Globe Life (GL) 10-Q 2014 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended March 31, 2014

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  x              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  x             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):

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

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

Yes  ¨             No  x

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 April 28, 2014
Common Stock, $1.00 Par Value	87,811,120

Index of Exhibits (Page 59).

Total number of pages included are 60.

TORCHMARK CORPORATION

INDEX

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Condensed Financial Statements
	Consolidated Balance Sheets	1
	Consolidated Statements of Operations	2
	Consolidated Statements of Comprehensive Income	3
	Consolidated Statements of Cash Flows	4
	Notes to Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	56
Item 4.	Controls and Procedures	57
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	58
Item 1A.	Risk Factors	58
Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	59
Item 6.	Exhibits	59

PART I–FINANCIAL INFORMATION

Item 1. Financial Statements

TORCHMARK CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands except per share data)

	March 31, 2014			December 31, 2013 *
Assets	(Unaudited)
Investments:
Fixed maturities, available for sale, at fair value (amortized cost: 2014–$12,618,368 ; 2013–$12,488,875)	$	13,618,451		$	12,879,133
Equity securities, at fair value (cost: 2014–$776 ; 2013–$875)		1,309			1,884
Policy loans		451,972			448,887
Other long-term investments		12,641			13,207
Short-term investments		109,065			76,890
Total investments		14,193,438			13,420,001
Cash		40,016			36,943
Accrued investment income		209,801			200,038
Other receivables		372,617			331,103
Deferred acquisition costs		3,363,952			3,337,649
Goodwill		441,591			441,591
Other assets		442,562			424,419
Total assets	$	19,063,977		$	18,191,744
Liabilities and Shareholders’ Equity
Liabilities:
Future policy benefits	$	11,376,058		$	11,256,155
Unearned and advance premiums		77,911			74,174
Policy claims and other benefits payable		231,269			223,380
Other policyholders’ funds		95,906			94,286
Total policy liabilities		11,781,144			11,647,995
Current and deferred income taxes payable		1,528,582			1,285,574
Other liabilities		309,436			261,898
Short-term debt		264,918			229,070
Long-term debt (fair value: 2014–$1,151,946 ; 2013–$1,360,461)		991,176			990,865
Total liabilities		14,875,256			14,415,402
Shareholders’ equity:
Preferred stock, par value $1 per share–Authorized 5,000,000 shares; outstanding: -0- in 2014 and in 2013		0			0
Common stock, par value $1 per share–Authorized 320,000,000 shares; outstanding: (2014–100,812,123 issued, less 12,593,085 held in treasury and 2013–100,812,123 issued, less 11,310,536 held in treasury)		100,812			100,812
Additional paid-in capital		473,961			462,058
Accumulated other comprehensive income (loss)		606,058			210,981
Retained earnings		3,659,477			3,545,939
Treasury stock, at cost		(651,587	)		(543,448	)
Total shareholders’ equity		4,188,721			3,776,342
Total liabilities and shareholders’ equity	$	19,063,977		$	18,191,744

* Derived from audited financial statements

See accompanying Notes to Consolidated Financial Statements.

1

TORCHMARK CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited and in thousands except per share data)

	Three Months Ended March 31,
	2014			2013
Revenue:
Life premium	$	489,058		$	470,813
Health premium		329,863			313,871
Other premium		99			130
Total premium		819,020			784,814
Net investment income		181,000			176,839
Realized investment gains (losses)		16,619			(1,229	)
Other-than-temporary impairments		0			(2,678	)
Other income		481			470
Total revenue		1,017,120			958,216
Benefits and expenses:
Life policyholder benefits		320,176			305,141
Health policyholder benefits		255,718			236,127
Other policyholder benefits		10,623			10,735
Total policyholder benefits		586,517			552,003
Amortization of deferred acquisition costs		104,733			101,714
Commissions, premium taxes, and non-deferred acquisition costs		59,378			58,251
Other operating expense		56,956			52,308
Interest expense		19,049			20,877
Total benefits and expenses		826,633			785,153
Income before income taxes		190,487			173,063
Income taxes		(57,631	)		(53,431	)
Net income	$	132,856		$	119,632
Basic net income per share	$	1.50		$	1.28
Diluted net income per share	$	1.48		$	1.27
Dividends declared per common share	$	0.19		$	0.17

See accompanying Notes to Consolidated Financial Statements.

2

TORCHMARK CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited and in thousands)

	Three Months Ended March 31,
	2014			2013
Net income	$	132,856		$	119,632
Other comprehensive income (loss):
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period		629,066			(129,121	)
Reclassification adjustment for (gains) losses on securities included in net income		(16,619	)		2,561
Reclassification adjustment for amortization of (discount) and premium		(2,227	)		(1,882	)
Foreign exchange adjustment on securities recorded at fair value		(871	)		5,212
Unrealized gains (losses) on securities		609,349			(123,230	)
Unrealized gains (losses) on other investments		1,208			(773	)
Total unrealized investment gains (losses)		610,557			(124,003	)
Less applicable taxes		(213,667	)		44,633
Unrealized investment gains (losses), net of tax		396,890			(79,370	)
Unrealized gains (losses) attributable to deferred acquisition costs		(4,228	)		2,957
Less applicable taxes		1,480			(1,035	)
Unrealized gains (losses) attributable to deferred acquisition costs, net of tax		(2,748	)		1,922
Foreign exchange translation adjustments, other than securities		(1,177	)		(1,033	)
Less applicable taxes		439			284
Foreign exchange translation adjustments, other than securities, net of tax		(738	)		(749	)
Amortization of pension costs		2,574			4,543
Less applicable taxes		(901	)		(1,591	)
Amortization of pension costs, net of tax		1,673			2,952
Other comprehensive income (loss)		395,077			(75,245	)
Comprehensive income (loss)	$	527,933		$	44,387

See accompanying Notes to Consolidated Financial Statements.

3

TORCHMARK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)

	Three Months Ended March 31,
	2014			2013
Cash provided from operations	$	274,850		$	290,374
Cash provided from (used for) investment activities:
Long-term investments sold or matured:
Fixed maturities available for sale - sold		16,049			46,361
Fixed maturities available for sale - matured, called, and repaid		22,288			150,541
Equities		700			14,000
Other long-term investments		68			119
Total long-term investments sold or matured		39,105			211,021
Long-term investments acquired:
Fixed maturities		(158,344	)		(340,891	)
Other long-term investments		(20	)		(45	)
Total long-term investments acquired		(158,364	)		(340,936	)
Net increase in policy loans		(3,085	)		(3,961	)
Net (increase) decrease in short-term investments		(32,175	)		(81,390	)
Net change in payable or receivable for securities		(902	)		(44,187	)
Disposition of properties		0			200
Additions to properties		(5,075	)		(855	)
Investment in low-income housing interests		(15,042	)		(7,738	)
Cash used for investment activities		(175,538	)		(267,846	)
Cash provided from (used for) financing activities:
Proceeds from exercise of stock options		13,954			31,396
Net borrowings (repayments) of commercial paper		35,848			49,825
Excess tax benefit from stock option exercises		4,366			5,892
Acquisition of treasury stock		(125,635	)		(129,239	)
Cash dividends paid to shareholders		(15,219	)		(14,136	)
Net receipts (withdrawals) from deposit-type products		(17,181	)		(6,705	)
Cash provided by (used for) financing activities		(103,867	)		(62,967	)
Effect of foreign exchange rate changes on cash		7,628			3,985
Net increase (decrease) in cash		3,073			(36,454	)
Cash at beginning of year		36,943			61,710
Cash at end of period	$	40,016		$	25,256

See accompanying Notes to Consolidated Financial Statements.

4

TORCHMARK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note A—Accounting Policies

The accompanying condensed consolidated financial statements 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 consolidated financial position at March 31, 2014, and the consolidated results of operations, comprehensive income, and cash flows for the periods ended March 31, 2014 and 2013. The interim period condensed consolidated financial statements should be read in conjunction with theConsolidated Financial Statements that are included in the Form 10-K filed on February 28, 2014.

New Unadopted Accounting Guidance: The FASB has issued new accounting guidance,Investments-Equity Method and Joint Ventures: Accounting for Investments in Qualified Affordable Housing Projects (ASU 2014-01). This accounting guidance replaces the effective yield method of accounting with respect to investments in qualified affordable housing projects and, if certain conditions are present, provides for a new method of accounting. The new method of accounting allows an investor to amortize the cost of its investment based on the proportion of the tax credits/benefits received during the year to the total expected tax credits/benefits to be received over the life of the investment and will be recognized in theConsolidated Statements of Operations as a component of “Income tax expense.” Additional disclosures are required concerning investments in qualified affordable housing.

The new guidance is effective for Torchmark beginning January 1, 2015, with early adoption permitted. The guidance continues to permit the effective-yield method for investments held as of the date of adoption. Adoption is required on a retrospective basis. Torchmark is currently evaluating the impact of adoption but does not expect that adoption will have a material impact on net income or shareholders’ equity.

5

TORCHMARK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note B—Earnings Per Share

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

	For the three months ended March 31,
	2014		2013
Basic weighted average shares outstanding		88,775,643		93,580,778
Weighted average dilutive options outstanding		1,248,050		989,132
Diluted weighted average shares outstanding		90,023,693		94,569,910
Antidilutive shares		3,513		0

Stock Split: Torchmark declared a three for two stock split to be paid in the form of a 50% stock dividend on all of the Company’s outstanding common stock. The record date for the three for two stock split will be the close of business on June 2, 2014. On July 1, 2014, the payment date, holders of Torchmark common stock will receive one additional share of stock for every two shares held. The Company will pay cash for the fractional shares that result from the stock split. All share and per share amounts will be adjusted to reflect this stock split subsequent to the effective date.

Note C—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 March 31,
	Pension Benefits						Other Benefits
	2014			2013			2014			2013
Service cost	$	3,232		$	3,765		$	56		$	85
Interest cost		4,819			4,264			147			260
Expected return on assets		(4,753	)		(4,356	)		0			0
Amortization:
Prior service cost		528			571			0			0
Actuarial (gain) loss		2,044			4,063			0			0
Direct recognition of (gain) loss		0			0			(62	)		0
Net periodic benefit cost	$	5,870		$	8,307		$	141		$	345

6

TORCHMARK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note C—Postretirement Benefit Plans (continued)

The following chart presents assets at fair value for the defined-benefit pension plans at March 31, 2014 and the prior-year end.

Pension Assets by Component

	March 31, 2014				December 31, 2013
	Amount		%		Amount		%
Corporate debt	$	158,546		53	$	147,445		51
Other fixed maturities		275		0		267		0
Equity securities		117,176		39		115,287		38
Short-term investments		1,738		1		13,318		5
Guaranteed annuity contract		13,723		5		13,769		5
Other		7,006		2		1,667		1
Total	$	298,464		100	$	291,753		100

The liability for the funded defined-benefit pension plans was $331 million at March 31, 2014 and $322 million at December 31, 2013. No cash contributions were made to the qualified pension plans during the three months ended March 31, 2014. Torchmark expects cash contributions to not exceed $20 million during the remainder of 2014. 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 March 31, 2014, the combined value of the insurance policies and investments in the Rabbi Trust to support plan liabilities were $67 million, compared with $66 million at year end 2013. Since this plan is non-qualified, the value of the insurance policies and investments are recorded as other assets in theConsolidated Balance Sheets and are not included in the chart of plan assets above. The liability for the non-qualified pension plan was $59 million at March 31, 2014 and $58 million at December 31, 2013.

7

TORCHMARK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note D—Investments

Portfolio Composition:

A summary of fixed maturities and equity securities available for sale by cost or amortized cost and estimated fair value at March 31, 2014 is as follows.

	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value		Total Fixed Maturities*
Fixed maturities available for sale:
Bonds:
U.S. Government direct, guaranteed, and government-sponsored enterprises	$	430,777	$	329	$	(51,050	)	$	380,056		3	%
States, municipalities, and political subdivisions		1,278,263		105,064		(3,863	)		1,379,464		10
Foreign governments		43,642		535		(17	)		44,160		0
Corporates		10,265,282		1,065,442		(147,287	)		11,183,437		82
Collateralized debt obligations		65,014		5,950		(6,634	)		64,330		1
Other asset-backed securities		32,612		2,872		(36	)		35,448		0
Redeemable preferred stocks		502,778		35,706		(6,928	)		531,556		4
Total fixed maturities		12,618,368		1,215,898		(215,815	)		13,618,451		100	%
Equity securities		776		533		0			1,309
Total fixed maturities and equity securities	$	12,619,144	$	1,216,431	$	(215,815	)	$	13,619,760

* At fair value

8

TORCHMARK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note D—Investments (continued)

A schedule of fixed maturities by contractual maturity date at March 31, 2014 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	$	192,438	$	196,987
Due from one to five years		410,166		452,731
Due from five to ten years		948,053		1,039,939
Due from ten to twenty years		3,170,200		3,507,188
Due after twenty years		7,796,872		8,318,545
Mortgage-backed and asset-backed securities		100,639		103,061
	$	12,618,368	$	13,618,451

Selected information about sales of fixed maturities is as follows.

For the three months ended March 31,
	2014		2013
Proceeds from sales	$	16,050	$	46,361
Gross realized gains		15,925		991
Gross realized losses		0		(776	)

9

TORCHMARK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note D—Investments (continued)

Fair Value Measurements:

The following table represents assets measured at fair value on a recurring basis.

Fair Value Measurements at March 31, 2014 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
Fixed maturities available for sale:
Bonds:
U.S. Government direct, guaranteed, and government-sponsored enterprises	$	0		$	380,056		$	0		$	380,056
States, municipalities, and political subdivisions		0			1,379,464			0			1,379,464
Foreign governments		0			44,160			0			44,160
Corporates		56,745			10,780,662			346,030			11,183,437
Collateralized debt obligations		0			0			64,330			64,330
Other asset-backed securities		0			35,448			0			35,448
Redeemable preferred stocks		22,922			508,634			0			531,556
Total fixed maturities		79,667			13,128,424			410,360			13,618,451
Equity securities		533			0			776			1,309
Total fixed maturities and equity securities	$	80,200		$	13,128,424		$	411,136		$	13,619,760
Percent of total		0.6	%		96.4	%		3.0	%		100.0	%

10

TORCHMARK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note D—Investments (continued)

Analysis of Changes in Fair Value Measurements Using

Significant Unobservable Inputs (Level 3)

	For the three months ended March 31, 2014
	Asset- backed securities			Collateralized debt obligations			Corporates (1)			Equities			Total
Balance at January 1, 2014	$	0		$	58,205		$	300,300		$	776		$	359,281
Total gains or losses:
Included in realized gains/losses		0			15,924			1			0			15,925
Included in other comprehensive income		0			7,283			12,772			0			20,055
Acquisitions		0			0			33,791			0			33,791
Sales		0			(16,049	)		(1	)		0			(16,050	)
Amortization		0			1,307			3			0			1,310
Other(2)		0			(2,340	)		(836	)		0			(3,176	)
Transfers in and/or out of Level 3(3)		0			0			0			0			0
Balance at March 31, 2014	$	0		$	64,330		$	346,030		$	776		$	411,136
Percent of total fixed maturity and equity securities		0.0	%		0.5	%		2.5	%		0.0	%		3.0	%
	For the three months ended March 31, 2013
	Asset- backed securities			Collateralized debt obligations			Corporates (1)			Equities			Total
Balance at January 1, 2013	$	7,981		$	46,571		$	231,072		$	739		$	286,363
Total gains or losses:
Included in realized gains/losses		0			0			0			0			0
Included in other comprehensive income		426			2,852			(863	)		0			2,415
Acquisitions		0			0			62,310			0			62,310
Sales		0			0			0			0			0
Amortization		(57	)		691			(3	)		0			631
Other(2)		0			0			0			0			0
Transfers in and/or out of Level 3(3)		(8,350	)		0			(8,181	)		0			(16,531	)
Balance at March 31, 2013	$	0		$	50,114		$	284,335		$	739		$	335,188
Percent of total fixed maturity and equity securities		0.0	%		0.4	%		2.1	%		0.0	%		2.5	%

(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.

11

TORCHMARK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note D—Investments (continued)

Other-Than-Temporary Impairments:

During the first quarter of 2013, Torchmark wrote down investment real estate in the amount of $2.7 million pretax ($1.7 million after tax) because of other-than-temporary impairment. There were no additional other-than-temporary impairments during the three-month periods ended March 31, 2014 or 2013.

Unrealized Loss Analysis:

The following table discloses unrealized investment losses by class of investment at March 31, 2014 for the period of time in a loss position. Torchmark considers these investments not to be other-than-temporarily impaired.

Analysis of Gross Unrealized Investment Losses

At March 31, 2014

	Less than Twelve Months					Twelve Months or Longer					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Fixed maturities available for sale:
Bonds:
U.S. Government direct, guaranteed, and government-sponsored enterprises	$	63,633	$	(6,031	)	$	293,591	$	(45,019	)	$	357,224	$	(51,050	)
States, municipalities and political subdivisions		80,424		(3,167	)		10,960		(696	)		91,384		(3,863	)
Foreign governments		895		(1	)		6,092		(16	)		6,987		(17	)
Corporates		1,485,588		(72,557	)		718,802		(74,730	)		2,204,390		(147,287	)
Collateralized debt obligations		0		0			14,715		(6,634	)		14,715		(6,634	)
Other asset-backed securities		0		0			2,951		(36	)		2,951		(36	)
Redeemable preferred stocks		47,953		(926	)		76,162		(6,002	)		124,115		(6,928	)
Total fixed maturities		1,678,493		(82,682	)		1,123,273		(133,133	)		2,801,766		(215,815	)
Equity securities		0		0			0		0			0		0
Total fixed maturities and equity securities	$	1,678,493	$	(82,682	)	$	1,123,273	$	(133,133	)	$	2,801,766	$	(215,815	)

12

TORCHMARK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note D—Investments (continued)

Additional information about investments in an unrealized loss position is as follows.

	Less than Twelve Months		Twelve Months or Longer		Total
Number of issues (Cusip numbers) held:
As of March 31, 2014		272		207		479
As of December 31, 2013		462		130		592

Torchmark’s entire fixed-maturity and equity portfolio consisted of 1,612 issues at March 31, 2014 and 1,619 issues at December 31, 2013. The weighted average quality rating of all unrealized loss positions as of March 31, 2014 was A-. Although Torchmark’s fixed-maturity investments are available for sale, Torchmark’s management generally does not intend to sell and does not believe it will be required to sell any securities which are temporarily impaired before they recover due to the strong and stable cash flows generated by its insurance products.

13

TORCHMARK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

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

An analysis in the change in balance by component of Accumulated Other Comprehensive Income is as follows for the three months ended March 31, 2014 and 2013.

Components of Accumulated Other Comprehensive Income

	For the three months ended March 31, 2014
	Available for Sale Assets			Deferred Acquisition Costs			Foreign Exchange			Pension Adjustments			Total
Balance at January 1, 2014	$	256,196		$	(6,728	)	$	24,866		$	(63,353	)	$	210,981
Other comprehensive income (loss) before reclassifications, net of tax		409,139			(2,748	)		(738	)		0			405,653
Reclassifications, net of tax		(12,249	)		0			0			1,673			(10,576	)
Other comprehensive income (loss)		396,890			(2,748	)		(738	)		1,673			395,077
Balance at March 31, 2014	$	653,086		$	(9,476	)	$	24,128		$	(61,680	)	$	606,058
	For the three months ended March 31, 2013
	Available for Sale Assets			Deferred Acquisition Costs			Foreign Exchange			Pension Adjustments			Total
Balance at January 1, 2013	$	1,024,367		$	(16,417	)	$	26,608		$	(109,283	)	$	925,275
Other comprehensive income (loss) before reclassifications, net of tax		(81,040	)		1,922			(749	)		0			(79,867	)
Reclassifications, net of tax		1,670			0			0			2,952			4,622
Other comprehensive income (loss)		(79,370	)		1,922			(749	)		2,952			(75,245	)
Balance at March 31, 2013	$	944,997		$	(14,495	)	$	25,859		$	(106,331	)	$	850,030

14

TORCHMARK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

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

Reclassifications out of Accumulated Other Comprehensive Income are presented below for the three months March 31, 2014 and 2013.

Reclassification Adjustments

	Three months ended March 31,						Affected line items in the
Component Line Item	2014			2013			Statement of Operations
Unrealized gains (losses) on available for sale assets:
Realized (gains) losses	$	(16,619	)	$	2,561		Realized investment gains (losses)
Amortization of (discount) premium		(2,227	)		(1,882	)	Net investment income
Total before tax		(18,846	)		679
Tax		6,597			991		Income Taxes
Total after tax		(12,249	)		1,670
Pension adjustments:
Amortization of prior service cost		528			571		Other operating expenses
Amortization of actuarial gain (loss)		2,046			3,972		Other operating expenses
Total before tax		2,574			4,543
Tax		(901	)		(1,591	)	Income Taxes
Total after tax		1,673			2,952
Total reclassifications (after tax)	$	(10,576	)	$	4,622

15

TORCHMARK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

NOTE F—Business Segments

Torchmark is comprised of life insurance companies which primarily market individual life and supplemental health insurance products through niche distribution systems to middle income Americans. Torchmark’s core operations are insurance marketing and underwriting, and management of its investments. Insurance marketing and underwriting is segmented by the types of insurance products offered: life, health, Medicare Part D, and annuity. Effective January 1, 2014, Torchmark reorganized its segment structure to separate its Medicare Part D health insurance business from its other health insurance activities as a stand-alone segment. Management has concluded that Medicare Part D meets the criteria of a distinct segment. Previously, Part D was included in the health segment. Prior periods’ segment results have been retrospectively adjusted for comparability. Premium income for Medicare Part D health insurance is included with the premium for other health products in theConsolidated Statements of Operations. 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, or captive agencies.

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. Required interest related to the net policy liabilities is not included in the various insurance underwriting segments but is shown in the investment segment as a reduction to net investment income. 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.

16

TORCHMARK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

NOTE F—Business Segments (continued)

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 as a result of credit concerns, calls by issuers, or other factors usually beyond the control of management.

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. 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 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.

17

TORCHMARK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

NOTE F—Business Segments (continued)

Torchmark provides coverage under the Medicare Part D prescription drug plan for Medicare beneficiaries. In accordance with GAAP, Part D premiums are recognized evenly throughout the year when they become due but benefit costs are recognized when the costs are incurred. Due to the design of the Part D product, premiums are evenly distributed throughout the year, but benefit costs are higher earlier in the year. As a result, under GAAP, benefit costs can exceed premiums in the first part of the year, but be less than premiums during the remainder of the year. In order to more closely match the benefit cost with the associated revenue for interim periods, Torchmark defers these excess benefits for segment reporting purposes. In addition, GAAP recognizes in each quarter a government risk-sharing premium adjustment consistent with the contract as if the quarter represented an entire contract period. These quarterly risk-sharing adjustments are removed in the segment analysis because the actual contract payments are based upon the experience of the full contract year, not the experience of interim periods. For the entire year, Torchmark expects its benefit ratio to be in line with pricing and does not expect to receive any government risk-sharing premium. For the full year of 2013, the total premiums and benefits were the same under this alternative method as they were under GAAP and are expected to be essentially the same in 2014. The Company’s presentation results in the underwriting margin percentage of each interim period reflecting the expected margin percentage for the full year.

An analysis of the adjustments for the difference in the interim results as presented for segment purposes and GAAP for Medicare Part D is as follows.

	Three months ended
	March 31,
	2014			2013
Benefit costs deferred	$	47,671		$	28,304
Government risk-sharing premium adjustment		(27,395	)		(15,624	)
Pre-tax addition to segment interim period income	$	20,276		$	12,680
After tax amount	$	13,179		$	8,242

18

TORCHMARK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

NOTE F—Business Segments (continued)

Additionally, management does not view the risk-sharing premium for Medicare Part D as a component of premium income, and accordingly adjusts health premium income in its segment analysis. A reconciliation of health premium included in the segment analysis with health premium as reported in theConsolidated Statements of Operationsis presented in the following table.

	Three months ended March 31,
	2014		2013		% Change
Premium per segment analysis:
Medicare Part D premium	$	83,033	$	76,720		8
Other health premium		219,435		221,527		(1	)
Part D risk sharing adjustment		27,395		15,624		75
Health premium perConsolidatedStatements of Operations	$	329,863	$	313,871		5

Torchmark has invested in various limited partnerships that provide investment returns through the provision of low-income housing tax credits and other related Federal income tax benefits to the Company. The investment returns from a portion of the interests are guaranteed by unrelated third-parties. Under GAAP, expenses associated with the amortization of the guaranteed interests are required to be reflected in income tax expense. In contrast, GAAP requires the expenses associated with the amortization of non-guaranteed interests to be reflected as a component of “Net investment income.” All of the investment returns from investing in these guaranteed and non-guaranteed limited partnerships interests are in the form of income tax benefits reflected in income tax expense. Management believes including the amortization expense associated with the non-guaranteed as well as the guaranteed interests in income tax expense provides a more appropriate matching of the expense with the related income. For this reason, amortization expense of the non-guaranteed interests is included in “Income taxes” and not “Net investment income” for segment reporting purposes. As noted inNote A—Accounting Policies under the caption “New Unadopted Accounting Guidance,” new accounting guidance related to low-income housing investments will conform more closely with Torchmark’s segment reporting.

19

TORCHMARK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

During the first three months of 2014, Torchmark accrued for certain litigation cases in the net amount of $3.7 million ($2.4 million after tax) that were not directly related to its insurance operations. Additionally, Torchmark received $1.2 million ($752 thousand after tax) in settlement of litigation regarding investments. Torchmark removes from its segment analysis amounts such as these that do not relate to its core insurance operations.

The following tables total the components of Torchmark’s operating segments and reconcile these operating results to its pretax income and each significant line item in its Consolidated Statements of Operations.

20

TORCHMARK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

NOTE F—Business Segments (continued)

Reconciliation of Segment Operating Information to the Consolidated Statement of Operations

	For the three months ended March 31, 2014
	Life			Health			Medicare Part D		Annuity			Investment			Other & Corporate			Adjustments			Consolidated
Revenue:
Premium	$	489,058		$	219,435		$	83,033		$     99								$	27,395	(1)		$   819,020
Net investment income												$	188,051						(7,051	)(4)		181,000
Other income															$	544			(63	)(3)		481
Total revenue		489,058			219,435			83,033		99			188,051			544			20,281			1,000,501
Expenses:
Policy benefits		320,176			141,786			66,261		10,623									47,671	(1)		586,517
Required interest on:
Policy reserves		(130,511	)		(15,632	)				(13,791	)		159,934									0
Deferred acquisition costs		41,690			5,598			175		389			(47,852	)								0
Amortization of acquisition costs		83,600			18,608			705		1,820												104,733
Commissions, premiumtaxes, and non-deferred acquisition costs		33,484			19,618			6,326		13									(63	)(3)		59,378
Insurance administrative expense (2)																44,211			2,493	(5)		46,704
Parent expense																1,743						1,743
Stock compensation expense																8,509						8,509
Interest expense													19,049									19,049
Total expenses		348,439			169,978			73,467		(946	)		131,131			54,463			50,101			826,633
Subtotal		140,619			49,457			9,566		1,045			56,920			(53,919	)		(29,820	)		173,868
Nonoperating items																			22,769	(1,5)		22,769
Amortization of low-income housing																			7,051	(4)		7,051
Measure of segment profitability (pretax)	$	140,619		$	49,457		$	9,566		$1,045		$	56,920		$	(53,919	)	$	0			203,688
Deduct applicable income taxes																						(66,835	)
Segment profits after tax																						136,853
Add back income taxes applicable to segment profitability																						66,835
Add (deduct) realized investment gains (losses)																						16,619
Deduct Part D adjustment(1)																						(20,276	)
Deduct amortization of low-income housing(4)																						(7,051	)
Deduct legal settlement expenses(5)																						(2,493	)
Pretax income perConsolidated Statement of Operations																						$   190,487

(1) Medicare Part D items adjusted to GAAP from the segment analysis, which matches expected benefits with policy premium.

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

(3) Elimination of intersegment commission.

(4) Amortization of low-income housing expense, considered a component of income tax expense in the segment analysis.

(5) Legal settlement expenses.

21

TORCHMARK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

NOTE F—Business Segments (continued)

Reconciliation of Segment Operating Information to the Consolidated Statement of Operations*

	For the three months ended March 31, 2013
	Life			Health			Medicare Part D		Annuity			Investment			Other & Corporate			Adjustments			Consolidated
Revenue:
Premium	$	470,813		$	221,527		$	76,720	$	130								$	15,624	(1)	$	784,814
Net investment income												$	183,040						(6,201	)(4)		176,839
Other income															$	544			(74	)(3)		470
Total revenue		470,813			221,527			76,720		130			183,040			544			9,349			962,123
Expenses:
Policy benefits		305,141			143,516			64,307		10,735									28,304	(1)		552,003
Required interest on:
Policy reserves		(125,016	)		(14,540	)				(14,459	)		154,015									0
Deferred acquisition costs		41,191			5,599			165		488			(47,443	)								0
Amortization of acquisition costs		81,099			17,687			550		2,378												101,714
Commissions, premiumtaxes, and non-deferred acquisition costs		35,288			19,394			3,627		16									(74	)(3)		58,251
Insurance administrative expense(2)																43,935						43,935
Parent expense																2,120						2,120
Stock compensation expense																6,253						6,253
Interest expense													20,877									20,877
Total expenses		337,703			171,656			68,649		(842	)		127,449			52,308			28,230			785,153
Subtotal		133,110			49,871			8,071		972			55,591			(51,764	)		(18,881	)		176,970
Nonoperating items																			12,680	(1)		12,680
Amortization of low- income housing																			6,201	(4)		6,201
Measure of segment profitability (pretax)	$	133,110		$	49,871		$	8,071	$	972		$	55,591		$	(51,764	)	$	0			195,851
Deduct applicable income taxes																						(64,209	)
Segment profits after tax																						131,642
Add back income taxes applicable to segment profitability																						64,209
Add (deduct) realized investment gains (losses)																						(3,907	)
Deduct Part D adjustment(1)																						(12,680	)
Deduct amortization of low-income housing(4)																						(6,201	)
Pretax income perConsolidated Statement of Operations																					$	173,063

(1) Medicare Part D items adjusted to GAAP from the segment analysis, which matches expected benefits with policy premium.

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

(3) Elimination of intersegment commission.

(4) Amortization of low-income housing expense, considered a component of income tax expense in the segment analysis.

* Retrospectively adjusted to give effect to the reorganization of segments described earlier in this Note.

22

TORCHMARK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Note F—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 March 31,						Increase (Decrease)
	2014			2013*			Amount			%
Life	$	140,619		$	133,110		$	7,509			6
Health		49,457			49,871			(414	)		(1	)
Medicare Part D		9,566			8,071			1,495			19
Annuity		1,045			972			73
Investment		56,920			55,591			1,329			2
Other and corporate:
Other income		544			544			0			0
Administrative expense		(44,211	)		(43,935	)		(276	)		1
Corporate		(10,252	)		(8,373	)		(1,879	)		22
Pretax total		203,688			195,851			7,837			4
Applicable taxes		(66,835	)		(64,209	)		(2,626	)		4
Total		136,853			131,642			5,211			4
Reconciling items, net of tax:
Realized gains (losses)—Investments		10,802			(3,768	)		14,570
Part D adjustment		(13,179	)		(8,242	)		(4,937	)
Legal settlement expense		(1,620	)		0			(1,620	)
Net income	$	132,856		$	119,632		$	13,224			11

* Retrospectively adjusted to give effect to the reorganization of segments described earlier in this Note.

23

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 inNote F—Business Segments. The measures of profitability described inNote Fare useful in evaluating the performance of the segments and the marketing groups within each insurance segment, because each of our distribution units operates in a niche market. These measures enable management to view period-to-period trends, and to make informed decisions regarding future courses of action.

The tables inNote F—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 periods ended March 31, 2014 and 2013. 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 three months of 2014 with the same period of 2013, unless otherwise noted. The following discussions are presented in the manner we view our operations, as described inNote F—Business Segments.

Highlights, comparing the first three months of 2014 with the first three months of 2013. Net income per diluted share increased 17% to $1.48 from $1.27. Included in net income in 2014 were after-tax realized investment gains of $11 million ($.12 per share) compared with losses of $4 million or $.04 per share in 2013. Realized investment gains and losses are presented more fully under the captionRealized 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 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

24

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 3% in 2014 to $792 million. Total net sales rose 29% to $152 million. After removing the impact of sales of Medicare Part D, which increased significantly in 2014 as a result of the addition of automatic enrollees discussed later in this report, net sales rose 11% to $121 million. First-year collected premium was $109 million for the 2014 period, compared with $110 million for the 2013 period. Excluding Part D, there was a 1% increase in first-year collected premium.

Life insurance premium income grew 4% to $489 million. Life net sales increased 5% to $89 million. First-year collected life premium gained 1% to $66 million. Life underwriting margins increased 6% to $141 million.

Health insurance premium income, which excludes Medicare Part D premium, declined 1% to $219 million. Health net sales, led by sales of Medicare Supplement, rose 34% to $32 million for the quarter. First-year collected health premium rose 3% to $25 million for the period. Health margins declined 1% to $49 million.

In the manner we view our Medicare Part D prescription drug business as described inNote F—Business Segments, policyholder premium was $83 million in 2014 compared with $77 million in 2013, an increase of 8%. As discussed under the captionMedicare Part D in this report, the increase in Part D premium resulted primarily from an increase in automatic enrollees. The increase in automatic enrollees, along with an increase in employer group activity, resulted in net sales increasing from $9 million to $31 million in 2014.

As explained inNote F—Business Segments, differences in our estimate of interim results for Medicare Part D as we view this product for segment purposes and GAAP financial statement purposes resulted in a $13 million after-tax charge to earnings in 2014 ($.15 per share) and a $8 million charge in 2013 ($.09 per share). We expect our 2014 full year benefit ratios to be approximately the same as those for interim periods, as was the case in 2013 and prior years. For this reason, there should be no difference in our segment versus financial statement reporting by year end 2014, as it relates to Medicare Part D. The increase in this adjustment in 2014 resulted primarily from the increase in volume.

Excess investment income per diluted share increased 7% in 2014 to $.63 from $.59, while the dollar amount of excess investment income rose 2% to $57 million. This is the first time since the second quarter of 2011 that the dollar amount of excess investment income has increased over the prior year period. The greater increase in per share excess investment income in relation to the increase in dollar amount resulted

25

from share purchases over the past twelve months, as discussed later in this report. Net investment income rose $5 million or 3% to $188 million, even though our average investment portfolio at amortized cost grew 4% because of a decline in average yields. The average effective yield on the fixed-maturity portfolio, which represented 96% of our investments at amortized cost, decreased to 5.92% in the 2014 period from 6.00% in the prior period. This decline in yield was primarily due to the impact of calls of higher yielding securities in the first and second quarters of 2013, as discussed under the captionInvestments (excess investment income) later in this report. Excess investment income is negatively impacted by the increase in required interest on net insurance policy liabilities. Required interest rose 5%, or $5.5 million, to $112 million, consistent with the growth in average net policy liabilities. Financing costs declined 9% in the period to $19 million, due to the maturity and repayment of our $94 million par amount 7.375% Notes during the third quarter of 2013. Please refer to the discussion underCapital Resources for more information on debt and interest expense.

In the first three months of 2014, we invested new money in our fixed-maturity portfolio at an effective annual yield on new investments of 5.37%, compared with 4.31% in the same period of 2013. The portfolio had an average rating of A-, the same as of the previous year end. Approximately 96% of the portfolio at amortized cost was investment grade at March 31, 2014. Cash and short-term investments were $149 million at that date, compared with $114 million at December 31, 2013.

The net unrealized gain position in our fixed-maturity portfolio grew from $390 million at December 31, 2013 to $1.0 billion during the first three months of 2014, largely due to a decline in market interest rates during 2014. The fixed-maturity portfolio contains no commercial mortgage-backed securities or securities backed by subprime or Alt-A mortgages (loans for which some of the typical documentation was not provided by the borrower). We are not a party to any counterparty risk, with no credit default swaps or other derivative contracts. We do not engage in securities lending, and our only direct exposure to European sovereign debt is $11 million of German bonds.

26

We have an on-going share repurchase program which began in 1986 and was reaffirmed by the Board of Directors at their August, 2013 meeting. 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. 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 three-month periods ended March 31, 2014 and 2013.

Analysis of Share Purchases

(Amounts in thousands, except per share amounts)

	For the three months ended March 31,
	2014						2013
	Shares		Amount		Average Price		Shares		Amount		Average Price
Purchases with:
Excess cash flow		1,419	$	107,992	$	76.09		1,604	$	90,008	$	56.11
Option exercise proceeds		228		17,643		77.60		687		39,316		57.27
Total		1,647	$	125,635	$	76.30		2,291	$	129,324	$	56.46

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

A detailed discussion of our operations by component segment follows.

Life insurance, comparing the first three months of 2014 with the first three months of 2013. Life insurance is our predominant segment, representing 62% of premium income and 70% of insurance underwriting margin in the first three months of 2014. 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 4% to $489 million. The following table presents Torchmark’s life insurance premium by distribution method.

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Life Insurance

Premium by Distribution Method

(Dollar amounts in thousands)

	Three months ended March 31,								Increase
	2014				2013				(Decrease)
	Amount		% of Total		Amount		% of Total		Amount			%
American Income Exclusive Agency	$	185,891		38	$	174,257		37	$	11,634			7
Direct Response		177,872		36		168,137		36		9,735			6
Liberty National Exclusive Agency		68,778		14		70,003		15		(1,225	)		(2	)
Other Agencies		56,517		12		58,416		12		(1,899	)		(3	)
Total Life Premium	$	489,058		100	$	470,813		100	$	18,245			4

Net sales, defined earlier in this report as an indicator of new business production, grew 5% to $89 million. An analysis of life net sales by distribution group is presented below.

Life Insurance

Net Sales by Distribution Method

(Dollar amounts in thousands)

	Three months ended March 31,								Increase
	2014				2013				(Decrease)
	Amount		% of Total		Amount		% of Total		Amount			%
American Income Exclusive Agency	$	38,125		43	$	37,607		44	$	518			1
Direct Response		40,439		46		37,254		44		3,185			9
Liberty National Exclusive Agency		7,380		8		7,127		8		253			4
Other Agencies		2,835		3		2,937		4		(102	)		(3	)
Total Life Net Sales	$	88,779		100	$	84,925		100	$	3,854			5

First-year collected life premium, defined earlier in this report, was $66 million in the 2014 period, rising 1%. First-year collected life premium by distribution group is presented in the table below.

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Life Insurance

First-Year Collected Premium by Distribution Method

(Dollar amounts in thousands)

	Three months ended March 31,								Increase
	2014				2013				(Decrease)
	Amount		% of Total		Amount		% of Total		Amount			%
American Income Exclusive Agency	$	31,528		48	$	32,032		49	$	(504	)		(2	)
Direct Response		25,303		39		23,898		37		1,405			6
Liberty National Exclusive Agency		6,353		10		6,619		10		(266	)		(4	)
Other Agencies		2,330		3		2,637		4		(307	)		(12	)
Total	$	65,514		100	$	65,186		100	$	328			1

TheAmerican 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 to ensure sustainable growth. The life business of this agency is Torchmark’s highest margin business and is the largest contributor to life premium of any of Torchmark’s distribution systems at 38% of Torchmark’s total life premium. This group produced premium income of $186 million, an increase of 7%. First-year collected premium declined 2% to $32 million. However, net sales increased 1% to $38 million. Sales growth in our captive agencies are generally dependent on growth in the size of the agency force. The American Income agent count rose 4% to 5,500 at March 31, 2014 over the count at December 31, 2013 (5,302), but was down 2% when compared with the prior year (5,612). The average agent count for the first quarter of 2014 was 5,298. The American Income Agency has been focusing on growing and strengthening middle management to support sustainable growth of the agency force. To accomplish this, we 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 has also begun providing 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 responsibilities. This agency has recently opened new offices in territories where there are existing offices, but where there is an excess capacity of leads. We believe that these initiatives will promote increased enthusiasm in the field and will drive increases in agent retention and sales activity.

TheDirect 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 Direct Response Unit’s growth has been fueled by constant innovation. In recent years, electronic media production has grown rapidly as management has aggressively

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increased marketing activities related to internet, social media, and mobile technology, and has focused on driving traffic to the inbound call center. We have introduced certain new initiatives in this unit that have increased response rates. These initiatives include lower premium rates as well as offerings of higher face amounts on the adult products. The juvenile market is not only an important source of sales, but it also is a vehicle to reach the parents and grandparents of the juvenile policyholders, who are more likely to respond favorably to a Direct Response solicitation for life coverage on themselves than is the general adult population. Also, both the juvenile policyholders and their parents are low acquisition-cost targets for sales of additional coverage over time.

Direct Response’s life premium income rose 6% to $178 million, representing 36% of Torchmark’s total life premium in the first quarter of 2014. Net sales of $40 million for this group increased 9%. First-year collected premium increased 6% to $25 million.

TheLiberty National Exclusive Agencymarkets individual and group life insurance to middle-income customers. Life premium income for this agency was $69 million in the 2014 quarter, a 2% decline from $70 million in the 2013 quarter. First-year collected premium declined 4% to $6 million.

Net sales for the Liberty Agency increased 4% to $7 million. Liberty had 1,451 producing agents at March 31, 2014, compared with 1,375 a year earlier, an increase of 6%. The agent count has increased 1% since December 31, 2013, when it stood at 1,430. The average agent count for the first quarter of 2014 was 1,400. Our long term plans to grow this agency involve expansion from small-town markets in the southeast to more densely populated areas with larger pools of potential agent recruits and customers. We believe that expansion of this Agency’s presence into more heavily populated, less-penetrated areas will help create long term agency growth. Additionally, a new prospecting training program has been implemented to improve the ability of agents to develop new worksite marketing business.

TheOther Agenciesdistribution systems offering life insurance include the Military Agency, the UA Independent Agency (which predominantly writes health insurance), and various smaller distribution channels. The Other Agencies distribution group contributed $57 million of life premium income, or 12% of Torchmark’s total in the first quarter of 2014, but contributed only 3% of net sales.

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Life Insurance

Summary of Results

(Dollar amounts in thousands)

	Three months ended March 31,
	2014				2013				Increase
	Amount		% of Premium		Amount		% of Premium		Amount		%
Premium and policy charges	$	489,058		100	$	470,813		100	$	18,245		4
Net policy obligations		189,665		39		180,125		38		9,540		5
Commissions and acquisition expense		158,774		32		157,578		34		1,196		1
Insurance underwriting income before other income and administrative expense	$	140,619		29	$	133,110		28	$	7,509		6

Life insurance underwriting income before insurance administrative expense was $141 million, increasing 6%. Increases in margin were due in large part to growth in premium income. Margin was also benefitted by a decreased rate of amortization of deferred acquisition costs due to improved persistency resulting from our conservation program, and the deferral of internet-related direct response acquisition costs which began in the second quarter of 2013.As a percentage of premium, underwriting income rose 1% of premium to 29% in the three months ended March 31, 2014 compared to the same period last year.

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Health insurance, comparing the first three months of 2014 with the first three months of 2013. Health insurance sold by Torchmark includes primarily Medicare Supplement insurance, cancer coverage, accident coverage, and other limited-benefit supplemental health products. In this discussion of health business, references to premium income, net sales, and underwriting will exclude our Medicare Part D health business, which will be discussed under another caption. In this analysis, all health coverage plans other than Medicare Supplement are classified as limited-benefit plans.

Health premium accounted for 28% of our total premium in the 2014 period, while the health underwriting margin accounted for 25% 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 captionLife 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 declined 1% to $219 million in the 2014 period. Medicare Supplement premium declined 1% to $107 million, while other limited-benefit health premium declined 1% to $112 million. Limited-benefit premium now provides Torchmark with the greatest amount of non-Part D health premium, representing 51% of such premium for the 2014 period.

Health net sales increased 34% to $32 million. Medicare Supplement net sales increased 104% to $16 million in the 2014 period. The increase in Medicare Supplement net sales was a result of stronger group sales, which vary from period to period at the United American Independent Agency. Limited-benefit net sales declined 1% to $16 million. Health first-year collected premium rose 3% to $25 million.

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

Health Insurance

Premium by Distribution Method

(Dollar amounts in thousands)

	Three months ended March 31,								Increase
	2014				2013				(Decrease)
	Amount		% of Total		Amount		% of Total		Amount			%
United American Independent Agency
Limited-benefit plans	$	5,889			$	8,009			$	(2,120	)		(26	)
Medicare Supplement		72,267				69,531				2,736			4
		78,156		36		77,540		35		616			1
Liberty National Exclusive Agency
Limited-benefit plans		37,320				39,369				(2,049	)		(5	)
Medicare Supplement		21,297				24,083				(2,786	)		(12	)
		58,617		27		63,452		29		(4,835	)		(8	)
Family Heritage Agency
Limited-benefit plans		49,468				46,163				3,305			7
Medicare Supplement		0				0				0			0
		49,468		22		46,163		21		3,305			7
American Income Exclusive Agency
Limited-benefit plans		19,167				19,823				(656	)		(3	)
Medicare Supplement		120				143				(23	)		(16	)
		19,287		9		19,966		9		(679	)		(3	)
Direct Response
Limited-benefit plans		231				89				142			160
Medicare Supplement		13,676				14,317				(641	)		(4	)
		13,907		6		14,406		6		(499	)		(3	)
Total Health Premium
Limited-benefit plans		112,075		51		113,453		51		(1,378	)		(1	)
Medicare Supplement		107,360		49		108,074		49		(714	)		(1	)
Total	$	219,435		100	$	221,527		100	$	(2,092	)		(1	)

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

Health Insurance

Net Sales by Distribution Method

(Dollar amounts in thousands)

	Three months ended March 31,								Increase
	2014				2013				(Decrease)
	Amount		% of Total		Amount		% of Total		Amount			%
United American Independent Agency
Limited-benefit plans	$	206			$	233			$	(27	)		(12	)
Medicare Supplement		14,105				6,402				7,703			120
		14,311		45		6,635		28		7,676			116
Liberty National Exclusive Agency
Limited-benefit plans		3,699				2,908				791			27
Medicare Supplement		86				112				(26	)		(23	)
		3,785		12		3,020		13		765			25
Family Heritage Agency
Limited-benefit plans		9,865				10,723				(858	)		(8	)
Medicare Supplement		0				0				0			0
		9,865		31		10,723		46		(858	)		(8	)
American Income Exclusive Agency
Limited-benefit plans		1,764				1,714				50			3
Medicare Supplement		0				0				0			0
		1,764		6		1,714		7		50			3
Direct Response
Limited-benefit plans		0				76				(76	)		(100	)
Medicare Supplement		2,018				1,439				579			40
		2,018		6		1,515		6		503			33
Total Net Sales
Limited-benefit plans		15,534		49		15,654		66		(120	)		(1	)
Medicare Supplement		16,209		51		7,953		34		8,256			104
Total	$	31,743		100		23,607		100	$	8,136			34

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

Health Insurance

First-Year Collected Premium by Distribution Method

(Dollar amounts in thousands)

	Three months ended March 31,									Increase (Decrease)
	2014				2013
	Amount		% of Total		Amount		% of Total			Amount			%
United American Independent Agency
Limited-benefit plans	$	171			$	218				$	(47	)		(22	)
Medicare Supplement		9,785				7,957					1,828			23
		9,956		40		8,175		34			1,781			22
Liberty National Exclusive Agency
Limited-benefit plans		3,104				3,197					(93	)		(3	)
Medicare Supplement		81				159					(78	)		(49	)
		3,185		13		3,356		14			(171	)		(5	)
Family Heritage Agency
Limited-benefit plans		8,629				9,157					(528	)		(6	)
Medicare Supplement		0				0					0			0
		8,629		35		9,157		39	��		(528	)		(6	)
American Income Exclusive Agency
Limited-benefit plans		1,927				2,214					(287	)		(13	)
Medicare Supplement		0				0					0			0
		1,927		8		2,214		9			(287	)		(13	)
Direct Response
Limited-benefit plans		93				132					(39	)		(30	)
Medicare Supplement		889				886					3			0
		982		4		1,018		4			(36	)		(4	)
Total First-Year Collected Premium
Limited-benefit plans		13,924		56		14,918		62			(994	)		(7	)
Medicare Supplement		10,755		44		9,002		38			1,753			19
Total	$	24,679		100	$	23,920		100		$	759			3

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A discussion of health operations by distribution group follows.

TheUA 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 $78 million, representing 36% of Torchmark’s total health premium. Net sales were $14 million, or 45% of Torchmark’s health sales. This agency is Torchmark’s largest producer of Medicare Supplement insurance, with Medicare Supplement premium income of $72 million. The UA Independent Agency represents approximately 67% of all Torchmark Medicare Supplement premium and 87% of Medicare Supplement net sales. Medicare Supplement premium in this agency rose 4%, while total health premium increased 1%. Net sales of these products rose 120% in 2014. As noted earlier, Group Medicare Supplement sales have historically fluctuated from period to period.

TheFamily Heritage Agency markets primarily 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 incorporation of Torchmark’s recruiting programs. The Family Heritage Agency contributed $10 million in net sales in the 2014 quarter, compared with $11 million for the same period in 2013. Health premium income was $49 million for the three-month period of 2014, representing 22% of Torchmark’s health premium. This compared with $46 million or 21% of health premium in the prior year period. The producing agent count was 689 agents at March 31, 2014, compared with 695 at December 31, 2013, and 729 at March 31, 2013. The average agent count for the first quarter of 2014 was 658. We believe net sales and agent recruiting were negatively impacted by poor weather conditions in 2014.

TheLiberty National Exclusive Agency represented 27% of all Torchmark health premium income at $59 million in the first quarter of 2014. The Liberty Agency markets limited-benefit health supplemental products consisting primarily of cancer insurance. Much of Liberty’s health business is now generated through worksite marketing targeting small businesses of 10 to 25 employees. In 2014, health premium income in the Agency declined 8% from prior year premium of $63 million. Liberty’s health premium decline has been due primarily to the runoff of a block of discontinued hospital-surgical products and the declining Medicare Supplement block.

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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 15% of health premium in the 2014 period. The American Income Exclusive Agency markets a variety of limited-benefit plans, primarily accident. The Direct Response group markets primarily Medicare Supplements to employer or union-sponsored groups. Direct Response is also involved in marketing Medicare Part D. On a combined basis, the health net sales of these agencies increased 17% to $3.8 million in 2014 from $3.2 million in 2013.

The following table presents underwriting margin data for health insurance.

Health Insurance

Summary of Results

(Dollar amounts in thousands)

	Three months ended March 31,
	2014				2013				Increase
	Amount		% of Premium		Amount		% of Premium		Amount			%
Premium and policy charges	$	219,435		100	$	221,527		100	$	(2,092	)		(1	)
Net policy obligations		126,154		57		128,976		58		(2,822	)		(2	)
Commissions and acquisition expense		43,824		20		42,680		19		1,144			3
Insurance underwriting income before other income and administrative expense	$	49,457		23	$	49,871		23	$	(414	)		(1	)

Underwriting income for health insurance declined slightly to $49.5 million or 1% in 2014. As a percentage of health premium, underwriting margins were stable at 23%. The improved benefit ratio was largely a result of normal claim fluctuations.

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Medicare Part D, comparing the first three months of 2014 with the first three months of 2013. Coverage under Torchmark’s Medicare Part D prescription drug plan for Medicare beneficiaries is provided through United American. The Medicare Part D plan is a stand-alone prescription drug plan for Medicare beneficiaries which is regulated and partially funded by the Centers for Medicare and Medicaid Services (CMS) for participating private insurers. These products are marketed through our Direct Response unit and to groups through our UA Independent Agency. As described inNote F—Business Segments, we report our Medicare Part D business for segment analysis purposes as we view the business, in which expected full-year benefits are matched with the related premium income which is received evenly throughout the policy year. At this time, we have expensed benefits based on our expected benefit ratio of approximately 80% for the entire 2014 contract year. This ratio was 82% for the full year 2013. We describe the differences between the segment analysis and the GAAP operating results inNote F. Due to the design of the Medicare prescription drug product, claims are expected to be heaviest early in the calendar year. Management believes that the use of the full-year loss ratio is an appropriate measure for interim results, and also that these reporting differences will arise only on an interim basis and will be eliminated at the end of a full year, as they were in the full year of 2013.

Medicare Part D

Selected Financial Information

(Dollar amounts in thousands)

	Three months ended March 31,				Increase (Decrease)
	2014		2013		Amount			%
Premium(1)	$	83,033	$	76,720	$	6,313			8
Net Sales(2)		31,144		8,803		22,341			254
First-Year Collected Premium(3)		18,946		20,680		(1,734	)		(8	)

(1) Total Medicare Part D premium excludes the risk-sharing premiums of $27.4 million in 2014 and $15.6 million in 2013 receivable from the Centers for Medicare and Medicaid Services consistent with the Medicare Part D contract.

This risk-sharing amount is a portion of the excess or deficiency of actual over expected claims, and therefore we view this payment as a component of policyholder benefits in our segment analysis.

(2) Net sales for Medicare Part D represents only new first-time enrollees.

(3) First-year collected premium for Medicare Part D represents only premium collected within the first twelve months from new first-time enrollees.

Medicare Part D premium was $83 million in 2014, compared with $77 million in 2013, after removal of the risk-sharing adjustment in both periods. This represents an increase in premium of 8%. Net sales rose $22 million, due to an increase in new Part D auto enrollees and an increase in employer group activity. Total enrollees in the program were 269 thousand at the beginning of the 2014 plan year, compared with 254 thousand a year earlier.

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Medicare Part D underwriting results are presented in the following chart. The adjustments which reconcile Part D results in accordance with our health segment analysis to Part D results in accordance with GAAP are presented in the charts inNote F—Business Segments.

Medicare Part D

Summary of Results

(Dollar amounts in thousands)

	Three months ended March 31,
	2014				2013				Increase
	Amount		% of Premium		Amount		% of Premium		Amount		%
Premium and policy charges	$	83,033		100	$	76,720		100	$	6,313		8
Net policy obligations		66,261		80		64,307		84		1,954		3
Commissions and acquisition expense		7,206		8		4,342		5		2,864		66
Insurance underwriting income before other income and administrative expense	$	9,566		12	$	8,071		11	$	1,495		19

Margins increased 19% in 2014 to $9.6 million, partially as a result of the premium increase and partly as a result of the lower obligation ratios. Obligation ratios were lower because 2014 premiums were increased for two reasons: (1) to cover higher anticipated non-deferred expenses noted below, and (2) 2013 drug rebates received in 2014 were higher than accrued in 2013. However, these increases in margin were partially offset by certain non-deferred expenses, including a $1.1 million charge because of the new Affordable Care Act tax, higher costs related to negotiated drug rebates, and higher costs related to the increased volume of enrollees. As a percentage of premium, underwriting margin rose from 11% to 12%.

Since the Medicare Part D plan is a government-sponsored program, regulatory changes could alter the outlook for this market.

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

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Operating expenses, comparing the first three months of 2014 with the first three months of 2013. 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)

	Three months ended March 31,
	2014					2013
	Amount			% of Premium		Amount		% of Premium
Insurance administrative expenses:
Salaries	$	20,777			2.5	$	20,019		2.6
Other employee costs		7,600			0.9		8,800		1.1
Other administrative costs		13,685			1.7		12,694		1.6
Legal expense		2,149			0.3		2,422		0.3
Total insurance administrative expenses		44,211			5.4		43,935		5.6
Parent company expense		1,743					2,120
Stock compensation expense		8,509					6,253
Legal settlement expense		2,493					0
Total operating expenses, perConsolidated Statements of Operations	$	56,956				$	52,308
Insurance administrative expenses:
Increase (decrease) over prior year		0.6	%
Total operating expenses:
Increase (decrease) over prior year		8.9	%

Insurance administrative expenses were up slightly in 2014 when compared with the prior year period. As a percentage of total premium, insurance administrative expenses declined from 5.6% to 5.4%. Total operating expenses rose $5 million or 9%. In 2014, employee costs declined 14% during the period, primarily as a result of decreased pension benefit costs. Stock compensation expense rose 36% to $8.5 million, primarily as a result of an increase in the market price of Torchmark stock in 2013 and 2014 that resulted in higher grant prices for restricted stock and options, and positive Company performance that caused an increase in the expense related to performance share grants. As described inNote F in theConsolidated Financial Statements,we recorded legal accruals involving non-insurance matters, partially offset by proceeds for investment litigation. Litigation not related to our direct insurance operations is not considered an insurance administrative expense by Torchmark management and is removed from its analysis of core insurance operations in its segment reporting.

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Investments (excess investment income), comparing the first three months of 2014 with the first three months of 2013. 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 inNote F—Business Segments in theNotes to the 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 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 $5.8 billion of cash flow to repurchase Torchmark shares 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)

	Three months ended March 31,						Increase (Decrease)
	2014			2013			Amount			%
Net investment income *	$	188,051		$	183,040		$	5,011			3
Required interest on net insurance policy liabilities		(112,082	)		(106,572	)		(5,510	)		5
Financing costs:
Interest on funded debt		(17,763	)		(19,512	)		1,749			(9	)
Interest on short-term debt		(1,286	)		(1,365	)		79			(6	)
Total financing costs		(19,049	)		(20,877	)		1,828			(9	)
Excess investment income	$	56,920		$	55,591		$	1,329			2
Excess investment income per diluted share	$	0.63		$	0.59		$	0.04			7
Average invested assets (at amortized cost)	$	13,155,411		$	12,701,611		$	453,800			4
Average net insurance policy liabilities **		8,089,304			7,683,706			405,598			5
Average debt and preferred securities (at amortized cost)		1,272,523			1,359,607			(87,084	)		(6	)

* Net investment income per Torchmark’s segment analysis does not agree with Net investment income per theConsolidated Statements of Operations because management views the amortization of certain low-income housing interests as an adjustment to increase tax expense while GAAP requires that it reduce net investment income, as presented in the Reconciliation inNote F -Business Segments.

** Net of deferred acquisition costs, excluding the attributed unrealized gains and losses thereon.

Excess investment income for the 2014 period increased 2% to $57 million. On a per share basis, excess investment income increased an even greater 7% as a result of our share purchases over the past 12 months. While excess investment income has been pressured in recent years as a result of the impact that lower interest rates have had on net investment income, it has increased in 2014 as the impact of rate declines has moderated. The increase in excess investment income was also due, in part, to the decline in financing costs related to the August, 2013 maturity and repayment of $94 million principal amount of our 7 ³/₈% Notes.

Net investment income rose $5 million or 3% in 2014, while average invested assets (with fixed maturities at amortized cost) rose 4% year over year. The effective annual yield on the fixed maturity portfolio was 5.9% in the first quarter of 2014, compared with 6.0% a year earlier. The reduction in the average portfolio yield rate was primarily a result of investing new money at rates lower than the portfolio average yield and reinvesting proceeds from bonds that were called or matured in 2013 at yield rates less than the rates we earned on the bonds before they were called or matured. At current new money rates, we would expect to see only modest declines in the average portfolio yield rate over the next few years compared with the larger declines in recent years, as only 1% to 2% of fixed maturities on average are expected to run off each year over the next five years.

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Should interest rates rise, especially long-term rates, Torchmark would benefit due to higher net investment income on new purchases. Even a sudden, significant increase in interest rates would be beneficial because Torchmark has very little disintermediation risk. Also, we are not 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.

Net investment income has been negatively affected in recent periods due to calls of fixed maturity securities. Fixed maturity securities are more likely to be called in a declining interest-rate environment, as higher-yielding callable securities can often be refinanced at lower prevailing rates. Of our $12.6 billion fixed maturity portfolio at amortized cost as of March 31, 2014, we held $309 million book value of securities with a weighted average yield of 6.29% that are currently callable at the discretion of the issuer without a make-whole provision and $303 million book value of securities with a weighted average yield of 6.43% that become callable over the next three years. Many factors can be involved in an issuer’s decision to call a bond and it is difficult to predict if and when one might be called. If bonds are called, future net investment income would be negatively affected if the average yield on called securities exceeds prevailing new money rates.

Required interest on net insurance policy liabilities reduces excess investment income because we consider these amounts to be components of the profitability of our 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 under ASC 944-20-05 (formerly SFAS 60) which mandates that interest rate assumptions 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 premiums 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.

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Required interest on net insurance policy liabilities increased $5.5 million or 5% to $112 million. The increase in required interest approximated the 5% growth in average net interest-bearing insurance policy liabilities.

Financing costs declined 9% or $1.8 million to $19 million, as a result of a decline in interest cost from the previously mentioned maturity of our $94 million 7 ³/₈% Notes in August, 2013. More information concerning debt can be found in theCapital Resources section of this report.

Investments (acquisitions), comparing the first three months of 2014 with the first three months of 2013. Torchmark’s investment policy calls for investing almost exclusively 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 are generally stable and predictable. If available longer-term securities do not meet our quality and yield objectives, new money is generally invested in shorter-term fixed maturities.

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).

Fixed Maturity Acquisitions Selected Information

(Dollar amounts in millions)

	For the three months ended March  31,
	2014			2013
Cost of acquisitions:
Investment-grade corporate securities	$	158		$	385
Other		0			2
Total fixed-maturity acquisitions	$	158		$	387
Effective annual yield *		5.37	%		4.31	%
Average life, in years to:
Next call		25.2			26.4
Maturity		25.3			26.7
Average rating		BBB+			BBB+

* One-year compounded yield on a tax-equivalent basis, whereby 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.

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Investments (portfolio composition).The composition of the investment portfolio at book value on March 31, 2014 was as follows:

Invested Assets At March 31, 2014

(Dollar amounts in millions)

	Amount		% of Total
Fixed maturities (at amortized cost)	$	12,618		96	%
Equities (at cost)		1		0
Policy loans		452		3
Other long-term investments		13		0
Short-term investments		109		1
Total	$	13,193		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. Because fixed maturities represent such a significant portion of our investment portfolio, the remainder of the discussion of portfolio composition will focus on fixed maturities.

Fixed Maturities.The following table summarizes certain information about our fixed-maturity portfolio by component at March 31, 2014.

Fixed Maturities by Component

(Dollar amounts in millions)

	Cost or		Gross		Gross					% of Total Fixed Maturities
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value		at Amortized Cost		at Fair Value
Corporates	$	10,265	$	1,065	$	(147	)	$	11,183		81		82
Redeemable preferred stock		503		36		(7	)		532		4		4
Municipals		1,278		105		(4	)		1,379		10		10
Government-sponsored enterprises		350		0		(48	)		302		3		2
Governments & agencies		122		1		(3	)		120		1		1
Residential mortgage-backed*		6		0		0			6		0		0
Collateralized debt obligations		65		6		(7	)		64		1		1
Other asset-backed securities		29		3		0			32		0		0
Total fixed maturities	$	12,618	$	1,216	$	(216	)	$	13,618		100		100

* Includes GNMA’s

At March 31, 2014, fixed maturities had a fair value of $13.6 billion, compared with $12.9 billion at December 31, 2013. The net unrealized gain position in the fixed-maturity portfolio increased from a net gain of $390 million at December 31, 2013 to a net gain of $1 billion at March 31, 2014, as a result of a decrease in market interest

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rates. While our March 31, 2014 net unrealized gain of $1 billion consisted of gross unrealized gains of $1.2 billion offset by $216 million of gross unrealized losses, our December, 2013 net unrealized gain consisted of a gross unrealized gain of $801 million and gross unrealized loss of $411 million.

Investments in fixed-maturity securities are diversified over a wide range of industry sectors. The following table summarizes certain information about our fixed-maturity portfolio by sector at March 31, 2014.

Fixed Maturities by Sector

(Dollar amounts in millions)

	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		% of Total Fixed Maturities
										Amortized Cost			Fair Value
Financial - Life/Health/PC Insurance	$	1,768	$	201	$	(10	)	$	1,959		14	%		14	%
Financial - Bank		715		61		(8	)		768		6			6
Financial - Other		572		67		(11	)		628		5			5
Subtotal Financial		3,055		329		(29	)		3,355		25			25
Utilities		2,238		248		(33	)		2,453		18			18
Government (US, municipal, and foreign)		1,750		106		(55	)		1,801		14			14
Energy		1,442		170		(11	)		1,601		11			12
Basic Materials		962		66		(11	)		1,017		8			7
Other Industrials		820		68		(22	)		866		6			6
Consumer, Non-cyclical		804		83		(16	)		871		6			6
Transportation		561		50		(18	)		593		4			4
Communications		531		56		(11	)		576		4			4
Consumer, Cyclical		384		34		(3	)		415		3			3
Collateralized debt obligations		65		6		(7	)		64		1			1
Mortgage-backed Securities		6		0		0			6		0			0
Total fixed maturities	$	12,618	$	1,216	$	(216	)	$	13,618		100	%		100	%

At March 31, 2014, approximately 43% of the fixed-maturity assets at amortized cost and fair value were in the financial and utility sectors. The balance of the portfolio is spread among 398 issuers in a wide variety of sectors. The financial sector had a net unrealized gain of $300 million at March 31, 2014, compared with a gain of $180 million at December 31, 2013. We expect our investment in temporarily impaired securities to be fully recoverable.

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An analysis of the fixed-maturity portfolio at March 31, 2014 by a composite quality rating is shown in the table below. The composite 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.

Fixed Maturities by Rating

(Dollar amounts in millions)

	Amortized Cost		%		Fair Value		%
Investment grade:
AAA	$	765		6	$	732		5
AA		1,316		10		1,435		11
A		3,716		30		4,117		30
BBB+		2,468		20		2,682		20
BBB		2,875		23		3,110		23
BBB-		926		7		1,007		7
Investment grade		12,066		96		13,083		96
Below investment grade:
BB		325		2		320		2
B		125		1		117		1
Below B		102		1		98		1
Below investment grade		552		4		535		4
	$	12,618		100	$	13,618		100

Of the $12.6 billion of fixed maturities at March 31, 2014, $12.1 billion or 96% at amortized cost were investment grade with an average rating of A-. Below-investment-grade bonds were $552 million with an average rating of B+ and were 4% of fixed maturities. Below-investment-grade bonds at amortized cost were 16% of our shareholders’ equity, excluding the effect of unrealized gains and losses on fixed maturities as of March 31, 2014. Overall, the total portfolio was rated A- based on amortized cost, the same as at the end of 2013.

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An analysis of the changes in our portfolio of below-investment-grade bonds at amortized cost during the first three months of 2014 is as follows:

(Dollar amounts in millions)
Balance as of December 31, 2013	$	566
Downgrades by rating agencies		5
Upgrades by rating agencies		(17	)
Disposals		(3	)
Amortization and other		1
Balance as of March 31, 2014	$	552

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 or securities backed by sub-prime or Alt-A mortgages. We have no direct investments in residential mortgages, nor do we have any counterparty risks as we are not a party to any credit default swaps or other derivative contracts. We do not participate in securities lending, we have no off-balance sheet investments, and we have only insignificant exposure to European Sovereign debt consisting of $11 million in German bonds.

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

Fixed Maturity Portfolio Selected Information

	At March 31, 2014			At December 31, 2013			At March 31, 2013
Average annual effective yield(1)		5.92	%		5.91	%		5.99	%
Average life, in years, to:
Next call(2)		18.2			18.3			18.2
Maturity(2)		21.4			21.5			22.1
Effective duration to:
Next call(2), (3)		10.7			10.4			10.8
Maturity(2), (3)		11.9			11.7			12.2

(1) Tax-equivalent basis, whereby 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.

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Realized Gains and Losses, comparing the first three months of 2014 with the first three months of 2013. As discussed inNote F—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 writedowns are outside the course of our normal operations, management removes the effects of such gains and losses when evaluating its overall core operating results.

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)

	Three months ended March 31,
	2014				2013
	Amount		Per Share		Amount			Per Share
Fixed maturities and equities:
Investment sales	$	10,741	$	0.12	$	(3,385	)	$	(0.04	)
Investments called or tendered		61		0.00		492			0.01
Real estate:
Sold		0		0.00		16			0.00
Other-than-temporary impairments		0		0.00		(1,741	)		(0.02	)
Other		0		0.00		850			0.01
Total	$	10,802	$	0.12	$	(3,768	)	$	(0.04	)

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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 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 three months of 2014, the Parent Company received $65 million of cash dividends from subsidiaries, compared with $95 million in 2013. For the full year 2014, cash dividends from subsidiaries are expected to total approximately $479 million.

Additional sources of liquidity for the Parent Company are cash, intercompany receivables, and a credit facility. At March 31, 2014, the Parent Company had $57 million of invested cash and net intercompany receivables. The credit facility is discussed below under the caption“Short-term borrowings.”

Short-term borrowings. We have a credit facility in place with a group of lenders which allows for unsecured borrowings and stand-by letters of credit up to $600 million. The facility may be expanded by $200 million if certain conditions are met. Up to $250 million in letters of credit can be issued against the facility. The facility is further designated as a back-up credit line for a commercial paper program under which we may either borrow from the credit line or issue commercial paper at any time, with total commercial paper outstanding not to exceed the facility maximum, less any letters of credit issued. Interest is charged at variable rates. The facility has no ratings-based acceleration triggers which would require early repayment. The facility terminates January 7, 2015. In accordance with the agreement, we are subject to certain covenants regarding capitalization and interest coverage with which we were in full compliance at March 31, 2014.

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Short-term debt consists of our commercial paper outstanding as noted above. The following table presents certain information about our commercial paper borrowings.

Short-term Borrowings - Commercial Paper

(Dollar amounts in millions)

	At March 31, 2014			At December 31, 2013			At March 31, 2013
Balance at end of period (par value)	$	265.0		$	229.1		$	275.0
Annualized interest rate		.26	%		.30	%		.36	%
Letters of credit outstanding	$	198.0		$	198.0		$	198.0
Remaining amount available under credit line	$	137.0		$	172.9		$	127.0
	For the three months ended
	March 31, 2014			March 31, 2013
Average balance outstanding during period (par value)	$	281.5		$	275.8
Daily-weighted average interest rate (annualized)		.24	%		.33	%
Maximum daily amount outstanding during period (par value)	$	325.0		$	312.0

Our balance of commercial paper outstanding at March 31, 2014 was $265 million, compared with $229 million at the previous year end. We have had no difficulties in accessing the commercial paper market under this facility during the three-month periods ended March 31, 2014 and 2013.

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 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 $275 million in the first three months of 2014, compared with $290 million in the same period of 2013. In addition to cash inflows from operations, our companies have received $6 million in investment calls and tenders and $16 million in scheduled maturities or repayments during the 2014 period. As previously noted under the captionShort-term borrowings, we have in place a line of credit facility. The insurance companies have no additional outstanding credit facilities.

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Cash and short term investments were $149 million at March 31, 2014, compared with $114 million at December 31, 2013. In addition to these liquid assets, the entire $13.6 billion (fair value at March 31, 2014) portfolio of fixed-income and equity securities is available for sale in the event of an unexpected need. Substantially all of our fixed-income and equity securities are publicly traded. 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 the insurance companies’ strong reliable cash flows, the relatively low risk of their product mix, and because that ratio exceeds regulatory requirements and is in line with rating agency expectations for Torchmark. As of December 31, 2013, our insurance subsidiaries had a consolidated RBC ratio of 341%. In the event of a decline in the RBC ratios of the insurance companies due to ratings downgrades in the investment portfolios, impairments, or other circumstances, we have available cash on hand and credit availability at the Parent Company to make additional contributions as necessary to maintain the ratio at or above 325%.

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On a consolidated basis, Torchmark’s capital structure consists of short-term debt (comprised of the commercial paper outstanding discussed above), long-term funded debt, and shareholders’ equity. The outstanding long-term debt at book value was $991 million at March 31, 2014, as it also was at December 31, 2013. An analysis of long-term debt issues outstanding is as follows at March 31, 2014.

Long Term Debt at March 31, 2014

(Dollar amounts in millions)

Instrument	Year Due		Interest Rate			Par Value		Book Value		Fair Value
Senior Notes		2016		6.375	%	$	250.0	$	248.9	$	277.6
Senior Notes		2019		9.250			292.7		290.4		375.2
Senior Notes(1)		2022		3.800			150.0		147.5		149.6
Notes		2023		7.875			165.6		163.6		209.0
Junior Subordinated Debentures		2052		5.875			125.0		120.8		120.6
Junior Subordinated Debentures(2)		2036		3.554	(3)		20.0		20.0		20.0
Total long-term debt						$	1,003.3	$	991.2	$	1,152.0

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

(2) Assumed upon November 1, 2012 acquisition of Family Heritage.

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

As previously noted under the captionHighlights in this report, we acquired 1.4 million of our outstanding common shares under our share repurchase program during the first three months of 2014. These shares were acquired at a cost of $108 million (average of $76.09 per share), compared with purchases of 1.6 million shares at a cost of $90 million in the first three months of 2013.

Shareholders’ equity was $4.2 billion at March 31, 2014. This compares with $3.8 billion at December, 31, 2013 and $4.3 billion at March 31, 2013. During the three months since December 31, 2013, shareholders’ equity increased by after-tax unrealized gains of $394 million in the fixed-maturity portfolio, as interest rates have declined over the quarter. Net income added another $133 million for the quarter, but the share purchases of $108 million noted above during the quarter 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.

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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

	At March 31, 2014						At December 31, 2013						At March 31, 2013
	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 (millions)	$	13,618		$	1,000		$	12,879		$	390		$	13,571		$	1,451
Deferred acquisition costs (millions) (2)		3,364			(14	)		3,338			(10	)		3,229			(22	)
Total assets (millions)		19,064			986			18,192			380			18,879			1,429
Short-term debt (millions)		265			0			229			0			369			0
Long-term debt (millions)		991			0			991			0			990			0
Shareholders’ equity (millions)		4,189			641			3,776			247			4,305			929
Book value per diluted share		46.85			7.17			41.49			2.72			45.88			9.90
Debt to capitalization (3)		23.1	%		(3.0	)%		24.4	%		(1.3	)%		24.0	%		(4.7	)%
Diluted shares outstanding (thousands)		89,410						91,025						93,822
Actual shares outstanding (thousands)		88,219						89,502						92,883

(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.

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Interest coverage was 11.0 times in the 2014 three months, compared with 9.3 times in the 2013 period. Interest coverage is computed by dividing interest expense into the sum of pretax income and interest expense.

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;

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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.

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 three months ended March 31, 2014.

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Item 4. Controls and Procedures

Torchmark, under the direction of the Co-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-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 March 31, 2014, an evaluation was performed under the supervision and with the participation of Torchmark management, including the Co-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-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 March 31, 2014, 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-seven 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. Amounts that could be payable to insurance beneficiaries and to the states for the escheatment of abandoned property represent insurance liabilities and are included in the Company’s estimate of policy benefits under the caption “Total policy liabilities” on theConsolidated Balance Sheets. No estimate of range can be made for loss contingencies related to possible administrative penalties at this time.

Item 1A. Risk Factors

Torchmark has had no material changes to its risk factors.

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

(e) Purchases of Certain Equity Securities by the Issuer and Others

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
January 1-31, 2014		615,500	$	76.19		615,500
February 1-28, 2014		723,402		75.35		723,402
March 1-31, 2014		310,694		78.75		310,694

At its August 7, 2013 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

(11)	Statement re Computation of Per Share Earnings
(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 March 31, 2014

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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: May 9, 2014	/s/  Larry M. Hutchison
	Larry M. Hutchison Co-Chairman and Chief Executive Officer
Date: May 9, 2014	/s/  Gary L. Coleman
	Gary L. Coleman
	Co-Chairman and Chief Executive Officer
Date: May 9, 2014	/s/  Frank M. Svoboda
	Frank M. Svoboda
	Executive Vice President and Chief Financial Officer

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