News Release

Torchmark Corporation Reports Third Quarter 2007 Results

October 17, 2007

McKinney, Texas

Torchmark Corporation (NYSE: TMK) reported today that for the quarter ended September 30, 2007, net income was $1.41 per share compared with $1.28 per share for the year-ago quarter. Net operating income for the quarter was $1.38 per share, a 10% per share increase compared with $1.26 per share for the year-ago quarter. Total revenue was $864 million, up from $838 for the year-ago quarter.

Reconciliations between net income and net operating income are shown in the Financial Summary below.



Net operating income, a non-GAAP financial measure, has long been consistently used by Torchmark's management to evaluate the operating performance of the Company, and is a measure commonly used in the life insurance industry. It differs from net income primarily because it excludes certain non-operating items such as realized investment gains and losses and nonrecurring items which are included in net income. Management believes that an analysis of net operating income is important in understanding the profitability and operating trends of the Company's business.


  Financial Summary
  (dollars in millions, except per share data)
  Per Share  
  Quarter Ended   Quarter Ended  
  September 30,   September 30,  
  2007   2006   % Chg.   2007   2006   % Chg.
Insurance underwriting income*   $ 1.28   $ 1.16   10   $ 119.9   $ 116.4   3
Excess investment income*   0.86   0.80   7   80.6   80.0   1
Parent company expense   (0.02)   (0.02)       (2.0)   (1.7)    
Income tax   (0.72)   (0.67)   7   (67.5)   (67.2)   -
Stock option expense, net of tax   (0.01)   (0.01)       (1.2)   (1.0)    
Net operating income     $ 1.38     $ 1.26     10     $ 129.7     $ 126.5     3
Reconciling items, net of tax:  
  Gain on sale of agency buildings   0.01   -       0.8   -    
  Realized gains (losses) on investments   0.01   (0.05)       0.9   (4.9)    
  Medicare Part D adjustment   0.02   0.02       1.5   2.2    
  Tax settlements   -   0.05       (0.1)   4.8    
  Net proceeds (cost) from legal settlements   -   -       0.1   -    
Net income   $ 1.41   $ 1.28       $ 132.9   $ 128.5    
Weighted average diluted shares outstanding (000)   94,061   100,103  
* See definitions in the discussions below and in the Torchmark 2006 SEC Form 10-K.



INSURANCE OPERATIONS – comparing the third quarter 2007 with third quarter 2006:

Life insurance accounted for 66% of the Company's insurance underwriting margin for the quarter and 56% of total premium revenue.

Health insurance, excluding Medicare Part D, accounted for 28% of Torchmark's insurance underwriting margin for the quarter and 36% of total premium revenue. Medicare Part D accounted for 4% of insurance underwriting margin and 7% of total premium revenue.

Net sales were $129 million compared with $133 million for the year-ago quarter.


Insurance Premium Revenue


  Insurance Premium Revenue
  (dollars in millions)
  Quarter Ended   Quarter Ended  
  September 30, 2007   September 30, 2006   % Change
Life insurance   $ 392.7   $ 381.5   3
Health insurance -  
   excluding Medicare Part D   253.1   253.6   -
Health- Medicare Part D   52.6   63.4   (17)
Annuity   4.9   5.5   (12)
Total     $ 703.3     $ 704.1     -



Insurance Underwriting Income

Insurance underwriting margin is management's measure of profitability of its life, health and annuity segments' underwriting performance, and consists of premiums less policy obligations, commissions and other acquisition expenses.

Insurance underwriting income is the sum of the insurance underwriting margins of the life, health and annuity segments, plus other income, less insurance administrative expenses. It excludes the investment segment, parent company expense and income taxes.


  Insurance Underwriting Income
  (dollars in millions, except per share data)
    Quarter Ended   % of   Quarter Ended   % of   %
    September 30, 2007     Premium     September 30, 2006     Premium     Chg.
Insurance underwriting margins:  
   Life     $ 105.4     27     $ 97.0     25     9
   Health   44.8   18   44.2   17   1
   Health - Medicare Part D   6.4   12   8.5   13   (25)
   Annuity   2.4       3.1    
  159.0       152.9  
Other income   1.0   1.0  
Administrative expenses   (40.1)   (37.5)   7
Insurance underwriting income   $ 119.9   $ 116.4   3
Per share   $ 1.28   $ 1.16   10



Insurance Results by Distribution Channels

Total premium, underwriting margins, first-year collected premium and net sales by all distribution channels are shown at on the Investor Relations page at Financial Reports.

Direct Response was Torchmark's leading contributor to total premium revenue ($131 million) and second leading contributor to total underwriting margin ($31 million). Life premiums of $121 million were up 6%, and the life underwriting margin of $29 million was up 18%. As a percentage of life premium, its life underwriting margin was 24%, up from 22%. Net life sales of $28 million declined 2% from the year-ago quarter. Direct Response's life business is comprised of two primary sources: the first is from direct mail solicitations produced "in house," and the second is from insert media. Solicitations via insert media increased 27% in this quarter and are expected to increase going forward. These solicitations will translate into increased sales in later periods.

American Income Agency was Torchmark's second leading contributor to total premium revenue ($129 million) and leading contributor to total underwriting margin ($43 million). AIL's life insurance underwriting margin of $36 million was up 13%, and as a percentage of life premium, was 32%, up from 30% and the highest of the major life distribution channels at Torchmark. Life premiums of $111 million grew 7% compared with the year-ago quarter. The number of AIL producing agents grew 7% to 2,616 compared with the year-ago quarter, and was up 9% compared to the count at June 30, 2007. Net life sales were $24 million for the quarter, up 10%.

LNL Agency, Torchmark's third leading life distribution unit, had total premium revenue of $108 million, including $73 million from life insurance, which declined 3%. LNL's total underwriting margin was $27 million, a 1% decline from the year-ago quarter; however, LNL's life underwriting margin was $18 million, down 9% from the year-ago quarter. Net life sales of $9 million were down 9% from the year-ago quarter. Producing agents grew to 1,690, up 6% during the quarter.

UA Branch Office Agency is the leading distribution channel in terms of health premium ($97 million), up 9%, and had a health underwriting margin of $12 million, down 1%. Underwriting margin was 13% of premium, a decline from 14% for the year-ago quarter. Net sales fell 2% to $40 million, but led all life and health distribution channels sales for the quarter. The number of producing agents at UA Branch grew 13% to 3,346 compared with the year-ago quarter and increased by 94 producing agents during the quarter.

UA Independent Agency was Torchmark's second largest contributor to health premium ($93 million) and had a health underwriting margin of $15 million; however, its health premium declined 8% and underwriting margin declined 11%. Health underwriting margin as a percentage of premium remained 17%. Net health sales of $11 million fell 9%. The largest component of this agency's in-force premium is for Medicare supplement policies for which new sales have declined over the last several years.

Medicare Part D Prescription Drug Plan, which began January 1, 2006, is distributed by Direct Response and the UA agencies. Third quarter 2007 premium revenue was $53 million for the 2007 plan year compared with $63 million in the year-ago quarter for the 2006 plan year.


  Medicare Part D
  (dollars in millions)
  Quarter Ended   % of   Quarter Ended   % of  
  Sept. 30, 2007   Premium   Sept. 30, 2006   Premium   % Chg.
Premium   $52.6   $63.4   (17)
Policy obligations      (42.3)      80      (47.9)      76       
Fees to PBM   (2.5)   5   (5.1)   8    
Net amortization of DAC   (1.3)   2   (1.9)   3    
Underwriting margin   $6.4   12   $8.5   11   (25)


For GAAP reporting, Medicare Part D premiums are recognized evenly throughout the year when they become due, and benefit costs are recognized when the costs are incurred. Due to the design of the product, premiums are evenly distributed throughout the year, but benefit costs are much 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. For net operating income purposes, Torchmark defers excess benefits incurred in earlier interim periods to later periods in order to more closely match the benefit cost with the associated revenue. For the full year, the total premiums and benefits will be the same under this alternative method as they are under GAAP. The Company reports this difference between GAAP and management's non-GAAP disclosures, net of tax, as a reconciling item for the interim periods in the Financial Summary shown on page 1 of this release. A chart reconciling the Company's non-GAAP financial presentation to a GAAP presentation may be viewed at on the Investor Relations page at Financial Reports.

Torchmark Annuities consist of variable and fixed annuity contracts. Underwriting margin from the annuity segment was $2.4 million, down 23% from the year-ago quarter. Annuities comprised less than 2% of the Company's insurance underwriting margin for the quarter.

Administrative Expenses were $40.1 million, up $2.5 million from the year-ago quarter, of which $1.9 million relates to the affirmation during the quarter by the Mississippi Supreme Court of an earlier verdict against United American, including expenses related to the case.



Excess Investment Income – comparing the third quarter 2007 with the third quarter 2006:

Management uses excess investment income as the measure to evaluate the performance of the investment segment. It is net investment income reduced by required interest. Required interest includes interest credited to net policy liabilities and interest on debt.


  Quarter Ended
  September 30,
  (dollars in millions, except per share data)
  2007   2006   % Chg.
Tax equivalent investment   $ 164.4   $ 161.1   2
   Tax equivalent adjustment   (1.4)   (.4)    
Net investment income   163.0   160.8   1
Required interest:  
   Interest credited on net policy liabilities   (64.9)   (59.5)   9
   Interest on debt   (17.5)   (21.3)   (18)
   Total required interest   (82.4)   (80.8)   2
Excess investment income   $ 80.6   $ 80.0   1
   Per share     $ 0.86     $ 0.80     7


In comparing the components of excess investment income, it should be noted that both net investment income and interest expense were unusually high in third quarter of 2006. This occurred because late in the second quarter of 2006, the Company issued $370 million of debt and trust preferred securities to pre-fund the retirement of $330 million of similar securities in the fourth quarter of 2006. As a result, in the third quarter of 2006 $6 million of interest expense was incurred on the new debt, offset by $6 million of investment income earned on the investment of the net proceeds.

In the current year quarter, net investment income increased 1%. Excluding the third quarter, 2006 income and assets related to the pre-funding, net investment income was up 5%, lower than the 8% increase in average investment assets at amortized cost due to new investments made at yields lower than the overall portfolio yield. Contributing to the lower yields was the investment of $256 million in municipal bonds in early 2007, which resulted in approximately $1 million less investment income in the current year quarter. The average yield on the municipal bonds is 4.6%, but when adjusted for the related tax benefits, the tax equivalent yield is 6.6%.

Interest credited on net policy liabilities increased 9% in line with a similar increase in the related liabilities. Interest on debt declined 18%. Excluding the expense related to the aforementioned pre-funding, interest expense was up $2.4 million in the current year quarter due to the increase in the average short-term debt outstanding.

Investment Portfolio Composition at September 30, 2007

The market value of Torchmark's fixed maturity portfolio was $9.131 billion, $44.1 million lower than amortized cost of $9.175 billion. This net unrealized loss is comprised of $210 million gross unrealized gains, and $254 million gross unrealized losses. At amortized cost, 92.2% of fixed maturities (92.3% at market value) were rated "investment grade." The fixed maturity portfolio, which at amortized cost comprised 94.5% of total invested assets, earned an annual effective yield of 6.95% during the third quarter of 2007, down from 7.06% in the year-ago quarter. The investment portfolio contains no securities backed by sub-prime mortgages.

Acquisitions of fixed maturity investments during the quarter totaled $226 million at cost, with an average annual effective yield of 6.8%, an average life of 22.1 years and average rating of A, compared with an average annual effective yield of 7.2%, average life of 21.8 years and average rating of BBB+ in the year-ago quarter.

SHARE REPURCHASE - during the quarter ended September 30, 2007:

Torchmark's ongoing share repurchase program resulted in the repurchase during the quarter of 1.6 million shares of Torchmark Corporation common stock for a total cost of $103 million ($63.46 average cost per share). Year-to- date, the Company has repurchased 6.1 million shares at a total cost of $401 million at an average price per share of $65.40. This was a greater amount than the Company had previously indicated was likely for the year.


More detailed financial information including various GAAP and Non-GAAP ratios and financial measurements are located at on the Investor Relations page under "Financial Reports and Other Financial Information."

Note: Tables in this news release may not foot due to rounding.


This press release may contain forward-looking statements within the meaning of the federal securities laws. These prospective statements reflect management's current expectations, but are not guarantees of future performance. Accordingly, please refer to Torchmark's cautionary statement regarding forward-looking statements, and the business environment in which the Company operates, contained in the Company's Form 10-K for the year ended December 31, 2006, and any subsequent Forms 10-Q on file with the Securities and Exchange Commission and on the Company's website at on the Investor Relations page. Torchmark specifically disclaims any obligation to update or revise any forward-looking statement because of new information, future developments or otherwise.


Torchmark will provide a live audio webcast of its third quarter 2007 earnings release conference call with financial analysts at 11:00 a.m. (Eastern) tomorrow, October 18, 2007. Access to the live webcast and replay will be available at on the Investor Relations page, at the Conference Calls on the Web icon. Immediately following this press release, supplemental financial reports will be available before the conference call on the Investor Relations page menu of the Torchmark website at "Financial Reports and Other Financial Information."


SOURCE Torchmark Corporation

CONTACT: Joyce Lane, Vice President, Investor Relations of Torchmark Corporation, +1-972-569-3627,

Web site: