisition costs	88,737			20,740			2,261													111,738
Commissions, premium taxes, and non-deferred acquisition costs	38,851			20,320			12									(51		)	(2)	59,132
Insurance administrative expense ⁽¹⁾													45,474							45,474
Parent expense													2,312							2,312
Stock compensation expense													7,802							7,802
Interest expense										19,114										19,114
Total expenses	380,661			180,797			(1,066		)	137,959			55,588			(51		)		753,888
Subtotal	139,377			51,612			1,103			56,864			(54,846		)	—				194,110
Nonoperating items																—				—
Measure of segment profitability (pretax)	$	139,377		$	51,612		$	1,103		$	56,864		$	(54,846	)	$	—			194,110
Deduct applicable income taxes																				(63,282		)
Segment profits after tax																				130,828
Add back income taxes applicable to segment profitability																				63,282
Add (deduct) realized investment gains (losses)																				2,613
Pretax income per Consolidated Statements of Operations																				$	196,723

(1) Administrative expense is not allocated to insurance segments.

(2) Elimination of intersegment commission.

(3) Certain prior year balances were adjusted to give effect to discontinued operations as described in Note 5—Discontinued Operations .

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TORCHMARK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note 10—Business Segments (continued)



	Six Months Ended June 30, 2016
	Life			Health			Annuity			Investment			Other & Corporate			Adjustments				Consolidated
Revenue:
Premium	$	1,092,741		$	472,949		$	25												$	1,565,715
Net investment income										$	398,695									398,695
Other income													$	887		$	(84	)	(2)	803
Total revenue	1,092,741			472,949			25			398,695			887			(84		)		1,965,213
Expenses:
Policy benefits	732,202			306,036			18,220													1,056,458
Required interest on reserves	(285,636		)	(36,327		)	(25,598		)	347,561										—
Required interest on DAC	88,678			11,508			429			(100,615		)								—
Amortization of acquisition costs	188,202			44,467			3,382													236,051
Commissions, premium taxes, and non-deferred acquisition costs	81,391			43,129			20									(84		)	(2)	124,456
Insurance administrative expense ⁽¹⁾													96,881							96,881
Parent expense													4,405							4,405
Stock compensation expense													13,989							13,989
Interest expense										42,479										42,479
Total expenses	804,837			368,813			(3,547		)	289,425			115,275			(84		)		1,574,719
Subtotal	287,904			104,136			3,572			109,270			(114,388		)	—				390,494
Nonoperating items																—				—
Measure of segment profitability (pretax)	$	287,904		$	104,136		$	3,572		$	109,270		$	(114,388	)	$	—			390,494
Deduct applicable income taxes																				(120,420		)
Segment profits after tax																				270,074
Add back income taxes applicable to segment profitability																				120,420
Add (deduct) realized investment gains (losses)																				4,298
Pretax income per Consolidated Statements of Operations																				$	394,792

(1) Administrative expense is not allocated to insurance segments.

(2) Elimination of intersegment commission.

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TORCHMARK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note 10—Business Segments (continued)



	Six Months Ended June 30, 2015 ⁽³⁾
	Life			Health			Annuity			Investment			Other & Corporate			Adjustments				Consolidated
Revenue:
Premium	$	1,033,380		$	461,082		$	78												$	1,494,540
Net investment income										$	386,419									386,419
Other income													$	1,464		$	(104	)	(2)	1,360
Total revenue	1,033,380			461,082			78			386,419			1,464			(104		)		1,882,319
Expenses:
Policy benefits	687,065			299,227			19,799													1,006,091
Required interest on reserves	(273,615		)	(34,034		)	(26,756		)	334,405										—
Required interest on DAC	85,985			11,358			607			(97,950		)								—
Amortization of acquisition costs	177,265			40,924			4,209													222,398
Commissions, premium taxes, and non-deferred acquisition costs	75,900			40,418			23									(104		)	(2)	116,237
Insurance administrative expense ⁽¹⁾													91,425							91,425
Parent expense													4,485							4,485
Stock compensation expense													15,041							15,041
Interest expense										38,174										38,174
Total expenses	752,600			357,893			(2,118		)	274,629			110,951			(104		)		1,493,851
Subtotal	280,780			103,189			2,196			111,790			(109,487		)	—				388,468
Nonoperating items																—				—
Measure of segment profitability (pretax)	$	280,780		$	103,189		$	2,196		$	111,790		$	(109,487	)	$	—			388,468
Deduct applicable income taxes																				(126,939		)
Segment profits after tax																				261,529
Add back income taxes applicable to segment profitability																				126,939
Add (deduct) realized investment gains (losses)																				2,732
Pretax income per Consolidated Statements of Operations																				$	391,200

(1) Administrative expense is not allocated to insurance segments.

(2) Elimination of intersegment commission.

(3) Certain prior year balances were adjusted to give effect to discontinued operations as described in Note 5—Discontinued Operations .

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TORCHMARK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note 10—Business Segments (continued)

The following table summarizes the measures of segment profitability for comparison. It also reconciles segment profits to net income.

Analysis of Profitability by Segment



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Life insurance underwriting margin	$	143,604		$	139,377		$	287,904		$	280,780
Health insurance underwriting margin	52,621			51,612			104,136			103,189
Annuity underwriting margin	1,941			1,103			3,572			2,196
Excess investment income	54,597			56,864			109,270			111,790
Other and corporate:
Other income	422			742			887			1,464
Administrative expense	(48,413		)	(45,474		)	(96,881		)	(91,425		)
Corporate and adjustments	(9,433		)	(10,114		)	(18,394		)	(19,526		)
Pre-tax total	195,339			194,110			390,494			388,468
Applicable taxes	(58,649		)	(63,282		)	(120,420		)	(126,939		)
After-tax total, before discontinued operations	136,690			130,828			270,074			261,529
Discontinued operations (after tax) ⁽¹⁾	(865		)	(5,417		)	(10,406		)	(14,547		)
After-tax total, after discontinued operations	135,825			125,411			259,668			246,982
Reconciling items, net of tax:
Realized gains (losses) - Investments	2,604			1,699			2,794			1,776
Net income	$	138,429		$	127,110		$	262,462		$	248,758

(1) Income (loss) from discontinued operations (after tax) is included for purpose of reconciling to net income.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Summary of Operations . Torchmark’s operations are segmented into its insurance underwriting and investment operations as described in Note 10—Business Segments . The measures of profitability described in Note 10—Business Segments are useful in evaluating the performance of the segments and the marketing groups within each insurance segment because each of our distribution channels operates in a niche market. Insurance underwriting margin consists of premium less policy obligations, commissions and other acquisition expenses. These measures enable management to view period-to-period trends, and to make informed decisions regarding future courses of action.

The tables in Note 10—Business Segments demonstrate how the measures of profitability are determined. Those tables also reconcile our revenues and expenses by segment to major income statement line items for the three month and six month periods ended June 30, 2016 and 2015 . Additionally, a table in that note, Analysis of Profitability by Segment , provides a summary of the profitability measures that demonstrates year-to-year comparability and reconciles those measures to our net income. That summary represents our overall operations in the manner that management views the business, and is a basis of the following highlights discussion.

A discussion of operations by each segment follows later in this report. These discussions compare the first six months of 2016 with the same period of 2015 , unless otherwise noted . The following discussions are presented in the manner we view our operations, as described in Note 10—Business Segments .

Highlights, comparing the first six months of 2016 with the first six months of 2015 . Net income per diluted common share increased 10% to $2.13 from $1.94 . Included in net income in 2016 were after-tax realized investment gains of $3 million compared with gains of $2 million in 2015 . Realized investment gains and losses are presented more fully under the caption Realized Gains and Losses in this report.

We use three statistical measures as indicators of future premium growth: “annualized premium in force", "net sales", and “first-year collected premium.” Annualized premium in force is defined as the premium income that would be received over the following twelve months at any given date on all active policies if those policies remain in force throughout the twelve month period. Annualized premium in force is an indicator of potential growth in premium revenue. Net sales is defined as annualized premium issued, net of cancellations in the first thirty days after issue, except for Globe Life Direct Response, where net sales is annualized premium issued at the time the first full premium is paid after any introductory offer has expired. Annualized premium issued is the gross premium that would be received during the policies’ first year in force, assuming that none of the policies lapsed or terminated. Although lapses and terminations will occur, we believe that net sales is a useful indicator of the rate of acceleration of premium growth. First-year collected premium is the premium collected during the reporting period for all policies in their first policy year. First-year collected premium takes lapses into account in the first policy year when lapses are more likely to occur, and thus is a useful indicator of how much new premium is expected to be added to premium income in the future.

Total premium income rose 5% in 2016 to $1.6 billion . Total net sales increased 1% to $279 million , when compared with the same period in 2015 . First-year collected premium was $227 million for the 2016 period, compared with $228 million for the 2015 period.

Life insurance premium income grew 6% to $1.1 billion . Life net sales increased 1% to $213 million when compared with the same period in 2015 . First-year collected life premium grew 6% during the first six months of 2016 to $159 million over the same period in 2015 . Life underwriting margin as a percentage of premium was down to 26% as a result of higher than expected Globe Life Direct Response policy obligations, partially offset by lower than expected policy obligations at American Income and Liberty national. Underwriting income increased to $288 million for the first six months of 2016 , compared with $281 million for the same period in 2015 .

Health insurance premium income increased 3% to $473 million over the prior year total of $461 million . Health net sales rose 2% to $65 million for the six month period. First-year collected health premium fell 12% to $69 million as a result of a high level of group sales in the third and fourth quarters of 2014 that affected the 2015 first-year collected premium. Health margins were flat at 22% , with underwriting income of $104 million for the first six months of 2016 .

Insurance administrative expenses were up 6.0% in 2016 when compared with the prior year period. The increase in administrative expenses is primarily due to investments in information technology that will standardize and streamline operations and enhance the customer experience.

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Excess investment income is defined as net investment income less the required interest on net policy liabilities and the interest cost associated with capital funding or “financing costs”. Excess investment income per diluted common share is an important measure to management; refer to the Excess Investment Income section for further details. It increased 2% in 2016 to $0.89 from $0.87 , while the dollar amount of excess investment income decreased to $109 million . The increase in per share excess investment income resulted from share purchases over the period, as discussed later in this report. Net investment income rose $12 million or 3% to $399 million in 2016 , below the 5% growth in our average investment portfolio at amortized cost. The decrease was primarily attributed to the lower interest rate environment. The average effective yield on the fixed maturity portfolio, which represented 96% of our investments at amortized cost, decreased to 5.81% in the 2016 period from 5.86% in the prior period. Required interest rose 4% or $10 million to $247 million , in line with growth in average net policy liabilities. Financing costs increased 11% to $42 million . Please refer to the discussion under Capital Resources for more information on debt and interest expense.

In the first six months of 2016 , we invested new money in our fixed-maturity portfolio at an effective annual yield on new investments of 4.87% , compared with 4.59% in the same period of 2015 . New investments were made with an average rating of BBB+ and an average life to maturity of twenty-five years. Approximately 94% of the portfolio at amortized cost was investment grade at June 30, 2016 . Cash and short-term investments were $98 million at that date, compared with $116 million at December 31, 2015 .

The net unrealized gain position in our fixed-maturity portfolio grew from $506 million at December 31, 2015 to $1.7 billion during the first six months of 2016 , primarily due to a decrease in Treasury rates during 2016 . The fixed-maturity portfolio contains no commercial mortgage-backed securities. We have no direct investments in residential mortgages, nor are we a party to any derivative contracts, including credit default swaps. We do not participate in securities lending and we have no off-balance sheet investments.

We have an on-going share repurchase program which began in 1986 which is reviewed quarterly and is reaffirmed by the Board of Directors on an annual basis. The program was reaffirmed on August 4, 2016. With no specified authorization amount, we determine the amount of repurchases based on the amount of our excess cash flow, general market conditions, and other alternative uses. These purchases are made at the Parent with excess cash flow. Excess cash flow is primarily made up of cash received from the insurance subsidiaries less dividends paid to shareholders and interest paid. See further discussion in the Capital Resources section below. Share purchases are also made with the proceeds from option exercises by current and former employees, in order to reduce dilution. The following chart summarizes share purchases for the six month periods ended June 30, 2016 and 2015 .

Analysis of Share Purchases

(Amounts in thousands, except per share amounts)



	Six Months Ended June 30,
	2016					2015
	Shares	Amount		Average Price		Shares	Amount		Average Price
Purchases with:
Excess cash flow	2,940	$	163,079	$	55.46	3,209	$	176,337	$	54.96
Option exercise proceeds	685	39,896		58.27		640	35,230		55.04
Total	3,625	$	202,975	$	55.99	3,849	$	211,567	$	54.97

Throughout the remainder of this discussion, share purchases will only refer to those made from excess cash flow.

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A detailed discussion of our operations by component segment follows.

Life insurance, comparing the first six months of 2016 with the first six months of 2015 . Life insurance is our predominant segment, representing 70% of premium income and 73% of insurance underwriting margin in the first six months of 2016 . In addition, investments supporting the reserves for life business generate the majority of excess investment income attributable to the investment segment. Life insurance premium income increased 6% to $1.1 billion . The following table presents Torchmark’s life insurance premium by distribution channel.

Life Insurance

Premium

(Dollar amounts in thousands)



	Six Months Ended June 30,						Increase
	2016			2015			(Decrease)
	Amount		% of Total	Amount		% of Total	Amount			%
American Income Exclusive Agency	$	446,643	41	$	409,047	40	$	37,596		9
Globe Life Direct Response	398,608		37	375,891		36	22,717			6
Liberty National Exclusive Agency	135,600		12	136,058		13	(458		)	—
Other Agencies	111,890		10	112,384		11	(494		)	—
Total Life Premium	$	1,092,741	100	$	1,033,380	100	$	59,361		6

Net sales, defined earlier in this report as an indicator of new business production, increased 1% to $213 million . An analysis of life net sales by distribution channel is presented below.



Life Insurance Net Sales (Dollar amounts in thousands)
	Six Months Ended June 30,						Increase
	2016			2015			(Decrease)
	Amount		% of Total	Amount		% of Total	Amount			%
American Income Exclusive Agency	$	105,601	50	$	97,356	46	$	8,245		8
Globe Life Direct Response	81,611		38	89,443		42	(7,832		)	(9	)
Liberty National Exclusive Agency	19,872		9	17,821		9	2,051			12
Other Agencies	6,415		3	7,179		3	(764		)	(11	)
Total Life Net Sales	$	213,499	100	$	211,799	100	$	1,700		1

First-year collected life premium, defined earlier in this report, was $159 million in the 2016 period, rising 6% . First-year collected life premium by distribution channel is presented in the table below.



Life Insurance First-Year Collected Premium (Dollar amounts in thousands)
	Six Months Ended June 30,						Increase
	2016			2015			(Decrease)
	Amount		% of Total	Amount		% of Total	Amount			%
American Income Exclusive Agency	$	85,866	54	$	76,028	51	$	9,838		13
Globe Life Direct Response	52,345		33	54,266		36	(1,921		)	(4	)
Liberty National Exclusive Agency	14,350		9	13,696		9	654			5
Other Agencies	5,956		4	5,993		4	(37		)	(1	)
Total	$	158,517	100	$	149,983	100	$	8,534		6

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The American Income Exclusive Agency has historically marketed primarily to members of labor unions. While labor unions are still the core market for this agency, American Income has diversified in recent years by focusing heavily on other affinity groups and referrals to help ensure sustainable growth. The life business of this agency is Torchmark’s highest margin life business and it is the largest contributor to life premium of any distribution channel at 41% of Torchmark’s total. This group produced premium income of $447 million , an increase of 9% . First-year collected premium was $86 million , an increase of 13% . Net sales rose 8% to $106 million . Sales growth in our captive agencies is generally dependent on growth in the size of the agency force. The American Income Agency's average agent count decreased 1% to 6,403 for the six months ended June 30, 2016 compared with 6,460 for the same period in 2015 . The average agent count is based on the actual count at the end of each week during the period. Sales increased despite the decline in agent count due to increased agent productivity. The American Income Agency has been focusing on growing and strengthening middle management to support sustainable growth of the agency force. To accomplish this, they have placed an increased emphasis on agent training programs and financial incentives that appropriately reward agents at all levels for helping develop and train personnel. The agency continues to provide more home-office and webinar training programs. These programs are designed to provide each agent, from new recruits to top level managers, coaching and instruction specifically designed for each individual’s level of experience and responsibility.

The Globe Life Direct Response Unit offers adult and juvenile life insurance through a variety of direct-to-consumer marketing approaches, which include direct mailings, insert media, and electronic media. These different approaches support and complement one another in the unit’s efforts to reach the consumer. The Globe Life Direct Response channel’s growth over the years has been fueled by constant innovation. In recent years, electronic media production has grown rapidly as management has aggressively increased marketing activities related to internet and mobile technology, and has focused on driving traffic to the inbound call center. We continually introduce new initiatives in this unit in an attempt to increase response rates.

While the juvenile market is an important source of sales, it also is a vehicle to reach the parents and grandparents of juvenile policyholders, who are more likely to respond favorably to a Globe Life Direct Response solicitation for life coverage on themselves than is the general adult population. Also, both juvenile policyholders and their parents are low acquisition-cost targets for sales of additional coverage over time.

Globe Life Direct Response’s life premium income rose 6% to $399 million , representing 37% of Torchmark’s total life premium in the first six months of 2016 . Net sales of $82 million for this group decreased 9% . The sales decline was expected as we reduced insert media circulation to eliminate less profitable segments. First-year collected premium decreased 4% to $52 million .

The Liberty National Exclusive Agency markets individual and group life insurance to middle-income customers. Life premium income for this agency was $136 million in both the 2016 and 2015 periods. First-year collected premium increased 5% to $14 million .

Net sales for the Liberty National Agency increased 12% to $20 million . This is the largest percentage increase of any of Torchmark's distributions channels. The Liberty average agent count increased 9% to 1,641 for the six months ended June 30, 2016 compared with 1,507 for the same period in 2015 . We continue to execute our long term plan to grow this agency through expansion from small town markets in the southeast to more densely populated areas with larger pools of potential agent recruits and customers. Expansion of this agency’s presence into more heavily populated, less-penetrated areas will help create long term agency growth. Additionally, our prospecting training program has helped to improve the ability of agents to develop new worksite marketing business.

The Other Agencies distribution channels primarily include independent agencies selling predominantly life insurance. The Other Agencies contributed $112 million of life premium income, or 10% of Torchmark’s total in the first six months of 2016 , but contributed only 3% of net sales for the period.

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Life Insurance Summary of Results (Dollar amounts in thousands)
	Six Months Ended June 30,						Increase
	2016			2015			(Decrease)
	Amount		% of Premium	Amount		% of Premium	Amount		%
Premium and policy charges	$	1,092,741	100	$	1,033,380	100	$	59,361	6
Net policy obligations	446,566		41	413,450		40	33,116		8
Commissions and acquisition expense	358,271		33	339,150		33	19,121		6
Insurance underwriting income before other income and administrative expense	$	287,904	26	$	280,780	27	$	7,124	3

Life insurance underwriting income before insurance administrative expense was $288 million in the first six months of 2016 , compared with $281 million for the same period in 2015 . As a percentage of premium, underwriting margins declined to 26% from 27% . The decrease in underwriting margin as a percentage of premium was due to higher Globe Life Direct Response policy obligations, partially offset by lower than expected policy obligations at American Income and Liberty National. The higher than anticipated obligations in the Globe Life Direct Response Unit primarily relate to policies issued since 2011 where additional prescription information was used in the underwriting process for certain business in order to improve the overall mortality. To date, improvements in actual mortality have been less than expected, causing higher than expected net policy obligations. The lower obligations at American Income and Liberty National were attributed to lower claims.

Health insurance, comparing the first six months of 2016 with the first six months of 2015 . Health insurance sold by Torchmark includes primarily Medicare Supplement insurance, critical illness coverage, accident coverage, and other limited-benefit supplemental health products. In this analysis, all health coverage plans other than Medicare Supplement are classified as limited-benefit plans.

Health premium accounted for 30% of our total premium in the 2016 period, while the health underwriting margin accounted for 26% of total underwriting margin, reflective of the lower underwriting margin as a percent of premium for health compared with life insurance. As noted under the caption Life Insurance , we have emphasized life insurance sales relative to health, due to life’s superior profitability and its greater contribution to excess investment income.

Health premium increased 3% to $473 million in the 2016 period. Medicare Supplement premium increased 3% to $238 million , while other limited-benefit health premium increased 3% to $235 million .

Health net sales increased 2% to $65 million . Medicare Supplement net sales increased 1% to $25 million in 2016 . Limited-benefit net sales increased 3% to $41 million . Health first-year collected premium fell 12% to $69 million as a result of a high level of group sales in the third and fourth quarters of 2014 that affected the 2015 first-year collected premium. Group sales can vary significantly from period to period.

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The following table is an analysis of our health premium by distribution channel.

Health Insurance

Premium

(Dollar amounts in thousands)



	Six Months Ended June 30,						Increase
	2016			2015			(Decrease)
	Amount		% of Total	Amount		% of Total	Amount			%
United American Independent Agency
Limited-benefit plans	$	6,535		$	8,378		$	(1,843	)	(22	)
Medicare Supplement	171,309			162,499			8,810			5
	177,844		38	170,877		37	6,967			4
Family Heritage Agency
Limited-benefit plans	115,928			108,429			7,499			7
Medicare Supplement	—			—			—			—
	115,928		24	108,429		23	7,499			7
Liberty National Exclusive Agency
Limited-benefit plans	70,962			72,134			(1,172		)	(2	)
Medicare Supplement	31,446			34,536			(3,090		)	(9	)
	102,408		22	106,670		23	(4,262		)	(4	)
American Income Exclusive Agency
Limited-benefit plans	41,017			39,549			1,468			4
Medicare Supplement	168			204			(36		)	(18	)
	41,185		9	39,753		9	1,432			4
Direct Response
Limited-benefit plans	354			505			(151		)	(30	)
Medicare Supplement	35,230			34,848			382			1
	35,584		7	35,353		8	231			1
Total Health Premium
Limited-benefit plans	234,796		50	228,995		50	5,801			3
Medicare Supplement	238,153		50	232,087		50	6,066			3
Total	$	472,949	100	$	461,082	100	$	11,867		3

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Presented below is a table of health net sales by distribution channel.

Health Insurance

Net Sales

(Dollar amounts in thousands)



	Six Months Ended June 30,						Increase
	2016			2015			(Decrease)
	Amount		% of Total	Amount		% of Total	Amount			%
United American Independent Agency
Limited-benefit plans	$	334		$	395		$	(61	)	(15	)
Medicare Supplement	22,059			21,648			411			2
	22,393		34	22,043		35	350			2
Family Heritage Agency
Limited-benefit plans	24,176			25,077			(901		)	(4	)
Medicare Supplement	—			—			—			—
	24,176		37	25,077		39	(901		)	(4	)
Liberty National Exclusive Agency
Limited-benefit plans	9,841			8,474			1,367			16
Medicare Supplement	4			40			(36		)	(90	)
	9,845		15	8,514		13	1,331			16
American Income Exclusive Agency
Limited-benefit plans	6,187			5,490			697			13
Medicare Supplement	—			—			—			—
	6,187		10	5,490		9	697			13
Direct Response
Limited-benefit plans	—			—			—			—
Medicare Supplement	2,456			2,633			(177		)	(7	)
	2,456		4	2,633		4	(177		)	(7	)
Total Net Sales
Limited-benefit plans	40,538		62	39,436		62	1,102			3
Medicare Supplement	24,519		38	24,321		38	198			1
Total	$	65,057	100	$	63,757	100	$	1,300		2

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The following table presents health insurance first-year collected premium by distribution channel.

Health Insurance

First-Year Collected Premium

(Dollar amounts in thousands)



	Six Months Ended June 30,						Increase
	2016			2015			(Decrease)
	Amount		% of Total	Amount		% of Total	Amount			%
United American Independent Agency
Limited-benefit plans	$	309		$	339		$	(30	)	(9	)
Medicare Supplement	32,006			35,303			(3,297		)	(9	)
	32,315		47	35,642		46	(3,327		)	(9	)
Family Heritage Agency
Limited-benefit plans	20,091			19,286			805			4
Medicare Supplement	—			—			—			—
	20,091		29	19,286		25	805			4
Liberty National Exclusive Agency
Limited-benefit plans	7,850			7,344			506			7
Medicare Supplement	1			110			(109		)	(99	)
	7,851		12	7,454		9	397			5
American Income Exclusive Agency
Limited-benefit plans	6,416			5,437			979			18
Medicare Supplement	—			—			—			—
	6,416		9	5,437		7	979			18
Direct Response
Limited-benefit plans	—			1			(1		)	(100	)
Medicare Supplement	2,099			10,323			(8,224		)	(80	)
	2,099		3	10,324		13	(8,225		)	(80	)
Total First-Year Collected Premium
Limited-benefit plans	34,666		50	32,407		41	2,259			7
Medicare Supplement	34,106		50	45,736		59	(11,630		)	(25	)
Total	$	68,772	100	$	78,143	100	$	(9,371	)	(12	)

A discussion of health operations by distribution channel follows:

The UA Independent Agency consists of independent agencies appointed with Torchmark who may also sell for other companies. The UA Independent Agency was Torchmark’s largest health agency in terms of health premium income. Premium income was $178 million , representing 38% of Torchmark’s total health premium. Net sales were $22 million , or 34% of Torchmark’s health sales. This agency primarily produces Medicare Supplement insurance, with Medicare Supplement premium income of $171 million . The UA Independent Agency represents approximately 72% of all Torchmark Medicare Supplement premium and 90% of Medicare Supplement net sales. Medicare Supplement premium in this agency rose 5% . Total health premium increased 4% . Net sales of the Medicare Supplement product increased 2% in 2016 ; individual sales were up 7% , but group sales declined 11% . As noted earlier, Group Medicare Supplement sales have historically fluctuated from period to period.

The Family Heritage Agency primarily markets limited-benefit supplemental health insurance in non-urban areas. Most of their policies include a cash-back feature, such as a return of premium whereby any excess of premiums over claims paid is returned to the policyholder at the end of a specified period stated within the insurance policy. Management expects to grow this agency through geographic expansion and continuing incorporation of Torchmark’s recruiting programs. The Family Heritage Agency contributed $24 million in net sales in the six months of 2016 , compared with $25 million for the same period in 2015 , a decrease of 4% . Health premium income was $116 million for the six month period of 2016 , representing 24% of Torchmark’s health premium compared with $108 million or 23% of health premium

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in the prior year period. The average agent count was 880 for the six months ended June 30, 2016 compared with 872 for the same period in 2015 , an increase of 1% .

The Liberty National Exclusive Agency represented 22% of all Torchmark health premium income at $102 million in the six months of 2016 . The Liberty Agency markets limited-benefit health supplemental products consisting primarily of critical illness insurance. Much of Liberty’s health business is now generated through worksite marketing targeting small businesses of 10 to 25 employees. In 2016 , health premium income in the Liberty Agency declined $4 million to $102 million from prior year premium. Liberty’s health premium decline has been due primarily to its declining Medicare Supplement block.

Other distribution . Certain of our other distribution channels market health products, although their main emphasis is on life insurance. On a combined basis, they accounted for 16% of health premium in the 2016 period. The American Income Exclusive Agency primarily markets accident plans. The Direct Response markets primarily Medicare Supplements to employer or union-sponsored groups. Direct Response added $2 million of Medicare Supplement net sales in 2016 .

The following table presents underwriting margin data for health insurance.

Health Insurance

Summary of Results

(Dollar amounts in thousands)



	Six Months Ended June 30,						Increase
	2016			2015			(Decrease)
	Amount		% of Premium	Amount		% of Premium	Amount		%
Premium and policy charges	$	472,949	100	$	461,082	100	$	11,867	3
Net policy obligations	269,709		57	265,193		58	4,516		2
Commissions and acquisition expense	99,104		21	92,700		20	6,404		7
Insurance underwriting income before other income and administrative expense	$	104,136	22	$	103,189	22	$	947	1

Underwriting income for health insurance totaled $104 million in 2016 , an increase of 1% when compared with the same period in 2015 . As a percentage of health premium, underwriting margins were flat for the six months ended June 30, 2016 at 22% when compared with the same period in 2015 .

Annuities. Annuities represent an insignificant part of our business and are not expected to be an important part of our marketing strategy going forward.

Operating expenses, comparing the first six months of 2016 with the first six months of 2015 . Operating expenses consist of insurance administrative expenses and parent company expenses. Also included is stock compensation expense, which is viewed by us as a parent company expense. Insurance administrative expenses relate to premium income for a given period; therefore, we measure those expenses as a percentage of premium income. Total expenses are measured as a percentage of total revenues. An analysis of operating expenses is shown below.

Operating Expenses Selected Information

(Dollar amounts in thousands)



	Six Months Ended June 30,
	2016				2015
	Amount			% of Premium	Amount			% of Premium
Insurance administrative expenses:
Salaries	$	44,437		2.8	$	43,033		2.9
Other employee costs	14,838			0.9	15,519			1.1
Information technology costs	11,854			0.8	7,985			0.5
Legal costs	4,471			0.3	3,556			0.2
Other administrative costs	21,281			1.4	21,332			1.4
Total insurance administrative expenses	96,881			6.2	91,425			6.1

Parent company expense	4,405				4,485
Stock compensation expense	13,989				15,041
Total operating expenses, per Condensed Consolidated Statements of Operations	$	115,275			$	110,951

Insurance administrative expenses:
Increase (decrease) over prior year	6.0		%		4.9		%
Total operating expenses:
Increase (decrease) over prior year	3.9		%		—		%

Insurance administrative expenses were up 6.0% in 2016 when compared with the prior year period. As a percentage of total premium, insurance administrative expenses were 6.2% in 2016 , up from 6.1% during the same period last year. Total operating expenses increased 3.9% . The increase in administrative expenses is primarily due to investments in information technology that will standardize and streamline operations and enhance the customer experience. The decline in stock compensation expense was primarily due to lower expense associated with equity awards.

Investments (excess investment income), comparing the first six months of 2016 with the first six months of 2015 . We manage our capital resources including investments, debt, and cash flow through the investment segment. Excess investment income represents the profit margin attributable to investment operations. It is the measure that we use to evaluate the performance of the investment segment as described in Note 10—Business Segments in the Notes to the Condensed Consolidated Financial Statements. It is defined as net investment income less the required interest on net policy liabilities and the interest cost associated with capital funding or “financing costs.”

We also view excess investment income per diluted common share as an important and useful measure to evaluate the performance of the investment segment. It is defined as excess investment income divided by the total diluted weighted average shares outstanding, representing the contribution by the investment segment to the consolidated earnings per share of the Company. Since implementing our share repurchase program in 1986, we have used $6.6 billion of cash flow to repurchase Torchmark shares (average split-adjusted price per diluted common share of $ 15.20 ) after determining that the repurchases provided a greater return than other investment alternatives. Share repurchases reduce excess investment income because of the foregone earnings on the cash that would otherwise have been invested in interest-bearing assets, but they also reduce the number of shares outstanding. In order to put all capital resource uses on a comparable basis, we believe that excess investment income per diluted share is an appropriate measure of the investment segment.

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The following table summarizes Torchmark’s investment income, excess investment income, and excess investment income per diluted share.

Excess Investment Income

(Dollar amounts in thousands)



	Six Months Ended June 30,						Increase (Decrease)
	2016			2015			Amount			%
Net investment income	$	398,695		$	386,419		$	12,276		3
Interest on net insurance policy liabilities:
Interest on reserves	(347,561		)	(334,405		)	(13,156		)	4
Interest on deferred acquisition costs	100,615			97,950			2,665			3
Net required interest	(246,946		)	(236,455		)	(10,491		)	4
Financing costs	(42,479		)	(38,174		)	(4,305		)	11
Excess investment income	$	109,270		$	111,790		$	(2,520	)	(2	)
Excess investment income per diluted share	$	0.89		$	0.87		$	0.02		2

Average invested assets (at amortized cost)	$	14,250,106		$	13,588,446		$	661,660		5
Average net insurance policy liabilities ⁽¹⁾	8,846,244			8,489,267			356,977			4
Average debt and preferred securities (at amortized cost)	1,339,263			1,347,761			(8,498		)	(1	)

(1) Net of deferred acquisition costs, excluding the attributed unrealized gains and losses thereon.

Excess investment income is defined as net investment income less both the required interest attributable to net policy liabilities and the interest on debt. For the 2016 period, excess investment income decreased $3 million or 2% to $109 million when compared with the same period in 2015 . On a per common share basis, excess investment income increased 2% as a result of our share repurchase program. Excess investment income has been negatively impacted during recent years by low interest rates and the turnover of higher yielding assets in the portfolio as well as certain aspects of Medicare Part D as discussed below. Excess investment income was also negatively impacted during the period because of the additional interest costs as a result of the issuance of the new 6.125% Junior Subordinated debt security prior to the maturity of the 6.375% Senior Notes as discussed below. Absent the additional financing costs incurred from the security, excess investment income would have increased by 1% over the same period in 2015, or 4% on a per share basis.

Net investment income rose $12 million or 3% in 2016 , below the 5% increase in average invested assets (with fixed maturities at amortized cost) over the same period last year. The effective annual yield on the fixed maturity portfolio was 5.81% in the first six months of 2016 , compared with 5.86% a year earlier. The reduction in the average portfolio yield rate was primarily a result of lower new money yield rates and reinvesting proceeds from bonds that were called in 2016 at yield rates less than the rates we earned on the bonds before they were called. We currently expect that the average turnover of fixed maturity assets during the next five years will not exceed 1% to 2% of the portfolio and that this turnover will not have a material negative impact on investment income.

Net investment income has also been negatively affected in 2016 by the CMS requirement for us to cover Medicare Part D claim costs in the current period that are ultimately the responsibility of the government, but are not reimbursed until the following year. We incurred extensive upfront costs in 2015 that will not be reimbursed by CMS until November 2016 . We also experience delays from the time certain claims are paid until related drug rebates are received from various pharmaceutical companies. These delays cause a lag in the timing of investable cash flows that result in lower investment income than would have been earned absent the delays.

Should interest rates rise, especially long-term rates, Torchmark would benefit due to higher net investment income on new purchases. We could withstand an increase in interest rates of approximately 95 to 100 basis points before the net unrealized gains on our fixed maturity portfolio as of June 30, 2016 would be eliminated (assuming there were no credit related valuation declines). Should interest rates increase further than that, we would not be concerned with potential interest rate driven unrealized losses in our fixed maturity portfolio because we have the intent and, more importantly, the ability to hold our fixed maturities to maturity.

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Required interest on net insurance policy liabilities r educes net investment income as it is the amount of net investment income considered by management necessary to “fund” the required interest included in the insurance segments. As such, it is removed from the investment segment and applied to the insurance segments to offset the effect of the required interest from the insurance segments. As discussed in Note 10—Business Segments , management believes this provides a more meaningful analysis of the investment and insurance segments. Required interest is based on the actuarial interest assumptions used in discounting the benefit reserve liability and the amortization of deferred acquisition costs for our insurance policies in force. The great majority of our life and health insurance policies are fixed interest-rate protection policies, not investment products, and are accounted for under current accounting guidance for long-duration insurance products which mandates that interest rate assumptions for a particular block of business be “locked in” for the life of that block of business. Each calendar year, we set the discount rate to be used to calculate the benefit reserve liability and the amortization of the deferred acquisition cost asset for all insurance policies issued that year. That rate is based on the new money yields that we expect to earn on cash flow received in the future from policies of that issue year, and cannot be changed. The discount rate used for policies issued in the current year has no impact on the in force policies issued in prior years as the rates of all prior issue years are also locked in. As such, the overall discount rate for the entire in force block is a weighted average of the discount rates being used from all issue years. Changes in the overall weighted-average discount rate over time are caused by changes in the mix of the reserves and the deferred acquisition cost asset by issue year on the entire block of in force business. Business issued in the current year has very little impact on the overall weighted-average discount rate due to the size of our in force business.

Required interest on net insurance policy liabilities increased $10 million or 4% to $247 million , in line with the growth in average net interest-bearing insurance policy liabilities.

Financing costs on our debt increased 11% to $42 million from $38 million for the same period in 2015. The additional interest expense resulted primarily from the issuance of our new 6.125% Junior Subordinated Debt security seventy days before the maturity and repayment of our 6.375% Senior Notes which occurred later during the quarter. More information concerning debt can be found in the Capital Resources section of this report.

Analysis of Financing Costs

(Dollar amounts in thousands)



	Six Months Ended June 30,				Increase (Decrease)
	2016		2015		Amount		%
Interest on funded debt	$	39,319	$	35,577	$	3,742	11
Interest on term loan	96		—		96		—
Interest on short term debt	3,062		2,595		467		18
Other	2		2		—		—
Financing costs	$	42,479	$	38,174	$	4,305	11

Investments (acquisitions), comparing the first six months of 2016 with the first six months of 2015 . Torchmark’s investment policy calls for investing in fixed maturities that are investment grade and meet our quality and yield objectives. We generally prefer to invest in securities with longer maturities because they more closely match the long-term nature of our policy liabilities. We believe this strategy is appropriate because our cash flows from operations and invested assets are positive, stable and predictable. If longer-term securities that meet our quality and yield objectives are not available, we do not relax our quality objectives, but instead, consider investing in shorter or lower yielding securities, taking into consideration the slope of the yield curve and other factors.

The following table summarizes selected information for fixed maturity purchases. The effective annual yield shown is the yield calculated to the “worst call date.” For non-callable bonds, the worst-call date is always the maturity date. For callable bonds, the worst-call date is the call date that produces the lowest yield (or the maturity date, if the yield calculated to the maturity date is lower than the yield calculated to each call date).

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Fixed Maturity Acquisitions Selected Information

(Dollar amounts in thousands)



	Six Months Ended June 30,
	2016			2015
Cost of acquisitions:
Investment-grade corporate securities	$	635,530		$	501,996
Other	15,737			39,879
Total fixed-maturity acquisitions	$	651,267		$	541,875
Effective annual yield ⁽¹⁾	4.87		%	4.59		%
Average life, in years to:
Next call	24.4			28.4
Maturity	24.7			29.6
Average rating	BBB+			BBB+

(1) One-year compounded yield on a tax-equivalent basis. The yield on tax-exempt securities is adjusted to produce a yield equivalent to the pretax yield on taxable securities.

Acquisitions in both periods consisted primarily of corporate bonds, with securities spanning a diversified range of issuers, industry sectors, and geographical regions. All of the acquired securities were investment grade.

Investments (portfolio composition). The composition of the investment portfolio at book value on June 30, 2016 was as follows:

Invested Assets At June 30, 2016

(Dollar amounts in thousands)



	Amount		% of Total
Fixed maturities(at amortized cost)	$	13,778,254	96
Policy loans	501,555		3
Other long-term investments	57,876		1
Short-term investments	48,581		—
Total	$	14,386,266	100

Approximately 96% of our investments at book value are in a diversified fixed-maturity portfolio. Policy loans, which are secured by policy cash values, make up approximately 3% of our investments. We also have insignificant investments in equity securities and other long-term investments. As fixed maturities represent such a significant portion of our investment portfolio, the remainder of the discussion of portfolio composition will focus on fixed maturities.

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Fixed Maturities. The following table summarizes certain information about the major corporate sectors and security types held in our fixed maturity portfolio at June 30, 2016 .

Fixed Maturities by Sector

(Dollar amounts in thousands)



	Below Investment Grade									Total FIxed Maturities									% of Total Fixed Maturities
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		At Amortized Cost	At Fair Value
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		At Amortized Cost	At Fair Value
Corporates:
Financial
Insurance - life, health, P&C	$	58,469	$	3,649	$	(9,222	)	$	52,896	$	1,992,114	$	288,924	$	(20,394	)	$	2,260,644	14	15
Banks	41,582		592		(4,749		)	37,425		639,689		89,509		(4,768		)	724,430		5	5
Other financial	74,954		—		(27,805		)	47,149		550,500		62,522		(27,928		)	585,094		4	3
Total financial	175,005		4,241		(41,776		)	137,470		3,182,303		440,955		(53,090		)	3,570,168		23	23
Utilities
Electric	9,644		1,397		—			11,041		1,506,266		317,639		(7,123		)	1,816,782		11	12
Gas and water	—		—		—			—		472,529		61,856		(247		)	534,138		3	3
Total utilities	9,644		1,397		—			11,041		1,978,795		379,495		(7,370		)	2,350,920		14	15
Industrial - Energy
Pipelines	45,407		—		(7,167		)	38,240		833,112		57,916		(29,881		)	861,147		6	6
Exploration and production	25,027		—		(2,597		)	22,430		532,286		40,482		(24,769		)	547,999		4	3
Oil field services	33,886		—		(9,312		)	24,574		83,767		8,722		(9,312		)	83,177		1	1
Refiner	—		—		—			—		63,025		7,836		(27		)	70,834		—	—
Driller	54,681		—		(19,326		)	35,355		54,681		—		(19,326		)	35,355		—	—
Total energy	159,001		—		(38,402		)	120,599		1,566,871		114,956		(83,315		)	1,598,512		11	10
Industrial - Basic materials
Chemicals	—		—		—			—		531,124		46,777		(1,371		)	576,530		4	4
Metals and mining	107,126		99		(20,628		)	86,597		405,408		23,592		(27,983		)	401,017		3	3
Forestry products and paper	—		—		—			—		112,954		15,314		(8		)	128,260		1	1
Total basic materials	107,126		99		(20,628		)	86,597		1,049,486		85,683		(29,362		)	1,105,807		8	8
Industrial - Consumer, non-cyclical	13,348		1,520		—			14,868		1,327,666		189,772		(14		)	1,517,424		10	10
Other industrials	80,453		30		(7,634		)	72,849		1,142,554		179,042		(11,071		)	1,310,525		9	9
Industrial - Transportation	26,784		—		(5,813		)	20,971		573,489		92,769		(6,321		)	659,937		4	4
Other corporate sectors	128,725		1,996		(6,691		)	124,030		1,157,703		154,682		(8,355		)	1,304,030		8	8
Total corporates	700,086		9,283		(120,944		)	588,425		11,978,867		1,637,354		(198,898		)	13,417,323		87	87
Other fixed maturities:
Government (U.S., municipal, and foreign)	553		—		(190		)	363		1,678,712		219,981		(630		)	1,898,063		13	13
Collateralized debt obligations	62,174		13,617		(11,728		)	64,063		62,174		13,617		(11,728		)	64,063		—	—
Other asset-backed securities	—		—		—			—		54,157		1,790		—			55,947		—	—
Mortgage-backed securities ⁽¹⁾	—		—		—			—		4,344		351		(1		)	4,694		—	—
Total fixed maturities	$	762,813	$	22,900	$	(132,862	)	$	652,851	$	13,778,254	$	1,873,093	$	(211,257	)	$	15,440,090	100	100

(1) Includes GNMA's.

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At June 30, 2016 , fixed maturities had a fair value of $15.4 billion , compared with $13.8 billion at December 31, 2015 . The net unrealized gain position in the fixed-maturity portfolio increased from $506 million at December 31, 2015 to $1.7 billion at June 30, 2016 , primarily as a result of a decrease in Treasury rates. The June 30, 2016 net unrealized gain consisted of gross unrealized gains of $1.9 billion offset by $211 million of gross unrealized losses, compared with the December 31, 2015 net unrealized gain which consisted of a gross unrealized gain of $1.1 billion and a gross unrealized loss of $564 million .

Corporate securities, which consist of bonds and redeemable preferred stocks, were the largest component of the fixed maturity portfolio, representing 87% at both amortized cost and fair value. The remainder of the portfolio is invested primarily in securities issued by the U.S. government, U.S. municipalities, and foreign governments. The Company holds insignificant amounts in collateralized debt obligations, asset-backed securities, and agency mortgage-backed securities. Corporate securities are diversified over a variety of industry sectors and issuers. At June 30, 2016 , the financial, utility, and energy sectors represented approximately 23%, 14%, and 11%, respectively, of fixed maturities at amortized cost and 23%, 15%, and 10%, respectively, of fixed maturities at fair value. Otherwise, no single sector represented more than 10% of the corporate fixed maturity portfolio at either amortized cost or fair value. The total fixed maturity portfolio consists of 573 issuers, with 200 issuers within the financial, utility, and energy sectors.

The net unrealized gain of the fixed maturity portfolio increased $1.2 billion from December 31, 2015 . The financial, utility, energy and basic materials sectors experienced increases of $100 million, $176 million, $197 million, and $142 million, respectively, in net unrealized gains from December 31, 2015 to June 30, 2016 . The fair values of the financial, utility, energy, and basic materials sectors increased approximately 4%, 7%, 14%, and 21%, respectively, while the fair value of the entire portfolio increased 12% for the period. The current low price of oil and other commodities has had a negative impact on the operations of the companies whose bonds we hold in the energy and basic materials sectors. Oil and several other commodity prices reached multi-year lows during the first quarter of 2016. In the second quarter, the energy and commodities sectors saw an increase in the price of oil and other commodities, but have recently seen a drop again in early third quarter. While a sustained period of low prices might lead to some downgrades in ratings, we do not anticipate any losses from defaults or write-downs in the foreseeable future.

An analysis of the fixed maturity portfolio at June 30, 2016 by a composite quality rating is shown in the table below. The composite quality rating for each security is the average of the security’s ratings as assigned by Moody’s Investor Service, Standard & Poor’s, Fitch Ratings, and Dominion Bond Rating Service, LTD. The ratings assigned by these four nationally recognized statistical rating organizations are evenly weighted when calculating the average. The composite quality rating is created using a methodology developed by Torchmark Corporation using ratings from various rating agencies noted above. The composite quality rating is not a Standard & Poor's credit rating. Standard and Poor's does not sponsor, endorse or promote the composite quality rating and shall not be liable for any use of the composite quality rating.

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Fixed Maturities by Rating

(Dollar amounts in thousands)



	June 30, 2016
	Amortized Cost		%	Fair Value		%
Investment grade:
AAA	$	676,557	5	$	746,594	5
AA	1,348,110		10	1,555,575		10
A	3,880,790		28	4,666,331		30
BBB+	2,869,605		21	3,263,480		21
BBB	2,818,912		20	3,109,409		20
BBB-	1,421,467		10	1,445,850		10
Investment grade	13,015,441		94	14,787,239		96
Below investment grade:
BB	423,775		3	364,554		2
B	222,496		2	165,727		1
Below B	116,542		1	122,570		1
Below investment grade	762,813		6	652,851		4
	$	13,778,254	100	$	15,440,090	100

Of the $13.8 billion of fixed maturities at amortized cost as of June 30, 2016 , $13.0 billion or 94% were investment grade with an average rating of A-. Below-investment-grade bonds were $763 million with an average rating of B+. Below-investment-grade bonds at amortized cost were 20% of our shareholders’ equity, excluding the effect of unrealized gains and losses on fixed maturities as of June 30, 2016 . Overall, the total portfolio was rated A- based on amortized cost, the same as at the end of 2015 .

An analysis of the changes in our portfolio of below-investment-grade bonds at amortized cost during the first six months of 2016 is as follows:

Below-Investment-Grade Bonds

(Dollars amounts in thousands)



Balance as of December 31, 2015	$	640,150
Downgrades by rating agencies	129,816
Upgrades by rating agencies	—
Disposals	(9,175		)
Amortization and other	2,022
Balance as of June 30, 2016	$	762,813

Our investment policy is to acquire only investment-grade obligations. Thus, any increases in below-investment-grade issues are a result of ratings downgrades of existing holdings. Our investment portfolio contains no commercial mortgage-backed securities. We have no direct investments in residential mortgages, nor do we have any counterparty risks as we are not a party to any derivative contracts, including credit default swaps. We do not participate in securities lending, we have no off-balance sheet investments, and we have only insignificant exposures to European Sovereign debt consisting of $2 million of German government bonds. Our exposure to Puerto Rican obligations at June 30, 2016 was less than $600 thousand. On June 23, 2016, the United Kingdom voted to depart the European Union (EU) under the referendum commonly referred to as "Brexit." Although the formal separation from the EU will take time, the nature and extent of the effects on interest rates and economic performance are uncertain at this time. We do not expect an increase in other-than-temporary impairments on our limited exposure related to this event.

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Additional information concerning the fixed-maturity portfolio is as follows:

Fixed Maturity Portfolio Selected Information



	June 30, 2016	December 31, 2015	June 30, 2015
Average annual effective yield ⁽¹⁾	5.79%	5.83%	5.83%
Average life, in years, to:
Next call ⁽²⁾	17.8	17.8	18.0
Maturity ⁽²⁾	20.1	20.3	20.6
Effective duration to:
Next call ⁽²⁾⁽³⁾	10.7	10.2	10.6
Maturity ⁽²⁾⁽³⁾	11.6	11.2	11.7

(1) Tax-equivalent basis. The yield on tax-exempt securities is adjusted to produce a yield equivalent to the pretax yield on taxable securities.

(2) Torchmark calculates the average life and duration of the fixed maturity portfolio two ways: (a) based on the next call date which is the next call date for callable bonds and the maturity date for noncallable bonds, and (b) based on the maturity date of all bonds, whether callable or not.

(3) Effective duration is a measure of the price sensitivity of a fixed-income security to a particular change in interest rates.

Realized Gains and Losses, comparing the first six months of 2016 with the first six months of 2015 . As discussed in Note 10—Business Segments , our core business of providing insurance coverage requires us to maintain a large and diverse investment portfolio to support our insurance liabilities. From time to time, investments are disposed of or written down prior to maturity, resulting in realized gains or losses. Because these dispositions and write-downs are outside the course of our normal operations, management removes the effects of such gains and losses when evaluating its overall core operating results.

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The following table summarizes our tax-effected realized gains (losses) by component.

Analysis of Realized Gains (Losses), Net of Tax

(Dollar amounts in thousands, except for per share data)



	Six Months Ended June 30,
	2016				2015
	Amount		Per Share		Amount			Per Share
Fixed maturities:
Investment sales	$	2,172	$	0.02	$	(14	)	$	—
Investments called or tendered	386		—		1,053			0.01
Other	236		—		737			—
Total	$	2,794	$	0.02	$	1,776		$	0.01

Financial Condition

Liquidity . Liquidity provides Torchmark with the ability to meet on demand the cash commitments required by our business operations and financial obligations. Our liquidity is evidenced by positive cash flow, a portfolio of marketable investments, and the availability of a line of credit facility.

Insurance subsidiary liquidity . The operations of our insurance subsidiaries have historically generated substantial cash inflows in excess of immediate cash needs. Sources of cash flows for the insurance subsidiaries include primarily premium and investment income. Cash outflows from operations include policy benefit payments, commissions, administrative expenses, and taxes. The funds to provide for policy benefits, the majority of which are paid in future periods, are invested primarily in long-term fixed maturities to meet these long-term obligations. In addition to investment income, maturities and scheduled repayments in the investment portfolio are sources of cash. Excess cash available from the insurance subsidiaries’ operations is generally distributed as a dividend to the parent company, subject to regulatory restriction. The dividends are generally paid in amounts equal to the subsidiaries’ prior year statutory net income excluding realized capital gains.

Parent Company liquidity . An important source of Parent Company liquidity is the dividends from the insurance subsidiaries noted above. These dividends are received throughout the year and are used by the Parent Company to pay dividends on common and preferred stock, interest and principal repayment requirements on Parent Company debt, and operating expenses of the Parent Company. In the first six months of 2016 , the Parent Company received $167 million of cash dividends from subsidiaries, compared with $186 million in 2015 . For the full year 2016 , cash dividends from subsidiaries are expected to total approximately $430 million.

Additional sources of liquidity for the Parent Company are cash, intercompany receivables, and a credit facility. At June 30, 2016 , the Parent Company had $114 million of invested cash and net intercompany receivables. The credit facility is discussed below.

Credit Facility. We have a credit facility with a group of lenders allowing for unsecured revolving borrowings and stand-by letters of credit up to $750 million, which could be extended up to $1 billion. We may request the extension, however it is not guaranteed. Up to $250 million in letters of credit can be issued against the facility. The facility serves as a back-up credit line for a commercial paper program under which we may issue commercial paper at any time, with total commercial paper outstanding not to exceed the facility maximum, less any letters of credit issued. This facility was amended in May 2016 to include the issuance of a $100 million term loan and to extend the maturity date of the facility to May 2021. Interest on the commercial paper program is charged at variable rates. The term loan will be repaid in quarterly escalating installments with a balloon payment of $75 million due in May 2021. Interest on the term loan is computed and paid monthly at 125 basis points plus 1 month LIBOR. In accordance with the agreement, we are subject to certain covenants regarding capitalization. As of June 30, 2016, we were in full compliance with these covenants.

Commercial paper outstanding and any amortization payments of the term loan due within one year are included in short-term debt. The remaining balance of the term loan is included in long-term debt. At December 31, 2015 we had

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$250 million par value of 6.375% Senior Notes which were also classified as short-term debt. This issue was repaid on June 15, 2016.

The following table presents certain information about our commercial paper borrowings.

Credit Facility - Commercial Paper

(Dollar amounts in thousands)



	At
	June 30, 2016			December 31, 2015			June 30, 2015
Balance of commercial paper at end of period (par value)	$	285,976		$	240,544		$	387,500
Annualized interest rate	0.87		%	0.55		%	0.37		%
Letters of credit outstanding	$	177,000		$	177,000		$	198,000
Remaining amount available under credit line	287,024			332,456			164,500



	Six Months Ended June 30,
	2016			2015
Average balance of commercial paper outstanding during period (par value)	$	298,636		$	331,475
Daily-weighted average interest rate (annualized)	0.77		%	0.38		%
Maximum daily amount outstanding during period (par value)	$	412,676		$	442,500

Our balance of commercial paper outstanding at June 30, 2016 was $286 million compared with $241 million at the previous year end. We have had no difficulties in accessing the commercial paper market under this facility during the six month periods ended June 30, 2016 and 2015 .

In summary, Torchmark expects to have readily available funds for the foreseeable future to conduct its operations and to maintain target capital ratios in the insurance subsidiaries through internally generated cash flow and the credit facility. In the unlikely event that more liquidity is needed, the Parent Company could generate additional funds through multiple sources including, but not limited to, the issuance of debt, an additional short-term credit facility, and intercompany borrowing.

Consolidated liquidity . Consolidated net cash inflows from operations were $605 million in the first six months of 2016 , compared with $454 million in the same period of 2015 . In addition to cash inflows from operations, our companies received proceeds from maturities, calls, and repayments of fixed maturities available for sale in the amount of $92 million during the 2016 period. As previously noted under the caption Credit Facility, we have in place a line of credit facility. The insurance companies have no additional outstanding credit facilities.

Cash and short term investments were $98 million at June 30, 2016 , compared with $116 million at December 31, 2015 . In addition to these liquid assets, the entire $15.4 billion (fair value at June 30, 2016 ) portfolio of fixed income securities is available for sale in the event of an unexpected need. Approximately 96% of our fixed income securities are publicly traded, freely tradable under SEC Rule 144, or qualified for resale under SEC Rule 144A . We generally expect to hold fixed income securities to maturity, and even though these securities are classified as available for sale, we have the ability and intent to hold any securities which are temporarily impaired until they mature. Our strong cash flows from operations, investment maturities, and credit line availability make any need to sell securities for liquidity highly unlikely.

Capital Resources . Our insurance subsidiaries maintain capital at a level adequate to support their current operations and meet the requirements of the regulatory authorities and the rating agencies. Our insurance subsidiaries generally target a capital ratio of around 325% of Company Action Level required regulatory capital under Risk-Based Capital (RBC), a measure established by insurance regulatory authorities to monitor the adequacy of capital. The 325% target is considered sufficient because of our insurance companies’ strong reliable cash flows, the relatively low risk of their product mix, and because that ratio exceeds regulatory requirements and has been in line with rating agency expectations for Torchmark. This was slightly below our targeted level of 325%, primarily due to lower than anticipated Part D earnings and fourth quarter downgrades being greater than estimated. While we do not currently anticipate any significant changes to our targeted consolidated RBC level, should we believe that the RBC ratios of the insurance companies are being reduced due to downgrades in their investment portfolios that are temporary and that may reverse

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in the near future, we may choose to temporarily target a lower RBC ratio. Additional capital will become available in 2016 and 2017 from the sale of our Medicare Part D operation, as more fully described in Note 5 — Discontinued Operations , through proceeds on the sale and a reduction in RBC levels. In addition, we have available assets on hand and credit availability at the Parent Company to make additional contributions as necessary to maintain the targeted ratio. As discussed further in the next section below, the Parent Company has approximately $40 million in additional net proceeds of issue costs from the $300 million debt offering in April at its disposal, if necessary, for additional capital or other financing needs of the insurance subsidiaries.

On a consolidated basis, Torchmark’s capital structure consists of short-term debt (comprised of the commercial paper outstanding discussed above, current maturities of the term loan, and current maturities of funded debt), long-term debt (comprised of long-term maturities of funded debt and long term maturities of the term loan), and shareholders’ equity.

The outstanding long-term debt at book value was $1.1 billion at June 30, 2016 and $744 million at December 31, 2015 . An analysis of debt issues outstanding is as follows at June 30, 2016 .

Selected Information about Debt Issues

at June 30, 2016

(Dollar amounts in thousands)



Instrument	Year Due	Interest Rate		Par Value		Book Value		Fair Value
Notes	2023	7.875%		$	165,612	$	164,005	$	210,400
Senior Notes	2019	9.250%		292,647		291,208		349,393
Senior Notes ⁽¹⁾	2022	3.800%		150,000		148,050		155,037
Junior Subordinated Debentures	2052	5.875%		125,000		120,914		127,850
Junior Subordinated Debentures	2036	3.953%	⁽²⁾	20,000		20,000		20,000
Junior Subordinated Debentures	2056	6.125%		300,000		290,376		316,320
Term loan ⁽³⁾	2021	1.695%	⁽⁴⁾	100,000		100,000		100,000
				1,153,259		1,134,553		1,279,000
Less current maturity of term loan ⁽³⁾				625		625		625
Total long-term debt				1,152,634		1,133,928		1,278,375

Current maturity of term loan ⁽³⁾				625		625		625
Commercial paper				285,976		285,386		285,386
Total short term debt				286,601		286,011		286,011

Total debt				$	1,439,235	$	1,419,939	$	1,564,386

(1) An additional $150 million par value and book value is held by insurance subsidiaries that eliminates in consolidation.

(2) Interest paid at 3 month LIBOR plus 330 basis points, resets each quarter.

(3) The current amount of the term loan due of $625 thousand is classified as short term debt.

(4) Interest paid at 1 month LIBOR plus 125 basis points, resets each month.

On April 5, 2016, Torchmark completed the issuance and sale of $300 million aggregate principal amount of Torchmark’s 6.125% Junior Subordinated Debentures due 2056. The debentures were sold pursuant to Torchmark’s shelf registration statement on Form S-3, filed September 25, 2015. The net proceeds from the sale of the debentures were $290 million , after giving effect to the underwriting discount and estimated expenses of the offering of the debentures. Torchmark used the net proceeds from the offering of the debentures to repay the $250 million outstanding principal amount plus accrued interest of $8 million on its 6.375% Senior Notes that were due June 15, 2016. The remaining proceeds will be used for general corporate purposes, including capital or other financing at our insurance subsidiaries, if necessary.

As previously noted under the caption Results of Operations in this report, we acquired 2.9 million of our outstanding common shares under our share repurchase program during the first six months of 2016 . These shares were acquired at a cost of $163 million (average of $55.46 per share), compared with purchases of 3.2 million shares at a cost of $176 million (average of $54.96 per share) in the first six months of 2015 .

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On May 20, 2016, the Company announced that it had declared a quarterly dividend of $0.14 per share. This dividend was paid on August 1, 2016.

Shareholders’ equity was $4.9 billion at June 30, 2016 . This compares with $4.1 billion at December 31, 2015 and $4.3 billion at June 30, 2015 . During the six months since December 31, 2015 , shareholders’ equity was increased by $748 million of after-tax unrealized gains in the fixed-maturity portfolio, as interest rates have decreased over the period. In addition, shareholders' equity was increased by net income of $262 million . Share purchases of $163 million noted above during the period reduced shareholders’ equity.

We are required by GAAP to revalue our available for sale fixed maturity portfolio to fair market value at the end of each accounting period. These changes, net of their associated impact on deferred acquisition costs and income tax, are reflected directly in shareholders’ equity.

While GAAP requires our fixed maturity assets to be revalued, it does not permit interest-bearing insurance policy liabilities supported by those assets to be valued at fair value in a consistent manner, with changes in value applied directly to shareholders’ equity. However, due to the size of both the investment portfolio and our policy liabilities, this inconsistency in measurement can have a material impact on shareholders’ equity. Because of the long-term nature of our fixed maturities and liabilities and the strong cash flows generated by our insurance subsidiaries, we have the intent and ability to hold our securities to maturity. As such, we do not expect to incur realized gains or losses due to fluctuations in the market value of fixed maturities caused by interest rate changes or losses caused by temporarily illiquid markets. Accordingly, management removes the effect of this rule when analyzing Torchmark’s balance sheet, capital structure, and financial ratios in order to provide a more consistent and meaningful portrayal of the Company’s financial position from period to period.

The following table presents selected data related to capital resources. Additionally, the table presents the effect of this GAAP requirement on relevant line items, so that investors and other financial statement users may determine its impact on our capital structure.

Selected Financial Data

(Dollar amounts in thousands, except for per share data)



	At
	June 30, 2016						December 31, 2015						June 30, 2015
	GAAP			Effect of Accounting Rule Requiring Revaluation(1)			GAAP			Effect of Accounting Rule Requiring Revaluation(1)			GAAP			Effect of Accounting Rule Requiring Revaluation(1)
Fixed maturities	$	15,440,090		$	1,661,836		$	13,758,024		$	506,153		$	14,121,462		$	994,544
Deferred acquisition costs ⁽²⁾	3,698,449			(13,319		)	3,617,135			(7,869		)	3,535,277			(12,946		)
Total assets	21,574,040			1,648,517			19,853,213			498,284			20,061,760			981,598
Short-term debt	286,011			—			490,129			—			636,862			—
Long-term debt	1,133,928			—			743,733			—			743,306			—
Shareholders' equity	4,877,758			1,071,536			4,055,552			323,885			4,306,056			638,039

Book value per diluted share	39.87			8.76			32.71			2.62			33.94			5.03
Debt to capitalization ⁽³⁾	22.5		%	(4.6		)%	23.3		%	(1.5		)%	24.3		%	(3.1		)%

Diluted shares outstanding	122,347						123,996						126,878
Actual shares outstanding	119,853						122,370						125,242

(1) Amount added to (deducted from) comprehensive income to produce the stated GAAP item, per accounting rule ASC 320-10-35-1, formerly SFAS 115.

(2) Includes the value of insurance purchased.

(3) Torchmark’s debt covenants require that the effect of this accounting rule be removed to determine this ratio. This ratio is computed by dividing total debt by the sum of total debt and shareholders’ equity.

Interest coverage was 10.3 times in the 2016 six months, compared with 11.2 times in the 2015 period. Interest coverage is computed by dividing interest expense into the sum of pretax income and interest expense.

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Cautionary Statements

We caution readers regarding certain forward-looking statements contained in the previous discussion and elsewhere in this document, and in any other statements made by, or on behalf of Torchmark whether or not in future filings with the Securities and Exchange Commission. Any statement that is not a historical fact or that might otherwise be considered an opinion or projection concerning Torchmark or its business, whether express or implied, is meant as and should be considered a forward-looking statement. Such statements represent management’s opinions concerning future operations, strategies, financial results or other developments. We specifically disclaim any obligation to update or revise any forward-looking statement because of new information, future developments, or otherwise.

Forward-looking statements are based upon estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control. If these estimates or assumptions prove to be incorrect, the actual results of Torchmark may differ materially from the forward-looking statements made on the basis of such estimates or assumptions. Whether or not actual results differ materially from forward-looking statements may depend on numerous foreseeable and unforeseeable events or developments, which may be national in scope, related to the insurance industry generally, or applicable to Torchmark specifically. Such events or developments could include, but are not necessarily limited to:


1)	Changing general economic conditions leading to unexpected changes in lapse rates and/or sales of our policies, as well as levels of mortality, morbidity, and utilization of health care services that differ from Torchmark’s assumptions;


2)	Regulatory developments, including changes in governmental regulations (particularly those impacting taxes and changes to the Federal Medicare program that would affect Medicare Supplement and Medicare Part D insurance);


3)	Market trends in the senior-aged health care industry that provide alternatives to traditional Medicare (such as Health Maintenance Organizations and other managed care or private plans) and that could affect the sales of traditional Medicare Supplement insurance;


4)	Interest rate changes that affect product sales and/or investment portfolio yield;


5)	General economic, industry sector or individual debt issuers’ financial conditions that may affect the current market value of securities we own, or that may impair an issuer’s ability to make principal and/or interest payments due on those securities;


6)	Changes in pricing competition;


7)	Litigation results;


8)	Levels of administrative and operational efficiencies that differ from our assumptions;


9)	Our inability to obtain timely and appropriate premium rate increases for health insurance policies due to regulatory delay;


10)	The customer response to new products and marketing initiatives; and


11)	Reported amounts in the financial statements which are based on management’s estimates and judgments which may differ from the actual amounts ultimately realized.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no quantitative or qualitative changes with respect to market risk exposure during the six months ended June 30, 2016 .

Item 4. Controls and Procedures

Torchmark, under the direction of the Co-Chairmen and Chief Executive Officers and the Executive Vice President and Chief Financial Officer, has established disclosure controls and procedures that are designed to ensure that information required to be disclosed by Torchmark in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The disclosure controls and procedures are also intended to ensure that such information is accumulated and communicated to Torchmark’s management, including the Co-Chairmen and Chief Executive Officers and the Executive Vice President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

As of the end of the fiscal quarter completed June 30, 2016 , an evaluation was performed under the supervision and with the participation of Torchmark management, including the Co-Chairmen and Chief Executive Officers and the Executive Vice President and Chief Financial Officer, of Torchmark’s disclosure controls and procedures (as those terms are defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon their evaluation, the Co-Chairmen and Chief Executive Officers and the Executive Vice President and Chief Financial Officer have concluded that Torchmark’s disclosure controls and procedures are effective as of the date of this Form 10-Q. In compliance with Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350), each of these officers executed a Certification included as an exhibit to this Form 10-Q.

As of the date of this Form 10-Q for the quarter ended June 30, 2016 , there have not been any changes in Torchmark’s internal control over financial reporting or in other factors that could significantly affect this control over financial reporting subsequent to the date of their evaluation which have materially affected, or are reasonably likely to materially affect, Torchmark’s internal control over financial reporting. No material weaknesses in such internal controls were identified in the evaluation and as a consequence, no corrective action was required to be taken.

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Part II – Other Information

Item 1. Legal Proceedings

Torchmark and its subsidiaries, in common with the insurance industry in general, are subject to litigation, including claims involving tax matters, alleged breaches of contract, torts, including bad faith and fraud claims based on alleged wrongful or fraudulent acts of agents of Torchmark’s subsidiaries, employment discrimination, and miscellaneous other causes of action. Based upon information presently available, and in light of legal and other factual defenses available to Torchmark and its subsidiaries, management does not believe that such litigation will have a material adverse effect on Torchmark’s financial condition, future operating results or liquidity; however, assessing the eventual outcome of litigation necessarily involves forward-looking speculation as to judgments to be made by judges, juries and appellate courts in the future. This bespeaks caution, particularly in states with reputations for high punitive damage verdicts. Torchmark’s management recognizes that large punitive damage awards bearing little or no relation to actual damages continue to be awarded by juries in jurisdictions in which Torchmark and its subsidiaries have substantial business, creating the potential for unpredictable material adverse judgments in any given punitive damage suit.

Torchmark subsidiaries are currently the subject of audits regarding the identification, reporting and escheatment of unclaimed property arising from life insurance policies and a limited number of annuity contracts. These audits are being conducted by private entities that have contracted with forty-eight various states through their respective Departments of Revenue, and have not resulted in any financial assessment from any state nor indicated any liability. The audits are wide-ranging and seek large amounts of data regarding claims handling, procedures, and payments of contract benefits arising from unreported death claims. No estimate of range can be made at this time for loss contingencies related to possible administrative penalties or amounts that could be payable to the states for the escheatment of abandoned property.

Item 1A. Risk Factors

Torchmark has had no material changes to its risk factors.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities



Period	(a) Total Number of Shares Purchased	(b) Average Price Paid Per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number of Shares (or Approximate Dollar Amount) that May Yet Be Purchased Under the Plans or Programs
April 1-30, 2016	547,726	$	54.66	547,726
May 1-31, 2016	736,202	58.79		736,202
June 1-30, 2016	743,082	60.10		743,082

At its August 4, 2016 meeting, the Board of Directors reaffirmed the Company’s share repurchase program in amounts and with timing that management, in consultation with the Board, determines to be in the best interest of the Company. The program has no defined expiration date or maximum shares to be repurchased.

Item 6. Exhibits


(a)	Exhibits



(31.1)		Rule 13a-14(a)/15d-14(a) Certification by Larry M. Hutchison
(31.2)		Rule 13a-14(a)/15d-14(a) Certification by Gary L. Coleman
(31.3)		Rule 13a-14(a)/15d-14(a) Certification by Frank M. Svoboda
(32.1)		Section 1350 Certification by Larry M. Hutchison, Gary L. Coleman, and Frank M. Svoboda
(101)		Interactive Data Files for the Torchmark Corporation Form 10-Q for the period ended June 30, 2016

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SIGNATURES

Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.



			TORCHMARK CORPORATION

Date: August 5, 2016			/s/ Gary L. Coleman
			Gary L. Coleman
			Co-Chairman and Chief Executive Officer

Date: August 5, 2016			/s/ Larry M. Hutchison
			Larry M. Hutchison
			Co-Chairman and Chief Executive Officer

Date: August 5, 2016			/s/ Frank M. Svoboda
			Frank M. Svoboda
			Executive Vice President and Chief Financial Officer

TABLE OF CONTENTS

Part I Financial Information Item 1. Condensed Consolidated Financial Statements Note 1 Significant Accounting Policies Note 2 New Accounting Standards Note 2 New Accounting Standards (continued)Note 3 Supplemental Information About Changes To Accumulated Other Comprehensive Income Note 3 Supplemental Information About Changes To Accumulated Other Comprehensive Income (continued)Note 4 Investments Note 4 Investments (continued)Note 5 Discontinued Operations Note 5 Discontinued Operations (continued)Note 6 Income Taxes Note 7 Debt Transactions Note 8 Postretirement Benefit Plans Note 8 Postretirement Benefits (continued)Note 9 Earnings Per Share Note 10 Business Segments Note 10 Business Segments (continued)Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Changes in Securities, Use Of Proceeds and Issuer Purchases Of Equity Securities Item 6. Exhibits

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