TORCHMARK CORP (Form: 10-K, Received: 02/27/2017 16:32:05)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-08052

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, TX		75070
(Address of principal executive offices)		(Zip Code)

972-569-4000

(Registrant’s telephone number, including area code)

None

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

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	CUSIP	Name of each exchange on which registered
Common Stock, $1.00 par value per share	891027104	New York Stock Exchange
Common Stock, $1.00 par value per share	891027104	The International Stock Exchange, London, England

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes x No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

Yes ¨ No x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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 (§232.405 of this chapter) 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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

Yes ¨ No x

As of June 30, 2016 , the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $7,409,307,020 based on the closing sale price as reported on the New York Stock Exchange.

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



Class		Outstanding at February 17, 2017
Common Stock, $1.00 par value per share		117,761,153 shares

DOCUMENTS INCORPORATED BY REFERENCE



Document		Parts Into Which Incorporated
Proxy Statement for the Annual Meeting of Stockholders to be held April 27, 2017 (Proxy Statement)		Part III

TORCHMARK CORPORATION

INDEX



			Page

PART I.

	Item 1.	Business	1

	Item 1A.	Risk Factors	6

	Item 1B.	Unresolved Staff Comments	12

	Item 2.	Properties	12

	Item 3.	Legal Proceedings	12

	Item 4.	Mine Safety Disclosures	12

PART II.

	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	13

	Item 6.	Selected Financial Data	15

	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	48

	Item 8.	Financial Statements and Supplementary Data	49
		Consolidated Balance Sheets	51
		Consolidated Statements of Operations	52
		Consolidated Statements of Comprehensive Income	53
		Consolidated Statements of Shareholders' Equity	54
		Consolidated Statements of Cash Flows	55
		Notes to Consolidated Financial Statements	56
		Note 1- Significant Accounting Policies	56
		Note 2- Statutory Accounting	65
		Note 3- Supplemental Information About Changes to Accumulated Other Comprehensive Income	66
		Note 4- Investments	68
		Note 5- Deferred Acquisition Costs	77
		Note 6- Discontinued Operations	78
		Note 7- Liability for Unpaid Claims	79
		Note 8- Income Taxes	82
		Note 9- Postretirement Benefits	84
		Note 10-Supplemental Disclosures of Cash Flow Information	92
		Note 11- Debt	93
		Note 12- Shareholders' Equity	95
		Note 13- Stock-Based Compensation	96
		Note 14- Business Segments	102
		Note 15- Commitments and Contingencies	109
		Note 16- Selected Quarterly Data	111
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	112

	Item 9A.	Controls and Procedures	112

	Item 9B.	Other Information	112



PART III.

	Item 10.	Directors, Executive Officers, and Corporate Governance	115

	Item 11.	Executive Compensation	115

	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	115

	Item 13.	Certain Relationships and Related Transactions and Director Independence	115

	Item 14.	Principal Accountant Fees and Services	115

PART IV.

	Item 15.	Exhibits and Financial Statement Schedules	116

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PART I

Item 1. Business

Torchmark Corporation (Torchmark) is an insurance holding company incorporated in Delaware in 1979. Its primary subsidiaries are American Income Life Insurance Company (American Income), Liberty National Life Insurance Company (Liberty National), Globe Life And Accident Insurance Company (Globe), United American Insurance Company (United American), and Family Heritage Life Insurance Company of America (Family Heritage).

Torchmark’s website is: www.torchmarkcorp.com. Torchmark makes available free of charge through its website, its annual report on Form 10-K, its quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after they have been electronically filed with or furnished to the Securities and Exchange Commission. Other information included in Torchmark's website is not incorporated into this filing.

The following table presents Torchmark’s business by primary marketing distribution method.



Primary Distribution Method	Company	Products and Target Markets	Distribution

American Income Exclusive Agency	American Income Life Insurance Company Waco, Texas	Individual life and supplemental health insurance marketed to working families.	6,870 producing agents in the U.S., Canada, and New Zealand.
Globe Life Direct Response	Globe Life And Accident Insurance Company McKinney, Texas	Individual life and supplemental health insurance including juvenile and senior life coverage and Medicare Supplement to middle-income Americans.	Nationwide distribution through direct-to-consumer channels; including direct mail, electronic media and insert media.
Family Heritage Exclusive Agency	Family Heritage Life Insurance Company of America Cleveland, Ohio	Supplemental limited-benefit health insurance to middle-income families.	909 producing agents in the U.S.
Liberty National Exclusive Agency	Liberty National Life Insurance Company McKinney, Texas	Individual life and supplemental health insurance marketed to middle-income families.	1,758 producing agents in the U.S.
United American Independent Agency	United American Insurance Company McKinney, Texas	Medicare Supplement coverage to Medicare beneficiaries and, to a lesser extent, supplemental limited-benefit health coverage to people under age 65.	4,144 independent producing agents in the U.S.

Additional information concerning industry segments may be found in Management’s Discussion and Analysis and in Note 14—Business Segments in the Notes to the Consolidated Financial Statements.

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Insurance

Life Insurance

Torchmark’s insurance subsidiaries write a variety of nonparticipating ordinary life insurance products. These include traditional and interest sensitive whole-life insurance, term life insurance, and other life insurance. The following table presents selected information about Torchmark’s life products.



	Annualized Premium in Force (Amounts in thousands)
	2016		2015		2014
Whole life:
Traditional	$	1,471,054	$	1,378,290	$	1,296,403
Interest-sensitive	47,358		50,808		54,490
Term	657,797		642,599		619,782
Other	86,527		78,801		73,870
	$	2,262,736	$	2,150,498	$	2,044,545

The distribution methods for life insurance products include direct response, exclusive agents and independent agents. These methods are described in more depth in the Distribution Method chart earlier in this report. The following table presents life annualized premium in force by distribution method.



	Annualized Premium in Force (Amounts in thousands)
	2016		2015		2014
Globe Life Direct Response	$	782,222	$	757,518	$	721,261
Exclusive agents:
American Income	966,990		880,021		807,935
Liberty National	288,005		284,597		285,201
Independent agents:
United American	13,292		14,488		15,831
Other	212,227		213,874		214,317
	$	2,262,736	$	2,150,498	$	2,044,545

Health Insurance

Torchmark offers limited-benefit supplemental health insurance products that include primarily critical illness and accident plans. These policies are designed to supplement health coverage that applicants already own. Medicare Supplements are also offered to enrollees in the traditional fee-for-service Medicare program. Medicare Supplement plans are standardized by federal regulation and are designed to pay deductibles and co-payments not paid by Medicare.

On July 1, 2016, Torchmark sold its Medicare Part D business to an unaffiliated third party. Torchmark decided to exit its Medicare Part D business due to declining margins, increased risks, higher drug costs, and increased administrative and compliance costs. Management believes this sale allows the Company to better focus on its core protection life and health insurance businesses. As the historical results for the Medicare Part D business are accounted for as discontinued operations, all business results and relevant forward looking statements of the Company are reported as continuing operations, excluding the Medicare Part D business. For further discussion of the disposition of the Medicare Part D business, see Note 6—Discontinued Operations in the Notes to the Consolidated Financial Statements.

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The following table presents supplemental health annualized premium in force information for the three years ended December 31, 2016 by product category.



	Annualized Premium in Force (Amounts in thousands)
	2016			2015			2014
	Amount		% of Total	Amount		% of Total	Amount		% of Total
Medicare Supplement	$	502,691	51	$	498,696	51	$	488,142	52
Limited-benefit plans	495,943		49	474,346		49	459,181		48
	$	998,634	100	$	973,042	100	$	947,323	100

The following table presents supplemental health annualized premium in force for the three years ended December 31, 2016 by distribution method.



	Annualized Premium in Force (Amounts in thousands)
	2016		2015		2014
Direct Response	$	74,261	$	72,423	$	72,659
Exclusive agents:
Liberty National	210,260		216,139		226,599
American Income	78,947		74,058		71,942
Family Heritage	249,857		234,120		217,742
Independent agents:
United American	385,309		376,302		358,381
	$	998,634	$	973,042	$	947,323

Annuities

Annuity products include single-premium and flexible-premium deferred annuities. Annuities in each of the three years ended December 31, 2016 comprised less than 1% of premium.

Pricing

Premium rates for life and health insurance products are established using assumptions as to future mortality, morbidity, persistency, and expenses. These assumptions are based on Company experience and projected investment earnings. Revenues for individual life and health insurance products are primarily derived from premium income, and, to a lesser extent, through policy charges to the policyholder account values on annuity products and certain individual life products. Profitability is affected to the extent actual experience deviates from the assumptions made in pricing and to the extent investment income varies from that which is required for policy reserves.

Collections for annuity products and certain life products are not recognized as revenues but are added to policyholder account values. Revenues from these products are derived from charges to the account balances for insurance risk and administrative costs. Profits are earned to the extent these revenues exceed actual costs. Profits are also earned from investment income on the deposits invested in excess of the amounts credited to policyholder accounts.

Underwriting

The underwriting standards of each Torchmark insurance subsidiary are established by management. Each subsidiary uses information from the application and, in some cases, telephone interviews with applicants, inspection reports, pharmacy data, doctors’ statements and/or medical examinations to determine whether a policy should be issued in accordance with the application, with a different rating, with a rider, with reduced coverage or rejected.

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Reserves

The life insurance policy reserves reflected in Torchmark’s financial statements as future policy benefits are calculated based on accounting principles generally accepted in the United States of America (GAAP). These reserves, with premiums to be received in the future and the interest thereon compounded annually at assumed rates, must be sufficient to cover policy and contract obligations as they mature. Generally, the mortality and persistency assumptions used in the calculations of reserves are based on Company experience. Similar reserves are held on most of the health policies written by Torchmark’s insurance subsidiaries, since these policies generally are issued on a guaranteed-renewable basis. The assumptions used in the calculation of Torchmark’s reserves are reported in Note 1—Significant Accounting Policies in the Notes to the Consolidated Financial Statements. Reserves for annuity products and certain life products consist of the policyholders’ account values and are increased by policyholder deposits and interest credited and are decreased by policy charges and benefit payments.

Investments

The nature, quality, and percentage mix of insurance company investments are regulated by state laws. The investments of Torchmark insurance subsidiaries consist predominantly of high-quality, investment-grade securities. Fixed maturities represented 96% of total investments at fair value at December 31, 2016 . ( See Note 4—Investments in the Notes to Consolidated Financial Statements and Management’s Discussion and Analysis . )

Competition

Torchmark competes with other insurance carriers through policyholder service, price, product design, and sales efforts. While there are insurance companies competing with Torchmark, no individual company dominates any of Torchmark’s life or health markets.

Torchmark’s health insurance products compete with, in addition to the products of other health insurance carriers, health maintenance organizations, preferred provider organizations, and other health care-related institutions which provide medical benefits based on contractual agreements.

Management believes Torchmark companies operate at lower policy acquisition and administrative expense levels than peer companies. This allows Torchmark to have competitive rates while maintaining higher underwriting margins.

Regulation

Insurance. Insurance companies are subject to regulation and supervision in the states in which they do business. The laws of the various states establish agencies with broad administrative and supervisory powers which include, among other things, granting and revoking licenses to transact business, regulating trade practices, licensing agents, approving policy forms, approving certain premium rates, setting minimum reserve and loss ratio requirements, determining the form and content of required financial statements, and prescribing the type and amount of investments permitted. They are also required to file detailed annual reports with supervisory agencies, and records of their business are subject to examination at any time. Under the rules of the National Association of Insurance Commissioners (NAIC), insurance companies are examined periodically by one or more of the supervisory agencies.

Risk Based Capital. The NAIC requires a risk based capital formula be applied to all life and health insurers. The risk based capital formula is a threshold formula rather than a target capital formula. It is designed only to identify companies that require regulatory attention and is not to be used to rate or rank companies that are adequately capitalized. All Torchmark insurance subsidiaries are more than adequately capitalized under the risk based capital formula.

Guaranty Assessments. State guaranty laws provide for assessments from insurance companies to be placed into a fund which is used, in the event of failure or insolvency of an insurance company, to fulfill the obligations of that company to its policyholders. The amount which a company is assessed is based on its proportional share of the premium in each state. Assessments are recoverable to a great extent as offsets against state premium taxes.

Holding Company. States have enacted legislation requiring registration and periodic reporting by insurance companies domiciled within their respective jurisdictions that control or are controlled by other corporations so as to constitute a holding company system. Torchmark and its subsidiaries have registered as a holding company system pursuant to such legislation in Indiana, Nebraska, Ohio, and New York.

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Insurance holding company system statutes and regulations impose various limitations on investments in subsidiaries, and may require prior regulatory approval for material transactions between insurers and affiliates and for the payment of certain dividends and other distributions.

Personnel

At the end of 2016 , Torchmark had 3,128 employees.

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Item 1A. Risk Factors

Risks Related to Our Business

Product Marketplace and Operational Risks:

The insurance industry is a regulated industry, populated by many public and private companies. We operate in the life and health insurance sectors of the insurance industry, each with its own set of risks.

The development and maintenance of our various distribution systems are critical to growth in product sales and profits. As our insurance sales are primarily made to individuals, rather than groups, and the face amounts of life policies sold are lower than those of policies sold in the higher income market, the development and maintenance of direct-to-consumer systems and development and retention of adequate numbers of producing agents to support sales growth in this market are critical. Adequate compensation that is competitive with other career opportunities and that also motivates producing agents to increase sales is critical. In Globe Life Direct Response, continuous development of new methods of reaching the consumer and cost efficiency are key. Less than optimum execution of these strategies may result in reduced sales and profits.

Economic conditions may materially adversely affect our business and results of operations. We serve primarily the middle-income market for individual protection life and health insurance and, as a result, we compete directly with alternative uses of a customer’s disposable income. If disposable income within this demographic group declines or the use of disposable income becomes more limited, as a result of a significant, sustained economic downturn or otherwise, then new sales of our insurance products could become more challenging, and our policyholders may choose to defer paying insurance premiums or stop paying insurance premiums altogether. Economic conditions could also impact our investment portfolio as discussed under Investment Risks below.

Variations in expected to actual rates of mortality, morbidity, and persistency could materially negatively affect our results of operations and financial condition. We establish a liability for our policy reserves to pay future policyholder benefits and claims. These reserves do not represent an exact calculation of liability, but rather are actuarial estimates based on models that include many assumptions and projections which are inherently uncertain. The reserve computations involve the exercise of significant judgment with respect to levels of mortality, morbidity, and persistency as well as the timing of premium and benefit payments. Even though our actuaries continually test expected-to-actual results, actual levels that occur may differ significantly from the levels assumed when premium rates were first set. Accordingly, we cannot determine with precision the ultimate amounts of claims or benefits that we will pay or the timing of such payments. Significant adverse variations from the levels assumed when policy reserves are first set could require policy obligations to be increased and negatively affect our profit margins and income.

A ratings downgrade or other negative action by a rating agency could materially affect our business, financial condition and results of operations. Various rating agencies review the financial performance and condition of insurers, including our insurance subsidiaries, and publish their financial strength ratings as indicators of an insurer’s ability to meet policyholder and contract holder obligations. These ratings are important to maintaining public confidence in our insurance products. A downgrade or other negative action by a rating agency with respect to the financial strength ratings of our insurance subsidiaries could negatively affect us in many ways, including the following: limiting or restricting the ability of our insurance subsidiaries to pay dividends to us and adversely affecting our ability to sell insurance products through our independent agencies.

Rating agencies also publish credit ratings for us. Credit ratings are indicators of a debt issuer’s ability to meet the terms of debt obligations in a timely manner. These ratings are important to our overall ability to access certain types of liquidity. Actual or anticipated downgrades in our credit ratings, or an announcement that our ratings are under further review for a downgrade, could potentially have a negative effect on our operations, by limiting our access to capital markets, increasing the cost of debt, or impairing our ability to raise capital to refinance maturing debt obligations, thereby potentially limiting our capacity to support growth at our insurance subsidiaries or making it more difficult to maintain or improve the current financial strength ratings of our insurance subsidiaries.

Ratings reflect only the rating agency’s views and are not recommendations to buy, sell or hold our securities. Rating agencies assign ratings based upon several factors. While most of the factors relate to the rated company, some of the factors relate to the views of the rating agency, general economic conditions and circumstances outside the rated company’s control. In addition, rating agencies use various models and formulas to assess the strength of a rated

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company, and from time to time rating agencies have, in their discretion, altered the models. Changes to the models could impact the rating agencies’ judgment of the rating to be assigned to the rated company. There can be no assurance that current credit ratings will remain in effect for any given period of time or that such ratings will not be lowered, suspended or withdrawn entirely by the rating agencies, if in each rating agency’s judgment, circumstances so warrant. We cannot predict what actions the rating agencies may take, or what actions we may take in response to the actions of the rating agencies, which could negatively affect our business, financial condition and results of operations.

Life Insurance Marketplace Risk:

Our life products are sold in selected niche markets. We are at risk should any of these markets diminish. We have several life distribution channels that focus on distinct market niches, two of which are labor union members and sales via Globe Life Direct Response solicitation. Deterioration of our relationships with organized labor or adverse changes in the public’s receptivity to direct response marketing initiatives could negatively affect this business.

Health Insurance Marketplace Risks:

The health insurance market is subject to substantial regulatory scrutiny. Regulatory changes could impact our Medicare Supplement and other supplemental health businesses. The nature and timing of any such changes cannot be predicted and could have a material adverse effect on that business.

Competition in the health insurance market can be significant. Sales of our health insurance products are subject to competition from other health insurance companies and alternative healthcare providers, such as those that provide alternatives to traditional Medicare to seniors. In addition, some insurers may be willing to significantly reduce their profit margins or underprice new sales in order to gain market share. We choose not to compete for market share based on these terms. Accordingly, changes in the competitive landscape, including the pricing strategies employed by our competitors, could negatively impact the future sales of our health insurance products.

Obtaining timely and appropriate premium rate increases for certain health insurance policies is critical. A significant percentage of the health insurance premiums that our insurance subsidiaries earn is from Medicare Supplement insurance. Medicare Supplement insurance and the terms under which the premiums for such policies may be increased are highly regulated at both the state and federal level. As a result, it is characterized by lower profit margins than life insurance and requires strict administrative discipline and economies of scale for success. Because Medicare Supplement policies are coordinated with the federal Medicare program, which experiences health care inflation every year, annual premium rate increases for the Medicare Supplement policies are necessary. Obtaining timely rate increases is of critical importance to our success in this market. Accordingly, the inability of our insurance subsidiaries to obtain approval of premium rate increases in a timely manner from state insurance regulatory authorities in the future could adversely impact their profitability and thus our results of operations and financial condition.

Information Security and Technology Risks:

The failure to maintain effective and efficient information systems at the Company could compromise secure data thereby adversely affecting our financial condition and results of operations.

Our business operations are highly dependent upon information technology systems to provide efficient and resilient business operations. Malicious actors, employee errors or disasters affecting these information systems could impair our business operations, regulatory compliance and financial condition. To the extent our information systems may be breached by malicious actors, employee malfeasance or technological attacks, an attacker could circumvent security measures in order to alter or delete customer or proprietary information from our systems. In addition, we may not become aware of sophisticated or advanced cyber attacks for some time after they occur, thereby increasing the Company's exposure.

Employee errors in the handling of our information or technology systems may inadvertently result in unauthorized access to customer or proprietary information, or an inability to use our information technology systems to efficiently support business operations.

In addition, an increasing number of states require that customers be notified of unauthorized access, use or disclosure of their confidential information. Any such breach of confidential information could damage our reputation in the

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marketplace, deter potential customers from purchasing our products, result in the loss of existing customers, subject us to significant civil and criminal liability, or require us to incur significant technical, legal or other expenses.

In the event of a disaster, such as a natural catastrophe, an industrial accident, a blackout, or a terrorist attack or war, our computer systems may be inaccessible to our employees or customers for a period of time. A disaster or natural catastrophe, an industrial accident, terror attack or war may make our information systems unavailable to support business operations for a period of time, affecting our systems, physical business operations, and financial condition. Even if our employees are able to report to work, they may be unable to perform their duties for an extended period of time if our data or systems are disabled or destroyed and if existing contingency plans cannot function as designed.

Reputational Risk:

Damage to the reputation of Torchmark or its subsidiaries could affect our ability to conduct business. Negative publicity through traditional media, internet, social media, and other public forums could damage our reputation and adversely impact our agent recruiting efforts, the ability to market our products, and the persistency of our block of inforce policies. As discussed above in Information Security and Technology Risks, the Company could be subjected to adverse publicity as a result of a significant security breach.

Investment Risks:

Our investments are subject to market and credit risks. Significant downgrades, delinquencies and defaults in our investment portfolio could potentially result in lower net investment income and increased realized and unrealized investment losses. Our invested assets are subject to the customary risks of defaults, downgrades and changes in market values. Our investment portfolio consists, almost exclusively, of fixed maturity and short-term investments. A significant portion of our fixed maturity investments is comprised of corporate bonds, exposing us to the risk that individual corporate issuers will not have the ability to make required interest or principal payments on the investment. Factors that may affect both market and credit risks include interest rate levels, financial market performance, disruptions in credit markets, general economic conditions, legislative changes, particular circumstances affecting the businesses or industries of each issuer and other factors beyond our control.

Additionally, as the majority of our investments are longer-term fixed maturities that we typically hold until maturity, significant increases in interest rates, widening of credit spreads or inactive markets associated with market downturns could cause a material temporary decline in the fair value of our fixed investment portfolio, even with regard to performing assets. These declines could cause a material increase in unrealized losses in our investment portfolio. Significant unrealized losses can substantially reduce our capital position and shareholders’ equity. It is possible that our investment in certain of these securities with unrealized losses may experience a default event and that a portion or all of that unrealized loss may not be recoverable. In that case, the unrealized loss will be realized, at which point we would take an impairment charge, reducing our net income.

We cannot be assured that any particular issuer, regardless of industry, will be able to make required interest and principal payments, on a timely basis or at all. Significant downgrades of issuers could negatively impact our risk-based capital ratios, leading to potential downgrades by our rating agencies, potential reduction in future dividend capacity, and/or higher financing costs at the holding company should additional statutory capital be required.

Changes in interest rates could negatively affect income. Declines in interest rates expose insurance companies to the risk that they will fail to earn the level of interest on investments assumed in pricing products and in setting discount rates used to calculate the net policy liabilities. While we attempt to manage our investments to earn an excess investment income spread, we provide no assurance that a significant and persistent decline in interest rates will not materially affect such spreads. Significant decreases in interest rates could result in calls by issuers of investments, where such features are available to issuers. These calls could result in a decline in our investment income, as reinvestment of the proceeds would likely be at lower rates.

Increases in interest rates could cause the fair value of securities within our bond portfolio to decline. A rise in interest rates could also result in certain policyholders surrendering their annuity policies for cash thereby potentially requiring our insurance subsidiaries to liquidate bonds if other sources of liquidity are not available to meet their obligations. In such a case, realized losses could result from such sales and could adversely affect our statutory income and results of operations.

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Liquidity Risks:

Our ability to fund operations is substantially dependent on funds available, primarily dividends, from our insurance subsidiaries. As a holding company with no direct operations, our principal asset is the capital stock of our insurance subsidiaries, which periodically declare and distribute dividends on their capital stock. Moreover, our liquidity, including our ability to pay our operating expenses and to make principal and interest payments on debt securities or other indebtedness owed by us, as well as our ability to pay dividends on our common stock or any preferred stock, depends significantly upon the surplus and earnings of our insurance subsidiaries and the ability of these subsidiaries to pay dividends or to advance or repay funds to us. Other sources of liquidity include a variety of short-term and long-term instruments, including our credit facility, commercial paper, long-term debt, intercompany financing, and reinsurance.

The principal sources of our insurance subsidiaries’ liquidity are insurance premiums, as well as investment income, maturities, repayments and other cash flow from our investment portfolio. Our insurance subsidiaries are subject to various state statutory and regulatory restrictions applicable to insurance companies that limit the amount of cash dividends, loans and advances that those subsidiaries may pay to us, including laws establishing minimum solvency and liquidity thresholds. For example, in the states where our companies are domiciled, an insurance company generally may pay dividends only out of its unassigned surplus as reflected in its statutory financial statements filed in that state. Additionally, dividends paid by insurance subsidiaries are restricted based on regulations by their state of domicile . Accordingly, impairments in invested assets or a disruption in our insurance subsidiaries’ operations that reduces their capital or cash flow could limit or disallow payment of dividends to us, a principal source of our cash flow.

We can give no assurance that more stringent restrictions will not be adopted from time to time by states in which our insurance subsidiaries are domiciled, which could, under certain circumstances, significantly reduce dividends or other amounts paid to us by our subsidiaries. Although we do not anticipate changes, changes in these laws could constrain the ability of our subsidiaries to pay dividends or to advance or repay funds to us in sufficient amounts and at times necessary to meet our debt obligations and corporate expenses. Additionally, if our insurance subsidiaries were unable to obtain approval of premium rate increases in a timely manner from state insurance regulatory authorities, their profitability, and their ability to declare and distribute dividends to us could be negatively impacted. Limitations on the flow of dividends from our subsidiaries could limit our ability to service and repay debt or to pay dividends on our capital stock.

Adverse capital and credit market conditions may significantly affect our ability to meet liquidity needs or access capital, as well as affect our cost of capital. Should treasury rates increase or credit spreads widen in the future, the interest rate on any new debt obligation we may issue could increase, and our net income could be reduced. In addition, if the credit and capital markets were to experience significant disruption, uncertainty, and instability, these conditions could adversely affect our access to capital. Such market conditions may limit our ability to replace maturing liabilities (in a timely manner or at all) and/or access the capital necessary to grow our business.

In the unlikely event that current sources of liquidity do not satisfy our needs, we may have to seek additional financing or raise capital. The availability and cost of additional financing or capital will depend on a variety of factors such as market conditions, the general availability of credit or capital, the volume of trading activities, the overall availability of credit to the insurance industry and our credit ratings and credit capacity. Additionally, customers, lenders, or investors could develop a negative perception of our long- or short-term financial prospects if we were to incur large investment losses or if the level of our business activity decreases due to a market downturn. Our access to funds may also be impaired if regulatory authorities or rating agencies take negative actions against us. If our internal sources of liquidity prove to be insufficient, we may not be able to successfully obtain additional financing on favorable terms, or at all. As such, we may be forced to delay raising capital, issue shorter term securities than we prefer or bear an unattractive cost of capital which could decrease our profitability and significantly reduce our financial flexibility. As a result, our results of operations, financial condition and cash flows could be materially negatively affected.

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Regulatory Risks:

Our businesses are heavily regulated, and changes in regulation may reduce our profitability and growth. Insurance companies, including our insurance subsidiaries, are subject to extensive supervision and regulation in the states in which they do business. The primary purpose of this supervision and regulation is the protection of our policyholders, not our investors. State agencies have broad administrative power over numerous aspects of our business, including premium rates and other terms and conditions that we can include in the insurance policies offered by our insurance subsidiaries, marketing practices, advertising, licensing of agents, policy forms, capital adequacy, solvency, reserves, and permitted investments. Also, regulatory authorities have relatively broad discretion to grant, renew or initiate procedures to revoke licenses or approvals. The insurance laws, regulations and policies currently affecting Torchmark and its insurance subsidiaries may change at any time, possibly having an adverse effect on our business. Should these changes to our business occur, we may be unable to maintain all required licenses and approvals, and our business may not fully comply with the wide variety of applicable laws and regulations or the relevant authority’s interpretation of such laws and regulations, which may change from time to time. If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, the insurance regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our activities and/or impose substantial fines.

We cannot predict the timing or substance of any future regulatory initiatives. In recent years, there has been increased scrutiny of insurance companies, including our insurance subsidiaries, by insurance regulatory authorities, which has included more extensive examinations and more detailed review of disclosure documents. These regulatory authorities may bring regulatory or other legal actions against us if, in their view, our practices, or those of our agents or employees, are improper. Such actions could result in substantial fines, penalties, or prohibitions or restrictions on our business activities and could have a material adverse effect on our business, results of operations, or financial condition. Additionally, changes in the overall legal or regulatory environment may, even absent any particular regulatory authority’s interpretation of an issue changing, cause us to change our views regarding the actions that we need to take from a legal or regulatory risk management perspective, thus necessitating changes to our practices that may, in some cases, limit our ability to grow, impact regulatory capital requirements, or otherwise negatively impact the profitability of our business.

Currently, the U.S. federal government does not directly regulate the business of insurance. However, the Dodd-Frank Wall Street Record and Consumer Protection Act of 2010 established a Federal Insurance Office (FIO) within the Department of the Treasury, and the Affordable Care Act and a Financial Stability Oversight Council (FSOC) created the Center for Consumer Information and Insurance Oversight (CCIIO), originally established under the Department of Health and Human Services and subsequently transferred to the Centers for Medicare and Medicaid Services (CMS). The creation of these insurance regulatory offices may indicate that the federal government intends to play a larger role in the direct oversight or regulation of the insurance industry. We cannot predict what impact, if any, the FIO, FSOC and CCIIO, as well as any other proposals for federal oversight or regulation of insurance could have on our business, results of operations, or financial condition.

Changes in U.S. federal income tax law could increase our tax costs. Changes to the Internal Revenue Code, administrative rulings, or court decisions affecting the insurance industry, including the products it offers, could increase our effective tax rate and lower our net income, or negatively affect our ability to sell some of our products.

Changes in accounting standards issued by accounting standard-setting bodies may affect our financial statements, reduce our reported profitability, and change the timing of profit recognition. Our financial statements are subject to the application of GAAP and accounting practices as promulgated by the National Association of Insurance Commissioners’ statutory accounting practices (NAIC SAP), which principles are periodically revised and/or expanded. Accordingly, from time to time, we are required to adopt new or revised accounting standards or guidance issued by recognized authoritative bodies. It is possible that future accounting standards that we are required to adopt could change the current accounting treatment that we apply to our consolidated financial statements and that such changes could have a material adverse effect on our financial condition and results of operations. Further, standard setters have a full agenda of unissued topics under review at any given time, many of which have the potential to negatively impact our profitability.

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Non-compliance with restrictions on patient privacy and information security, including taking steps to ensure that our business associates who obtain access to sensitive patient information maintain its confidentiality, could materially adversely affect our reputation and business operations. The collection, maintenance, use, disclosure and disposal of individually identifiable data by our insurance subsidiaries are regulated at the international, federal and state levels. These laws and rules are subject to change by legislation or administrative or judicial interpretation. Various state laws address the use and disclosure of individually identifiable health data to the extent they are more restrictive than those contained in the privacy and security provisions in the federal Gramm-Leach-Bliley Act of 1999 (GLBA) and in the Health Insurance Portability and Accountability Act of 1996 (HIPAA). HIPAA also requires that we impose privacy and security requirements on our business associates (as that term is defined in the HIPAA regulations). Noncompliance with any privacy laws or any security breach involving the misappropriation, loss or other unauthorized disclosure of sensitive or confidential information, whether by us or by one of our business associates, could have a material adverse effect on our business, reputation and results of operations and could include material fines and penalties, various forms of damages, consent orders regarding our privacy and security practices, adverse actions against our licenses to do business and injunctive relief.

Litigation Risk:

Litigation could result in substantial judgments against us or our subsidiaries. We are, and in the future may be, subject to litigation in the ordinary course of business. Some of these proceedings have been brought on behalf of various alleged classes of complainants, and, in certain of these matters, the plaintiffs are seeking large and/or indeterminate amounts, including punitive or exemplary damages. Members of our management and legal teams review litigation on a quarterly and annual basis. However, the outcome of any such litigation cannot be predicted with certainty. A number of civil jury verdicts have been returned against insurers in the jurisdictions in which Torchmark and its insurance subsidiaries do business involving the insurers’ sales practices, alleged agent misconduct, failure to properly supervise agents, and other matters. These lawsuits have resulted in the award of substantial judgments against insurers that are disproportionate to the actual damages, including material amounts of punitive damages. In some states in which we operate, juries have substantial discretion in awarding punitive damages. This discretion creates the potential for unpredictable material adverse judgments in any given punitive damages suit.

Our pending and future litigation could adversely affect us because of the costs of defending these cases, the costs of settlement or judgments against us, or changes in our operations that could result from litigation. Substantial legal liability in these or future legal actions could also have a material financial effect or cause significant harm to our reputation, which, in turn, could materially harm our business and our business prospects.

Catastrophic Event Risk:

Our business is subject to the risk of the occurrence of catastrophic events. Our insurance policies are issued to and held by a large number of policyholders throughout the United States in relatively low-face amounts. Accordingly, it is unlikely that a large portion of our policyholder base would be affected by a single natural disaster. However, our insurance operations could be exposed to the risk of catastrophic mortality or morbidity, caused by events such as a pandemic, hurricane, earthquake, or man-made catastrophes, including acts of terrorism or war, which may produce significant claims in larger areas, especially those that are heavily populated. Claims resulting from natural or man-made catastrophic events could cause substantial volatility in our financial results for any fiscal quarter or year and could materially reduce our profitability or harm our financial condition.

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Item 1B. Unresolved Staff Comments

As of December 31, 2016 , Torchmark had no unresolved staff comments.

Item 2. Properties

Torchmark, through its subsidiaries, owns or leases buildings that are used in the normal course of business. Torchmark owns and occupies a 300,000 square foot facility in McKinney, Texas. This facility is Torchmark’s corporate headquarters and also houses the operations of a subsidiary, United American, as well as many operations of other subsidiaries. In addition, United American leases 5,000 square feet of space in Omaha, Nebraska and, through a subsidiary, leases 2,500 square feet of office space in Syracuse, New York.

Liberty National, also in McKinney, Texas, leases a 24,000 square foot facility in Hoover, Alabama (a Birmingham suburb). An 8,000 square foot facility is leased for storage in Pelham, Alabama.

Globe leases 34,000 square feet of office area in the Cotter Tower building located in downtown Oklahoma City, Oklahoma. Globe also leases 11,000 square feet at a nearby facility used for storage. Globe Marketing Services, a subsidiary of Globe, owns a 133,000 square foot facility in Oklahoma City which houses the Globe Life Direct Response operation.

American Income owns and occupies two buildings located in Waco, Texas: 70,000 square foot building for corporate operations and a 43,000 square foot printing facility. American Income also leases 10,800 square feet in a building across the street from the main office building. American Income also leases office space throughout the United States to support its marketing operations.

Family Heritage owns 50% of a partnership that owns a 66,000 square foot building in Broadview Heights, Ohio (a suburb of Cleveland), serving as Family Heritage’s headquarters. The partnership also leases a portion of the building to unrelated tenants.

Item 3. 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.

See further discussion of litigation and unclaimed property audits in Note 15—Commitments and Contingencies .

Item 4. Mine Safety Disclosures.

Not Applicable.

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PART II

Item 5. Market for Registrant’s Common Equity,

Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters

The principal market in which Torchmark’s common stock is traded is the New York Stock Exchange. There were 2,808 shareholders of record on December 31, 2016 , excluding shareholder accounts held in nominee form. The market prices and cash dividends paid by calendar quarter for the past two years are presented in the following table.



			2016 Market Price				Dividends Per Share
Quarter			High		Low		Dividends Per Share
1			$	57.01	$	48.58	$	0.1350
2			62.39		52.83		0.1400
3			65.21		60.38		0.1400
4			74.83		63.17		0.1400
Year-end closing price	$	73.76
			2015 Market Price				Dividends Per Share
Quarter			High		Low		Dividends Per Share
1			$	55.66	$	50.07	$	0.1267
2			59.15		54.98		0.1350
3			63.12		55.62		0.1350
4			61.19		55.36		0.1350
Year-end closing price	$	57.16

The line graph shown below compares Torchmark’s cumulative total return on its common stock with the cumulative total returns of the Standard and Poor’s 500 Stock Index (S&P 500) and the Standard and Poor’s Life & Health Insurance Index (S&P Life & Health Insurance). Torchmark is one of the companies whose stock is included within both the S&P 500 and the S&P Life & Health Insurance Index.

*100 invested on 12/31/11 in stock or index, including reinvestment of dividends. Fiscal year ended December 31st.

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Purchases of Certain Equity Securities by the Issuer and Others for the Fourth Quarter 2016



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
October 1-31, 2016	411,933	$	64.36	411,933
November 1-30, 2016	175,770	62.40		175,770
December 1-31, 2016	757,089	73.90		757,089

On August 4, 2016 , Torchmark’s Board reaffirmed its continued authorization of the Company’s stock repurchase program in amounts and with timing that management, in consultation with the Board, determined to be in the best interest of the Company. The program has no defined expiration date or maximum number of shares to be purchased.

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Item 6. Selected Financial Data

The following information should be read in conjunction with Torchmark’s Consolidated Financial Statements and related notes reported elsewhere in this Form 10-K:

(Amounts in thousands except per share and percentage data)



Year ended December 31,	2016			2015			2014		2013		2012
Premium revenue:
Life	$	2,189,333		$	2,073,065		$	1,966,300	$	1,885,332	$	1,808,524
Health	947,663			925,520			869,440		863,818		730,019
Other	38			135			400		532		559
Total	3,137,034			2,998,720			2,836,140		2,749,682		2,539,102
Net investment income	806,903			773,951			758,286		734,650		716,132
Realized investment gains (losses)	(10,683		)	(8,791		)	23,548		7,990		37,833
Total revenue	3,934,629			3,766,065			3,620,095		3,494,253		3,294,644
Income from continuing operations, net of tax ⁽¹⁾	539,590			516,293			528,074		507,205		509,297
Income from discontinued operations, net of tax	10,189			10,807			14,865		21,267		20,027
Net income ⁽¹⁾	549,779			527,100			542,939		528,472		529,324
Per common share:
Basic earnings:
Income from continuing operations	4.50			4.13			4.04		3.68		3.51
Income from discontinued operations	0.08			0.08			0.11		0.16		0.14
Net income	4.58			4.21			4.15		3.84		3.65
Diluted earnings: ⁽¹⁾
Income from continuing operations	4.41			4.07			3.98		3.63		3.47
Income from discontinued operations	0.08			0.09			0.11		0.16		0.13
Net income	4.49			4.16			4.09		3.79		3.60
Cash dividends declared	0.56			0.54			0.51		0.45		0.40
Cash dividends paid	0.56			0.53			0.49		0.44		0.38
Basic average shares outstanding	120,001			125,095			130,722		137,647		144,921
Diluted average shares outstanding ⁽¹⁾	122,368			126,757			132,640		139,564		146,848

As of December 31,	2016			2015			2014		2013		2012
Cash and invested assets	$	15,955,891		$	14,405,073		$	15,058,996	$	13,456,944	$	14,155,919
Total assets	21,436,087			19,853,213			20,272,259		18,217,757		18,810,132
Short-term debt	264,475			490,129			238,398		229,070		319,043
Long-term debt	1,133,165			743,733			992,130		990,865		989,686
Shareholders' equity	4,566,861			4,055,552			4,697,466		3,776,342		4,361,786
Per diluted share ⁽¹⁾	37.76			32.71			36.19		27.66		30.56
Effect of fixed maturity revaluation on diluted equity per share ^(1,2)	5.63			2.62			8.28		1.81		7.07
Annualized premium in force:
Life	2,262,736			2,150,498			2,044,545		1,955,401		1,895,017
Health	998,634			973,042			947,323		887,444		902,753
Total	3,261,370			3,123,540			2,991,868		2,842,845		2,797,770
Basic shares outstanding	118,031			122,370			127,930		134,252		141,353
Diluted shares outstanding ⁽¹⁾	120,958			123,996			129,812		136,537		142,707


(1)	Certain current year amounts were prospectively adjusted to give effect to the adoption of ASU 2016-09 related to excess tax benefits from stock compensation as described in Note 1—Significant Accounting Policies under "Accounting Pronouncements Adopted in the Current Year."

(2)

There is accounting guidance (ASC 320-10-35-1, Investments- Debt and Equity Securities ) requiring available-for-sale fixed maturities to be recorded at fair value each period. The effect of this rule on diluted equity per share reflects the amount added or (deducted) under this rule to produce GAAP Shareholders’ equity per share. See discussion under the caption Capital Resources in Management’s Discussion and Analysis in this report concerning the effect this rule has on Torchmark’s equity.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Selected Financial Data and Torchmark’s Consolidated Financial Statements and Notes thereto appearing elsewhere in this report.

RESULTS OF OPERATIONS

How Torchmark Views Its Operations: Torchmark is the holding company for a group of insurance companies which market primarily individual life, and supplemental health insurance to middle income households throughout the United States. We view our operations by segments, which are the insurance product lines of life, health, and annuities, and the investment segment that supports the product lines. Segments are aligned based on their common characteristics, comparability of the profit margins, and management techniques used to operate each segment.

Insurance Product Line Segments. As fully explained in Note 14—Business Segments in the Notes to the Consolidated Financial Statements , the insurance product line segments involve the marketing, underwriting, and the administration of policies. Each product line is further segmented by the various distribution units that market the insurance policies. Each distribution unit operates in a niche market offering insurance products designed for that particular market. Whether analyzing profitability of a segment as a whole, or the individual distribution units within the segment, the measure of profitability used by management is the underwriting margin, which is:

Premium revenue

Less:

Policy obligations

Policy acquisition costs and commissions

Investment Segment. The investment segment involves the management of our capital resources, including investments and the management of corporate debt and liquidity. Our measure of profitability for the investment segment is excess investment income, which is:

Net investment income

Less:

Required interest on net policy liabilities

Financing costs

The tables in Note 14—Business Segments in the Notes to the Consolidated Financial Statements reconcile Torchmark’s revenues and expenses by segment to its major income statement line items for each of the years in the three-year period ended December 31, 2016 . Additionally, this Note provides a summary of the profitability measures that demonstrate year-to-year comparability and which reconciles to net income. That summary is reproduced below from the Consolidated Financial Statements to present our overall operations in the manner that we use to manage the business.

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Analysis of Profitability by Segment

(Dollar amounts in thousands)



	2016			2015			2014			2016 Change			%		2015 Change			%
Life insurance underwriting margin	$	573,762		$	569,402		$	556,489		$	4,360		1		$	12,913		2
Health insurance underwriting margin	210,056			204,377			199,319			5,679			3		5,058			3
Annuity underwriting margin	9,394			4,568			4,312			4,826			106		256			6
Excess investment income	224,031			219,504			224,364			4,527			2		(4,860		)	(2	)
Other insurance:
Other income	1,534			2,379			2,354			(845		)	(36	)	25			1
Administrative expense	(196,598		)	(186,191		)	(174,832		)	(10,407		)	6		(11,359		)	6
Corporate and adjustments	(34,913		)	(37,667		)	(40,362		)	2,754			(7	)	2,695			(7	)
Pre-tax total	787,266			776,372			771,644			10,894			1		4,728			1
Applicable taxes ⁽¹⁾	(237,906		)	(253,459		)	(252,041		)	15,553			(6	)	(1,418		)	1
Net operating income from continuing operations ⁽²⁾	549,360			522,913			519,603			26,447			5		3,310			1
Discontinued operations (after tax) ⁽³⁾	10,189			10,807			14,865			(618		)	(6	)	(4,058		)	(27	)
Total	559,549			533,720			534,468			25,829			5		(748		)	—
Realized gains (losses)—investments (after tax)	(6,944		)	(5,714		)	15,306			(1,230		)			(21,020		)
Legal settlement expenses (after tax)	—			—			(1,519		)	—					1,519
Administrative settlements (after tax)	(2,467		)	(906		)	(5,316		)	(1,561		)			4,410
Non-operating fees (after tax)	(359		)	—			—			(359		)			—
Net income	$	549,779		$	527,100		$	542,939		$	22,679		4		$	(15,839	)	(3	)

(1) Certain current year amounts were prospectively adjusted to give effect to the adoption of ASU 2016-09 related to excess tax benefits from stock compensation as described in Note 1—Significant Accounting Policies under "Accounting Pronouncements Adopted in the Current Year."

(2) Net operating income from continuing operations is the consolidated total of segment profits after tax and as such is considered a Non-GAAP measure. See Note 14—Business Segments for reconciliation to the most directly comparable GAAP measure and for discussion of the usefulness and purpose of this measure.

(3) Income from discontinued operations (after tax) is included for purposes of reconciling to net income.

Torchmark’s operations on a segment-by-segment basis are discussed in depth under the appropriate captions following in this report.

Summary of Operations: As shown in the above chart, net income was $550 million in 2016 , compared with $527 million in 2015 . Net income decreased in 2015 from $543 million in 2014 . On a diluted per share basis, 2016 net income rose 8% to $4.49 after a 2% increase in 2015 . Net income per diluted share in 2015 rose to $4.16 from $4.09 in 2014 . The per share results have exceeded the growth in dollar amounts due to our share repurchase program. Each year’s per share net income was affected by realized investment gains (losses), which were $(0.06) , $(0.05) , and $0.12 , in 2016 , 2015 and 2014 , respectively. More information concerning realized investment gains and losses can be found under the caption Realized Gains and Losses in this report.

Net operating income from continuing operations rose each year over the prior year from $520 million in 2014 to $523 million in 2015 to $549 million in 2016 . Also, as explained in Note 14—Business Segments in the Notes to the Consolidated Financial Statements , we do not consider realized gains and losses to be a component of our core insurance operations or operating segments. Additionally, net income was affected by certain significant and unusual non-operating items in each of the years 2014 through 2016 . We do not view these items as components of core operating results because they are not indicative of past performance or future prospects of the insurance operations. Accordingly, as described in Note 14—Business Segments in the Notes to the Consolidated Financial Statements , we remove items such as these that relate to prior periods or are non-operating items when evaluating the results of current operations, and therefore exclude such matters from our segment analysis for current periods.

Effective July 1, 2016, Torchmark sold its Medicare Part D Prescription Drug Plan business to an unaffiliated third party. Torchmark decided to exit its Medicare Part D business due to declining margins, increased risks, higher drug costs, and increased administrative and compliance costs. This sale allows the Company to better focus on its core protection life and health insurance businesses and provides additional capital to invest. The financial results of this business are

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excluded from Torchmark's continuing operations including the Notes to the Consolidated Financial Statements , other than Note 2—Statutory Accounting and Note 6—Discontinued Operations .

The life insurance segment is our strongest segment and is the largest contributor to earnings in each year presented. This segment contributed $4 million in 2016 and $13 million in 2015 to the growth in our underwriting margin. Also contributing to growth in income in both years was our health insurance segment, which provided $6 million of additional margin in 2016 and $5 million in 2015 .

Excess investment income, the measure of profitability of our investment segment, increased to $224 million or 2% from the prior year amount of $220 million . In 2015 , excess investment income decreased 2% . Investment yields continue to be pressured by reinvesting proceeds from dispositions at lower rates relative to the fixed maturity assets being disposed of and spreads related to required interest on net policy liabilities throughout the three-year period. Excess investment income has also been hampered by a lag in government reimbursements of Medicare Part D costs. The impact of the lost investment income from delayed receipt of reimbursements is reflected in income from continuing operations rather than discontinued operations in accordance with applicable accounting rules. As noted previously, the Medicare Part D business has been classified as discontinued operations.

Total revenues rose 4% in 2016 to $3.9 billion , or $169 million over the prior year total of $3.8 billion . Life premium rose 6% or $116 million in 2016 to $2.2 billion . Life premium increased $107 million in 2015 to $2.1 billion . Net investment income rose $16 million or 2% in 2015 , and rose 4% or $33 million in 2016 . Health premium increased 2% to $948 million in 2016 and contributed $22 million to 2016 revenue growth, after having gained 6% to $926 million in 2015 . Health premium contributed $56 million to 2015 revenue growth.

Life insurance premium and underwriting margins have grown steadily in each of the last three years ended December 31, 2016 . The increase in life premium was driven by sales growth and improvements in persistency. While premium and underwriting margins grew, margin as a percent of premium declined in 2016 to 26% , after decreasing from 28% to 27% from 2014 to 2015 . These declines were due primarily to higher than expected Globe Life Direct Response policy obligations. Net life sales were flat in 2016 at $412 million after increasing 9% in 2015 . The life insurance segment is discussed further in this report under the caption Life Insurance .

Health insurance premium income increased 2% to $948 million in 2016 . Health net sales fell 7% to $145 million during 2016 , as a result of a 20% decrease in Medicare Supplement sales. The decrease in 2016 Medicare Supplement net sales was expected due to group sales returning to a more normal level after unusually high sales in 2014. Group sales vary significantly from period to period due to the impact of large groups that are sold from time to time. First-year collected health premium fell 11% to $140 million from the prior year total of $157 million as a result of a high level of group sales in the third and fourth quarters of 2014 that positively affected the 2015 first-year collected premium. Health margins were flat at 22% , with underwriting income increasing to $210 million for 2016 due to the growth in premium income. Underwriting income was $204 million for the same period in 2015 compared with $199 million in 2014 .

We do not currently market annuities. See the caption Annuities for discussion of the Annuity segment.

The investment segment’s pretax profitability, or excess investment income, is based on three major components: net investment income, required interest on net policy liabilities (interest applicable to insurance products), and financing costs. In 2016 , net investment income rose 4% , compared with 2% in 2015 . At the same time, our investment portfolio grew 6% in 2016 and 3% , on an amortized cost basis, in 2015 . In recent years, net investment income has not grown as fast as the portfolio due primarily to new investments being made at yield rates lower than the yield rates earned on securities that matured or were otherwise disposed. The growth rate of net investment income is sometimes impacted by a lag between the time when proceeds from maturities and dispositions are received and when the proceeds are reinvested, during which the funds are held in cash. In addition, Torchmark’s share repurchase program (described later under this caption) has diverted cash that could have otherwise been used to acquire investments and increase net investment income. Net investment income was negatively impacted during 2014 through 2016 by our Medicare Part D business. Under the program, we were required to cover certain costs in the current period that are the federal government’s responsibility, but are not reimbursed until late in the next calendar year. This delay in reimbursement reduced our funds available for investment in each year, resulting in reduced investment income.

The interest required on net policy liabilities is deducted from net investment income, and generally grows in conjunction with the net policy liabilities that are supported by the invested assets. The lower new-money yields resulting from the

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low interest rate environment noted above have compressed excess investment income as required interest has continued to grow at approximately the same rate that net policy liabilities have grown. Financing costs, which consist of the interest required for debt service on our long and short-term debt, are also deducted from net investment income. Financing costs in 2016 increased 9% to $83 million from $77 million in 2015 . The additional interest expense resulted primarily from the issuance of our new 6.125% Junior Subordinated Debt security seventy days before the maturity and repayment of our 6.375% Senior Notes.

Torchmark’s current investment policy regarding fixed maturities limits new fixed maturity acquisitions to investment-grade securities generally with longer maturities (often exceeding twenty years) that meet our quality and yield objectives. Approximately 96% of our invested assets at fair value are fixed maturities, of which 95% were investment grade at December 31, 2016 . The average quality rating of the portfolio was BBB+ . The portfolio contains no securities backed by subprime or Alt-A mortgages, no direct investment in residential mortgages, no credit default swaps, or other derivative contracts. See the analysis of excess investment income and investment activities under the caption Investments in this report and Note 4—Investments in the Notes to the Consolidated Financial Statements for a more detailed discussion of this segment.

Insurance administrative expenses were up 5.6% in 2016 when compared with the prior year period, and increased to 6.3% as a percentage of premium from 6.2% in 2015 and 2014 . The increase in administrative expenses is primarily due to investments in information technology that will enhance our customer experience, improve our data analytic capabilities, improve our ability to adapt to future changes and bolster our information security programs. Stock compensation expense declined $2 million in 2016 to $26.3 million compared with a decrease of $4 million in 2015 to $28.7 million . The decline in stock compensation expense in 2016 and 2015 resulted primarily from lower expense associated with performance shares as well as lower option values on 2016 and 2015 option awards.

Share Purchases

Torchmark has in place an ongoing share repurchase program which began in 1986. With no specified authorization amount, we determine the amount of repurchases based on the amount of the excess cash flow at the Parent Company, general market conditions, and other alternative uses. The majority of these purchases are made from excess cash flow. Excess cash flow at the Parent Company is primarily comprised of dividends received from the insurance subsidiaries less interest expense paid on its debt, dividends paid to Torchmark shareholders, and other limited operating activities. Additionally, when stock options are exercised, proceeds from these exercises and the tax benefit are used to repurchase additional shares on the open market to minimize dilution as a result of the option exercises. The Board of Directors has authorized 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 and its shareholders. The following chart summarizes share purchase activity for each of the last three years.

Analysis of Share Purchases

(Amounts in thousands)



	2016			2015			2014
Purchases	Shares	Amount		Shares	Amount		Shares	Amount
Excess cash flow at the Parent Company	5,208	$	311,332	6,292	$	358,552	7,155	$	375,042
Option proceeds	1,487	93,452		1,049	59,974		1,394	74,266
Total	6,695	$	404,784	7,341	$	418,526	8,549	$	449,308

Throughout the remainder of this discussion, share purchases refer only to those made from excess cash flow at the Parent Company and borrowings.

A discussion of each of Torchmark’s segments follows. The following discussions are presented in the manner we view our operations, as described in Note 14—Business Segments in the Notes to the Consolidated Financial Statements .

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Index to Financial Statements

Life Insurance

Life insurance is our largest insurance segment, with 2016 life premium representing 70% of total premium. Life underwriting income before other income and administrative expense represented 72% of the total in 2016 . Additionally, investments supporting the reserves for life products produce the majority of excess investment income attributable to the investment segment.

We use three statistical measures as indicators of premium growth and sales over the near term: “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 annualized premium issued, net of cancellations in the first thirty days after issue, except in the case of Globe Life Direct Response where net sales is annualized premium issued at the time the first full premium is paid after any introductory offer period has expired. We believe that net sales is a better indicator of the rate of premium growth as compared to annualized premium issued. First-year collected premium is defined as 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 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.

Life insurance premium rose 6% to $2.2 billion in 2016 after having increased 5% in 2015 to $2.1 billion . Life insurance products are marketed through several distribution channels. Premium income by channel for each of the last three years is as follows:

LIFE INSURANCE

Premium by Distribution Method

(Dollar amounts in thousands)



	2016			2015			2014
	Amount		% of Total	Amount		% of Total	Amount		% of Total
American Income Exclusive Agency	$	913,355	42	$	830,903	40	$	766,458	39
Globe Life Direct Response	782,765		36	746,693		36	702,023		36
Liberty National Exclusive Agency	270,476		12	271,113		13	272,265		14
Other Agencies	222,737		10	224,356		11	225,554		11
	$	2,189,333	100	$	2,073,065	100	$	1,966,300	100

Annualized life premium in force was $2.26 billion at December 31, 2016 , an increase of 5.2% over $2.15 billion a year earlier. Annualized life premium in force was $2.04 billion at December 31, 2014 .

The following table shows net sales information for each of the last three years by distribution method.

LIFE INSURANCE

Net Sales by Distribution Method

(Dollar amounts in thousands)



	2016			2015			2014
	Amount		% of Total	Amount		% of Total	Amount		% of Total
American Income Exclusive Agency	$	209,856	51	$	198,046	48	$	172,271	45
Globe Life Direct Response	150,267		36	164,348		40	158,089		42
Liberty National Exclusive Agency	40,159		10	35,782		9	34,402		9
Other Agencies	11,673		3	13,705		3	13,492		4
	$	411,955	100	$	411,881	100	$	378,254	100

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Index to Financial Statements

The table below discloses first-year collected life premium by distribution channel.

LIFE INSURANCE

First-Year Collected Premium by Distribution Method

(Dollar amounts in thousands)



	2016			2015			2014
	Amount		% of Total	Amount		% of Total	Amount		% of Total
American Income Exclusive Agency	$	173,573	56	$	156,206	52	$	134,202	50
Globe Life Direct Response	98,496		31	106,417		35	100,287		37
Liberty National Exclusive Agency	29,103		9	27,554		9	25,777		9
Other Agencies	11,458		4	12,036		4	10,473		4
	$	312,630	100	$	302,213	100	$	270,739	100

The American Income Exclusive Agency has historically marketed primarily to members of labor unions. While labor unions are still the core market for this agency, American Income has diversified in recent years by focusing heavily on other affinity groups and referrals to help ensure sustainable growth. This agency is Torchmark’s largest contributor to life premium of any distribution channel at 42% of Torchmark’s 2016 total. This group produced premium income of $913 million , an increase of 10% over the prior year total of $831 million , after having risen 8% in 2015 . First-year collected premium was $174 million compared to $156 million in 2015 , an increase of 11% . First-year collected premium rose 16% in 2015 . Net sales increased 6% to $210 million in 2016 over the 2015 total of $198 million . Net sales increased 15% in 2015 over the 2014 total of $172 million . Sales growth in our captive agencies is generally dependent on growth in the size of the agency force. The American Income Agency's average agent count rose 2% to 6,671 for the year ended December 31, 2016 compared with 6,529 for the same period in 2015 . The average producing agent count is based on the actual count at the end of each week during the period. The American Income Exclusive Agency has been focusing on growing and strengthening middle management to support sustainable growth of the agency force. To accomplish this, the agency has placed an increased emphasis on agent training programs and financial incentives that appropriately reward agents at all levels for helping develop and train its agents, including 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 their level of experience and responsibility. We are also making considerable investments in information technology in support of the agency, including the launching of a lead mapping and management tool to the agency force in 2017. We anticipate this tool will enhance overall productivity of agents and improve agent retention.

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

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

Globe Life Direct Response’s life premium income rose 5% to $783 million , representing 36% of Torchmark’s total life premium during 2016 . Life premium in this channel increased 6% in 2015 to $747 million over the 2014 total of $702 million . Net sales of $150 million for this group decreased 9% from $164 million in 2015 , after a 4% increase in 2015 . The sales decline was expected as we have shifted our marketing efforts away from certain segments that no longer meet our profit objectives. First-year collected premium decreased 7% to $98 million in 2016 after having risen 6% in 2015 .

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Index to Financial Statements

The Liberty National Exclusive Agency markets individual and group life insurance to middle-income customers. Life premium income for this agency was $270 million in 2016 , a slight decline from $271 million in 2015 . Life premium income in 2014 totaled $272 million . Net sales increased 12% during 2016 to $40 million over the 2015 total of $36 million . Net sales in 2015 increased 4% . The increase in net sales during 2015 marked the first increase in several years, reflecting changes in structure of the agency that management has put in place in recent years. First-year collected premium increased 6% to $29 million during 2016 and increased 7% in 2015 to $28 million .

The Liberty average producing agent count increased 12% to 1,715 for the year ended December 31, 2016 compared with 1,535 for the same period in 2015 . We continue to execute our long term plan to grow this agency through expansion from small-town markets in the southeast to more densely populated areas with larger pools of potential agent recruits and customers. Expansion of this agency’s presence into more heavily populated, less-penetrated areas will help create long term agency growth. Additionally, the agency's prospecting training program has helped to improve the ability of agents to develop new work site marketing business.

The Other Agencies distribution channels offering life insurance include the Military Agency, the UA Independent Agency (which predominantly writes health insurance), and various smaller distribution channels. The Other Agencies contributed $223 million of life premium income, or 10% of Torchmark’s total in 2016 , but contributed only 3% of net sales for the year.

LIFE INSURANCE

Summary of Results

(Dollar amounts in thousands)



	2016					2015					2014
	Amount			% of Premium		Amount			% of Premium		Amount			% of Premium
Premium and policy charges	$	2,189,333		100		$	2,073,065		100		$	1,966,300		100

Policy obligations	1,475,477			67		1,374,608			67		1,293,384			66
Required interest on reserves	(577,827		)	(26	)	(552,298		)	(27	)	(530,192		)	(27	)
Net policy obligations	897,650			41		822,310			40		763,192			39
Commissions, premium taxes, and non-deferred acquisition expenses	164,476			8		154,811			8		143,174			7
Amortization of acquisition costs	553,445			25		526,542			25		503,445			26
Total expense	1,615,571			74		1,503,663			73		1,409,811			72
Insurance underwriting margin before other income and administrative expenses	$	573,762		26		$	569,402		27		$	556,489		28

Life insurance underwriting income before insurance administrative expense was $574 million in 2016 compared with $569 million in 2015 and $556 million in 2014 . As a percentage of premium, underwriting margins declined to 26% in 2016 from 27% in 2015 . The decrease in underwriting margin as a percentage of premium in 2016 and 2015 was due to higher Globe Life Direct Response net policy obligations. The higher than anticipated net policy obligations in the Globe Life Direct Response Unit primarily relate to policies issued in calendar years 2011 through 2015. The increase is primarily attributed to a spike in claims in certain blocks of policies as well as policies where additional prescription drug information was used in the underwriting process with an expectation of improved mortality. To date, improvements in actual mortality have been less than expected, causing higher than expected net policy obligations.

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Index to Financial Statements

Health Insurance

Health insurance sold by Torchmark includes primarily Medicare Supplement insurance, critical illness coverage, accident coverage, and other limited-benefit supplemental health products. In this analysis, all health coverage plans other than Medicare Supplement are classified as limited-benefit plans.

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

HEALTH INSURANCE

Premium by Distribution Method

(Dollar amounts in thousands)



	2016			2015			2014
	Amount		% of Total	Amount		% of Total	Amount		% of Total
United American Independent Agency
Limited-benefit plans	$	12,704		$	15,260		$	19,028
Medicare Supplement	342,311			330,070			286,340
	355,015		38	345,330		37	305,368		35
Family Heritage Exclusive Agency
Limited-benefit plans	236,075			221,091			204,667
Medicare Supplement	—			—			—
	236,075		25	221,091		24	204,667		24
Liberty National Exclusive Agency
Limited-benefit plans	142,026			142,130			143,722
Medicare Supplement	59,772			67,020			78,295
	201,798		21	209,150		23	222,017		25
American Income Exclusive Agency
Limited-benefit plans	84,064			79,984			78,244
Medicare Supplement	318			355			478
	84,382		9	80,339		9	78,722		9
Direct Response
Limited-benefit plans	552			869			805
Medicare Supplement	69,841			68,741			57,861
	70,393		7	69,610		7	58,666		7
Total Premium
Limited-benefit plans	475,421		50	459,334		50	446,466		51
Medicare Supplement	472,242		50	466,186		50	422,974		49
	$	947,663	100	$	925,520	100	$	869,440	100

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Index to Financial Statements

We market supplemental health insurance products through a number of distribution channels. The following table presents net sales by distribution method for the last three years.

HEALTH INSURANCE

Net Sales by Distribution Method

(Dollar amounts in thousands)



	2016			2015			2014
	Amount		% of Total	Amount		% of Total	Amount		% of Total
United American Independent Agency
Limited-benefit plans	$	558		$	734		$	873
Medicare Supplement	55,451			70,891			82,971
	56,009		39	71,625		46	83,844		46
Family Heritage Exclusive Agency
Limited-benefit plans	51,349			50,266			47,102
Medicare Supplement	—			—			—
	51,349		35	50,266		32	47,102		26
Liberty National Exclusive Agency
Limited-benefit plans	19,513			18,021			17,084
Medicare Supplement	9			41			299
	19,522		13	18,062		12	17,383		10
American Income Exclusive Agency
Limited-benefit plans	12,666			11,501			9,162
Medicare Supplement	—			—			—
	12,666		9	11,501		7	9,162		5
Direct Response
Limited-benefit plans	—			—			6
Medicare Supplement	5,560			5,003			23,099
	5,560		4	5,003		3	23,105		13
Total Net Sales
Limited-benefit plans	84,086		58	80,522		51	74,227		41
Medicare Supplement	61,020		42	75,935		49	106,369		59
	$	145,106	100	$	156,457	100	$	180,596	100

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Index to Financial Statements

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

HEALTH INSURANCE

First-Year Collected Premium by Distribution Method

(Dollar amounts in thousands)



	2016			2015				2014
	Amount		% of Total	Amount			% of Total	Amount		% of Total
United American Independent Agency
Limited-benefit plans	$	547		$	660			$	710
Medicare Supplement	64,848			76,575				49,519
	65,395		47	77,235			49	50,229		42
Family Heritage Exclusive Agency
Limited-benefit plans	40,822			39,196				36,392
Medicare Supplement	—			—				—
	40,822		29	39,196			25	36,392		31
Liberty National Exclusive Agency
Limited-benefit plans	16,103			14,690				13,132
Medicare Supplement	6			168				306
	16,109		11	14,858			9	13,438		11
American Income Exclusive Agency
Limited-benefit plans	13,710			12,041				9,500
Medicare Supplement	—			—				—
	13,710		10	12,041			8	9,500		8
Direct Response
Limited-benefit plans	—			(2		)		143
Medicare Supplement	4,457			13,843				9,196
	4,457		3	13,841			9	9,339		8
Total First-Year Collected Premium
Limited-benefit plans	71,182		51	66,585			42	59,877		50
Medicare Supplement	69,311		49	90,586			58	59,021		50
	$	140,493	100	$	157,171		100	$	118,898	100

Health premium increased 2% to $948 million in 2016 compared with $926 million in 2015 after an increase of 6% in 2015 over the 2014 total of $869 million . Medicare Supplement premium increased 1% to $472 million in 2016 compared with $466 million in 2015. Medicare Supplement premium totaled $423 million in 2014. Other limited-benefit health premium increased 4% to $475 million over the prior year total of $459 million . Other limited-benefit premium totaled $446 million in 2014.

Health net sales declined 7% to $145 million in 2016 from $156 million in 2015 . Health net sales in 2014 totaled $181 million . Medicare Supplement net sales decreased 20% to $61 million in 2016 , after declining 29% to $76 million in 2015 . Limited-benefit net sales increased 4% to $84 million in 2016 compared with an increase of 8% in 2015 to $81 million .

Health first-year collected premium fell 11% to $140 million . Health first-year collected premium rose 32% during 2015 . First year Medicare Supplement premium was down 23% in 2016 to $69 million from the prior year total of $91 million compared with an increase of $32 million or 53% in 2015 over 2014 total of $59 million . First year limited-benefit premium increased 7% to $71 million in 2016 compared with an increase of 11% in 2015 over the 2014 total of $60 million .

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Index to Financial Statements

The decline in Medicare Supplement net sales and first-year premium was primarily due to group sales returning to a normal level after unusually high sales in late 2014 that positively affected the 2015 first-year collected premium. Group sales vary significantly from period to period due to the impact of large groups that are sold from time to time which in turn impact premium income. First year limited-benefit premium increased 7% to $71 million in 2016 compared with an increase of 11% in 2015 over the 2014 total of $60 million .

Health care reform activity is not expected to have a significant impact on our operations, and we are continuing to monitor future developments. The Affordable Care Act (ACA) imposes an annual fee to health insurance issuers offering commercial health insurance as well as another fee for premium stabilization. These taxes totaled $621 thousand , $1.2 million and $1.8 million in 2016 , 2015 and 2014 , respectively.

The UA Independent Agency consists of independent agencies appointed with Torchmark who may also sell for other companies. The UA Independent Agency was Torchmark’s largest health agency in terms of health premium income. In 2016 , premium income was $355 million , representing 38% of Torchmark’s total health premium. Net sales were $56 million , or 39% of Torchmark’s health sales. This agency is also Torchmark’s largest producer of Medicare Supplement insurance, with Medicare Supplement premium income of $342 million . The UA Independent Agency represents 72% of all Torchmark Medicare Supplement premium and 91% of Medicare Supplement net sales. Medicare Supplement premium in this agency rose 4% in 2016 . Total health premium increased 3% in 2016 and 13% in 2015 . Medicare Supplement net sales decreased 22% in 2016 from the prior year, primarily due to a decline in group sales. As noted earlier, Group Medicare Supplement sales have historically fluctuated from period to period.

The Family Heritage Exclusive Agency primarily markets limited-benefit supplemental health insurance in non-urban areas. Most of their policies include a cash-back feature, such as a return of premium whereby any excess of premiums over claims paid is returned to the policyholder at the end of a specified period stated within the insurance policy. Management expects to grow this agency through geographic expansion and continuing incorporation of Torchmark’s recruiting programs. The Family Heritage Agency contributed $51 million in net sales in 2016 , compared with $50 million in 2015 and $47 million in 2014 . Health premium income was $236 million in 2016 , representing 25% of Torchmark’s health premium. This compared with $221 million or 24% of health premium in 2015 and $205 million or 24% in 2014 . The average producing agent count was 923 for the year ended December 31, 2016 , compared with 882 for the same period in 2015 , an increase of 5% .

The Liberty National Exclusive Agency represented 21% of all Torchmark health premium income at $202 million in 2016 . The Liberty Agency markets limited-benefit supplemental health products consisting primarily of critical illness insurance. Much of Liberty’s health business is now generated through work site marketing targeting small businesses of 10 to 25 employees. In 2016 , health premium income in the Agency declined 4% from prior year premium of $209 million after declining 6% during 2015 . Liberty’s health premium decline has been due primarily to its declining Medicare Supplement block. Liberty's first-year collected premium increased 8% to $16 million in 2016 compared with an increase of 11% to $15 million in 2015, reflecting the steady increase in net sales of limited-benefit plans in the agency.

Other distribution. Certain of our other distribution channels market health products, although their main emphasis is on life insurance. On a combined basis, they accounted for 16% of health premium in 2016 and 2015. The American Income Exclusive Agency primarily markets accident plans. The Direct Response group markets primarily Medicare Supplements to employer or union-sponsored groups. Direct Response added $6 million of Medicare Supplement net sales in 2016 compared with $5 million in 2015 and $23 million in 2014. The higher net sales in 2014 were due to the addition of a large new group in the third quarter of 2014.

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Index to Financial Statements

As presented in the following table, Torchmark’s health insurance underwriting income before other income and administrative expense increased 3% to $210 million in 2016 , after an increase of 3% to $204 million in 2015 . As a percentage of health premium, margins were flat at 22% in 2016 and were down slightly to 22% in 2015 from 23% in 2014 .

HEALTH INSURANCE

Summary of Results

(Dollar amounts in thousands)



	2016					2015					2014
	Amount			% of Premium		Amount			% of Premium		Amount			% of Premium
Premium	$	947,663		100		$	925,520		100		$	869,440		100

Policy obligations	612,725			65		602,610			65		559,817			64
Required interest on reserves	(73,382		)	(8	)	(69,057		)	(7	)	(64,401		)	(7	)
Net policy obligations	539,343			57		533,553			58		495,416			57
Commissions, premium taxes, and non-deferred acquisition expenses	84,819			9		81,489			9		79,475			9
Amortization of acquisition costs	113,445			12		106,101			11		95,230			11
Total expense	737,607			78		721,143			78		670,121			77
Insurance underwriting income before other income and administrative expense	$	210,056		22		$	204,377		22		$	199,319		23

Annuities. Our fixed annuity balances at the end of 2016 , 2015 , and 2014 were $1.24 billion , $1.32 billion , and $1.36 billion , respectively. Underwriting income was $9.4 million , $4.6 million , and $4.3 million in each of the respective years.

While the fixed annuity account balance has been declining slightly year over year, underwriting income has increased each year over the prior year. The significant increase in underwriting income in 2016 was primarily due to a slowdown in amortization as assumptions were adjusted to reflect longer retention of the annuity block than previously estimated as a result of the continuing low interest rate environment. Policy charges have actually declined slightly in each successive year. The majority of policy charges consist of surrender charges which are based on a function of account size and time lapsed since deposit. A considerable portion of fixed annuity profitability is derived from the spread of investment income exceeding contractual interest requirements, which can result in negative net policy obligations. In the three-year period, however, spreads tended to level as crediting rates reached guaranteed minimums. We do not currently market annuity products, favoring instead protection-oriented life and health insurance products. Therefore, we do not expect that annuities will be a significant portion of our business or marketing strategy going forward.

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Index to Financial Statements

Administrative expenses. Operating expenses are included in the Other and Corporate Segments and are classified into two categories: insurance administrative expenses and expenses of the parent company. The following table is an analysis of operating expenses for the three years ended December 31, 2016 .

Operating Expenses Selected Information

(Dollar amounts in thousands)



	2016			2015			2014
	Amount		% of Premium	Amount		% of Premium	Amount		% of Premium
Insurance administrative expenses:
Salaries	$	91,415	2.9	$	87,262	2.9	$	81,227	2.9
Non-salary employee costs	29,852		1.0	30,683		1.0	27,471		1.0
Information technology costs	23,303		0.7	17,307		0.6	14,465		0.5
Other administrative expense	43,727		1.4	43,694		1.4	41,704		1.5
Legal expense—insurance	8,301		0.3	7,245		0.3	9,965		0.3
Total insurance administrative expenses	196,598		6.3	186,191		6.2	174,832		6.2
Parent company expense	8,587			9,003			8,159
Stock compensation expense	26,326			28,664			32,203
Litigation settlements	—			—			2,337
Non-operating fees	553			—			—
Total operating expenses, per Consolidated Statements of Operations	$	232,064		$	223,858		$	217,531



Insurance administrative expenses:
Increase (decrease) over prior year	5.6	%	6.5	%	(0.5	)%
Total operating expenses:
Increase (decrease) over prior year	3.7	%	2.9	%	2.9	%

Insurance administrative expenses were up 5.6% in 2016 when compared with the prior year after increasing 6.5% during 2015 . As a percentage of total premium, insurance administrative expenses increased to 6.3% in 2016 from 6.2% in 2015 and 2014 . Total operating expenses increased 3.7% in 2016 , after increasing 2.9% in 2015 . The primary reason for the increase in administrative expenses are higher information technology costs. The decline in stock compensation expense is primarily due to lower expense associated with performance share awards and lower option values on the 2016 and 2015 grants.

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Index to Financial Statements

Investments. We manage our capital resources including investments, debt, and cash flow through the investment segment. Excess investment income represents the profit margin attributable to investment operations. It is the measure that we use to evaluate the performance of the investment segment as described in Note 14—Business Segments in the Notes to the Consolidated Financial Statements. It is defined as net investment income less both the required interest attributable to 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 $6.8 billion of excess cash flow at the Parent Company 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.

Excess Investment Income . The following table summarizes Torchmark’s investment income and excess investment income.

Analysis of Excess Investment Income

(Dollar amounts in thousands except for per share data)



	2016			2015			2014
Net investment income	$	806,903		$	773,951		$	758,286
Interest on net insurance policy liabilities:
Interest on reserves	(702,340		)	(674,650		)	(649,848		)
Interest on deferred acquisition costs	202,813			196,845			192,052
Net required interest	(499,527		)	(477,805		)	(457,796		)
Financing costs	(83,345		)	(76,642		)	(76,126		)
Excess investment income	$	224,031		$	219,504		$	224,364

Excess investment income per diluted share ⁽¹⁾	$	1.83		$	1.73		$	1.69

Mean invested assets (at amortized cost)	$	14,461,502		$	13,697,129		$	13,278,028
Average net insurance policy liabilities ⁽²⁾	8,945,850			8,574,699			8,240,435
Average debt and preferred securities (at amortized cost)	1,379,933			1,343,663			1,287,740


(1)	Certain current year amounts were prospectively adjusted to give effect to the adoption of ASU 2016-09 related to excess tax benefits from stock compensation as described in Note 1—Significant Accounting Policies under "Accounting Pronouncements Adopted in the Current Year."


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

Excess investment income increased $5 million or 2% in 2016 over the prior year. Excess investment income decreased $5 million or 2% in 2015 . On a per diluted share basis, excess investment income increased 6% to $1.83 in 2016 . Excess investment income increased 2% to $1.73 per share in 2015 , after having increased 8% in the prior year. The higher percentage increase in the excess investment income per diluted share amount over the percentage increase in the dollar amount of excess investment income for those same periods is a result of our share repurchase program.

Presented in the following chart is the growth in net investment income and the growth in mean invested assets.



	2016		2015		2014
Growth in net investment income	4.3	%	2.1	%	3.2	%
Growth in mean invested assets (at amortized cost)	5.6	%	3.2	%	3.4	%

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The largest component of excess investment income is net investment income, which rose 4% to $807 million in 2016 . It increased 2% to $774 million in 2015 from $758 million in 2014 . In 2016 , fixed maturity yields averaged 5.78% on a tax-equivalent and effective-yield basis, compared with 5.84% in 2015 and 5.91% in 2014 .Growth in net investment income has been slower than the growth in mean invested assets in recent years as a result of the decline in the average yields. The decrease in the overall portfolio yield from 2014 to 2016 was due primarily to reinvesting proceeds from calls and maturities at yield rates lower than the bonds earned before it was called or matured.

Net investment income has also been negatively affected in the calendar years 2014 through 2016 by the CMS requirement for us to pay certain Medicare Part D claims costs during the current period that are ultimately the responsibility of the government, but are not reimbursed until the following year. Because of the overall design of the program and higher Part D claims due to higher overall drug costs, we have incurred extensive upfront costs that are not reimbursed by CMS until late in the following respective year. We also experience delays from the time certain claims are paid until related drug rebates are received from various pharmaceutical companies. These delays in reimbursements cause a lag in the timing of investable cash flows that result in lower investment income than would have been earned absent the delays. We estimate the delays resulted in a loss of approximately $5 million, $8 million and $9 million of pre-tax net investment income in 2014, 2015 and 2016 , respectively. As we have exited this business, the negative impact is expected to be approximately $2 million to $3 million in 2017 and negligible in 2018.

While net investment income in recent years has been negatively impacted by the factors discussed above, we would expect to see only modest declines in the average portfolio yield rate over the next few years. We anticipate that approximately 2% of fixed maturities on average are expected to run off each year over the next five years. Accordingly, we believe it is unlikely that dispositions will have a significant negative impact on net investment income and the growth rate of net investment income in the next few years.

Should interest rates rise, especially long-term rates, Torchmark's net investment income would benefit due to higher interest rates on new purchases. We could withstand an increase in interest rates of approximately 60 to 65 basis points before the net unrealized gains on our fixed maturity portfolio as of December 31, 2016 would be eliminated (assuming there were no credit related valuation declines). Should interest rates increase further than that, we would not be concerned with potential interest rate driven unrealized losses in our fixed maturity portfolio because we have the intent and, more importantly, the ability to hold our fixed maturities to maturity.

Required interest on net insurance policy liabilities r educes net investment income as it is the amount of net investment income considered by management necessary to “fund” the required interest included in the insurance segments. As such, it is removed from the investment segment and applied to the insurance segments to offset the effect of the required interest from the insurance segments. As discussed in Note 14-Business Segments in the Notes to the Consolidated Financial Statements, management believes this provides a more meaningful analysis of the investment and insurance segments. Required interest is based on the actuarial interest assumptions used in discounting the benefit reserve liability and the amortization of deferred acquisition costs for our insurance policies in force. The great majority of our life and health insurance policies are fixed interest-rate protection policies, not investment products, and are accounted for under current accounting guidance for long-duration insurance products which mandates that interest rate assumptions for a particular block of business be “locked in” for the life of that block of business. Each calendar year, we set the discount rate to be used to calculate the benefit reserve liability and the amortization of the deferred acquisition cost asset for all insurance policies issued that year. That rate is based on the new money yields that we expect to earn on cash flow received in the future from policies of that issue year, and cannot be changed. The discount rate used for policies issued in the current year has no impact on the in force policies issued in prior years as the rates of all prior issue years are also locked in. As such, the overall discount rate for the entire in force block is a weighted average of the discount rates being used from all issue years. Changes in the overall weighted-average discount rate over time are caused by changes in the mix of the reserves and the deferred acquisition cost asset by issue year on the entire block of in force business. Business issued in the current year has very little impact on the overall weighted-average discount rate due to the size of our in force business.

Because actuarial discount rates are locked in for life on essentially all of our business, benefit reserves and deferred acquisition costs are not affected by interest rate fluctuations unless a loss recognition event occurs. Due to the strength of our underwriting margins and the current positive spread between the yield on our investment portfolio and the weighted-average discount rate of our in force block, we don’t expect an extended low-interest-rate environment to cause a loss recognition event.

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Information about interest on net policy liabilities is shown in the following table.

Required Interest on Net Insurance Policy Liabilities

(Dollar amounts in thousands)



	Required Interest			Average Net Insurance Policy Liabilities			Average Discount Rate
2016
Life and Health	$	442,021		$	7,658,639		5.77	%
Annuity	57,506			1,287,211			4.47
Total	$	499,527		$	8,945,850		5.58
Increase in 2016	4.55		%	4.33		%
2015
Life and Health	$	418,432		$	7,256,732		5.77	%
Annuity	59,373			1,317,967			4.50
Total	$	477,805		$	8,574,699		5.57
Increase in 2015	4.37		%	4.06		%
2014
Life and Health	$	396,658		$	6,901,566		5.75	%
Annuity	61,138			1,338,869			4.57
Total	$	457,796		$	8,240,435		5.56
Increase in 2014	4.99		%	4.95		%

Excess investment income is also impacted by financing costs. Financing costs for the investment segment primarily consist of interest on our various debt instruments and are deducted from excess investment income. The table below presents the components of financing costs and reconciles interest expense per the Consolidated Statements of Operations.

Analysis of Financing Costs

(Amounts in thousands)



	2016		2015		2014
Interest on funded debt	$	75,988	$	71,180	$	71,072
Interest on term loan	993		—		—
Interest on short-term debt	6,360		5,457		5,013
Other	4		5		41
Financing costs	$	83,345	$	76,642	$	76,126

Financing costs increased $7 million or 9% from 2015 to 2016 . The additional interest expense on our funded debt resulted from the issuance of our new 6.125% Junior Subordinated Debt security seventy days before the maturity and repayment of our 6.375% Senior Notes. In 2016 , interest on short-term debt increased because of the increase in the weighted-average interest rate. Financing costs also increased slightly from 2014 to 2015 . More information on our debt transactions are disclosed in the Financial Condition section of this report and in Note 11—Debt in the Notes to Consolidated Financial Statements .

As previously noted, growth rates in our excess investment income decline when growth in income from the portfolio is less than that of the interest required by policy liabilities and financing costs, as has been the case in recent years. In an extended low-interest-rate environment, the portfolio yield will tend to decline as we invest new money at lower long-term rates.

Excess investment income benefits from increases in long-term rates available on new investments and decreases in short-term borrowing rates. Of these two factors, higher investment rates have the greater impact because the amount

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of cash that we invest is significantly greater than the amount that we borrow at short-term rates. Therefore, Torchmark would benefit if rates, especially long-term rates, were to rise.

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

During calendar years 2014 through 2016 , Torchmark invested almost exclusively in fixed maturity securities, primarily in corporate bonds with longer-term maturities. The following table summarizes selected information for fixed maturity purchases for the last three years. The effective annual yield shown is the yield calculated to the potential termination date that produces the lowest yield, commonly referred to as 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, typically the first call date.

Fixed Maturity Acquisitions Selected Information

(Dollar amounts in thousands)



	Year Ended December 31,
	2016			2015			2014
Cost of acquisitions: ⁽¹⁾
Investment-grade corporate securities	$	1,505,135		$	1,026,520		$	696,264
Taxable municipal securities	13,023			29,092			—
Other investment-grade securities	14,727			15,296			8,729
Total fixed maturity acquisitions	$	1,532,885		$	1,070,908		$	704,993

Effective annual yield (one year compounded) ⁽²⁾	4.67		%	4.79		%	4.77		%
Average life (in years, to next call)	24.6			27.2			22.9
Average life (in years to maturity)	25.4			27.9			23.4
Average rating	BBB+			BBB+			BBB+


(1)	Includes unsettled trades of $3 million for 2016 .


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

We prefer to invest primarily in bonds that are not callable (on other than a make-whole basis) prior to maturity, but we periodically invest some funds in callable bonds when the incremental yield available on such bonds warrants doing so. For investments in callable bonds, the actual life of the investment will depend on whether the issuer calls the investment prior to the maturity date. Given our investments in callable bonds, the actual average life of our investments cannot be known at the time of the investment. However absent sales, the average life will not be less than the average life to next call and will not exceed the average life to maturity. Data for both of these average life measures is provided in the above chart.

During the three years 2014 through 2016 , acquisitions consisted of securities spanning a diversified range of issuers, industry sectors, and geographical regions. All of the acquired securities were investment grade. In addition to the fixed maturity acquisitions, Torchmark invested $30 million in a limited partnership in 2015 with an additional investment in the partnership of $19 million in 2016. The limited partnership is a diversified investment fund that currently invests opportunistically in global credit assets with the potential for attractive returns relative to risk. It is classified within long-term investments.

New cash flow available for investment has been primarily provided through our insurance operations and interest received on existing investments. In some years, a significant amount of new investments can be derived from proceeds from dispositions including issuer calls. Issuer calls, as a result of the low-interest environment experienced during the past three years, were an important factor. Calls increase funds available for investment, but as noted earlier in this discussion, they can have a negative impact on investment income if the proceeds from the calls are reinvested in

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bonds that have lower yields than those of the bonds that were called. Issuer calls were $182 million in 2016 , $178 million in 2015 , and $160 million in 2014 .

Portfolio Composition. The composition of the investment portfolio at book value on December 31, 2016 was as follows:

Invested Assets

(Dollar amounts in thousands)



	2016			2015
	Amount		% of Total	Amount		% of Total
Fixed maturities (at amortized cost)	$	14,188,050	96	$	13,251,871	96
Policy loans	507,975		3	492,462		4
Other long-term investments ⁽¹⁾	53,355		—	37,579		—
Short-term investments	72,040		1	38,438		—
Total	$	14,821,420	100	$	13,820,350	100


(1)	Includes equities available for sale at amortized cost.

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 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.

Selected information concerning the fixed maturity portfolio is as follows:

Fixed Maturities

Fixed Maturity Portfolio Selected Information



	At December 31,
	2016		2015
Average annual effective yield ⁽¹⁾	5.74	%	5.83	%
Average life, in years, to:
Next call ⁽²⁾	17.6		17.8
Maturity ⁽²⁾	19.8		20.3
Effective duration to:
Next call ^{(2, 3)}	10.4		10.2
Maturity ^{(2, 3)}	11.3		11.2


(1)	Tax-equivalent basis, where 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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Credit Risk Sensitivity . The following tables summarize certain information about the major corporate sectors and security types held in our fixed maturity portfolio at December 31, 2016 and 2015 .

Fixed Maturities by Sector

At December 31, 2016

(Dollar amounts in thousands)



	Below Investment Grade									Total Fixed Maturities									% of Total Fixed Maturities
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		At Amortized Cost	At Fair Value

Corporates:
Financial
Insurance - life, health, P&C	$	58,400	$	1,760	$	(4,003	)	$	56,157	$	2,030,188	$	217,377	$	(16,783	)	$	2,230,782	15	15
Banks	41,558		512		(7,218		)	34,852		681,422		71,828		(11,692		)	741,558		5	5
Other financial	74,955		—		(18,589		)	56,366		623,836		39,215		(24,628		)	638,423		4	4
Total financial	174,913		2,272		(29,810		)	147,375		3,335,446		328,420		(53,103		)	3,610,763		24	24
Utilities
Electric	21,300		486		—			21,786		1,433,742		219,154		(9,384		)	1,643,512		10	11
Gas and water	—		—		—			—		470,804		31,345		(3,464		)	498,685		3	3
Total utilities	21,300		486		—			21,786		1,904,546		250,499		(12,848		)	2,142,197		13	14
Industrial - Energy
Pipelines	45,394		87		(3,297		)	42,184		809,300		67,313		(11,431		)	865,182		6	6
Exploration and production	28,954		182		(744		)	28,392		531,754		43,009		(11,806		)	562,957		4	4
Oil field services	33,880		—		(6,483		)	27,397		83,753		7,624		(6,483		)	84,894		1	1
Refiner	—		—		—			—		62,977		9,721		(7		)	72,691		—	—
Driller	54,642		322		(14,597		)	40,367		54,642		322		(14,597		)	40,367		—	—
Total energy	162,870		591		(25,121		)	138,340		1,542,426		127,989		(44,324		)	1,626,091		11	11
Industrial - Basic materials
Chemicals	—		—		—			—		481,127		21,538		(10,204		)	492,461		3	3
Metals and mining	107,102		491		(2,195		)	105,398		389,908		25,247		(2,613		)	412,542		3	3
Forestry products and paper	—		—		—			—		112,702		10,270		(415		)	122,557		1	1
Total basic materials	107,102		491		(2,195		)	105,398		983,737		57,055		(13,232		)	1,027,560		7	7
Industrial - Consumer, non-cyclical	—		—		—			—		1,629,706		101,254		(31,938		)	1,699,022		11	11
Other industrials	80,311		4,066		(1,327		)	83,050		1,282,000		115,119		(14,412		)	1,382,707		9	9
Industrial - Transportation	26,675		—		(2,918		)	23,757		494,527		59,067		(4,709		)	548,885		4	4
Other corporate sectors	116,696		1,076		(6,063		)	111,709		1,211,166		91,526		(20,256		)	1,282,436		9	8
Total corporates	689,867		8,982		(67,434		)	631,415		12,383,554		1,130,929		(194,822		)	13,319,661		88	88
Other fixed maturities:
Government (U.S., municipal, and foreign)	551		—		(194		)	357		1,686,021		129,064		(10,539		)	1,804,546		12	12
Collateralized debt obligations	60,726		13,062		(10,285		)	63,503		60,726		13,062		(10,285		)	63,503		—	—
Other asset-backed securities	—		—		—			—		53,786		530		(337		)	53,979		—	—
Mortgage-backed securities ⁽¹⁾	—		—		—			—		3,963		210		(1		)	4,172		—	—
Total fixed maturities	$	751,144	$	22,044	$	(77,913	)	$	695,275	$	14,188,050	$	1,273,795	$	(215,984	)	$	15,245,861	100	100
(1) Includes GNMA's

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Fixed Maturities by Sector

At December 31, 2015

(Dollar amounts in thousands)



	Below Investment Grade									Total Fixed Maturities									% of Total Fixed Maturities
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		At Amortized Cost	At Fair Value

Corporates:
Financial
Insurance - life, health, P&C	$	58,534	$	2,410	$	(6,366	)	$	54,578	$	1,912,580	$	212,640	$	(21,634	)	$	2,103,586	14	15
Banks	41,606		452		(4,781		)	37,277		605,957		65,740		(5,942		)	665,755		5	5
Other financial	74,954		—		(29,916		)	45,038		624,532		69,170		(32,086		)	661,616		5	5
Total financial	175,094		2,862		(41,063		)	136,893		3,143,069		347,550		(59,662		)	3,430,957		24	25
Utilities
Electric	9,646		1,003		—			10,649		1,571,784		194,932		(20,000		)	1,746,716		12	13
Gas and water	—		—		—			—		438,101		29,334		(8,319		)	459,116		3	3
Total utilities	9,646		1,003		—			10,649		2,009,885		224,266		(28,319		)	2,205,832		15	16
Industrial - Energy
Pipelines	45,420		—		(16,971		)	28,449		830,190		29,638		(124,357		)	735,471		6	5
Exploration and production	10,923		—		(872		)	10,051		532,425		15,975		(61,838		)	486,562		4	4
Oil field services	38,962		—		(11,088		)	27,874		87,986		4,226		(11,455		)	80,757		1	1
Refiner	—		—		—			—		63,072		3,937		(1,162		)	65,847		1	—
Driller	5,382		—		(2,600		)	2,782		54,719		—		(20,289		)	34,430		—	—
Total energy	100,687		—		(31,531		)	69,156		1,568,392		53,776		(219,101		)	1,403,067		12	10
Industrial - Basic materials
Chemicals	—		—		—			—		493,634		16,254		(21,339		)	488,549		4	4
Metals and mining	49,891		—		(27,661		)	22,230		402,545		4,389		(90,070		)	316,864		3	2
Forestry products and paper	—		—		—			—		103,599		8,386		(2,952		)	109,033		1	1
Total basic materials	49,891		—		(27,661		)	22,230		999,778		29,029		(114,361		)	914,446		8	7
Industrial - Consumer, non-cyclical	13,499		1,106		—			14,605		1,158,828		86,401		(26,917		)	1,218,312		9	9
Other industrials	76,457		1,195		(5,704		)	71,948		979,187		64,579		(36,555		)	1,007,211		7	7
Industrial - Transportation	26,771		—		(7,953		)	18,818		571,474		44,720		(26,702		)	589,492		4	4
Other corporate sectors	123,889		1,337		(7,339		)	117,887		1,051,925		69,297		(26,376		)	1,094,846		8	8
Total corporates	575,934		7,503		(121,251		)	462,186		11,482,538		919,618		(537,993		)	11,864,163		87	86
Other fixed maturities:
Government (U.S., municipal, and foreign)	554		—		(255		)	299		1,684,846		133,117		(16,148		)	1,801,815		13	13
Collateralized debt obligations	63,662		16,158		(9,438		)	70,382		63,662		16,158		(9,438		)	70,382		—	1
Other asset-backed securities	—		—		—			—		16,078		550		—			16,628		—	—
Mortgage-backed securities ⁽¹⁾	—		—		—			—		4,747		290		(1		)	5,036		—	—
Total fixed maturities	$	640,150	$	23,661	$	(130,944	)	$	532,867	$	13,251,871	$	1,069,733	$	(563,580	)	$	13,758,024	100	100
(1) Includes GNMA's

At December 31, 2016 , fixed maturities had a fair value of $15.2 billion , compared with $13.8 billion at December 31, 2015 . The net unrealized gain position in the fixed maturity portfolio increased from $506 million at December 31, 2015 to $1.1 billion at December 31, 2016 , primarily as a result of a decrease in market interest rates. The December 31, 2016 net unrealized gain consisted of gross unrealized gains of $1.3 billion offset by $216 million of gross unrealized losses, compared with the December 31, 2015 net unrealized gain which consisted of a gross unrealized gain of $1.1 billion and a gross unrealized loss of $564 million .

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Corporate securities, which consist of bonds and redeemable preferred stocks, were the largest component of the fixed maturity portfolio, representing 88% at both amortized cost and fair value. The remainder of the portfolio is invested primarily in securities issued by the U.S. government and U.S. municipalities. The Company holds insignificant amounts in foreign government bonds, collateralized debt obligations, asset-backed securities, and agency mortgage-backed securities. Corporate securities are diversified over a variety of industry sectors and issuers. As shown in the chart above, financial, utility, and energy sectors represented approximately 50% of the portfolio. Corporate securities are diversified over a variety of industry sectors and issuers. At December 31, 2016 , the total fixed maturity portfolio consists of 588 issuers, with 208 issuers within the financial, utility, and energy sectors.

The net unrealized gain of the fixed maturity portfolio increased $552 million from December 31, 2015 . The utility, energy, and basic materials sectors experienced increases of $42 million , $249 million , and $129 million respectively, in net unrealized gains from December 31, 2015 to December 31, 2016 , while the financial industry decreased $13 million . The fair value of the entire portfolio increased 11% for the period. Over the past year, oil and many other commodity prices have increased meaningfully to the benefit of our holdings in the energy and basic materials sectors. While a sustained period of low prices might lead to some downgrades in ratings, we do not currently anticipate any losses from defaults or write-downs in the foreseeable future.

For more information about our fixed maturity portfolio by component at December 31, 2016 and 2015 , including a discussion of other-than-temporary impairments, an analysis of unrealized investment losses and a schedule of maturities, see Note 4—Investments in the Notes to the Consolidated Financial Statements .

An analysis of the fixed maturity portfolio by a composite rating at December 31, 2016 is shown in the following table. The composite rating for each security, other than private-placement securities managed by third parties, is the average of the security’s ratings as assigned by Moody’s Investor Service, Standard & Poor’s, Fitch Ratings, and Dominion Bond Rating Service, LTD. The ratings assigned by these four nationally recognized statistical rating organizations are evenly weighted when calculating the average. The composite quality rating is created using a methodology developed by Torchmark Corporation using ratings from the various rating agencies noted above. The composite quality rating is not a Standard & Poor's credit rating. Standard & Poor's does not sponsor, endorse or promote the composite quality rating and shall not be liable for any use of the composite quality rating. Included in the chart below are private placement fixed maturity holdings of $565 million at amortized cost ( $574 million at fair value) for which the ratings were assigned by the third party managers.

Fixed Maturities by Rating

At December 31, 2016

(Dollar amounts in thousands)



	Amortized Cost		%	Fair Value		%
Investment grade:
AAA	$	674,277	5	$	690,104	4
AA	1,357,026		10	1,493,478		10
A	3,729,598		26	4,232,327		28
BBB+	3,359,101		24	3,617,922		24
BBB	2,825,950		20	2,961,864		19
BBB-	1,490,954		10	1,554,891		10
Investment grade	13,436,906		95	14,550,586		95
Below investment grade:
BB	365,495		2	347,919		2
B	253,982		2	210,905		2
Below B	131,667		1	136,451		1
Below investment grade	751,144		5	695,275		5
	$	14,188,050	100	$	15,245,861	100

Of the $14.2 billion of fixed maturities at amortized cost as of December 31, 2016 , $13.4 billion or 95% were investment grade with an average rating of A- . Below-investment-grade bonds were $751 million with an average rating of B+ . Below-investment-grade bonds at amortized cost were 19% of our shareholders’ equity, excluding the effect of

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unrealized gains and losses on fixed maturities as of December 31, 2016 . Overall, the total portfolio had a weighted average quality rating of BBB+ based on amortized cost, a decline from A- at the end of 2015 .

An analysis of changes in our portfolio of below-investment grade fixed maturities at amortized cost is as follows:

Below-Investment Grade Fixed Maturities

(Dollar amounts in thousands)



	Year Ended December 31,
	2016			2015
Balance at beginning of year	$	640,150		$	560,890
Downgrades by rating agencies	179,077			164,968
Upgrades by rating agencies	(58,626		)	(38,821		)
Disposals	(13,860		)	(51,322		)
Amortization	4,403			4,435
Balance at end of year	$	751,144		$	640,150

Our investment policy regarding fixed maturities is to acquire only investment-grade obligations. Thus, any increases in below investment-grade issues are a result of ratings downgrades of existing holdings. We have no direct investments in commercial or residential mortgages and 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 an insignificant exposure to European sovereign debt consisting of $2 million in German government bonds at December 31, 2016 . Our exposure to Puerto Rican obligations is insignificant. On June 23, 2016, the United Kingdom voted to depart the European Union (EU) under the referendum commonly referred to as "Brexit." Although the formal separation from the EU will take time, the nature and extent of the effects on interest rates and economic performance are uncertain at this time. We do not expect an increase in other-than-temporary impairments on our limited exposure related to this event.

Market Risk Sensitivity. Torchmark’s investment securities are exposed to interest rate risk, meaning the effect of changes in financial market interest rates on the current fair value of the company’s investment portfolio. Since 96% of the book value of our investments is attributable to fixed maturity investments (and virtually all of these investments are fixed-rate investments), the portfolio is highly subject to market risk. Declines in market interest rates generally result in the fair value of the investment portfolio rising and increases in interest rates cause the fair value to decline. Under normal market conditions, we do not expect to realize these unrealized gains and losses because we have the ability and the intent to hold these investments to maturity. The long-term nature of our insurance policy liabilities and strong cash-flow operating position substantially mitigate any future need to liquidate portions of the portfolio. The increase or decrease in the fair value of insurance liabilities and debt due to increases or decreases in market interest rates largely offsets the impact of rates on the investment portfolio. However, as is permitted by GAAP, these liabilities are not recorded at fair value.

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The following table illustrates the market risk sensitivity of our interest-rate sensitive fixed maturity portfolio at December 31, 2016 and 2015 . This table measures the effect of a parallel shift in interest rates (as represented by the U.S. Treasury curve) on the fair value of the fixed maturity portfolio. The data measures the change in fair value arising from an immediate and sustained change in interest rates in increments of 100 basis points.

Market Value of Fixed Maturity Portfolio

(Dollar amounts in thousands)



	At December 31,
Change in Interest Rates ⁽¹⁾	2016		2015
(200)	$	19,126,303	$	17,184,975
(100)	17,030,458		15,337,923
0	15,245,861		13,758,025
100	13,716,023		12,397,872
200	12,395,635		11,219,241

(1) In basis points.

Realized Gains and Losses. Our life and health insurance companies collect premium income from policyholders for the eventual payment of policyholder benefits, sometimes paid many years or even decades in the future. Because benefits are expected to be paid in future periods, premium receipts in excess of current expenses are invested to provide for these obligations. For this reason, we hold a significant investment portfolio as a part of our core insurance operations. This portfolio consists primarily of high-quality fixed maturities containing an adequate yield to provide for the cost of carrying these long-term insurance product obligations. As a result, fixed maturities are generally held for long periods to support the liabilities. Expected yields on these investments are taken into account when setting insurance premium rates and product profitability expectations.

Investments are occasionally sold or called, resulting in a realized gain or loss. These gains and losses generally occur only incidentally, usually as the result of bonds sold because of deterioration in investment quality of issuers or calls by the issuers. Investment losses are also caused by write downs due to impairments. We do not engage in trading investments for profit. Therefore, gains or losses which occur in protecting the portfolio or its yield, or which result from events that are beyond our control, are only secondary to our core insurance operations of providing insurance coverage to policyholders.

Realized gains and losses can be significant in relation to the earnings from core insurance operations, and as a result, can have a material positive or negative impact on net income. The significant fluctuations caused by gains and losses can cause period-to-period trends of net income that are not indicative of historical core operating results or predictive of the future trends of core operations. Accordingly, they have no bearing on core insurance operations or segment results as we view operations. For these reasons, and in line with industry practice, we remove the effects of realized gains and losses when evaluating overall insurance operating results.

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The following table summarizes our tax-effected realized gains (losses) by component for each of the years in the three-year period ended December 31, 2016 .

Analysis of Realized Gains (Losses), Net of Tax

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



	Year Ended December 31,
	2016						2015						2014
	Amount			Per Share ⁽¹⁾			Amount			Per Share			Amount			Per Share
Fixed maturities:
Sales	$	(17,209	)	$	(0.14	)	$	(10,813	)	$	(0.09	)	$	10,209		$	0.08
Called or tendered	10,290			0.08			4,652			0.04			4,851			0.04
Loss on redemption of debt	—			—			—			—			(168		)	—
Other	(25		)	—			447			—			414			—
Total	$	(6,944	)	$	(0.06	)	$	(5,714	)	$	(0.05	)	$	15,306		$	0.12


(1)	Certain current year amounts were prospectively adjusted to give effect to the adoption of ASU 2016-09 related to excess tax benefits from stock compensation as described in Note 1—Significant Accounting Policies under "Accounting Pronouncements Adopted in the Current Year."

As described in Note 4—Investments under the caption Other-than-temporary impairments, we have not incurred any write downs in our fixed maturity portfolio as a result of other-than-temporary impairment for the years 2014 through 2016 .

FINANCIAL CONDITION

Liquidity. Liquidity provides Torchmark with the ability to meet on demand the cash commitments required by its business operations and financial obligations. Our liquidity is primarily derived from three sources: positive cash flow from operations, a portfolio of marketable securities, and 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. While the leading source of the excess cash is investment income, due to our high underwriting margins and effective expense control, a significant portion of the excess cash also comes from underwriting income.

Parent Company Liquidity. Cash flows from the insurance subsidiaries are used to pay interest and principal repayments on Parent Company debt, operating expenses of the Parent, and Parent Company dividends to Torchmark shareholders. In 2016 , the Parent received $438 million of cash dividends from its subsidiaries, compared with $466 million in 2015 and $479 million in 2014 . Including transfers from other subsidiaries and after paying debt obligations, shareholder dividends, and other expenses (but before share repurchases), the Parent Company had excess cash flow in 2016 of approximately $311 million, compared with $358 million in 2015 and $377 million in 2014 . Parent Company cash flow in excess of its operating requirements is available for other corporate purposes, such as insurance subsidiary capital or financing needs, strategic acquisitions or share repurchases. In 2017 , it is expected that the Parent Company will receive approximately $450 million in dividends and transfers from subsidiaries and that approximately $325 to $335 million will be available as excess cash flow. Certain restrictions exist on the payment of these dividends. For more information on the restrictions on the payment of dividends by subsidiaries, see the Restrictions section of Note 12—Shareholders’ Equity in the Notes to Consolidated Financial Statements. Although these restrictions exist, dividend availability from subsidiaries historically has been more than sufficient for the cash flow needs of the Parent Company.

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Short-Term Borrowings. An additional source of parent company liquidity is a line of credit facility with a group of lenders which allows unsecured borrowings and stand-by letters of credit up to $750 million, which could be extended up to $1 billion. While Torchmark can request the extension, it is not guaranteed. In May 2016, Torchmark amended the facility to extend the maturity date to May 2021. The amendment also allowed for an additional $100 million term loan as discussed under the caption Credit Facility in Note 11—Debt in the Notes to Consolidated Financial Statements . The facility is further designated as a back-up line of credit for a commercial paper program as well as the stand-by letters of credit as discussed below. As of December 31, 2016 , we had available $310 million of additional borrowing capacity under this facility, compared with $332 million a year earlier. There have been no difficulties in accessing the commercial paper market during the three years ended December 31, 2016 .

In summary, Torchmark expects to have readily available funds for 2017 and 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 additional debt, additional borrowings on our short-term credit facility, and intercompany borrowing.

Consolidated Liquidity . Consolidated net cash inflows provided from continuing operations were $1.2 billion in 2016 , compared with $1.1 billion in 2015 and $1.0 billion in 2014 . In addition to cash inflows from operations, our companies received proceeds from maturities, calls, and repayments of fixed maturities in the amount of $236 million in 2016 , compared with $376 million in 2015 and $273 million in 2014 .

Our cash and short-term investments were $148 million at year-end 2016 and $116 million at year-end 2015 . Additionally, we have a portfolio of marketable fixed securities that are available for sale in the event of an unexpected need. These securities had a fair value of $15.2 billion at December 31, 2016 . However, our strong cash flows from operations, investment maturities, and the availability of our credit line make any need to sell securities for liquidity unlikely.

Off-Balance Sheet Arrangements. As a part of its aforementioned credit facility, Torchmark had outstanding $177 million in stand-by letters of credit at December 31, 2016 and 2015 . These letters are issued among our subsidiaries, one of which is an offshore captive reinsurer, and have no impact on company obligations as a whole. Any future regulatory changes that restrict the use of off-shore captive reinsurers might require Torchmark to obtain third-party financing, which could cause an immaterial increase in financing costs.

As of December 31, 2016 , we had no unconsolidated affiliates and no guarantees of the obligations of third party entities. All of our guarantees were guarantees of the performance of consolidated subsidiaries, as disclosed in Note 15—Commitments and Contingencies in the Notes to Consolidated Financial Statements.

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The following table presents information about future payments under our contractual obligations for the selected periods as of December 31, 2016 .

Contractual Obligations

(Amounts in thousands)



	Actual Liability		Total Payments		Less than One Year		One to Three Years		Three to Five Years		More than Five Years
Fixed and determinable:
Debt—principal ⁽¹⁾	$	1,397,640	$	1,416,109	$	264,725	$	303,897	$	86,875	$	760,612
Debt—interest ⁽²⁾	6,487		1,202,063		74,472		140,312		92,658		894,621
Capital leases	—		—		—		—		—		—
Operating leases	—		35,807		8,182		10,301		9,523		7,801
Purchase obligations	56,818		56,818		34,162		21,314		1,140		202
Postretirement obligations ⁽³⁾	222,372		281,429		20,853		46,094		52,600		161,882
Future insurance obligations ⁽⁴⁾	12,825,837		49,794,075		1,494,814		2,940,878		2,890,372		42,468,011
Total	$	14,509,154	$	52,786,301	$	1,897,208	$	3,462,796	$	3,133,168	$	44,293,129


(1)	Debt is itemized in Note 11—Debt in the Notes to Consolidated Financial Statements.


(2)	Interest on debt is based on our fixed contractual obligations.

(3)

Pension obligations are primarily liabilities in trust funds that are calculated in accordance with the terms of the pension plans. They are offset by invested assets in the trusts, which are funded through periodic contributions by Torchmark in a manner which will provide for the settlement of the obligations as they become due. Therefore, our obligations are offset by those assets when reported on Torchmark’s Consolidated Balance Sheets . At December 31, 2016 , these pension obligations were $528 million , but there were also assets of $329 million in the pension entities. The schedule of pension benefit payments covers ten years and is based on the same assumptions used to measure the pension obligations, except there is no interest assumption because the payments are undiscounted. There are also obligations for benefits other than pensions with a liability of $24 million . Please refer to Note 9—Postretirement Benefits in the Notes to Consolidated Financial Statements for more information on pension obligations.

(4)

Future insurance obligations consist primarily of estimated future contingent benefit payments on policies in force at December 31, 2016 . These estimated payments were computed using assumptions for future mortality, morbidity and persistency. The actual amount and timing of such payments may differ significantly from the estimated amounts shown. Management believes that the assets supporting the liability of $12.8 billion at December 31, 2016 , along with future premiums and investment income, will be sufficient to fund all future insurance obligations.

Capital Resources. Torchmark’s capital structure consists of short-term debt (the commercial paper facility described in Note 11—Debt in the Notes to Consolidated Financial Statements and the current maturity of funded debt ), long-term funded debt, and shareholders’ equity. A complete analysis and description of long-term debt issues outstanding is presented in Note 11 .

Debt: The carrying value of the funded debt was $1.1 billion at December 31, 2016, compared with $993 million a year earlier. On April 5, 2016, Torchmark completed the issuance and sale of $300 million aggregate principal amount of Torchmark’s 6.125% Junior Subordinated Debentures due 2056. The debentures were sold pursuant to Torchmark’s shelf registration statement on Form S-3, filed September 25, 2015. The net proceeds from the sale of the debentures were $290 million , after giving effect to the underwriting discount and estimated expenses of the offering of the debentures. Torchmark used the net proceeds from the offering of the debentures to repay the $250 million outstanding principal amount plus accrued interest of $8 million on its 6.375% Senior Notes that were due June 15, 2016. The remaining proceeds were used for general corporate purposes.

Subsidiary Capital: Our insurance subsidiaries target a capital ratio of approximately 325% of Company action level regulatory capital under Risk-Based Capital (RBC), a formula designed by insurance regulatory authorities to monitor the adequacy of capital. The 325% target is considered sufficient for the subsidiaries because of their strong reliable cash flows, the relatively low risk of their product mix, and because that ratio is in line with rating agency expectations for Torchmark. At December 31, 2016 , our insurance subsidiaries had an aggregate RBC ratio of approximately 324%. Should we experience impairments and/or ratings downgrades within our fixed maturity portfolio in the future, the ratio could fall below targeted levels. In such a case, management believes more than sufficient liquidity exists at the Parent Company to make additional contributions as necessary to maintain the targeted ratio.

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Shareholder's Equity: As noted under the caption Summary of Operations in this report, we have an ongoing share repurchase program. Under this program, we acquired 5 million shares at a cost of $311 million in 2016 , 6 million shares at a cost of $359 million in 2015 , and 7 million shares for $375 million in 2014 . The majority of purchased shares are retired each year. Please refer to the description of our share repurchase program under the caption Summary of Operations in this report.

Torchmark has continually increased the quarterly dividend on its common shares over the past three years. In the first quarter of 2014 , it was increased to $0.1267 per share from $0.1133 per share. In the first quarter of 2015 , it was raised to $0.135 per share. Finally, in the first quarter of 2016 , dividends were raised to $0.14 per share.

Shareholders’ equity was $4.6 billion at December 31, 2016 , compared with $4.1 billion at December 31, 2015 . During the twelve months since December 31, 2015 , shareholders’ equity was reduced by the $311 million in share purchases under the repurchase program and $93 million to offset the dilution from stock option exercises. However, it was increased by $550 million of net income and $357 million of after-tax unrealized gains in the fixed maturity portfolio.

We plan to use excess cash available at the Parent Company as efficiently as possible in the future. Possible uses of excess cash flow include, but are not limited to, share repurchases, acquisitions, increases in shareholder dividends, investment in securities, or repayment of short-term debt. We will determine the best use of excess cash after ensuring that targeted capital levels are maintained in our companies.

We maintain a significant available-for-sale fixed maturity portfolio to support our insurance policyholders’ liabilities. Current accounting guidance requires that we revalue our portfolio to fair market value at the end of each accounting period. The period-to-period changes in fair value, net of their associated impact on deferred acquisition costs and income tax, are reflected directly in shareholders’ equity. Changes in the fair value of the portfolio can result from changes in interest rates and liquidity in financial markets. While invested assets are revalued, accounting rules do not permit interest-bearing insurance policy liabilities to be valued at fair value in a consistent manner as that of assets, with changes in value applied directly to shareholders’ equity. Due to the size of our policy liabilities in relation to our shareholders’ equity, this inconsistency in measurement usually has a material impact on the reported value of shareholders’ equity. If these liabilities were revalued in the same manner as the assets, the effect on equity would be largely offset. Fluctuations in interest rates cause undue volatility in the period-to-period presentation of our shareholders’ equity, capital structure, and financial ratios which would be essentially removed if interest-bearing liabilities were valued in the same manner as assets. From time to time, the market value of our fixed maturity portfolio may be depressed as a result of bond market illiquidity which could result in a significant decrease in shareholders’ equity. Because of the long-term nature of our fixed maturities and liabilities and the strong cash flows consistently 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 losses due to fluctuations in market value of fixed maturities caused by interest rate changes and temporarily illiquid markets. Accordingly, our management, credit rating agencies, lenders, many industry analysts, and certain other financial statement users prefer to remove the effect of this accounting rule when analyzing our balance sheet, capital structure, and financial ratios.

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The following tables present selected data related to our capital resources. Additionally, the tables present the effect of this accounting guidance on relevant line items, so that investors and other financial statement users may determine its impact on Torchmark’s capital structure.



Selected Financial Data
(Amounts in thousands except per share and percentage data)
	At December 31, 2016						At December 31, 2015						At December 31, 2014
	GAAP			Effect of Accounting Rule Requiring Revaluation ⁽¹⁾			GAAP			Effect of Accounting Rule Requiring Revaluation ⁽¹⁾			GAAP			Effect of Accounting Rule Requiring Revaluation ⁽¹⁾
Fixed maturities	$	15,245,861		$	1,057,811		$	13,758,024		$	506,153		$	14,493,060		$	1,669,448
Deferred acquisition costs ⁽²⁾	3,783,158			(10,281		)	3,617,135			(7,869		)	3,457,397			(16,551		)
Total assets	21,436,087			1,047,530			19,853,213			498,284			20,272,259			1,652,897
Short-term debt	264,475			—			490,129			—			238,398			—
Long-term debt	1,133,165			—			743,733			—			992,130			—
Shareholders’ equity ⁽³⁾	4,566,861			680,894			4,055,552			323,885			4,697,466			1,074,383
Book value per diluted share ⁽³⁾	37.76			5.63			32.71			2.62			36.19			8.28
Debt to capitalization ⁽⁴⁾	23.4		%	(3.1		)%	23.3		%	(1.5		)%	20.8		%	(4.6		)%
Diluted shares outstanding ⁽³⁾	120,958						123,996						129,812
Actual shares outstanding	118,031						122,370						127,930


(1)	Amount added to (deducted from) comprehensive income to produce the stated GAAP item.


(2)	Includes the value of insurance purchased.


(3)	Due to the adoption of ASU 2016-09 as described in Note 1—Significant Accounting Policies in the Notes to Consolidated Financial Statements under "Accounting Pronouncements Adopted in Current Year" , certain current year balances related to excess tax benefits from stock compensation were adjusted prospectively.


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

FASB guidance provides for an option which, if elected, would permit us to value our interest-bearing policy liabilities and debt at fair value in our Consolidated Balance Sheets . However, unlike the accounting rule which permits us to account for changes in our available-for-sale bond portfolio through other comprehensive income, the guidance requires such changes to be recorded in earnings. Because both the size and duration of the investment portfolio do not match those attributes of our policyholder liabilities and debt, the impact on earnings could be very significant and volatile, causing reported earnings not to be reflective of core results. Therefore, we have not elected this option.

Torchmark’s ratio of earnings before interest and taxes to interest requirements (times interest earned) was 10.3 times in 2016 , compared with 11.0 times in 2015 and 11.3 times in 2014 based on continuing operations. This times-interest-earned ratio is computed by dividing interest expense into the sum of pre-tax income from continuing operations and interest expense. A discussion of our interest expense is included in the discussion of financing costs under the caption Investments in this report.

Financial Strength Ratings. The financial strength of our major insurance subsidiaries is rated by Standard & Poor’s and A. M. Best. The following chart presents these ratings for our five largest insurance subsidiaries at December 31, 2016 .



	Standard & Poor’s	A.M Best
Liberty	AA-	A+ (Superior)
Globe	AA-	A+ (Superior)
United American	AA-	A+ (Superior)
American Income	AA-	A+ (Superior)
Family Heritage	NR	A (Excellent)

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A.M. Best states that it assigns an A+ (Superior) rating to insurance companies that have, in its opinion, a superior ability to meet their ongoing insurance obligations. It assigns an A (Excellent) rating to insurance companies that have, in its opinion, an excellent ability to meet their ongoing insurance obligations.

The AA financial strength rating category is assigned by Standard & Poor’s Corporation (S&P) to those insurers which have very strong capacity to meet its financial commitments which differs from the highest-rated insurers only to a small degree. An insurer rated A has strong capacity to meet its financial commitments but it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than insurers in higher-rated categories. The plus sign (+) or minus sign (-) shows the relative standing within the major rating category.

During the fourth quarter of 2016 , S&P reviewed our operations and financial outlook. Based on their review, they confirmed our "AA-" financial strength ratings at our insurance subsidiaries and Torchmark Corporation's senior debt "A" credit rating. We intend to maintain adequate capital levels for S&P and any changes to our capital position to maintain such levels are not expected to have any significant impact on our share repurchase program or our financial results in future periods.

OTHER ITEMS

Litigation. Torchmark and its subsidiaries are subject to being named as parties to pending or threatened litigation, much of which involves punitive damage claims based upon allegations of agent misconduct at the insurance subsidiaries. Such punitive damage claims may have the potential for significant adverse results since Torchmark and its subsidiaries operate in jurisdictions where large punitive damage awards bearing little or no relation to actual damages continue to be awarded. This bespeaks caution since it is impossible to predict the likelihood or extent of punitive damages that may be awarded if liability is found in any given case. Based upon information presently available, and in light of legal and other factual defenses available to Torchmark and its subsidiaries, contingent liabilities arising from threatened and pending litigation are not presently considered by us to be material. For more information concerning litigation, please refer to Note 15—Commitments and Contingencies in the Notes to Consolidated Financial Statements .

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CRITICAL ACCOUNTING POLICIES

Future Policy Benefits: Due to the long-term nature of insurance contracts, our insurance companies are liable for policy benefit payments that will be made in the future. The liability for future policy benefits is determined by standard actuarial procedures common to the life insurance industry. The accounting policies for determining this liability are disclosed in Note 1—Significant Accounting Policies in the Notes to Consolidated Financial Statements.

Approximately 86% of our liabilities for future policy benefits at December 31, 2016 were traditional insurance liabilities where the liability is determined as the present value of future benefits less the present value of the portion of the gross premium required to pay for such benefits. The assumptions used in estimating the future benefits for this portion of business are set at the time of contract issue. These assumptions are “locked in” and are not revised for the lifetime of the contracts, except where there is a premium deficiency, as defined in Note 1—Significant Accounting Policies in the Notes to Consolidated Financial Statements under the caption Future Policy Benefits. Otherwise, variability in the accrual of policy reserve liabilities after policy issuance is caused only by variability of the inventory of in force policies. Torchmark did not have a premium deficiency event for its traditional business during the three years ended December 31, 2016 .

The remaining portion of liabilities for future policy benefits pertains to business accounted for as deposit business, where the recorded liability is the fund balance attributable to the benefit of policyholders as determined by the policy contract at the financial statement date. Accordingly, there are no assumptions used to determine the future policy benefit liability for deposit business.

Deferred Acquisition Costs : Certain costs of acquiring new business are deferred and recorded as an asset. Deferred acquisition costs consist primarily of sales commissions and other underwriting costs related to the successful issuance of a new insurance contract as indicated in Note 1 — Significant Accounting Policies under the caption Deferred Acquisition Costs in the Notes to Consolidated Financial Statements. Additionally, the cost of acquiring blocks of insurance business or insurance business through the purchase of other companies, known as the value of insurance purchased, is included in deferred acquisition costs. Our policies for accounting for deferred acquisition costs and the associated amortization are reported under the same caption in Note 1.

Approximately 99% of our recorded amounts for deferred acquisition costs at December 31, 2016 were related to traditional products and are being amortized over the premium-paying period in proportion to the present value of actual historic and estimated future gross premiums. The projection assumptions for this business are set at the time of contract issue. These assumptions are “locked-in” at that time and, except where there is a loss recognition issue, are not revised for the lifetime of the contracts. Absent a premium deficiency, variability in amortization after policy issuance is caused only by variability in premium volume. We have not recorded a deferred acquisition cost loss recognition event for assets related to this business for any period in the three years ended December 31, 2016 .

The remaining 1% of deferred acquisition costs pertain to deposit business for which deferred acquisition costs are amortized over the estimated lives of the contracts in proportion to actual and estimated future gross profits. These contracts are not subject to lock-in. The assumptions must be updated when actual experience or other evidence suggests that earlier estimates should be revised. Revisions related to our deposit business assets have not had a material impact on the amortization of deferred acquisition costs during the three years ended December 31, 2016 .

Policy Claims and Other Benefits Payable : This liability consists of known benefits currently payable and an estimate of claims that have been incurred but not yet reported to us. The estimate of unreported claims is based on prior experience and is made after careful evaluation of all information available to us. However, the factors upon which these estimates are based can be subject to change from historical patterns. Factors involved include the litigation environment, regulatory mandates, and the introduction of policy types for which claim patterns are not well established, and medical trend rates and medical cost inflation as they affect our health claims. Changes in these estimates, if any, are reflected in the earnings of the period in which the adjustment is made. We believe that the estimates used to produce the liability for claims and other benefits, including the estimate of unsubmitted claims, are the most appropriate under the circumstances. However, there is no certainty that the resulting stated liability will be our ultimate obligation. At this time, we do not expect any change in this estimate to have a material impact on earnings or financial position consistent with our historical experience.

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Valuation of Fixed Maturities : We hold a substantial investment in high-quality fixed maturities to provide for the funding of our future policy contractual obligations over long periods of time. While these securities are generally expected to be held to maturity, they are classified as available for sale and are sold from time to time, primarily to manage risk. We report this portfolio at fair value. Fair value is the price that we would expect to receive upon sale of the asset in an orderly transaction. The fair value of the fixed maturity portfolio is primarily affected by changes in interest rates in financial markets, having a greater impact on longer-term maturities. Because of the size of our fixed maturity portfolio, small changes in rates can have a significant effect on the portfolio and the reported financial position of the Company. This impact is disclosed in 100 basis point increments under the caption Market Risk Sensitivity in this report. However, as discussed under the caption Financial Condition in this report, we believe these unrealized fluctuations in value have no meaningful impact on our actual financial condition and, as such, we remove them from consideration when viewing our financial position and financial ratios.

At times, the values of our fixed maturities can also be affected by illiquidity in the financial markets. Illiquidity would contribute to a spread widening, and accordingly unrealized losses, on many securities that we would expect to be fully recoverable. Even though our fixed maturity portfolio is available for sale, we have the ability and intent to hold the securities until maturity as a result of our strong and stable cash flows generated from our insurance products. Considerable information concerning the policies, procedures, classification levels, and other relevant data concerning the valuation of our fixed maturity investments is presented in Note 1—Significant Accounting Policies and in Note 4—Investments in the Notes to Consolidated Financial Statements under the captions Fair Value Measurements in both notes.

Impairment of Investments : We continually monitor our investment portfolio for investments where fair value has declined below carrying value and that have become impaired in value. While the values of the investments in our portfolio constantly fluctuate due to market conditions, an other-than-temporary impairment charge is recorded only when a security has experienced a decline in fair market value which is deemed to be other than temporary. The policies and procedures that we use to evaluate and account for impairments of investments are disclosed in Note 1—Significant Accounting Policies in the Notes to Consolidated Financial Statements and the discussions under the captions Investments and Realized Gains and Losses in this report. While every effort is made to make the best estimate of status and value with the information available regarding an other-than-temporary impairment, it is difficult to predict the future prospects of a distressed or impaired security.

Defined benefit pension plans : We maintain funded defined benefit plans covering most full-time employees. We also have unfunded nonqualified defined benefit plans covering certain key and other employees. Our obligations under these plans are determined actuarially based on specified actuarial assumptions. In accordance with GAAP, an expense is recorded each year as these pension obligations grow due to the increase in the service period of employees and the interest cost associated with the passage of time. These obligations are offset, at least in part, by the growth in value of the assets in the funded plans. At December 31, 2016 , our gross liability under these plans was $528 million , but was offset by assets of $329 million .

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The actuarial assumptions used in determining our obligations for pensions include employee mortality and turnover, retirement age, the expected return on plan assets, projected salary increases, and the discount rate at which future obligations could be settled. These assumptions have an important effect on the pension obligation. A decrease in the discount rate or rate of return on plan assets will cause an increase in the pension obligation. A decrease in projected salary increases will cause a decrease in this obligation. Small changes in assumptions may cause significant differences in reported results for these plans. For example, a sensitivity analysis is presented below for the impact of change in the discount rate and the long-term rate of return on assets assumed on our defined benefit pension plans expense for the year 2016 and projected benefit obligation as of December 31, 2016 .



Assumption	% Change		Impact on Expense			Impact on Projected Benefit Obligation
			(Dollars in Thousands)
Discount Rate: ⁽¹⁾
Increase	0.25		$	(2,575	)	$	(19,884	)
Decrease	(0.25	)	2,712			21,084
Expected Return: ⁽²⁾
Increase	0.25		(842		)
Decrease	(0.25	)	842


(1)	The discount rate was 4.64% for 2016 expense and 4.27% for the projected benefit obligation at December 31, 2016 .


(2)	The expected return rate assumed was 7.19% .

The Company determines mortality assumptions through the use of published mortality tables that reflect broad-based studies of mortality and published longevity improvement scales. During 2014, the Company revised the mortality assumptions based on an evaluation of a new mortality table and longevity scale released by the Society of Actuaries. The change in these assumptions added approximately $26 million to the projected benefit obligation as of December 31, 2014.

The criteria used to determine the primary assumptions are discussed in Note 9—Postretirement Benefits in the Notes to Consolidated Financial Statements. While we have used our best efforts to determine the most reliable assumptions, given the information available from company experience, economic data, independent consultants and other sources, we cannot be certain that actual results will be the same as expected. The assumptions are reviewed annually and revised, if necessary, based on more current information available to us. Note 9 also contains information about pension plan assets, investment policies, and other related data.

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CAUTIONARY STATEMENTS

We caution readers regarding certain forward-looking statements contained in the foregoing discussion and elsewhere in this document, and in any other statements made by us or on our behalf 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 us or our business, whether express or implied, is meant as and should be considered a forward-looking statement. Such statements represent our opinions concerning future operations, strategies, financial results or other developments.

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 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)	Changes in lapse rates and/or sales of our insurance policies as well as levels of mortality, morbidity and utilization of healthcare services that differ from our assumptions;


(2)	Federal and state legislative and regulatory developments, particularly those impacting taxes and changes to the federal Medicare program that would affect Medicare Supplement;


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


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


(5)	General economic, industry sector or individual debt issuers’ financial conditions that may affect the current market value of securities that we own, or that may impair issuers’ ability to pay interest due us 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 our estimates and judgments which may differ from the actual amounts ultimately realized.

Readers are also directed to consider other risks and uncertainties described in our other documents on file with the Securities and Exchange Commission.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Information required by this item is found under the heading Market Risk Sensitivity in Item 7 of this report.

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Item 8. Financial Statements and Supplementary Data



	Page
Report of Independent Registered Public Accounting Firm	50

Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 2016 and 2015	51
Consolidated Statements of Operations for each of the three years in the period ended December 31, 2016	52
Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31, 2016	53
Consolidated Statements of Shareholders’ Equity for each of the three years in the period ended December 31, 2016	54
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2016	55
Notes to Consolidated Financial Statements	56

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Torchmark Corporation

McKinney, Texas

We have audited the accompanying consolidated balance sheets of Torchmark Corporation and subsidiaries (Torchmark) as of December 31, 2016 and 2015 , and the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2016 . Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of Torchmark’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Torchmark Corporation and subsidiaries as of December 31, 2016 and 2015 , and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 , in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Torchmark’s internal control over financial reporting as of December 31, 2016 , based on the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2017 expressed an unqualified opinion on Torchmark’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Dallas, Texas

February 27, 2017

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TORCHMARK CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands except per share data)



	December 31,
	2016			2015
Assets:
Investments:
Fixed maturities-available for sale, at fair value (amortized cost: 2016—$14,188,050; 2015—$13,251,871)	$	15,245,861		$	13,758,024
Policy loans	507,975			492,462
Other long-term investments	53,852			38,438
Short-term investments	72,040			54,766
Total investments	15,879,728			14,343,690
Cash	76,163			61,383
Accrued investment income	223,148			209,915
Other receivables	384,454			344,552
Deferred acquisition costs	3,783,158			3,617,135
Goodwill	441,591			441,591
Other assets	520,313			522,104
Assets related to discontinued operations	127,532			312,843
Total assets	$	21,436,087		$	19,853,213
Liabilities:
Future policy benefits	$	12,825,837		$	12,245,811
Unearned and advance premiums	64,017			67,021
Policy claims and other benefits payable	299,565			272,898
Other policyholders' funds	96,993			95,988
Total policy liabilities	13,286,412			12,681,718
Current and deferred income taxes payable	1,743,990			1,450,888
Other liabilities	413,760			380,158
Short-term debt	264,475			490,129
Long-term debt (estimated fair value: 2016—$1,233,019; 2015—$856,291)	1,133,165			743,733
Liabilities related to discontinued operations	27,424			51,035
Total liabilities	16,869,226			15,797,661
Commitments and Contingencies (Note 15)
Shareholders' equity:
Preferred stock, par value $1 per share—Authorized 5,000,000 shares; outstanding: 0 in 2016 and 2015	—			—
Common stock, par value $1 per share—Authorized 320,000,000 shares; outstanding: (2016—127,218,183 issued, less 9,187,075 held in treasury and 2015—130,218,183 issued, less 7,848,231 held in treasury)	127,218			130,218
Additional paid-in capital	490,421			482,284
Accumulated other comprehensive income (loss)	577,574			231,947
Retained earnings	3,890,798			3,614,369
Treasury stock	(519,150		)	(403,266		)
Total shareholders' equity	4,566,861			4,055,552
Total liabilities and shareholders' equity	$	21,436,087		$	19,853,213

See accompanying Notes to Consolidated Financial Statements.

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TORCHMARK CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands except per share data)



	Year Ended December 31,
	2016			2015			2014
Revenue:
Life premium	$	2,189,333		$	2,073,065		$	1,966,300
Health premium	947,663			925,520			869,440
Other premium	38			135			400
Total premium	3,137,034			2,998,720			2,836,140

Net investment income	806,903			773,951			758,286
Realized investment gains (losses)	(10,683		)	(8,791		)	23,548
Other income	1,375			2,185			2,121
Total revenue	3,934,629			3,766,065			3,620,095

Benefits and expenses:
Life policyholder benefits	1,479,272			1,374,608			1,301,562
Health policyholder benefits	612,725			602,610			559,817
Other policyholder benefits	36,751			38,994			42,005
Total policyholder benefits	2,128,748			2,016,212			1,903,384

Amortization of deferred acquisition costs	469,063			445,625			415,914
Commissions, premium taxes, and non-deferred acquisition expenses	249,174			237,541			222,463
Other operating expense	232,064			223,858			217,531
Interest expense	83,345			76,642			76,126
Total benefits and expenses	3,162,394			2,999,878			2,835,418

Income before income taxes	772,235			766,187			784,677
Income taxes ⁽¹⁾	(232,645		)	(249,894		)	(256,603		)
Income from continuing operations	539,590			516,293			528,074

Discontinued operations:
Income from discontinued operations, net of tax	10,189			10,807			14,865
Net income	$	549,779		$	527,100		$	542,939

Basic net income per common share:
Continuing operations	$	4.50		$	4.13		$	4.04
Discontinued operations	0.08			0.08			0.11
Total basic net income per common share	$	4.58		$	4.21		$	4.15

Diluted net income per common share: ⁽¹⁾
Continuing operations	$	4.41		$	4.07		$	3.98
Discontinued operations	0.08			0.09			0.11
Total diluted net income per common share	$	4.49		$	4.16		$	4.09


(1)	Certain current year amounts were prospectively adjusted to give effect to the adoption of ASU 2016-09 related to excess tax benefits from stock compensation as described in Note 1—Significant Accounting Policies under "Accounting Pronouncements Adopted in the Current Year."

See accompanying Notes to Consolidated Financial Statements.

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TORCHMARK CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)



	Year Ended December 31,
	2016			2015			2014
Net income	$	549,779		$	527,100		$	542,939

Other comprehensive income (loss):
Unrealized investment gains (losses):
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period	544,886			(1,163,417		)	1,312,548
Reclassification adjustment for (gains) losses on securities included in net income	10,645			9,478			(23,170		)
Reclassification adjustment for amortization of (discount) premium	(4,185		)	(6,346		)	(8,621		)
Foreign exchange adjustment on securities recorded at fair value	312			(3,010		)	(1,567		)
Unrealized gains (losses) on securities	551,658			(1,163,295		)	1,279,190

Unrealized gains (losses) on other investments:
Unrealized holding gains (losses) arising during period	2,503			(1,635		)	4,473
Reclassification adjustment for (gains) losses included in net income	(360		)	(1,102		)	(601		)
Unrealized gains (losses) on other investments	2,143			(2,737		)	3,872
Total unrealized investment gains (losses)	553,801			(1,166,032		)	1,283,062
Less applicable (taxes) benefits	(193,820		)	408,092			(448,985		)
Unrealized gains (losses) on investments, net of tax	359,981			(757,940		)	834,077

Unrealized gains (losses) attributable to deferred acquisition costs	(2,412		)	8,682			(6,200		)
Less applicable (taxes) benefits	845			(3,039		)	2,170
Unrealized gains (losses) attributable to deferred acquisition costs, net of tax	(1,567		)	5,643			(4,030		)

Foreign exchange translation adjustments, other than securities	2,178			(20,651		)	(10,770		)
Less applicable (taxes) benefits	(838		)	6,892			3,290
Foreign exchange translation adjustments, other than securities, net of tax	1,340			(13,759		)	(7,480		)

Pension adjustments:
Amortization of pension costs	10,168			14,586			10,285
Plan amendments	—			(2,104		)	—
Experience gain (loss)	(31,902		)	(11,632		)	(65,817		)
Pension adjustments	(21,734		)	850			(55,532		)
Less applicable (taxes) benefits	7,607			(299		)	19,436
Pension adjustments, net of tax	(14,127		)	551			(36,096		)

Other comprehensive income (loss)	345,627			(765,505		)	786,471
Comprehensive income (loss)	$	895,406		$	(238,405	)	$	1,329,410

See accompanying Notes to Consolidated Financial Statements.

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TORCHMARK CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Amounts in thousands except per share data)



	Preferred Stock		Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Total Shareholders’ Equity
Year Ended December 31, 2014
Balance at January 1, 2014	$	—	$	151,218		$	462,058		$	210,981		$	3,495,533		$	(543,448	)	$	3,776,342
Comprehensive income (loss)									786,471			542,939						1,329,410
Common dividends declared ($.51 per share)												(65,998		)				(65,998		)
Acquisition of treasury stock															(449,308		)	(449,308		)
Stock-based compensation						31,315						362			526			32,203
Exercise of stock options						18,524						(22,641		)	78,934			74,817
Retirement of treasury stock			(17,000		)	(54,284		)				(573,349		)	644,633			—
Balance at December 31, 2014	—		134,218			457,613			997,452			3,376,846			(268,663		)	4,697,466

Year Ended December 31, 2015
Comprehensive income (loss)									(765,505		)	527,100						(238,405		)
Common dividends declared ($.54 per share)												(67,182		)				(67,182		)
Acquisition of treasury stock															(418,526		)	(418,526		)
Stock-based compensation						21,813						(2,132		)	8,983			28,664
Exercise of stock options						17,577						(36,322		)	72,280			53,535
Retirement of treasury stock			(4,000		)	(14,719		)				(183,941		)	202,660			—
Balance at December 31, 2015	—		130,218			482,284			231,947			3,614,369			(403,266		)	4,055,552

Year Ended December 31, 2016
Comprehensive income (loss)									345,627			549,779						895,406
Common dividends declared ($.56 per share)												(66,968		)				(66,968		)
Acquisition of treasury stock															(404,784		)	(404,784		)
Stock-based compensation						19,659						(2,224		)	8,891			26,326
Exercise of stock options ⁽¹⁾												(53,845		)	115,174			61,329
Retirement of treasury stock			(3,000		)	(11,522		)				(150,313		)	164,835			—
Balance at December 31, 2016	$	—	$	127,218		$	490,421		$	577,574		$	3,890,798		$	(519,150	)	$	4,566,861


(1)	Certain current year amounts were prospectively adjusted to give effect to the adoption of ASU 2016-09 related to excess tax benefits from stock compensation as described in Note 1—Significant Accounting Policies under "Accounting Pronouncements Adopted in the Current Year."

See accompanying Notes to Consolidated Financial Statements.

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TORCHMARK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)



	Year Ended December 31,
	2016			2015			2014
Net income	$	549,779		$	527,100		$	542,939
Adjustments to reconcile net income from continuing operations to cash provided from continuing operations:
(Income) from discontinued operations, net of income taxes	(10,189		)	(10,807		)	(14,865		)
Increase in future policy benefits	645,844			631,202			585,632
Increase (decrease) in other policy benefits	24,668			14,609			12,521
Deferral of policy acquisition costs	(635,318		)	(612,181		)	(562,245		)
Amortization of deferred policy acquisition costs	469,063			445,625			415,914
Change in current and deferred income taxes ⁽¹⁾	152,210			103,558			102,720
Realized (gains) losses on sale of investments and properties	10,683			8,791			(23,548		)
Other, net	20,079			13,985			(38,354		)
Net cash provided from (used for) continuing operations	1,226,819			1,121,882			1,020,714
Net cash provided from (used for) discontinued operations	171,889			(1,832		)	(156,006		)
Cash provided from (used for) operating activities	1,398,708			1,120,050			864,708

Cash provided from (used for) investing activities:
Investments sold or matured:
Fixed maturities available for sale—sold	340,434			226,792			109,024
Fixed maturities available for sale—matured, called, and repaid	236,353			376,158			273,223
Other long-term investments	1,217			3,740			1,495
Total investments sold or matured	578,004			606,690			383,742
Acquisition of investments:
Fixed maturities—available for sale	(1,530,053		)	(1,070,908		)	(704,993		)
Other long-term investments	(20,444		)	(31,707		)	—
Total investments acquired	(1,550,497		)	(1,102,615		)	(704,993		)
Net increase in policy loans	(15,513		)	(20,353		)	(23,222		)
Net (increase) decrease in short-term investments	(17,274		)	(38,884		)	61,008
Additions to properties	(25,162		)	(36,957		)	(19,367		)
Sales of properties	90			—			8,752
Investments in low-income housing interests	(32,084		)	(41,231		)	(56,083		)
Cash provided from (used for) investing activities	(1,062,436		)	(633,350		)	(350,163		)

Cash provided from (used for) financing activities:
Issuance of common stock	61,329			35,958			56,294
Cash dividends paid to shareholders	(66,931		)	(66,899		)	(65,006		)
Repayment of debt	(250,000		)	—			—
Proceeds from issuance of debt	400,000			—			—
Payment for debt issuance costs	(9,638		)	—			—
Net borrowing (repayment) of commercial paper	22,224			1,978			9,328
Excess tax benefit from stock option exercises ⁽¹⁾	—			17,577			18,524
Acquisition of treasury stock	(404,784		)	(418,526		)	(449,308		)
Net receipts (payments) from deposit-type product	(71,991		)	(95,793		)	(69,792		)
Cash provided from (used for) financing activities	(319,791		)	(525,705		)	(499,960		)
Effect of foreign exchange rate changes on cash	(1,701		)	34,369			14,491
Increase (decrease) in cash	14,780			(4,636		)	29,076
Cash at beginning of year	61,383			66,019			36,943
Cash at end of year	$	76,163		$	61,383		$	66,019


(1)	Certain current year amounts were prospectively adjusted to give effect to the adoption of ASU 2016-09 related to excess tax benefits from stock compensation as described in Note 1—Significant Accounting Policies under "Accounting Pronouncements Adopted in the Current Year."

See accompanying Notes to Consolidated Financial Statements.

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TORCHMARK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands except per share data)

Note 1—Significant Accounting Policies

Business : Torchmark Corporation (Torchmark or alternatively, the Company) through its wholly-owned subsidiaries provides a variety of life and health insurance products and annuities to a broad base of customers. Torchmark is organized into four reportable segments: life insurance, health insurance, annuity, and investment.

Basis of Presentation : The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP), under guidance issued by the Financial Accounting Standards Board (FASB). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Principles of Consolidation : The consolidated financial statements include the results of Torchmark and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. When Torchmark acquires a subsidiary or a block of business, the assets acquired and the liabilities assumed are measured at fair value at the acquisition date. Any excess of acquisition cost over the fair value of net assets is recorded as goodwill. Expenses incurred to effect the acquisition are charged to earnings as of the acquisition date. Upon acquisition, the accounts and results of operations are consolidated as of and subsequent to the acquisition date.

Torchmark accounts for its variable interest entities (VIEs) under accounting guidance which clarifies the definition of a variable interest and the instructions for consolidating VIEs. Only primary beneficiaries are required or allowed to consolidate VIEs. Therefore, a company may have voting control of a VIE, but if it is not the primary beneficiary, it is not permitted to consolidate the VIE. As further described under the caption Low-Income Housing Tax Credit Interests below in this note, Torchmark holds passive interests in limited partnerships which provide investment returns through the provision of tax benefits (principally from the transfer of federal or state tax credits related to federal low-income housing). These interests are considered to be VIEs. They are not consolidated because the Company has no power to control the activities that most significantly affect the economic performance of these entities and therefore the Company is not the primary beneficiary of any of these interests. Torchmark’s involvement is limited to its limited partnership interest in the entities. Torchmark has not provided any other financial support to the entities beyond its commitments to fund its limited partnership interests, and there are no arrangements or agreements with any of the interests to provide other financial support. The maximum loss exposure relative to these interests is limited to their carrying value.

Discontinued Operations : When a component of Torchmark’s business is sold or expected to be sold during the ensuing year, Torchmark considers whether the criteria of ASC 205-20, Discontinued Operations , have been met, which includes evaluating if the disposal of a component represents a strategic shift that has, or will have, a major effect on the Company. If the disposal meets the criteria for discontinued operations, the assets and liabilities are segregated and recorded in the Consolidated Balance Sheets as "Assets and Liabilities related to discontinued operations" for all periods presented. If the carrying amount of the business exceeds its estimated fair value, a loss is recognized. The results of operations for the discontinued component are reported in "Income from discontinued operations, net of tax" in the Consolidated Statements of Operations for current and prior periods. Discontinued operations are reported commencing in the period in which the business is either disposed of or meets the accounting criteria for discontinued operations, including any gain or loss recognized on the sale or adjustment of the carrying amount to the estimated fair value less cost to sell.

As discussed in further detail in Note 6—Discontinued Operations , Torchmark sold one of its operating segments, Medicare Part D during 2016. The financial results of this business are excluded from Torchmark's continuing operations including the Notes to the Consolidated Financial Statements , other than Note 2—Statutory Accounting and Note 6—Discontinued Operations .

Investments : Torchmark classifies all of its fixed maturity investments, which include bonds and redeemable preferred stocks, as available for sale. Investments classified as available for sale are carried at fair value with unrealized gains and losses, net of deferred taxes, reflected directly in accumulated other comprehensive income. Policy loans are

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carried at unpaid principal balances. Other long-term investments include equity securities, real estate, and limited partnerships. Investments in equity securities, which include common and nonredeemable preferred stocks, are reported at fair value with unrealized gains and losses, net of deferred taxes, reflected directly in accumulated other comprehensive income. Investments in real estate are reported at cost less allowances for depreciation. Depreciation is calculated on the straight-line method. Investments in limited partnerships are accounted for using the cost method of accounting as Torchmark's partnership interest is minor since Torchmark lacks the ability to exercise significant influence over the partnership's operating and financial policies. The Company considers its cost method investments for impairment when the carrying value of such investments exceeds the net asset value (“NAV”). Short-term investments include investments in interest-bearing time deposits with original maturities of twelve months or less. Gains and losses realized on the disposition of investments are determined on a specific identification basis.

Fair Value Measurements, Investments in Securities : Torchmark measures the fair value of its fixed maturities based on a hierarchy consisting of three levels which indicate the quality of the fair value measurements as described below:


•	Level 1— fair values are based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.

•

Level 2 — fair values are based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, or inputs that can otherwise be corroborated by observable market data.

•

Level 3— fair values are based on inputs that are considered unobservable where there is little, if any, market activity for the asset or liability as of the measurement date. In this circumstance, the Company has to rely on values derived by independent brokers or internally-developed assumptions. Unobservable inputs are developed based on the best information available to the Company which may include the Company’s own data or bid and ask prices in the dealer market.

The great majority of Torchmark's fixed maturities are not actively traded and direct quotes are not generally available. Management therefore determines the fair values of these securities after consideration of data provided by third-party pricing services, independent broker/dealers, and other resources. At December 31, 2016 , Torchmark's investments in fixed maturities were primarily composed of the following significant security types: Corporate securities, state and municipal securities, redeemable preferred stocks, and U.S. government securities. The remaining security types represented less than 1% of the total in the aggregate.

Over 95% of the fair value reported at December 31, 2016 was determined using data provided by third-party pricing services. Prices provided by these services are not binding offers, but are estimated exit values. Third-party pricing services use proprietary pricing models to determine security values by discounting cash flows using a market-adjusted spread to a benchmark yield.

For all asset classes within Torchmark’s significant security types, third-party pricing services use a common valuation technique to model the price of the investments using observable market data. The foundation for these models consists of developing yield spreads based on multiple observable market inputs, including but not limited to: benchmark yield curves, actual trading activity, new issue yields, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, sector-specific data, economic data, and other inputs that are corroborated in the market. Pricing vendors monitor and review their pricing data continuously with current market and economic data feeds, augmented by ongoing communication within the dealer community.

Using the observable market inputs described above, spreads to an appropriate benchmark yield are further developed by the vendors for each security based on security-specific and/or sector-specific risk factors, such as a security’s terms and conditions (coupon, maturity, and call features), credit rating, sector, liquidity, collateral or other cash flow options, and other factors that could impact the risk of the security. Embedded repayment options, such as call and redemption features, are also taken into account in the pricing models. When the spread is determined, it is added to

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the security’s benchmark yield. The security's expected cash flows are discounted using this spread-adjusted yield, and the resulting present value of the discounted cash flows is the evaluated price.

When third-party vendor prices are not available, the Company attempts to obtain valuations from other sources, including but not limited to broker/dealers, broker quotes, and prices on comparable securities.

When valuations have been obtained for all securities in the portfolio, management reviews and analyzes the prices to ensure their reasonableness, taking into account available observable information. When two or more valuations are available for a security and the variance between the prices is 10% or less, the close correlation suggests similar observable inputs were used in deriving the price, and the mean of the prices is used. Securities valued in this manner are classified as Level 2. When the variance between two or more valuations for a security exceeds 10%, additional analysis is performed to determine the most appropriate value for that security, using resources such as broker quotes, prices on comparable securities, recent trades, and any other observable market data. Further review is performed on the available valuations to determine if they can be corroborated within reasonable tolerance to any other observable evidence. If one of the valuations or the mean of the available valuations for a security can be corroborated with other observable evidence, then the corroborated value is used and reported as Level 2. The Company uses information and analytical techniques deemed appropriate for determining the point within the range of reasonable fair value estimates that is most representative of fair value under current market conditions. Valuations that cannot be corroborated within a reasonable tolerance are classified as Level 3.

Torchmark invests in a portfolio of private placement bonds which are not actively traded. This portfolio is managed by third parties and was $565 million at amortized cost and $574 million at fair value on December 31, 2016 , compared with $542 million at amortized cost and $546 million at fair value a year earlier. The portfolio managers provide valuations for the bonds based on a pricing matrix utilizing observable inputs, such as the benchmark treasury rate and published sector indices, and unobservable inputs such as an internally-developed credit rating. If they cannot be corroborated, the fair values are classified as Level 3. As of December 31, 2016 , fair values of $15 million were classified as Level 2, while the remaining balance of $559 million was classified as Level 3. As of December 31, 2015 , fair values of $15 million were classified as Level 2, while the remaining balance of $531 million was classified as Level 3.

The fair values for each class of security and by valuation hierarchy level are indicated in Note 4—Investments under the caption Fair value measurements and Note 9—Postretirement Benefits under the caption Pension Plans .

Fair Value Measurements, Other Financial Instruments : Fair values for cash, short-term investments, short-term debt, receivables and payables approximate carrying value. Policy loans are an integral part of Torchmark’s subsidiaries’ life insurance policies in force and their fair values cannot be valued separately and apart from the insurance contracts. The fair values of Torchmark’s long-term debt issues are based on the same methodology as investments in fixed maturities. Because observable inputs were available for these debt securities at December 31, 2016 , they were classified as Level 2 in the valuation hierarchy. The fair value for each debt instrument as of December 31, 2016 is disclosed in Note 11—Debt . As described in Note 9—Postretirement Benefits , Torchmark maintains a nonqualified supplemental retirement plan. Therefore the assets which support the liability for this plan are considered general assets of the Company. These assets consist of the cash value of corporate-owned life insurance policies and exchange traded funds (ETFs). The fair value of the insurance cash values approximates carrying value. Fair values for the ETFs are derived from direct quotes and are considered Level 1 in the valuation hierarchy.

Impairment of Investments : Torchmark’s portfolio of fixed maturities fluctuates in value due to changes in interest rates in the financial markets as well as other factors. Fluctuations caused by market interest rate changes have little bearing on whether or not the investment will be ultimately recoverable. Therefore, Torchmark considers these declines in value resulting from changes in market interest rates to be temporary. In certain circumstances, however, Torchmark determines that the decline in the value of a security is other-than-temporary and writes the book value of the security down to its fair value, realizing an investment loss. The evaluation of Torchmark’s securities for other-than-temporary impairments is a process that is undertaken at least quarterly and is overseen by a team of Company investment and accounting professionals. Each security which is impaired because the fair value is less than the cost or amortized

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cost is identified and evaluated. The determination that an impairment is other-than-temporary is highly subjective and involves the careful consideration of many factors. Among the factors considered are:


•	The length of time and extent to which the security has been impaired


•	The reason(s) for the impairment


•	The financial condition of the issuer and the near-term prospects for recovery in fair value of the security


•	The Company’s ability and intent to hold the security until anticipated recovery


•	Expected future cash flows

The relative weight given to each of these factors can change over time as facts and circumstances change. In many cases, management believes it is appropriate to give relatively more weight to prospective factors than to retrospective factors. Prospective factors that are given more weight include prospects for recovery, the Company’s ability and intent to hold the security until anticipated recovery, and expected future cash flows.

Among the facts and information considered in the process are:


•	Financial statements of the issuer


•	Changes in credit ratings of the issuer


•	The value of underlying collateral


•	News and information included in press releases issued by the issuer


•	News and information reported in the media concerning the issuer


•	News and information published by or otherwise provided by credit analysts


•	The nature and amount of recent and expected future sources and uses of cash


•	Default on a required payment


•	Issuer bankruptcy filings

While all available information is taken into account, it is difficult to predict the ultimate recoverable amount of a distressed or impaired security. If a security is determined to be other-than-temporarily impaired, the cost basis of the security is written down to fair value and is treated as a realized loss in the period the determination is made. The written-down security will be amortized and revenue recognized in accordance with estimated future cash flows.

Current accounting guidance is such that if an entity intends to sell or if it is more likely than not that it will be required to sell an impaired security prior to recovery of its cost basis, the security is to be considered other-than-temporarily impaired and the full amount of impairment must be charged to earnings. Otherwise, losses on fixed maturities which are other-than-temporarily impaired are separated into two categories, the portion of loss which is considered credit loss and the portion of loss which is due to other factors. The credit loss portion is charged to earnings while the loss due to other factors is charged to other comprehensive income. The credit loss portion of an impairment is determined as the difference between the security’s amortized cost and the present value of expected future cash flows discounted at the security’s original effective yield rate. The temporary portion is the difference between this present value of expected future cash flows and fair value (as discounted by a market yield). The expected cash flows are determined using judgment and the best information available to the Company. Inputs used to derive expected cash flows include expected default rates, current levels of subordination, and loan-to-collateral value ratios. Management believes that the present value of future cash flows at the original effective yield is a better measure of valuation because fair value determined by a discounted market yield is often based on limited observable market data, and the market for these securities is generally neither active nor orderly.

Cash : Cash consists of balances on hand and on deposit in banks and financial institutions.

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Accrued investment income : Accrued investment income consists of interest income or dividends earned on the investment portfolio, but are yet to be received as of the balance sheet date.

Other Receivables : Other receivables consist primarily of agent debit balances, which represent commissions advanced to insurance agents. These balances are repaid to the Company over time as the premiums associated with the advanced commissions are collected by the Company and the agents' commissions on such premiums are retained. The balance was $353 million and $334 million at December 31, 2016 and 2015 , respectively. Management believes these balances are recoverable as they are less than the estimated present value of future commissions.

Deferred Acquisition Costs : Certain costs of acquiring new insurance business are deferred and recorded as an asset. These costs are essential for the acquisition of new insurance business and are directly related to the successful issuance of an insurance contract including sales commissions, policy issue costs, and underwriting costs. Additionally, deferred acquisition costs include the value of insurance purchased, which are the costs of acquiring blocks of insurance from other companies or through the acquisition of other companies. These costs represent the difference between the fair value of the contractual insurance assets acquired and liabilities assumed compared against the assets and liabilities for insurance contracts that the Company issues or holds measured in accordance with GAAP. Deferred acquisition costs and the value of insurance purchased are amortized in a systematic manner which matches these costs with the associated revenues. Policies other than universal life-type policies are amortized with interest over the estimated premium-paying period of the policies in a manner which charges each year’s operations in proportion to the receipt of premium income. Universal life-type policies are amortized with interest in proportion to estimated gross profits. The assumptions used to amortize acquisition costs with regard to interest, mortality, morbidity, and persistency are consistent with those used to estimate the liability for future policy benefits. For interest-sensitive and deposit-balance type products, these assumptions are reviewed on a regular basis and are revised if actual experience differs significantly from original expectations. For all other products, amortization assumptions are generally not revised once established. Deferred acquisition costs are subject to periodic recoverability and loss recognition testing to determine if there is a premium deficiency. These tests evaluate whether the present value of future contract-related cash flows will support the capitalized deferred acquisition cost asset. These cash flows consist primarily of premium income, less benefits and expenses taking inflation into account. The present value of these cash flows, less the benefit reserve, is then compared with the unamortized deferred acquisition cost balance. In the event the estimated present value of net cash flows is less, the deficiency would be recognized by a charge to earnings and either a reduction of unamortized acquisition costs or an increase in the liability for future benefits, as described under the caption Future Policy Benefits .

Advertising Costs : Costs related to advertising are generally charged to expense as incurred. However, certain Globe Life Direct Response advertising costs are capitalized when there is a reliable and demonstrated relationship between total costs and future benefits that is a direct result of incurring these costs. Globe Life Direct Response advertising costs consist primarily of the production and distribution costs of direct mail advertising materials, and when capitalized are included as a component of deferred acquisition costs. They are amortized in the same manner as other deferred acquisition costs. Globe Life Direct Response advertising costs charged to earnings and included in other operating expense were $9 million , $10 million , and $8 million in 2016 , 2015 , and 2014 , respectively. Capitalized advertising costs included within deferred acquisition costs were $1.25 billion at December 31, 2016 and $1.21 billion at December 31, 2015 .

Goodwill : The excess cost of a business acquired over the fair value of net assets acquired is reported as goodwill. Goodwill is subject to impairment testing in accordance with GAAP on an annual basis, or whenever potential impairment triggers occur. The Company may perform a qualitative analysis under certain circumstances, or perform a two-step quantitative analysis.

In the qualitative analysis, the Company determines if it is more likely than not that the fair value of a reporting unit is less than its carrying amount by assessing current events and circumstances. If there are factors present indicating potential impairment, the company should proceed to the two-step quantitative analysis as described as follows.

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In the two-step quantitative analysis, the Company utilizes two approaches, income and market, to determine the fair value of each reporting unit. In the income approach, judgment and assumptions are used in developing the projected cash flows for the reporting units, and such estimates are subject to change. The Company also exercises judgment in the determination of the discount rate as management believes this to be appropriate for the risk associated with the cash flow expectations. In the market approach, the Company utilizes the share price and a control premium based on businesses with similar assets to determine a fair value. In both cases, the fair value of each reporting unit is then measured against that reporting unit’s corresponding carrying value. In the event the fair value is less than the carrying value, further testing is required under the accounting guidance to determine the amount of impairment, if any. If there is an impairment in the goodwill of any reporting unit, it is written down and charged to earnings in the period of the test.

Torchmark tested its goodwill annually as of June 30th in each of the years 2014 through 2016 . Torchmark’s goodwill was not impaired in any of those periods.

Low-Income Housing Tax Credit Interests : Torchmark invests in limited partnerships that provide low-income housing tax credits and other related federal income tax and state premium tax benefits to Torchmark. The carrying value of Torchmark’s investment in these entities was $280 million and $306 million at December 31, 2016 and 2015 , respectively. At December 31, 2016 , $280 million associated with the federal interests was included in "Other assets" on the Consolidated Balance Sheets. At December 31, 2015 , $302 million associated with the federal interests was included in "Other assets" with the remaining $4 million state-related interests included in "Other long-term investments". As of December 31, 2016 , Torchmark was obligated under future commitments of $57 million , which is included in the above carrying value. For guaranteed investments acquired prior to January 1, 2015, the Company utilizes the effective-yield method of amortization while the proportional method of amortization is utilized for all non-guaranteed as well as guaranteed investments acquired on or after January 1, 2015. All amortization expense is recorded in “Income tax expense” on the Consolidated Statements of Operations .

Property and Equipment : Property and equipment, included in “Other assets,” is reported at cost less allowances for depreciation. Depreciation is recorded primarily on the straight line method over the estimated useful lives of these assets which range from three to ten years for equipment and five to forty years for buildings and improvements. Ordinary maintenance and repairs are charged to income as incurred. Impairments, if any, are recorded when certain events and circumstances become evident that the fair value of the asset is less than its carrying amount. Original cost of property and equipment was $196 million at December 31, 2016 and $175 million at December 31, 2015 . Accumulated depreciation was $99 million at year end 2016 and $92 million at the end of 2015 . Depreciation expense was $9.8 million in 2016 , $8.0 million in 2015 , and $7.4 million in 2014 .

Future Policy Benefits : The liability for future policy benefits for annuity and universal life-type products is represented by policy account value. The liability for future policy benefits for all other life and health products, approximately 86% of total future policy benefits, is determined on the net level premium method. This method provides for the present value of expected future benefit payments less the present value of expected future net premiums, based on estimated investment yields, mortality, morbidity, persistency and other assumptions which were considered appropriate at the time the policies were issued. For limited-payment contracts, a deferred profit liability is also recorded which causes profits to emerge over the life of the contract in proportion to policies in force. Assumptions used for traditional life and health insurance products are based primarily on Company experience. Assumptions for interest rates range from 2.5% to 7.0% for Torchmark’s insurance companies with an overall weighted average assumed rate of 5.7% . Mortality tables used for individual life insurance include various statutory tables and modifications of a variety of generally accepted actuarial tables. Morbidity assumptions for individual health are based on Company experience and industry data. Withdrawal and termination assumptions are based on Torchmark’s experience. Once established, assumptions for these products are generally not changed. An additional provision is made on most products to allow for possible adverse deviation from the assumptions. These estimates are reviewed annually and compared with actual experience. If it is determined that existing contract liabilities, together with the present value of future gross premiums, will not be sufficient to cover the present value of future benefits and to recover unamortized deferred acquisition costs, then a premium deficiency exists. Such a deficiency would be recognized immediately by a charge to earnings and either a

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reduction of unamortized deferred acquisition costs or an increase in the liability for future policy benefits. From that point forward, the liability for future policy benefits would be based on revised assumptions.

Policy Claims and Other Benefits Payable : Torchmark establishes a liability for known policy benefits payable and an estimate of claims that have been incurred but not yet reported to the Company. Torchmark makes an estimate of unreported claims after careful evaluation of all information available to the Company. This estimate is based on prior experience and is reviewed quarterly. However, there is no certainty the stated liability for claims and other benefits, including the estimate of unsubmitted claims, will be Torchmark’s ultimate obligation.

Income Taxes : Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement book values and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. More information concerning income taxes is provided in Note 8—Income Taxes .

Postretirement Benefits : Torchmark accounts for its postretirement defined benefit plans by recognizing the funded status of those plans on its Consolidated Balance Sheets in accordance with accounting guidance. Periodic gains and losses attributable to changes in plan assets and liabilities that are not recognized as components of net periodic benefit costs are recognized as components of other comprehensive income, net of tax. More information concerning the accounting and disclosures for postretirement benefits is found in Note 9—Postretirement Benefits .

Treasury Stock : Torchmark accounts for purchases of treasury stock on the cost method. Issuance of treasury stock is accounted for using the weighted-average cost method. More information is found in Note 12—Shareholders' Equity .

Recognition of Premium Revenue and Related Expenses : Premium income for traditional long-duration life and health insurance products is recognized when due from the policyholder. Premiums for short-duration health contracts are recognized as revenue over the contract period in proportion to the insurance protection provided. Premiums for universal life-type and annuity contracts are added to the policy account value, and revenues for such products are recognized as charges to the policy account value for mortality, administration, and surrenders (retrospective deposit method). Life premium includes policy charges of $18 million , $19 million , and $21 million for the years ended December 31, 2016 , 2015 , and 2014 , respectively. Other premium consists of annuity policy charges in each year. For most insurance products, the related benefits and expenses are matched with revenues by means of the provision of future policy benefits and the amortization of deferred acquisition costs in a manner which recognizes profits as they are earned over the revenue recognition period. For limited-payment life insurance products, the profits are recognized over the contract period.

Stock-Based Compensation : Torchmark accounts for stock-based compensation by recognizing an expense in the financial statements based on the “fair value method.” The fair value method requires that a fair value be assigned to a stock option or other stock grant on its grant date and that this value be amortized over the grantees’ service period.

The fair value method requires the use of an option valuation model to value employee stock options. Torchmark has elected to use the Black-Scholes valuation model for option expensing. A summary of assumptions for options granted in each of the three years 2014 through 2016 is as follows:



	2016		2015		2014
Volatility factor	19.2	%	23.6	%	30.9	%
Dividend yield	1.1	%	0.9	%	0.9	%
Expected term (in years)	5.78		5.66		5.65
Risk-free rate	1.3	%	1.6	%	1.9	%

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The expected term is generally derived from Company experience. However, expected terms are determined based on the simplified method as permitted under the ASC 718 Stock Compensation topic when company experience is insufficient. The Torchmark Corporation 2011 Incentive Plan replaced all previous plans and allows for option grants for employees with a ten -year contractual term which vest over five years in addition to seven -year grants which vest over three years as permitted by the previous plans. Director grants vest over six months. The Company has sufficient experience with seven -year grants that vest in three years, but insufficient historical experience with five -year vesting. Therefore, Torchmark has used the simplified method to determine the expected term for the ten -year grants with five -year vesting and will do so until adequate experience is developed. Volatility and risk-free interest rates are assumed over a period of time consistent with the expected term of the option. Volatility is measured on a historical basis. Monthly data points are utilized to derive volatility for periods greater than three years. Expected dividend yield is based on current dividend yield held constant over the expected term. Once the fair value of an option has been determined, it is amortized on a straight-line basis over the employee’s service period for that grant (from the grant date to the date the grant is fully vested). Expenses for restricted stock and restricted stock units are based on the grant date fair value allocated on a straight-line basis over the service period. Performance share expense is recognized based on management’s estimate of the probability of meeting the metrics identified in the performance share award agreement, assigned to each service period as these estimates develop.

Torchmark management views all stock-based compensation expense as a corporate or Parent Company expense and, therefore, presents it as such in its segment analysis (See Note 14—Business Segments ). It is included in “Other operating expense” in the Consolidated Statements of Operations .

Earnings Per Share : Torchmark presents basic and diluted earnings per share (EPS) on the face of the Consolidated Statements of Operations for income from continuing operations and income from discontinued operations. Basic EPS is computed by dividing income available to common shareholders by the weighted average common shares outstanding for the period. Diluted EPS is calculated by adding to shares outstanding the additional net effect of potentially dilutive securities or contracts, such as stock options, which could be exercised or converted into common shares. Due to the prospective adoption of ASU 2016-09, as further discussed below, an adjustment was made to the weighted average diluted shares outstanding in 2016 to exclude excess tax benefits from the assumed proceeds in the diluted shares calculation. For more information on earnings per share, see Note 12—Shareholders’ Equity .

Accounting Pronouncements Adopted in the Current Year :

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

Short-Duration Contracts : The FASB issued Accounting Standards Update No. 2015-09 Financial Services-Insurance: Disclosures about Short-Duration Contracts (ASU 2015-09) , requiring companies to disclose additional information with regards to its short-duration insurance contracts. These new disclosures provide additional insight into an insurance entity’s ability to underwrite claims. Torchmark's disclosures under ASU 2015-09 are effective for the 2016 annual consolidated financial statements. The guidance consists only of new disclosures and did not impact the accounting for short-duration contracts. See Note 7—Liability for Unpaid Claims .

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

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

Below is a listing of the effects of the prospective adoption of this guidance due to the change in accounting of excess tax benefits:


•	Consolidated statement of operations: For the year ended 2016, the Company recorded $20 million in excess tax benefits as a component of income taxes, which resulted in an increase in net income as compared with 2015 and 2014 when the excess tax benefits of $18 million and $19 million , respectively, were recorded as a component of additional paid-in capital on the balance sheet.


•	Weighted average diluted shares: The weighted average diluted shares outstanding were adjusted to exclude excess tax benefits from the assumed proceeds in the diluted shares calculation. This change resulted in diluted weighted average shares outstanding of 122.4 million for 2016, as compared with 121.5 million previous guidance.


•	Earnings per share: The adoption resulted in a $0.13 increase in earnings per share for the year ended December 31, 2016.


•	Consolidated statement of cash flows: The excess tax benefits related to share-based payments of $20 million were presented as a component of operating activities in the same manner as other cash flows related to income taxes. In 2015 and 2014, the excess tax benefits of $18 million and $19 million , respectively, were presented within financing activities.

Accounting Pronouncements Not Yet Adopted :

Leases : In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842), which requires all lessees to report a right-of-use asset and a lease liability for most leases. For lessors, the standard modifies the classification criteria and the accounting for sales-type and direct financing leases. The standard will become effective for the Company beginning January 1, 2019 and will require recognizing and measuring leases at the beginning of the earliest period presented using a modified retrospective approach. Early adoption is permitted. The Company does not expect the adoption to have a significant impact on the financial statements. Refer to Note 15—Commitments and Contingencies for consideration of five year operating lease commitments.

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

Cash Flows: In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. This guidance was issued to provide uniformity in the classification of cash receipts and payments recorded in the statement of cash flows, including debt prepayment or extinguishment costs, settlements of zero-coupon bonds, and proceeds from the settlement of insurance claims. This standard will become effective on January 1, 2018. The Company is currently evaluating the standard to determine its impact.

Income Taxes: In October 2016, the FASB issued Accounting Standards Update No. 2016-16, Income Taxes: Intra-Entity Transfer of Assets Other Than Inventory. This guidance was issued to improve the accounting for income tax consequences of intra-entity transfers of assets other than inventory by allowing the immediate recognition of the current and deferred income tax effects. Current guidance prohibits the recognition of current and deferred income

Table of Contents

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 1—Significant Accounting Policies (continued)

taxes for an intra-entity transfer until the asset has been sold to an outside party. This new guidance should be applied on a modified retrospective approach and will become effective on January 1, 2018. The Company does not expect the adoption to have a significant impact on the financial statements.

Goodwill: In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles—Goodwill and Other: Simplifying the Test for Goodwill Impairment. This guidance was issued to simplify the subsequent measurement of goodwill through the elimination of Step 2 from the goodwill impairment test. It will become effective on January 1, 2020 and should be applied on a prospective basis. The Company does not expect the adoption to have a significant impact on the financial statements.

Note 2—Statutory Accounting

Life insurance subsidiaries of Torchmark are required to file statutory financial statements with state insurance regulatory authorities. Accounting principles used to prepare these statutory financial statements differ from GAAP. Consolidated net income and shareholders’ equity (capital and surplus) on a statutory basis for the insurance subsidiaries were as follows:



	Net Income						Shareholders’ Equity
	Year Ended December 31,						At December 31,
	2016		2015		2014		2016		2015
Life insurance subsidiaries	$	429,563	$	393,466	$	446,439	$	1,335,070	$	1,253,007

The excess, if any, of shareholder’s equity of the insurance subsidiaries on a GAAP basis over that determined on a statutory basis is not available for distribution by the insurance subsidiaries to Torchmark without regulatory approval. Insurance subsidiaries’ statutory capital and surplus necessary to satisfy regulatory requirements in the aggregate was $477 million at December 31, 2016 . More information on the restrictions on the payment of dividends can be found in Note 12—Shareholders’ Equity .

Torchmark’s statutory financial statements are presented on the basis of accounting practices prescribed by the insurance department of the state of domicile of each insurance subsidiary. While all states have adopted the National Association of Insurance Commissioners’ (NAIC) statutory accounting practices (NAIC SAP) as the basis for statutory accounting, certain states have retained prescribed practices of their respective insurance code or administrative code which can differ from NAIC SAP. For Torchmark’s life insurance companies, there are no significant differences between NAIC SAP and the accounting practices prescribed by the states of domicile.

Table of Contents

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 3—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 each of the years 2014 through 2016 .

Components of Accumulated Other Comprehensive Income



For the 12 months ended December 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	855,132			(4,030		)	(7,480		)	(42,781		)	800,841
Reclassifications, net of tax	(21,055		)	—			—			6,685			(14,370		)
Other comprehensive income (loss)	834,077			(4,030		)	(7,480		)	(36,096		)	786,471
Balance at December 31, 2014	1,090,273			(10,758		)	17,386			(99,449		)	997,452

For the 12 months ended December 31, 2015:
Other comprehensive income (loss) before reclassifications, net of tax	(759,976		)	5,643			(13,759		)	(8,930		)	(777,022		)
Reclassifications, net of tax	2,036			—			—			9,481			11,517
Other comprehensive income (loss)	(757,940		)	5,643			(13,759		)	551			(765,505		)
Balance at December 31, 2015	332,333			(5,115		)	3,627			(98,898		)	231,947

For the 12 months ended December 31, 2016:
Other comprehensive income (loss) before reclassifications, net of tax	356,016			(1,567		)	1,340			(20,736		)	335,053
Reclassifications, net of tax	3,965			—			—			6,609			10,574
Other comprehensive income (loss)	359,981			(1,567		)	1,340			(14,127		)	345,627
Balance at December 31, 2016	$	692,314		$	(6,682	)	$	4,967		$	(113,025	)	$	577,574

Table of Contents

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

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

Reclassifications out of Accumulated Other Comprehensive Income are presented below for each of the years 2014 through 2016 .

Reclassification Adjustments



	Year Ended December 31,
Component Line Item	2016			2015			2014			Affected line items in the Statement of Operations
Unrealized gains (losses) on available for sale assets:
Realized (gains) losses	$	10,285		$	9,478		$	(23,771	)	Realized investment gains (losses)
Amortization of (discount) premium	(4,185		)	(6,346		)	(8,621		)	Net investment income
Total before tax	6,100			3,132			(32,392		)
Tax	(2,135		)	(1,096		)	11,337			Income taxes
Total after tax	3,965			2,036			(21,055		)
Pension adjustments:
Amortization of prior service cost	477			377			2,113			Other operating expenses
Amortization of actuarial (gain) loss	9,691			14,209			8,172			Other operating expenses
Total before tax	10,168			14,586			10,285
Tax	(3,559		)	(5,105		)	(3,600		)	Income taxes
Total after tax	6,609			9,481			6,685
Total reclassifications (after tax)	$	10,574		$	11,517		$	(14,370	)

Table of Contents

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 4—Investments

Portfolio Composition :

A summary of fixed maturities available for sale by cost or amortized cost and estimated fair value at December 31, 2016 and 2015 is as follows:



2016:	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value ⁽¹⁾		% of Total Fixed Maturities ⁽²⁾
Fixed maturities available for sale:
U.S. Government direct, guaranteed, and government-sponsored enterprises	$	381,054	$	895	$	(9,151	)	$	372,798	3
States, municipalities, and political subdivisions	1,284,605		126,850		(1,327		)	1,410,128		9
Foreign governments	21,701		1,438		(62		)	23,077		—
Corporates, by sector:
Financial	2,963,584		285,037		(45,885		)	3,202,736		21
Utilities	1,875,946		249,701		(12,604		)	2,113,043		14
Energy	1,542,426		127,989		(44,324		)	1,626,091		11
Other corporate sectors	5,601,136		424,021		(84,547		)	5,940,610		39
Total corporates	11,983,092		1,086,748		(187,360		)	12,882,480		85
Collateralized debt obligations	60,726		13,062		(10,285		)	63,503		—
Other asset-backed securities	56,410		621		(337		)	56,694		—
Redeemable preferred stocks, by sector:
Financial	371,862		43,383		(7,218		)	408,027		3
Utilities	28,600		798		(244		)	29,154		—
Total redeemable preferred stocks	400,462		44,181		(7,462		)	437,181		3
Total fixed maturities	$	14,188,050	$	1,273,795	$	(215,984	)	$	15,245,861	100

(1) Amount reported in the balance sheet.

(2) At fair value.

Table of Contents

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 4—Investments (continued)



2015:	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value ⁽¹⁾		% of Total Fixed Maturities ⁽²⁾
Fixed maturities available for sale:
U.S. Government direct, guaranteed, and government-sponsored enterprises	$	368,718	$	404	$	(14,078	)	$	355,044	3
States, municipalities, and political subdivisions	1,296,396		131,516		(1,908		)	1,426,004		10
Foreign governments	21,594		1,369		(163		)	22,800		—
Corporates, by sector:
Financial	2,760,552		301,624		(54,881		)	3,007,295		22
Utilities	1,981,241		223,535		(28,267		)	2,176,509		16
Energy	1,568,392		53,776		(219,101		)	1,403,067		10
Other corporate sectors	4,761,192		294,026		(230,911		)	4,824,307		35
Total corporates	11,071,377		872,961		(533,160		)	11,411,178		83
Collateralized debt obligations	63,662		16,158		(9,438		)	70,382		1
Other asset-backed securities	18,963		668		—			19,631		—
Redeemable preferred stocks, by sector:
Financial	382,517		45,926		(4,781		)	423,662		3
Utilities	28,644		731		(52		)	29,323		—
Total redeemable preferred stocks	411,161		46,657		(4,833		)	452,985		3
Total fixed maturities	$	13,251,871	$	1,069,733	$	(563,580	)	$	13,758,024	100

(1) Amount reported in the balance sheet.

(2) At fair value.

Securities held on deposits with various state and federal regulatory authorities had a carrying value of $600 million and $555 million at December 31, 2016 and 2015, respectively.

A schedule of fixed maturities by contractual maturity at December 31, 2016 is shown below on an amortized cost basis and on a fair value basis. Actual maturities 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	$	23,969	$	24,573
Due from one to five years	640,903		688,509
Due from five to ten years	1,228,081		1,337,752
Due from ten to twenty years	4,278,896		4,746,466
Due after twenty years	7,897,726		8,326,907
Mortgage-backed and asset-backed securities	118,475		121,654
	$	14,188,050	$	15,245,861

Table of Contents

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 4—Investments (continued)

Analysis of investment operations :



	Year Ended December 31,
	2016			2015			2014
Net investment income is summarized as follows:
Fixed maturities	$	778,912		$	747,663		$	732,925
Policy loans	38,436			36,763			35,015
Other long-term investments	2,786			2,021			1,516
Short-term investments	447			95			75
	820,581			786,542			769,531
Less investment expense	(13,678		)	(12,591		)	(11,245		)
Net investment income	$	806,903		$	773,951		$	758,286



An analysis of realized gains (losses) from investments is as follows:
Realized investment gains (losses):
Fixed maturities	$	(10,645	)	$	(9,479	)	$	23,170
Other investments	(38		)	688			636
Loss on redemption on debt	—			—			(258		)
	(10,683		)	(8,791		)	23,548
Applicable tax	3,739			3,077			(8,242		)
Realized gains (losses) from investments, net of tax	$	(6,944	)	$	(5,714	)	$	15,306



An analysis of the net change in unrealized investment gains (losses) is as follows:
Fixed maturities	$	551,658	$	(1,163,295	)	$	1,279,190
Other investments	2,143		(2,737		)	3,872
Net change in unrealized gains (losses)	$	553,801	$	(1,166,032	)	$	1,283,062

Additional information about securities sold is as follows:



	At December 31,
	2016			2015			2014
Fixed maturities:
Proceeds from sales ⁽¹⁾	$	358,285		$	226,792		$	109,024
Gross realized gains	6,133			259			17,583
Gross realized losses	(32,608		)	(16,894		)	(1,879		)


(1)	Includes unsettled sales of $18 million at December 31, 2016 .

Table of Contents

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 4—Investments (continued)

Fair value measurements : The following tables represent the fair value of fixed maturities measured on a recurring basis at December 31, 2016 and 2015 :



	Fair Value Measurements at December 31, 2016 Using:
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value
Fixed maturities available for sale:
U.S. Government direct, guaranteed, and government-sponsored enterprises	$	—		$	372,798		$	—		$	372,798
States, municipalities, and political subdivisions	45,302			1,364,826			—			1,410,128
Foreign governments	—			23,077			—			23,077
Corporates, by sector:
Financial	—			3,141,611			61,125			3,202,736
Utilities	—			1,959,143			153,900			2,113,043
Energy	—			1,598,976			27,115			1,626,091
Other corporate sectors	—			5,623,150			317,460			5,940,610
Total corporates	—			12,322,880			559,600			12,882,480
Collateralized debt obligations	—			—			63,503			63,503
Other asset-backed securities	—			56,694			—			56,694
Redeemable preferred stocks, by sector:
Financial	—			408,027			—			408,027
Utilities	—			29,154			—			29,154
Total redeemable preferred stocks	—			437,181			—			437,181
Total fixed maturities	$	45,302		$	14,577,456		$	623,103		$	15,245,861
Percentage of total	0.3		%	95.6		%	4.1		%	100.0		%



	Fair Value Measurements at December 31, 2015 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:
U.S. Government direct, guaranteed, and government-sponsored enterprises	$	—		$	355,044		$	—		$	355,044
States, municipalities, and political subdivisions	—			1,426,004			—			1,426,004
Foreign governments	—			22,800			—			22,800
Corporates, by sector:
Financial	—			2,945,048			62,247			3,007,295
Utilities	22,189			2,020,268			134,052			2,176,509
Energy	—			1,377,861			25,206			1,403,067
Other corporate sectors	—			4,515,006			309,301			4,824,307
Total corporates	22,189			10,858,183			530,806			11,411,178
Collateralized debt obligations	—			—			70,382			70,382
Other asset-backed securities	—			19,631			—			19,631
Redeemable preferred stocks, by sector:
Financial	10,124			413,538			—			423,662
Utilities	—			29,323			—			29,323
Total redeemable preferred stocks	10,124			442,861			—			452,985
Total fixed maturities	$	32,313		$	13,124,523		$	601,188		$	13,758,024
Percentage of total	0.2		%	95.4		%	4.4		%	100.0		%

Table of Contents

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 4—Investments (continued)

The following table represents changes in fixed maturities measured at fair value on a recurring basis using significant unobservable inputs (Level 3).



	Analysis of Changes in Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Collateralized debt Obligations			Corporates			Total
Balance at January 1, 2014	$	58,205		$	300,300		$	358,505
Total gains or losses:
Included in realized gains/losses	15,924			1			15,925
Included in other comprehensive income	3,323			27,864			31,187
Acquisitions	—			186,366			186,366
Sales	(16,049		)	(1		)	(16,050		)
Amortization	5,519			13			5,532
Other ⁽¹⁾	(3,690		)	(1,829		)	(5,519		)
Transfers into (out of) Level 3	—			—			—
Balance at December 31, 2014	63,232			512,714			575,946
Total gains or losses:
Included in realized gains/losses	—			1,182			1,182
Included in other comprehensive income	11,365			(11,925		)	(560		)
Acquisitions	—			38,600			38,600
Sales	—			—			—
Amortization	5,536			17			5,553
Other ⁽¹⁾	(9,751		)	(9,782		)	(19,533		)
Transfers into (out of) Level 3	—			—			—
Balance at December 31, 2015	70,382			530,806			601,188
Total gains or losses:
Included in realized gains/losses	—			788			788
Included in other comprehensive income	(3,943		)	6,403			2,460
Acquisitions	—			33,662			33,662
Sales	—			—			—
Amortization	5,186			17			5,203
Other ⁽¹⁾	(8,122		)	(12,076		)	(20,198		)
Transfers into (out of) Level 3	—			—			—
Balance at December 31, 2016	$	63,503		$	559,600		$	623,103

(1) Includes foreign exchange adjustments and principal repayments.

Acquisitions of Level 3 investments in each of the years 2014 through 2016 are comprised of private-placement fixed maturities managed by an unaffiliated third-party. See Note 1—Significant Accounting Policies for more information on private placements.

Table of Contents

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 4—Investments (continued)

Quantitative Information about Level 3

Fair Value Measurements

As of December 31, 2016



	Fair Value		Valuation Techniques	Unobservable Input	Range	Weighted Average
Collateralized debt obligations	$	63,503	Discounted cash flows	Discount rate	9.3 - 10.45%	10.3%
Private placement fixed maturities	559,600		Determination of credit spread	Credit rating	A+ to B	BBB
Private placement fixed maturities	559,600		Discounted cash flows	Discount rate	2.82 - 6.55%	4.17%
	$	623,103

The collateral underlying collateralized debt obligations for which fair values are reported as Level 3 consists primarily of trust preferred securities issued by banks and insurance companies. Collateralized debt obligations are valued at the present value of expected future cash flows using an unobservable discount rate. Expected cash flows are determined by scheduling the projected repayment of the collateral assuming no future defaults, deferrals, or recoveries. The discount rate is risk-adjusted to take these items into account. A significant increase (decrease) in the discount rate will produce a significant decrease (increase) in fair value. Additionally, a significant increase (decrease) in the cash flow expectations would result in a significant increase (decrease) in fair value.

The private placement fixed maturities are valued based on the contractual cash flows discounted by a yield determined as a treasury benchmark adjusted for a credit spread. The credit spread is developed from observable indices for similar public fixed maturities and unobservable indices for private fixed maturities for corresponding credit ratings. However, the credit ratings for the private placements are considered unobservable inputs, as they are assigned by the third party investment manager based on a quantitative and qualitative assessment of the credit underwritten. A higher (lower) credit rating would result in a higher (lower) valuation. For more information regarding valuation procedures, please refer to Note 1—Significant Accounting Policies under the caption Fair Value Measurements, Investments in Securities .

The following table presents transfers in and out of each of the valuation levels of fair values.



	2016								2015								2014
	In		Out			Net			In		Out			Net			In		Out			Net
Level 1	$	45,344	$	—		$	45,344		$	17,252	$	(49,744	)	$	(32,492	)	$	36,468	$	—		$	36,468
Level 2	—		(45,344		)	(45,344		)	49,744		(17,252		)	32,492			—		(36,468		)	(36,468		)
Level 3	—		—			—			—		—			—			—		—			—

Transfers into Level 2 from Level 3 result from the availability of observable market data when a security is valued at the end of a period. Transfers into Level 3 occur when there is a lack of observable market information. Transfers into Level 1 from Level 2 occur when direct quotes are available; transfers from Level 1 into Level 2 result when only observable market data and no direct quotes are available. Transfers between levels are recognized as of the end of the period of transfer.

Other-than-temporary impairments (OTTI) : Based on the Company's evaluation of its fixed maturities in an unrealized loss position in accordance with the OTTI policy as described in Note 1—Significant Accounting Policies , the Company concluded that there were no other-than-temporary impairments during the three years ended December 31, 2016 . As of year end 2016 , previously written down securities remaining in the portfolio were carried at a fair value of $54 million , or less than 0.4% of the fair value of the fixed maturity portfolio. Torchmark is continuously monitoring the market conditions impacting its portfolio. While adverse market conditions for an extended duration could lead to some

Table of Contents

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 4—Investments (continued)

ratings downgrades in certain sectors, Torchmark has the ability and intent to hold these investments to recovery, and does not intend to sell or expect to be required to sell any of its securities in such a position.

Unrealized gains/loss analysis : The following tables disclose gross unrealized investment losses by class and major sector of investments at December 31, 2016 and December 31, 2015 for the respective periods of time in a loss position. Torchmark considers these investments to be only temporarily impaired.

ANALYSIS OF GROSS UNREALIZED INVESTMENT LOSSES

At December 31, 2016



	Less than Twelve Months					Twelve Months or Longer					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Fixed maturities available for sale:
Investment grade securities:
U.S. Government direct, guaranteed, and government-sponsored enterprises	$	321,133	$	(8,553	)	$	1,404	$	(598	)	$	322,537	$	(9,151	)
States, municipalities and political subdivisions	32,178		(1,114		)	683		(19		)	32,861		(1,133		)
Foreign governments	4,416		(62		)	—		—			4,416		(62		)
Corporates, by sector:
Financial	479,669		(18,666		)	64,335		(4,627		)	544,004		(23,293		)
Utilities	290,732		(11,000		)	16,977		(1,604		)	307,709		(12,604		)
Energy	83,064		(1,076		)	154,908		(18,127		)	237,972		(19,203		)
Metals and mining	5,936		(231		)	5,789		(187		)	11,725		(418		)
Other corporate sectors	1,564,273		(65,131		)	68,968		(6,495		)	1,633,241		(71,626		)
Total corporates	2,423,674		(96,104		)	310,977		(31,040		)	2,734,651		(127,144		)
Other asset-backed securities	41,498		(337		)	—		—			41,498		(337		)
Redeemable preferred stocks, by sector:
Utilities	5,857		(244		)	—		—			5,857		(244		)
Total redeemable preferred stocks	5,857		(244		)	—		—			5,857		(244		)
Total investment grade securities	2,828,756		(106,414		)	313,064		(31,657		)	3,141,820		(138,071		)

Below investment grade securities:
States, municipalities and political subdivisions	—		—			357		(194		)	357		(194		)
Corporates, by sector:						—		—
Financial	—		—			83,174		(22,592		)	83,174		(22,592		)
Energy	15,567		(385		)	91,165		(24,736		)	106,732		(25,121		)
Metals and mining	32,478		(172		)	34,463		(2,023		)	66,941		(2,195		)
Other corporate sectors	51,640		(291		)	95,679		(10,017		)	147,319		(10,308		)
Total corporates	99,685		(848		)	304,481		(59,368		)	404,166		(60,216		)
Collateralized debt obligations	—		—			9,714		(10,285		)	9,714		(10,285		)
Redeemable preferred stocks, by sector:
Financial	—		—			19,912		(7,218		)	19,912		(7,218		)
Total redeemable preferred stocks	—		—			19,912		(7,218		)	19,912		(7,218		)
Total below investment grade securities	99,685		(848		)	334,464		(77,065		)	434,149		(77,913		)
Total fixed maturities	$	2,928,441	$	(107,262	)	$	647,528	$	(108,722	)	$	3,575,969	$	(215,984	)

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Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 4—Investments (continued)

ANALYSIS OF GROSS UNREALIZED INVESTMENT LOSSES

At December 31, 2015



	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:
Investment grade securities:
U.S. Government direct, guaranteed, and government-sponsored enterprises	$	310,676	$	(13,196	)	$	14,731	$	(882	)	$	325,407	$	(14,078	)
States, municipalities and political subdivisions	55,351		(1,611		)	671		(42		)	56,022		(1,653		)
Foreign governments	7,302		(163		)	—		—			7,302		(163		)
Corporates, by sector:
Financial	476,469		(18,599		)	—		—			476,469		(18,599		)
Utilities	435,692		(28,267		)	—		—			435,692		(28,267		)
Energy	745,969		(146,157		)	81,681		(41,412		)	827,650		(187,569		)
Metals and mining	225,273		(50,857		)	25,831		(11,552		)	251,104		(62,409		)
Other corporate sectors	1,615,515		(113,185		)	35,684		(6,661		)	1,651,199		(119,846		)
Total corporates	3,498,918		(357,065		)	143,196		(59,625		)	3,642,114		(416,690		)
Redeemable preferred stocks, by sector:
Utilities	7,763		(52		)	—		—			7,763		(52		)
Total redeemable preferred stocks	7,763		(52		)	—		—			7,763		(52		)
Total investment grade securities	3,880,010		(372,087		)	158,598		(60,549		)	4,038,608		(432,636		)

Below investment grade securities:
States, municipalities and political subdivisions	—		—			299		(255		)	299		(255		)
Corporates, by sector:
Financial	—		—			69,506		(36,282		)	69,506		(36,282		)
Energy	7,979		(1,854		)	61,175		(29,678		)	69,154		(31,532		)
Metals and mining	4,551		(5,414		)	17,679		(22,247		)	22,230		(27,661		)
Other corporate sectors	81,368		(12,492		)	63,307		(8,503		)	144,675		(20,995		)
Total corporates	93,898		(19,760		)	211,667		(96,710		)	305,565		(116,470		)
Collateralized debt obligations	—		—			10,562		(9,438		)	10,562		(9,438		)
Redeemable preferred stocks, by sector:
Financial	—		—			22,374		(4,781		)	22,374		(4,781		)
Total redeemable preferred stocks	—		—			22,374		(4,781		)	22,374		(4,781		)
Total below investment grade securities	93,898		(19,760		)	244,902		(111,184		)	338,800		(130,944		)
Total fixed maturities	$	3,973,908	$	(391,847	)	$	403,500	$	(171,733	)	$	4,377,408	$	(563,580	)

Gross unrealized losses decreased from $564 million at year end 2015 to $216 million at year end 2016 , a decrease of $348 million . The decrease in the gross unrealized losses from prior year was primarily attributable to the improved conditions during 2016 in the energy and metals and mining sectors.

Table of Contents

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 4—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 December 31, 2016	407	94	501
As of December 31, 2015	480	75	555

Torchmark’s entire fixed maturity portfolio consisted of 1,565 issues at December 31, 2016 and 2015 . The weighted-average quality rating of all unrealized loss positions at amortized cost was BBB+ for both 2016 and 2015 .

Other investment information :

Other long-term investments consist of the following:



	Year Ended December 31,
	2016		2015
Investment in limited partnerships	$	51,509	$	31,409
Low-income housing interests	—		3,767
Other	2,343		3,262
Total	$	53,852	$	38,438

Torchmark did not have any invested assets that were non-income producing during the twelve months ended December 31, 2016 .

Concentrations of Credit Risk : Torchmark maintains a diversified investment portfolio with limited concentration in any given issuer. At December 31, 2016 , the investment portfolio, at fair value, consisted of the following:



Investment grade fixed maturities:
Corporate securities	80	%
Securities of state and municipal governments	9
Government-sponsored enterprises	2
Other	1
Below investment grade fixed maturities:
Corporate securities	4
Other	—
Policy loans, which are secured by the underlying insurance policy values	3
Other investments	1
	100	%

As of December 31, 2016 , securities of state and municipal governments represented 9% of invested assets at fair value. Such investments are made throughout the U.S. At year end 2016 , the state and municipal bond portfolio at fair value was invested in securities issued within the following states: Texas ( 30% ), Ohio ( 7% ), Washington ( 7% ), Illinois ( 6% ), and Alabama ( 5% ). Otherwise, there was no concentration within any given state greater than 5% .

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Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 4—Investments (continued)

Corporate debt securities and redeemable preferred stocks represent 84% of Torchmark's investment portfolio. These investments are spread across a wide range of industries. Below are the ten largest industry concentrations held in the corporate portfolio of corporate debt securities and redeemable preferred stocks at December 31, 2016 , based on fair value:



Insurance	17	%
Electric utilities	12
Oil and natural gas pipelines	6
Banks	6
Oil and natural gas exploration and production	4
Transportation	4
Chemicals	4
Metals and mining	3
Food	3
Real estate investment trusts	3

At year end 2016 , 4% of invested assets at fair value were represented by fixed maturities rated below investment grade. Par value of these investments was $834 million , amortized cost was $751 million , and fair value was $695 million . While these investments could be subject to additional credit risk, such risk should generally be reflected in their fair value.

Note 5—Deferred Acquisition Costs

An analysis of deferred acquisition costs is as follows:



	Year Ended December 31,
	2016			2015			2014
Balance at beginning of year	$	3,617,135		$	3,457,397		$	3,325,433
Additions:
Deferred during period:
Commissions	436,252			401,166			358,969
Other expenses	199,066			211,015			203,276
Total deferred	635,318			612,181			562,245
Foreign exchange adjustment	2,180			—			—
Adjustment attributable to unrealized investment losses ⁽¹⁾	—			8,682			—
Total additions	637,498			620,863			562,245
Deductions:
Amortized during period	(469,063		)	(445,625		)	(415,914		)
Foreign exchange adjustment	—			(15,500		)	(8,167		)
Adjustment attributable to unrealized investment gains ⁽¹⁾	(2,412		)	—			(6,200		)
Total deductions	(471,475		)	(461,125		)	(430,281		)
Balance at end of year	$	3,783,158		$	3,617,135		$	3,457,397


(1)	Represents amounts pertaining to investments relating to universal life-type products.

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Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 6—Discontinued Operations

At December 31, 2015, Torchmark met the criteria to account for its Medicare Part D Prescription Drug Plan business as a discontinued operation. Historically, the business was a reportable segment. Effective July 1, 2016, Torchmark sold its Medicare Part D Prescription Drug Plan business to an unaffiliated third party. Management believes this sale allows the Company to better focus on its core protection life and health insurance businesses, as well as provides additional capital to invest.

The initial sale price was based on the number of enrollees as of the end of the second quarter 2016 and will be adjusted based on the number of enrollees as of January 1, 2017 as determined by the Center for Medicare Services (CMS) in March 2017. Estimated ultimate net proceeds from the sale resulted in a gain of $1.8 million ( $1.2 million , net of tax). The deferred acquisition costs write-off of $16.4 million and the contingent sale price reserve of $3.6 million are included in the net gain calculation. The gain is recognized in income from discontinued operations as of December 31, 2016 .

Torchmark retained certain assets and liabilities related to the Medicare Part D business including all corresponding profits or losses for the 2016 plan year. The buyer assumed the rights and obligations related to the business for all subsequent plan years. To facilitate a seamless transition, Torchmark administered the plans for the duration of 2016. The remaining assets and liabilities reflected on the Torchmark balance sheet related to discontinued operations are receivables and payables primarily associated with 2016 plan year that are expected to be settled in the ordinary course of business during 2017 and 2018.

The net assets related to discontinued operations at December 31, 2016 and 2015 were as follows:



	At December 31,
	2016		2015
Assets:
Due premiums	$	8,840	$	8,041
Other receivables ⁽¹⁾	118,692		287,765
Deferred acquisition costs	—		17,037
Total assets related to discontinued operations	127,532		312,843

Liabilities:
Unearned and advance premiums	67		806
Policy claims and other benefits payable	10,868		12,309
Risk sharing payable	8,374		23,837
Current and deferred income taxes payable	3,820		13,604
Other ⁽²⁾	4,295		479
Total liabilities related to discontinued operations	27,424		51,035

Net assets	$	100,108	$	261,808


(1)	At December 31, 2016 , other receivables included $50 million from CMS and $69 million from drug manufacturer rebates. At December 31, 2015 , the comparable amounts were $193 million and $95 million , respectively.


(2)	Balance includes $3.6 million contingent sale price reserve for the year ended December 31, 2016 .

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Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 6—Discontinued Operations (continued)

Income from discontinued operations for the three years ended December 31, 2016 is as follows:



	Year Ended December 31,
	2016			2015			2014
Revenue:
Health premium	$	222,840		$	260,657		$	373,280

Benefits and expenses:
Health policyholder benefits	183,423			213,114			315,816
Amortization of deferred acquisition costs	3,747			3,506			2,858
Commissions, premium taxes, and non-deferred acquisition expenses	16,396			20,909			26,613
Other operating expense	5,377			6,502			5,123
Total benefits and expenses	208,943			244,031			350,410

Income before income taxes for discontinued operations	13,897			16,626			22,870
Gain from sale of discontinued operations	1,779			—			—
Income taxes	(5,487		)	(5,819		)	(8,005		)
Income from discontinued operations	$	10,189		$	10,807		$	14,865

Income taxes paid related to discontinued operations for the three years ended December 31, 2016 were as follows:



	Year Ended December 31,
	2016		2015		2014
Income taxes paid	$	15,271	$	3,409	$	12,013

Note 7—Liability for Unpaid Claims

Activity in the liability for unpaid health claims is summarized as follows:



	Year Ended December 31,
	2016			2015			2014
Balance at beginning of year	$	137,120		$	128,265		$	116,559
Incurred related to:
Current year	510,075			502,009			453,014
Prior years	(1,127		)	(7,845		)	804
Total incurred	508,948			494,164			453,818
Paid related to:
Current year	386,278			379,037			343,648
Prior years	116,662			106,272			98,464
Total paid	502,940			485,309			442,112
Balance at end of year	$	143,128		$	137,120		$	128,265

At the end of each period, the liability for unpaid health claims includes an estimate of claims incurred but not yet reported to the Company. Such estimates are updated regularly based upon the Company’s most recent claims data

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Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

with recognition of emerging experience trends. Because of the nature of the Company’s health business, the payment lags are relatively short and most claims are fully paid within a year from the time incurred. Fluctuations in claims experience can lead to either over or under estimation of the liability for any given year. The difference between the estimate made at the end of the prior period and the actual experience during the period is reflected above under the caption “Incurred related to: Prior years.”

The liability for unpaid health claims is included with “Policy claims and other benefits payable” in the Consolidated Balance Sheets .

Short-Duration Contracts

Although Torchmark primarily sells long-duration contracts for both life and health, the Company also has a limited amount of group health products that qualify as short-duration contracts in accordance with the applicable guidance.

The below table illustrates the total incurred claims for short-duration products over the last five years. Claim frequency is determined by duration and incurred date.



	For the years ended December 31,										As of December 31, 2016
	Cumulative incurred claims ⁽¹⁾										Total of incurred-but-not-reported liabilities plus expected development on reported claims		Cumulative number of reported claims ⁽¹⁾
Accident Year	2012		2013		2014		2015		2016
2012	$	84,975	$	83,965	$	83,928	$	83,906	$	83,906	$	—	1,357
2013			84,111		82,644		83,151		83,119		—		1,337
2014					101,407		99,876		99,810		19		1,600
2015							141,667		141,460		478		2,222
2016									140,944		26,224		1,863
							Total		$	549,239	$	26,721


(1)	The incurred claims and cumulative number of reported claims for all years prior to 2016 are unaudited.

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Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

This table illustrates the total cumulative paid claims and allocated claims for short-duration products over the last five years:



	Cumulative paid claims ⁽¹⁾
	For the years ended December 31,
Accident Year	2012		2013		2014		2015		2016
2012	$	68,742	$	83,766	$	83,919	$	83,906	$	83,906
2013			68,159		82,408		83,131		83,119
2014					81,054		99,545		99,791
2015							115,922		140,982
2016									114,720
							Total		522,518
Short-duration claim liability as of December 31, 2016									26,721
			Total incurred claims & IBNR						$	549,239


(1)	The cumulative paid claims for all years prior to 2016 are unaudited.

Below is the reconciliation of the net incurred and paid claims development tables to the liability for "Policy claims and other benefits payable" in the Consolidated Balance Sheets .



	December 31, 2016
Policy claims and other benefits payable:
Short-duration products	$	26,721
Insurance lines other than short duration—health	116,407
Insurance lines other than short duration—life	156,437
Total policy claims and other benefits payable	$	299,565

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Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 8—Income Taxes

The components of income taxes were as follows:



	Year Ended December 31,
	2016		2015			2014
Income tax expense from continuing operations ⁽¹⁾	$	232,645	$	249,894		$	256,603
Shareholders’ equity:
Other comprehensive income (loss)	186,206		(411,646		)	424,089
Tax basis compensation expense (from the exercise of stock options and vesting of restricted stock awards) in excess of amounts recognized for financial reporting purposes ⁽¹⁾	—		(17,577		)	(18,524		)
	$	418,851	$	(179,329	)	$	662,168


(1)	Due to the adoption of ASU 2016-09, the excess tax benefits related to share-based awards are now recorded through income tax expense rather than additional paid in capital as described in Note 1—Significant Accounting Policies under "Stock Compensation."

Income tax expense from continuing operations consists of:



	Year Ended December 31,
	2016		2015		2014
Current income tax expense	$	132,806	$	174,284	$	169,319
Deferred income tax expense	99,839		75,610		87,284
	$	232,645	$	249,894	$	256,603

In each of the years 2014 through 2016 , deferred income tax expense was incurred because of certain differences between net income before income taxes as reported on the Consolidated Statements of Operations and taxable income as reported on Torchmark’s income tax returns. As explained in Note 1—Significant Accounting Policies , these differences caused the financial statement book values of some assets and liabilities to be different from their respective tax bases.

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



	Year Ended December 31,
	2016			%		2015			%		2014			%
Expected income taxes	$	270,282		35.0		$	268,165		35.0		$	274,637		35.0
Increase (reduction) in income taxes resulting from:
Low income housing investments	(18,202		)	(2.4	)	(19,031		)	(2.5	)	(17,541		)	(2.2	)
Share-based awards	(18,653		)	(2.4	)	—			—		—			—
Other	(782		)	(0.1	)	760			0.1		(493		)	—
Income tax expense from continuing operations	$	232,645		30.1		$	249,894		32.6		$	256,603		32.8

The effective income tax rates for the year ended December 31, 2016 differed from the effective income tax rates for 2015 and 2014 primarily as a result of the Company adopting ASU 2016-09 as of January 1, 2016. As a result of the adoption, the excess tax benefits related to share-based awards are now recorded through income tax expense rather than additional paid-in capital. See Note 1—Significant Accounting Policies for further discussion.

Table of Contents

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 8—Income Taxes (continued)

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:



	December 31,
	2016		2015
Deferred tax assets:
Fixed maturity investments	$	15,004	$	16,098
Carryover of tax losses	3,906		2,266
Total gross deferred tax assets	18,910		18,364
Deferred tax liabilities:
Unrealized gains	315,509		128,683
Employee and agent compensation	92,131		83,229
Deferred acquisition costs	975,873		921,799
Future policy benefits, unearned and advance premiums, and policy claims	391,451		340,854
Other liabilities	3,987		17,176
Total gross deferred tax liabilities	1,778,951		1,491,741
Net deferred tax liability	$	1,760,041	$	1,473,377

Torchmark and its subsidiaries, excluding Family Heritage Life Insurance Company (Family Heritage), file a life-nonlife consolidated federal income tax return. Family Heritage files its federal income tax return on a separate company basis. Torchmark’s consolidated federal income tax returns are routinely audited by the Internal Revenue Service (IRS). The IRS completed its examination of Torchmark’s 2008-2011 consolidated income tax returns during 2014 resulting in no impact on the Company’s effective tax rate. The statutes of limitations for the assessment of additional tax are closed for all tax years prior to 2013 with respect to Torchmark’s consolidated and Family Heritage’s federal income tax returns. Management believes that adequate provision has been made in the consolidated financial statements for any potential assessments that may result from current or future tax examinations and other tax-related matters for all open years.

Torchmark has net operating loss carryforwards of approximately $11.2 million at December 31, 2016 which will begin to expire in 2032 if not otherwise used to offset future taxable income. A valuation allowance is to be provided when it is more likely than not that deferred tax assets will not be realized by the Company. No valuation allowance has been recorded relating to Torchmark’s deferred tax assets as management believes Torchmark will more likely than not have sufficient taxable income in future periods to fully realize its existing deferred tax assets.

Torchmark’s tax liability is adjusted to include a provision for uncertain tax positions taken or expected to be taken in a tax return. However, during the years 2014 through 2016 , Torchmark did not have any uncertain tax positions which resulted in unrecognized tax benefits.

Torchmark’s continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. The Company recognized interest income of $9 thousand , $11 thousand , and $465 thousand , net of federal income tax expense, in its Consolidated Statements of Operations for 2016 , 2015 , and 2014 , respectively. The Company had no accrued interest or penalties at December 31, 2016 or 2015 .

Table of Contents

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 9—Postretirement Benefits

Torchmark has qualified noncontributory defined benefit pension plans and contributory savings plans which cover substantially all employees. There are also two nonqualified noncontributory supplemental benefit pension plans (SERPs) which cover a limited number of employees. The total cost of these retirement plans charged to operations was as follows:



Year Ended December 31,	Defined Contribution Plans ⁽¹⁾		Defined Benefit Pension Plans ⁽²⁾
2016	$	3,614	$	24,202
2015	3,429		29,230
2014	3,078		23,463

(1) 401K plans

(2) Qualified pension plans and SERPs

Torchmark accrues expense for the defined contribution plans based on a percentage of the employees’ contributions. The plans are funded by the employee contributions and a Torchmark contribution equal to the amount of accrued expense. Plan contributions are both mandatory and discretionary, depending on the terms of the plan.

Pension Plans : Cost for the defined benefit pension plans has been calculated on the projected unit credit actuarial cost method. All plan measurements for the defined benefit plans are as of December 31 of the respective year. The defined benefit pension plans covering the majority of employees are qualified and funded. Contributions are made to funded pension plans subject to minimums required by regulation and maximums allowed for tax purposes. Defined benefit plan contributions were $15.8 million in 2016 , $15.5 million in 2015 , and $14.6 million in 2014 . Torchmark estimates as of December 31, 2016 that it will contribute an amount not to exceed $20 million to these plans in 2017 . The actual amount of contribution may be different from this estimate.

Torchmark has two SERPs, one of which is active and provides to a limited number of executives an additional supplemental defined pension benefit. The supplemental benefit is based on the participant’s qualified plan benefit without consideration to the regulatory limits on compensation and benefit payments applicable to qualified plans, except that eligible compensation is capped at $1 million . This SERP is nonqualified and unfunded. However, a Rabbi Trust has been established to support the liability for this plan. This trust consists of life insurance policies on the lives of plan participants with an unaffiliated insurance carrier as well as an investment account.

The following table includes activity for the active SERP for the three years ended December 31, 2016 .



	Year Ended December 31,
	2016		2015		2014
Premiums paid for insurance coverage	$	2,050	$	10,068	$	2,150

	December 31,
	2016		2015
Total investments of this SERP:
Company owned life insurance	$	37,267	$	34,178
Exchange Traded Funds ⁽¹⁾	48,999		45,014
	$	86,266	$	79,192

Liability for this SERP	$	74,687	$	67,243


(1)	There were no deposits in 2016 , 2015 or 2014 .

Table of Contents

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 9—Postretirement Benefits (continued)

Because this plan is nonqualified, the investments and the policyholder value of the insurance policies in the Rabbi Trust are not included as defined benefit plan assets, but rather assets of the Company. They are included in “Other Assets” in the Consolidated Balance Sheets .

The second supplemental benefit pension plan is limited to a very select group of employees and was closed as of December 31, 1994. It provides the full benefits that an employee would have otherwise received from a defined benefit plan in the absence of the limitation on benefits payable under a qualified plan. This plan is also nonqualified and unfunded. Liability for this closed plan was $3 million at December 31, 2016 and December 31, 2015 . Pension cost for both supplemental defined benefit plans is determined in the same manner as for the qualified defined benefit plans.

Plan assets in the funded plans consist primarily of investments in marketable fixed maturities and equity securities and are valued at fair value. Torchmark measures the fair value of its financial assets, including the assets in its benefit plans, in accordance with accounting guidance which establishes a hierarchy for asset values and provides a methodology for the measurement of value. Please refer to Note 1—Significant Accounting Policies under the caption Fair Value Measurements , Investments in Securities for a complete discussion of valuation procedures. The following table presents the assets of Torchmark’s defined benefit pension plans for the years ended December 31, 2016 and 2015 .

Pension Assets by Component at December 31, 2016



	Fair Value Determined by:
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Amount		% to Total
Corporate bonds:
Financial	$		$	41,578	$		$	41,578	13
Utilities			43,890				43,890		13
Energy			25,427				25,427		8
Other corporates			49,141				49,141		15
Total corporate bonds	—		160,036		—		160,036		49
Exchange traded fund ⁽¹⁾	134,771						134,771		41
Other bonds			258				258		—
Guaranteed annuity contract ⁽²⁾			18,997				18,997		6
Short-term investments	7,391						7,391		2
Other	7,418						7,418		2
Grand Total	$	149,580	$	179,291	$	—	$	328,871	100


(1)	A fund including marketable securities that mirror the S&P 500 index.


(2)	Representing a guaranteed annuity contract issued by Torchmark's subsidiary, American Income Life Insurance Company, to fund the obligations of the American Income Pension Plan.

Table of Contents

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 9—Postretirement Benefits (continued)

Pension Assets by Component at December 31, 2015



	Fair Value Determined by:
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Amount		% to Total
Equity securities:
Financial	$	49,391	$		$		$	49,391	16
Consumer, Cyclical	24,264						24,264		8
Technology	19,871						19,871		6
Consumer, Non-Cyclical	12,216						12,216		4
Industrial	15,176						15,176		5
Other	2,502		8				2,510		1
Total equity securities	123,420		8		—		123,428		40
Corporate bonds:
Financial			36,266				36,266		12
Utilities			43,229				43,229		14
Energy			25,890				25,890		8
Other corporates			40,996				40,996		13
Total corporate bonds	—		146,381		—		146,381		47
Other bonds			270				270		—
Guaranteed annuity contract ⁽¹⁾			17,082				17,082		6
Short-term investments	15,593						15,593		5
Other	4,842						4,842		2
Grand Total	$	143,855	$	163,741	$	—	$	307,596	100


(1)	Representing a guaranteed annuity contract issued by Torchmark's subsidiary, American Income Life Insurance Company, to fund the obligations of the American Income Pension Plan.

Torchmark’s investment objectives for its plan assets include preservation of capital, preservation of purchasing power, and long-term growth. Torchmark seeks to preserve capital through investments made in high quality securities with adequate diversification by issuer and industry sector to minimize risk. The portfolio is monitored continuously for changes in quality and diversification mix. The preservation of purchasing power is intended to be accomplished through asset growth, exclusive of contributions and withdrawals, in excess of the rate of inflation. Torchmark intends to maintain investments that when combined with future plan contributions will produce adequate long-term growth to provide for all plan obligations. It is also Torchmark’s objective that the portfolio’s investment return will meet or exceed the return of a balanced market index.

The majority of the securities in the portfolio are highly marketable so that there will be adequate liquidity to meet projected payments. There are no specific policies calling for asset durations to match those of benefit obligations.

Table of Contents

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 9—Postretirement Benefits (continued)

Allowed investments are limited to equities, fixed maturities, and short-term investments (invested cash). The assets are to be invested in a mix of equity and fixed income investments that best serve the objectives of the pension plan. Factors to be considered in determining the asset mix include funded status, annual pension expense, annual pension contributions, and balance sheet liability. Equities can include common and preferred stocks, securities convertible into equities, mutual funds and exchange traded funds that invest in equities, and other equity-related investments. Equities are listed on major exchanges and adequate market liquidity is required. Fixed maturities consist of marketable debt securities rated investment grade at purchase by a major rating agency. Short-term investments include fixed maturities with maturities less than one year and invested cash. Short-term investments in commercial paper must be rated at least A-2 by Standard & Poor’s with the issuer rated investment grade. Invested cash is limited to banks rated A or higher. Investments outside of the aforementioned list are not permitted, except by prior approval of the Plan’s Trustees.

The investment portfolio is to be well diversified to avoid undue exposure to a single sector, industry, business, or security. The equity and fixed maturity portfolios are not permitted to invest in any single issuer that would exceed 10% of total plan assets at the time of purchase. Torchmark does not employ any other special risk management techniques, such as derivatives, in managing the pension investment portfolio.

As of December 31, 2016 , Torchmark sold all equity securities in various sectors and replaced them with an exchange traded fund that mirrors the S&P 500 index to better align with a passive approach rather than an actively managed portfolio. At December 31, 2016 , there were no restricted investments contained in the portfolio. Plan contributions have been invested primarily in fixed maturity and equity securities during the three years ended December 31, 2016 .

The following table discloses the assumptions used to determine Torchmark’s pension liabilities and costs for the appropriate periods. The discount and compensation increase rates are used to determine current year projected benefit obligations and subsequent year pension expense. The long-term rate of return is used to determine current year expense. Differences between assumptions and actual experience are included in actuarial gain or loss.

Weighted Average Pension Plan Assumptions



For Benefit Obligations at December 31:	2016		2015
Discount Rate	4.27	%	4.64	%
Rate of Compensation Increase	4.31		4.33



For Periodic Benefit Cost for the Year:	2016		2015		2014
Discount Rate	4.64	%	4.23	%	5.12	%
Expected Long-Term Returns	7.19		6.96		6.97
Rate of Compensation Increase	4.33		4.35		4.35

The discount rate is determined based on the expected duration of plan liabilities. A yield is then derived based on the current market yield of a hypothetical portfolio of higher-quality corporate bonds which match the liability duration. The rate of compensation increase is projected based on Company experience, modified as appropriate for future expectations. The expected long-term rate of return on plan assets is management’s best estimate of the average rate of earnings expected to be received on the assets invested in the plan over the benefit period. In determining this assumption, consideration is given to the historical rate of return earned on the assets, the projected returns over future periods, and the discount rate used to compute benefit obligations.

Table of Contents

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 9—Postretirement Benefits (continued)

Net periodic pension cost for the defined benefit plans by expense component was as follows:



	Year Ended December 31,
	2016			2015			2014
Service cost—benefits earned during the period	$	15,502		$	15,902		$	12,925
Interest cost on projected benefit obligation	21,631			19,887			19,270
Expected return on assets	(23,127		)	(21,204		)	(19,031		)
Net amortization	10,135			14,465			10,283
Recognition of actuarial loss	61			180			16
Net periodic pension cost	$	24,202		$	29,230		$	23,463

An analysis of the impact on other comprehensive income (loss) concerning pensions and other postretirement benefits is as follows:



	Year Ended December 31,
	2016			2015			2014
Balance at January 1	$	(152,149	)	$	(152,999	)	$	(97,467	)
Amortization of:
Prior service cost	477			377			2,113
Net actuarial (gain) loss ⁽¹⁾	9,691			14,209			8,172
Total amortization	10,168			14,586			10,285
Plan amendments	—			(2,104		)	—
Experience gain (loss)	(31,902		)	(11,632		)	(65,817		)
Balance at December 31	$	(173,883	)	$	(152,149	)	$	(152,999	)


(1)	Includes amortization of postretirement benefits other than pensions of $33 thousand in 2016 , $120 thousand in 2015 , and $2 thousand in 2014 .

Table of Contents

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 9—Postretirement Benefits (continued)

The following table presents a reconciliation from the beginning to the end of the year of the projected benefit obligation and plan assets for pensions. This table also presents the amounts previously recognized as a component of accumulated other comprehensive income.

Pension Benefits



	Year Ended December 31,
	2016			2015
Changes in benefit obligation:
Obligation at beginning of year	$	476,581		$	477,426
Service cost	15,502			15,902
Interest cost	21,631			19,887
Plan amendments	—			2,104
Actuarial loss (gain)	34,667			(19,226		)
Benefits paid	(20,859		)	(19,512		)
Obligation at end of year	527,522			476,581

Changes in plan assets:
Fair value at beginning of year	307,596			322,898
Return on assets	26,377			(11,333		)
Contributions	15,757			15,543
Benefits paid	(20,859		)	(19,512		)
Fair value at end of year	328,871			307,596
Funded status at year end	$	(198,651	)	$	(168,985	)



Amounts recognized in accumulated other comprehensive income consist of:
Net loss (gain)	$	167,313	$	145,623
Prior service cost	4,611		5,088
Net amounts recognized at year end	$	171,924	$	150,711

The portion of other comprehensive income that is expected to be reflected in pension expense in 2017 is as follows:



Amortization of prior service cost	$	476
Amortization of net actuarial loss	11,806
Total	$	12,282

The accumulated benefit obligation (ABO) for Torchmark’s funded defined benefit pension plans was $411 million and $371 million at December 31, 2016 and 2015 , respectively. In the nonqualified plans, the ABO was $69 million at December 31, 2016 and $63 million at 2015 .

Table of Contents

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 9—Postretirement Benefits (continued)

Torchmark has estimated its expected pension benefits to be paid over the next ten years as of December 31, 2016 . These estimates use the same assumptions that measure the benefit obligation at December 31, 2015 , taking estimated future employee service into account. Those estimated benefits are as follows:



For the year(s)
2017	$	19,839
2018	21,198
2019	22,516
2020	24,109
2021	25,678
2022-2025	152,071

Postretirement Benefit Plans Other Than Pensions : Torchmark provides a small postretirement life insurance benefit for most retired employees, and also provides additional postretirement life insurance benefits for certain key employees. The majority of the life insurance benefits are accrued over the working lives of active employees. Otherwise, Torchmark does not provide postretirement benefits other than pensions and the life insurance benefits described above.

Torchmark’s postretirement defined benefit plans other than pensions are not funded. Liabilities for these plans are measured as of December 31 for the appropriate year.

The components of net periodic postretirement benefit cost for plans other than pensions are as follows:



	Year Ended December 31,
	2016			2015		2014
Service cost	$	—		$	—	$	—
Interest cost on benefit obligation	1,139			1,075		646
Expected return on plan assets	—			—		—
Net amortization	33			120		2
Recognition of net actuarial (gain) loss	(132		)	367		(256		)
Net periodic postretirement benefit cost	$	1,040		$	1,562	$	392

Table of Contents

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 9—Postretirement Benefits (continued)

The following table presents a reconciliation of the benefit obligation and plan assets from the beginning to the end of the year. As these plans are unfunded, funded status is equivalent to the accrued benefit liability.

Benefits Other Than Pensions



	Year Ended December 31,
	2016			2015
Changes in benefit obligation:
Obligation at beginning of year	$	22,479		$	22,895
Service cost	—			—
Interest cost	1,139			1,075
Actuarial loss (gain)	412			(1,133		)
Benefits paid	(309		)	(358		)
Obligation at end of year	23,721			22,479

Changes in plan assets:
Fair value at beginning of year	—			—
Return on assets	—			—
Contributions	309			358
Benefits paid	(309		)	(358		)
Fair value at end of year	—			—
Funded status at year end	$	(23,721	)	$	(22,479	)



Amounts recognized in accumulated other comprehensive income:
Net loss ⁽¹⁾	$	1,959	$	1,447
Net amounts recognized at year end	$	1,959	$	1,447


(1)	The net loss for benefit plans other than pensions reduces other comprehensive income.

The table below presents the assumptions used to determine the liabilities and costs of Torchmark’s postretirement benefit plans other than pensions.

Weighted Average Assumptions for Postretirement

Benefit Plans Other Than Pensions



For Benefit Obligations at December 31:	2016		2015
Discount Rate	4.29	%	4.66	%



For Periodic Benefit Cost for the Year:	2016		2015		2014
Discount Rate	4.66	%	4.23	%	5.12	%

Table of Contents

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 9—Postretirement Benefits (continued)

Estimated Future Payments for Post-Retirement Benefit Plans Other Than Pensions



For the year(s)
2017	$	1,014
2018	1,133
2019	1,247
2020	1,351
2021	1,462
2022-2025	9,811

Note 10—Supplemental Disclosures of Cash Flow Information

The following table summarizes Torchmark’s noncash transactions, which are not reflected on the Consolidated Statements of Cash Flows:



	Year Ended December 31,
	2016		2015		2014
Stock-based compensation not involving cash	$	26,326	$	28,664	$	32,203
Commitments for low-income housing interests	56,818		68,949		75,706
Exchanges of fixed maturity investments	224,901		—		17,333
Net unsettled security trades	15,020		—		—

The following table summarizes certain amounts paid during the period:



	Year Ended December 31,
	2016		2015		2014
Interest paid	$	81,338	$	74,792	$	77,066
Income taxes paid	79,790		110,650		100,922

Table of Contents

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 11—Debt

The following table presents information about the terms and outstanding balances of Torchmark’s debt.

Selected Information about Debt Issues



						As of December 31,
						2016						2015
	Annual Interest Rate			Issue Date	Periodic Interest Payments Due	Outstanding Principal (Par Value)		Outstanding Principal (Book Value)		Outstanding Principal (Fair Value)		Outstanding Principal (Book Value)
Long-term debt:
Notes, due 5/15/23 ^(3,5)	7.875	%		5/93	5/15 & 11/15	$	165,612	$	164,095	$	196,496	$	163,920
Senior Notes, due 6/15/19 ^(3,7)	9.250	%		6/09	6/15 & 12/15	292,647		291,424		338,363		291,002
Senior Notes, due 9/15/22 ^(3,7)	3.800	%		9/12	3/15 & 9/15	150,000		148,189		152,777		147,913
Junior Subordinated Debentures due 12/15/52 ^(4,8,11)	5.875	%		9/12	quarterly	125,000		120,929		124,378		120,898
Junior Subordinated Debentures due 3/15/36 ^(4,6,11)	4.263	%	⁽¹²⁾	⁽¹⁰⁾	quarterly	20,000		20,000		20,000		20,000
Junior Subordinated Debentures due 6/15/56 ^(4,9)	6.125	%		4/16	quarterly	300,000		290,403		302,880		—
Term loan due 5/17/21 ^(1,6)	1.856	%	⁽¹³⁾	6/16	monthly	100,000		100,000		100,000		—
						1,153,259		1,135,040		1,234,894		743,733
Less current maturity of term loan						1,875		1,875		1,875		—
Total long-term debt						1,151,384		1,133,165		1,233,019		743,733

Short-term debt:
Senior Notes, due 6/15/16	6.375	%		6/06	6/15 & 12/15	—		—		—		249,753
Current maturity of term loan						1,875		1,875		1,875		—
Commercial paper ⁽²⁾						262,850		262,600		262,600		240,376
Total short-term debt						264,725		264,475		264,475		490,129

Total debt						$	1,416,109	$	1,397,640	$	1,497,494	$	1,233,862


(1)	The term loan has higher priority than all other debt issues.


(2)	Commercial paper has priority over all other debt except the term loan.


(3)	All securities, other than the term loan, commercial paper and Junior Subordinated Debentures have equal priority with one another.


(4)	All Junior Subordinated Debentures have equal priority, but are subordinate to all other issues.


(5)	Not callable.


(6)	Callable anytime.


(7)	Callable subject to “make-whole” premium.


(8)	Callable as of December 15, 2017.


(9)	Callable subject to “make-whole” premium until June 15, 2021 and at par on and any time after June 15, 2021.


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


(11)	Quarterly payments on the 15th of March, June, September, and December.


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


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

Table of Contents

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 11—Debt (continued)

Contractual Debt Obligations : The following table presents expected scheduled principal payments under our contractual debt obligations:



	Year Ended December 31,
	2017		2018		2019		2020		2021		Thereafter
Debt obligations	$	264,725	$	4,375	$	299,522	$	9,375	$	77,500	$	760,612

Funded debt : O n April 5, 2016, Torchmark completed the issuance and sale of $300 million in aggregate principal of Torchmark’s 6.125% Junior Subordinated Debentures due 2056. The debentures were sold pursuant to Torchmark’s shelf registration statement on Form S-3, filed September 25, 2015. The net proceeds from the sale of the debentures were $290 million , after giving effect to the underwriting discount and expenses of the offering of the debentures. Torchmark used the net proceeds from the offering of the debentures to repay the $250 million outstanding principal, plus accrued interest of $8 million , on the 6.375% Senior Notes that were due June 15, 2016. The remaining proceeds were used for general corporate purposes.

Credit Facility : On May 17, 2016, Torchmark amended its credit facility to include, as a part of the facility, the issuance of a $100 million term loan and to extend the maturity date of the entire credit facility to May 2021. The facility is further designated as a back-up credit line for a commercial paper program under which the Company 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 of $750 million , less any letters of credit issued. Interest is charged at variable rates. The term loan will be repaid on a redemption schedule which provides for quarterly installments beginning June 30, 2017 that escalate each annual period with a balloon payment of $75 million due in May 2021. Interest on the term loan is computed and paid monthly at 125 basis points plus 1 Month LIBOR. In accordance with the agreement, Torchmark is subject to certain covenants regarding capitalization. As of December 31, 2016 , the Company was in full compliance with these covenants.

Commercial paper outstanding and any amortization payments of the term loan due within one year are reported as short-term debt on the Consolidated Balance Sheets . A table presenting selected information concerning Torchmark’s commercial paper borrowings is presented below.

Credit Facility - Commercial Paper



	At December 31,
	2016			2015
Balance at end of period (at par value)	$	262,850		$	240,544
Annualized interest rate	0.96		%	0.55		%
Letters of credit outstanding	$	177,000		$	177,000
Remaining amount available under credit line	310,150			332,456



	Year Ended December 31,
	2016			2015			2014
Average balance outstanding during period	$	301,550		$	350,851		$	296,246
Daily-weighted average interest rate (annualized)	0.83		%	0.43		%	0.26		%
Maximum daily amount outstanding during period	$	412,676		$	458,110		$	343,000

Table of Contents

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 12—Shareholders’ Equity

Share Data: A summary of preferred and common share activity is presented in the following chart.



	Preferred Stock		Common Stock
	Issued	Treasury Stock	Issued		Treasury Stock
2014:
Balance at January 1, 2014	—	—	151,218,183		(16,965,802	)
Grants of restricted stock					19,041
Forfeitures of restricted stock					(2,700	)
Issuance of common stock due to exercise of stock options					2,210,349
Treasury stock acquired					(8,548,795	)
Retirement of treasury stock			(17,000,000	)	17,000,000
Balance at December 31, 2014	—	—	134,218,183		(6,287,907	)
2015:
Grants of restricted stock					6,648
Forfeitures of restricted stock					(13,950	)
Vesting of performance shares					211,287
Issuance of common stock due to exercise of stock options					1,576,485
Treasury stock acquired					(7,340,794	)
Retirement of treasury stock			(4,000,000	)	4,000,000
Balance at December 31, 2015	—	—	130,218,183		(7,848,231	)
2016:
Grants of restricted stock					12,549
Vesting of performance shares					159,020
Issuance of common stock due to exercise of stock options					2,184,169
Treasury stock acquired					(6,694,582	)
Retirement of treasury stock			(3,000,000	)	3,000,000
Balance at December 31, 2016	—	—	127,218,183		(9,187,075	)

Acquisition of Common Shares : Torchmark shares are acquired from time to time through open market purchases under the Torchmark stock repurchase program when it is believed to be the best use of Torchmark’s excess cash flows. Share repurchases under this program were 5.2 million shares at a cost of $311 million in 2016 , 6.3 million shares at a cost of $359 million in 2015 , and 7.2 million shares at a cost of $375 million in 2014 . When stock options are exercised, proceeds from the exercises are generally used to repurchase approximately the number of shares available with those funds in order to reduce dilution. Shares repurchased for dilution purposes were 1.5 million shares at a cost of $93 million in 2016 , 1.0 million shares at a cost of $60 million in 2015 , and 1.4 million shares at a cost of $74 million in 2014 .

Retirement of Treasury Stock : Torchmark retired 3.0 million shares of treasury stock in 2016 , 4.0 million in 2015 , and 17.0 million in 2014 .

Restrictions : Restrictions exist on the flow of funds to Torchmark from its insurance subsidiaries. Statutory regulations require life insurance subsidiaries to maintain certain minimum amounts of capital and surplus. Dividends from insurance subsidiaries of Torchmark are restricted based on regulations by their state of domicile . Additionally, insurance company distributions are generally not permitted in excess of statutory surplus. Subsidiaries are also subject to certain minimum

Table of Contents

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 12—Shareholders’ Equity (continued)

capital requirements. Subsidiaries of Torchmark paid cash dividends to the Parent Company in the amount of $438 million in 2016 , $466 million in 2015 , and $479 million in 2014 . As of December 31, 2016 , dividends and transfers from insurance subsidiaries to parent available to be paid in 2017 are limited to the amount of $262 million without regulatory approval, such that $1.1 billion was considered restricted net assets of the subsidiaries. Dividends exceeding these limitations may be available during the year pending regulatory approval. While there are no legal restrictions on the payment of dividends to shareholders from Torchmark’s retained earnings, retained earnings as of December 31, 2016 were restricted by lenders’ covenants which require the Company to maintain and not distribute $2.6 billion from its total consolidated retained earnings of $3.9 billion .

Earnings Per Share : A reconciliation of basic and diluted weighted-average shares outstanding used in the computation of basic and diluted earnings per share is as follows:



	Year Ended December 31,
	2016	2015	2014
Basic weighted average shares outstanding	120,001,191	125,094,628	130,721,738
Weighted average dilutive options outstanding	2,366,594	1,662,607	1,918,506
Diluted weighted average shares outstanding	122,367,785	126,757,235	132,640,244

There were no anti-dilutive shares as of December 31, 2016 , 2015 , or 2014 . Income available to common shareholders for basic earnings per share is equivalent to income available to common shareholders for diluted earnings per share. As discussed earlier in Note 1—Significant Accounting Policies , the Company adopted ASU 2016-09 on January 1, 2016.

Note 13—Stock-Based Compensation

Torchmark’s stock-based compensation consists of stock options, restricted stock, restricted stock units, and performance shares. Certain employees and directors have been granted fixed equity options to buy shares of Torchmark stock at the market value of the stock on the date of grant, under the provisions of the Torchmark stock option plans. The options are exercisable during the period commencing from the date they vest until expiring according to the terms of the grant. Options generally expire the earlier of employee termination or option contract term, which ranges from seven to ten years. Options generally vest in accordance with the following schedule:



		Shares vested by period
	Contract Period	6 Months	Year 1	Year 2	Year 3	Year 4	Year 5
Directors	7 years	100%
Employees	7 years	—%	—%	50%	50%
Employees ⁽¹⁾	10 years	—%	—%	25%	25%	25%	25%


(1)	Grant offered through the Torchmark Corporation 2011 Incentive Plan only.

All employee options vest immediately upon retirement on or after the attainment of age 65, upon death, or disability. Torchmark generally issues shares for the exercise of stock options from treasury stock. The Company generally uses the proceeds from option exercises to buy shares of Torchmark common stock in the open market to reduce the dilution from option exercises.

During 2014, shareholders approved an amendment to the 2011 Incentive Plan allowing for an additional 6.3 million shares available for grant.

Table of Contents

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 13—Stock-Based Compensation (continued)

An analysis of shares available for grant is as follows:



	Available for Grant
	2016		2015		2014
Balance at January 1,	6,872,282		8,458,593		4,368,753
2011 Plan amendment	—		—		6,300,000
Options expired and forfeited during year ⁽¹⁾	8,518		90,371		3,488
Restricted stock expired and forfeited during year ⁽²⁾	—		89,745		31,620
Options granted during year ⁽¹⁾	(1,306,306	)	(1,334,514	)	(1,523,982	)
Restricted stock, restricted stock units, and performance shares granted under the Torchmark Corporation 2011 Incentive Plan ⁽²⁾	(486,033	)	(431,913	)	(721,286	)
Balance at December 31,	5,088,461		6,872,282		8,458,593


(1)	Plan allows for grant of options such that each grant reduces shares available for grant in a range from 0.85 share to 1 share.


(2)	Plan allows for grant of restricted stock such that each stock grant reduces shares available for grant in a range from 3.1 shares to 3.88 shares.

A summary of stock compensation activity for each of the three years ended December 31, 2016 is presented below:



	2016		2015		2014
Stock-based compensation expense recognized ⁽¹⁾	$	26,326	$	28,664	$	32,203
Tax benefit recognized ⁽²⁾	27,867		10,033		11,271


(1)	No stock-based compensation expense was capitalized in any period.


(2)	Due to the adoption of ASU 2016-09 as described in Note 1—Significant Accounting Policies under "Accounting Pronouncements Adopted in the Current Year" , certain current year balances related to excess tax benefits from stock compensation were adjusted prospectively.

Additional stock compensation information is as follows at December 31:



	2016		2015
Unrecognized compensation ⁽¹⁾	$	27,334	$	33,977
Weighted average period of expected recognition (in years) ⁽¹⁾	0.89		0.85


(1)	Includes restricted stock and performance shares.

No equity awards were cash settled during the three years ended December 31, 2016 .

Table of Contents

Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 13—Stock-Based Compensation (continued)

Options:

The following table summarizes information about stock options outstanding at December 31, 2016 .



	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted- Average Remaining Contractual Life (Years)	Weighted- Average Exercise Price		Number Exercisable	Weighted- Average Exercise Price
$20.58 - $32.48	1,549,010	2.23	$	30.01	1,470,267	$	29.99
37.40 - 43.06	1,111,634	3.53	37.67		998,713	37.70
50.64	1,412,225	7.41	50.64		—	—
50.69	1,406,282	4.63	50.69		604,802	50.69
51.62 - 56.32	1,494,440	5.65	53.64		42,065	54.79
$20.58 - $56.32	6,973,591	4.70	$	44.64	3,115,847	$	36.81

An analysis of option activity for each of the three years ended December 31, 2016 is as follows:



	2016				2015				2014
	Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Outstanding-beginning of year	7,734,841		$	38.84	7,889,321		$	32.91	8,579,202		$	27.84
Granted:
7-year term	834,212		50.78		1,220,751		53.62		1,226,270		50.70
10-year term	597,225		50.64		296,875		53.61		297,712		50.69
Exercised	(2,184,169	)	28.08		(1,576,485	)	22.81		(2,210,348	)	25.47
Expired and forfeited	(8,518	)	39.35		(95,621	)	48.85		(3,488	)	40.05
Adjustment due to 7/1/14 stock split	—		—		—		—		(27	)	—
Outstanding-end of year	6,973,591		$	44.64	7,734,841		$	38.84	7,889,321		$	32.91

Exercisable at end of year	3,115,847		$	36.81	3,774,061		$	29.37	3,809,415		$	24.58

Additional information about Torchmark’s stock option activity as of December 31, 2016 and 2015 is as follows:



	2016		2015
Outstanding options:
Weighted-average remaining contractual term (in years)	4.70		4.32
Aggregate intrinsic value	$	87,286	$	141,728
Exercisable options:
Weighted-average remaining contractual term (in years)	2.96		2.74
Aggregate intrinsic value	$	63,395	$	104,885

Selected stock option activity for the three years ended December 31, 2016 is presented below:

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Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 13—Stock-Based Compensation (continued)



	2016		2015		2014
Weighted-average grant-date fair value of options granted (per share)	$	9.04	$	11.97	$	14.77
Intrinsic value of options exercised	73,995		54,854		61,229
Cash received from options exercised	61,329		35,958		56,294
Actual tax benefit received	25,898		24,470		23,232

Additional information concerning Torchmark’s unvested options is as follows at December 31:



	2016		2015
Number of shares outstanding	3,857,744		3,960,780
Weighted-average exercise price (per share)	$	50.97	$	47.86
Weighted-average remaining contractual term (in years)	6.11		5.82
Aggregate intrinsic value	$	23,891	$	36,843

Torchmark expects that substantially all unvested options will vest.

Restricted Stock:

Restricted stock grants consist of time-vested grants, restricted stock units, and performance shares. Time-vested restricted stock is available to both senior executives and directors. The employee grants generally vest over five years and the director grants vest over six months. Restricted stock units are available only to directors. They vest over six months and are not converted to shares until the directors’ retirement, death, or disability. Director restricted stock and restricted stock units are generally granted on the first work day of the year. Performance shares are granted to a limited number of senior executives. Performance shares have a three year contract life and are not settled in shares until the termination of the three -year contract period. While the grant specifies a stated target number of shares, the determination of the actual settlement in shares will be based on the achievement of certain performance objectives of Torchmark over the respective three -year contract periods. Certain executive restricted stock and performance share grants contain terms related to age that could accelerate vesting.

Restricted stock units outstanding at each of the year ends 2016 , 2015 , and 2014 were 112,591 , 105,679 , and 98,039 , respectively. All restricted stock units were fully vested at the end of each year of grant.

Below is the final determination of the performance share grants in 2012 to 2014:



Year of grants	Final settlement of shares	Final settlement date
2012	211,287	January 27, 2015
2013	159,020	February 24, 2016
2014	119,896	February 21, 2017

For the 2015 and 2016 performance share grants, actual shares that could be distributed range from 0 to 353 thousand for the 2015 grants and 0 to 335 thousand shares for the 2016 grants.

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Index to Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 13—Stock-Based Compensation (continued)

A summary of restricted stock grants for each of the years in the three-year period ended December 31, 2016 is presented in the table below.



	2016			2015			2014
Executives restricted stock:
Shares	—			—			12,000
Price per share	$	—		$	—		$	50.69
Aggregate value	$	—		$	—		$	608
Percent vested as of 12/31/16	—		%	—		%	—		%
Directors restricted stock:
Shares	12,549			6,648			7,041
Price per share	$	57.39		$	54.16		$	51.62
Aggregate value	$	720		$	360		$	363
Percent vested as of 12/31/16	85		%	100		%	100		%
Directors restricted stock units (including dividend equivalents):
Shares	6,912			7,640			12,322
Price per share	$	56.74		$	54.44		$	51.69
Aggregate value	$	392		$	416		$	637
Percent vested as of 12/31/16	100		%	100		%	100		%
Performance shares:
Target shares	167,500			179,500			179,250
Target price per share	$	50.64		$	53.61		$	51.41
Assumed adjustment for performance objectives (in shares)	(35,073		)	(58,056		)	22,060
Aggregate value	$	8,482		$	9,623		$	9,215
Percent vested as of 12/31/16	—		%	—		%	—		%

Time-vested restricted stock holders, both employees and directors, are entitled to dividend payments on the unvested stock. Restricted stock unit holders are entitled to dividend equivalents. These equivalents are granted in the form of additional restricted stock units and vest immediately upon grant. Dividend equivalents are applicable only to restricted stock units. Performance shareholders are not entitled to dividend equivalents and are not entitled to dividend payments until the shares are vested and settled.

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(Dollar amounts in thousands except per share data)

Note 13—Stock-Based Compensation (continued)

An analysis of unvested restricted stock is as follows:



	Executive Restricted Stock		Executive Performance Shares		Directors Restricted Stock		Directors Restricted Stock Units		Total
2014:
Balance at January 1, 2014	344,445		362,550		—		—		706,995
Grants	12,000		179,250		7,041		12,322		210,613
Additional performance shares ⁽¹⁾			22,060						22,060
Restriction lapses and settlements	(90,315	)			(7,041	)	(12,322	)	(109,678	)
Forfeitures	(2,700	)	(7,500	)					(10,200	)
Balance at December 31, 2014	263,430		556,360		—		—		819,790
2015:
Grants	—		179,500		6,648		7,640		193,788
Additional performance shares ⁽¹⁾			(58,056	)					(58,056	)
Restriction lapses	(61,815	)	(211,287	)	(6,648	)	(7,640	)	(287,390	)
Forfeitures	(13,950	)	(7,500	)					(21,450	)
Balance at December 31, 2015	187,665		459,017		—		—		646,682
2016:
Grants	—		167,500		12,549		6,912		186,961
Additional performance shares ⁽¹⁾			(35,073	)					(35,073	)
Restriction lapses	(130,215	)	(159,020	)	(10,655	)	(6,912	)	(306,802	)
Forfeitures	—		—						—
Balance at December 31, 2016	57,450		432,424		1,894		—		491,768


(1)	Estimated additional (reduced) share grants expected due to achievement of performance criteria.

An analysis of the weighted-average grant-date fair values per share of unvested restricted stock is as follows for the year 2016 :



	Executive Restricted Stock			Executive Performance Shares			Directors Restricted Stock			Directors Restricted Stock Units
Grant-date fair value per share at January 1, 2016	$	32.92		$	46.77
Grants	—			50.64			$	57.39		$	56.32
Estimated additional performance shares				(70.47		)
Restriction lapses	(30.47		)	(37.40		)	(56.32		)	(56.32		)
Forfeitures	—			—
Grant-date fair value per share at December 31, 2016	38.46			49.79			63.39

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(Dollar amounts in thousands except per share data)

Note 14—Business Segments

Torchmark’s reportable segments are based on the insurance product lines it markets and administers: life insurance, health insurance, and annuities. These major product lines are set out as reportable segments because of the common characteristics of products within these categories, comparability of margins, and the similarity in regulatory environment and management techniques. There is also an investment segment which manages the investment portfolio, debt, and cash flow for the insurance segments and the corporate function. Torchmark's chief operating decision makers evaluate the overall performance of the operations of the Company in accordance with these segments.

Life insurance products include traditional and interest-sensitive whole life insurance as well as term life insurance. Health insurance products are generally guaranteed-renewable and include Medicare Supplement, critical illness, accident, and limited-benefit supplemental hospital and surgical coverages. Annuities include fixed-benefit contracts.

Torchmark markets its insurance products through a number of distribution channels, each of which sells the products of one or more of Torchmark’s insurance segments. The tables below present segment premium revenue by each of Torchmark’s marketing groups.

Torchmark Corporation

Premium Income by Distribution Channel



	For the Year 2016
	Life			Health			Annuity			Total
Distribution Channel	Amount		% of Total	Amount		% of Total	Amount		% of Total	Amount		% of Total
United American Independent	$	13,733	1	$	355,015	38	$	38	100	$	368,786	12
Liberty National Exclusive	270,476		12	201,798		21				472,274		15
American Income Exclusive	913,355		42	84,382		9				997,737		32
Family Heritage Exclusive	2,866		—	236,075		25				238,941		8
Direct Response	782,765		36	70,393		7				853,158		27
Other	206,138		9							206,138		6
	$	2,189,333	100	$	947,663	100	$	38	100	$	3,137,034	100



	For the Year 2015
	Life			Health			Annuity			Total
Distribution Channel	Amount		% of Total	Amount		% of Total	Amount		% of Total	Amount		% of Total
United American Independent	$	15,036	1	$	345,330	37	$	135	100	$	360,501	12
Liberty National Exclusive	271,113		13	209,150		23				480,263		16
American Income Exclusive	830,903		40	80,339		9				911,242		30
Family Heritage Exclusive	2,334		—	221,091		24				223,425		8
Direct Response	746,693		36	69,610		7				816,303		27
Other	206,986		10							206,986		7
	$	2,073,065	100	$	925,520	100	$	135	100	$	2,998,720	100

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(Dollar amounts in thousands except per share data)

Note 14—Business Segments (continued)



	For the Year 2014
	Life			Health			Annuity			Total
Distribution Channel	Amount		% of Total	Amount		% of Total	Amount		% of Total	Amount		% of Total
United American Independent	$	16,582	1	$	305,368	35	$	400	100	$	322,350	11
Liberty National Exclusive	272,265		14	222,017		25				494,282		18
American Income Exclusive	766,458		39	78,722		9				845,180		30
Family Heritage Exclusive	1,595		—	204,667		24				206,262		7
Direct Response	702,023		36	58,666		7				760,689		27
Other	207,377		10							207,377		7
	$	1,966,300	100	$	869,440	100	$	400	100	$	2,836,140	100

Due to the nature of the life insurance industry, Torchmark has no individual or group which would be considered a major customer. Substantially all of Torchmark’s business is conducted in the United States.

The measure of profitability established by the chief operating decision makers for insurance segments is underwriting margin before other income and administrative expenses, in accordance with the manner the segments are managed. It essentially represents gross profit margin on insurance products before insurance administrative expenses and consists of premium, less net policy obligations, acquisition expenses, and commissions. Interest credited to net policy liabilities (reserves less deferred acquisition costs) is reflected as a component of the Investment segment in order to match this cost to the investment earnings from the assets supporting the net policy liabilities.

The measure of profitability for the Investment segment is excess investment income, which represents the income earned on the investment portfolio in excess of net policy requirements and financing costs associated with Torchmark’s debt. Other than the above-mentioned interest allocations and an intersegment commission, there are no other intersegment revenues or expenses. Expenses directly attributable to corporate operations are included in the “Corporate” category. Stock-based compensation expense is considered a corporate expense by Torchmark management and is included in this category. All other unallocated revenues and expenses on a pretax basis, including insurance administrative expense, are included in the “Other” segment category.

Torchmark holds a sizeable investment portfolio to support its insurance liabilities, the yield from which is used to offset policy benefit, acquisition, administrative and tax expenses. This yield or investment income is taken into account when establishing premium rates and profitability expectations of its insurance products. In holding such a portfolio, investments are sold, called, or written down from time to time, resulting in a realized gain or loss. These gains or losses generally occur as a result of disposition due to issuer calls, compliance with Company investment policies, or other reasons often beyond management’s control. Unlike investment income, realized gains and losses are incidental to insurance operations, and only overall yields are considered when setting premium rates or insurance product profitability expectations. While these gains and losses are not relevant to segment profitability or core operating results, they can have a material positive or negative result on net income. For these reasons, management removes realized investment gains and losses when it views its segment operations.

In 2016, Torchmark recorded $3.8 million in administrative settlements ( $2.5 million after tax) related to benefits paid for deaths occurring in prior years where claims had not been filed. These administrative settlements were included in “Policyholder benefits” in the Consolidated Statements of Operations in 2016.

In 2015, Torchmark recorded $1.4 million in administrative settlements ( $906 thousand after tax) related to a post closing adjustment on the sale of a former subsidiary. These administrative settlements were included in "Commissions, premium taxes, and non-deferred acquisition costs" in the Consolidated Statements of Operations in 2015 .

During 2014, Torchmark accrued for certain litigation matters 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 $1.3 million ( $853 thousand after tax) in settlement of litigation regarding investments. Also in 2014, the Company recorded $8.2 million in

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(Dollar amounts in thousands except per share data)

Note 14—Business Segments (continued)

administrative settlements ( $5.3 million after tax) related to benefits paid for deaths occurring in prior years where claims had not been filed. These administrative settlements were included in “Policyholder benefits” in the Consolidated Statements of Operations in 2014.

Management removes items that are related to prior periods when evaluating the operating results of current periods. Management also removes non-operating items unrelated to its core insurance activities when evaluating those results. Therefore, these items are excluded in its presentation of segment results, because accounting guidance requires that operating segment results be presented as management views its business. With the exception of the administrative settlements noted in the paragraphs above, all of these items are included in “Other operating expense” in the Consolidated Statements of Operations for the appropriate year.

The following tables set forth a reconciliation of Torchmark’s revenues and operations by segment to its major income statement line items. See Note 1—Significant Accounting Policies for additional information concerning reconciling items of segment profits to pretax income.



	For the year 2016
	Life			Health			Annuity			Investment			Other			Corporate			Adjustments				Consolidated
Revenue:
Premium	$	2,189,333		$	947,663		$	38															$	3,137,034
Net investment income										$	806,903												806,903
Other income													$	1,534					$	(159	)	⁽²⁾	1,375
Total revenue	2,189,333			947,663			38			806,903			1,534						(159		)		3,945,312
Expenses:
Policy benefits	1,475,477			612,725			36,751												3,795			⁽³⁾	2,128,748
Required interest on:
Policy reserves	(577,827		)	(73,382		)	(51,131		)	702,340													—
Deferred acquisition costs	178,946			23,060			807			(202,813		)											—
Amortization of acquisition costs	374,499			90,385			4,179																469,063
Commissions, premium taxes, and non-deferred acquisition costs	164,476			84,819			38												(159		)	⁽²⁾	249,174
Insurance administrative expense ⁽¹⁾													196,598						553			⁽⁴⁾	197,151
Parent expense																$	8,587						8,587
Stock-based compensation expense																26,326							26,326
Interest expense										83,345													83,345
Total expenses	1,615,571			737,607			(9,356		)	582,872			196,598			34,913			4,189				3,162,394
Subtotal	573,762			210,056			9,394			224,031			(195,064		)	(34,913		)	(4,348		)		782,918
Non-operating items																			4,348			^(3,4)	4,348
Measure of segment profitability (pretax)	$	573,762		$	210,056		$	9,394		$	224,031		$	(195,064	)	$	(34,913	)	$	—			787,266
Deduct applicable income taxes																							(237,906		)
Net operating income from continuing operations																							549,360
Add back income taxes applicable to segment profitability																							237,906
Add (deduct) realized investment gains (losses)																							(10,683		)
Deduct administrative settlements ⁽³⁾																							(3,795		)
Deduct non-operating fees ⁽⁴⁾																							(553		)
Income before income taxes per Consolidated Statement of Operations																							$	772,235

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

(2) Elimination of intersegment commission.

(3) Administrative settlements.

(4) Non-operating fees.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 14—Business Segments (continued)



	For the year 2015
	Life			Health			Annuity			Investment			Other			Corporate			Adjustments				Consolidated
Revenue:
Premium	$	2,073,065		$	925,520		$	135															$	2,998,720
Net investment income										$	773,951												773,951
Other income													$	2,379					$	(194	)	⁽²⁾	2,185
Total revenue	2,073,065			925,520			135			773,951			2,379						(194		)		3,774,856
Expenses:
Policy benefits	1,374,608			602,610			38,994																2,016,212
Required interest on:
Policy reserves	(552,298		)	(69,057		)	(53,295		)	674,650													—
Deferred acquisition costs	172,947			22,760			1,138			(196,845		)											—
Amortization of acquisition costs	353,595			83,341			8,689																445,625
Commissions, premium taxes, and non-deferred acquisition costs	154,811			81,489			41												1,200			^(2,3)	237,541
Insurance administrative expense ⁽¹⁾													186,191										186,191
Parent expense																$	9,003						9,003
Stock-based compensation expense																28,664							28,664
Interest expense										76,642													76,642
Total expenses	1,503,663			721,143			(4,433		)	554,447			186,191			37,667			1,200				2,999,878
Subtotal	569,402			204,377			4,568			219,504			(183,812		)	(37,667		)	(1,394		)		774,978
Non-operating items																			1,394			⁽³⁾	1,394
Measure of segment profitability (pretax)	$	569,402		$	204,377		$	4,568		$	219,504		$	(183,812	)	$	(37,667	)	$	—			776,372
Deduct applicable income taxes																							(253,459		)
Net operating income from continuing operations																							522,913
Add back income taxes applicable to segment profitability																							253,459
Add (deduct) realized investment gains (losses)																							(8,791		)
Deduct administrative settlements ⁽³⁾																							(1,394		)
Income before income taxes per Consolidated Statement of Operations																							$	766,187

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

(2) Elimination of intersegment commission.

(3) Administrative settlements.

105

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 14—Business Segments (continued)



	For the Year 2014
	Life			Health			Annuity			Investment			Other			Corporate			Adjustments				Consolidated
Revenue:
Premium	$	1,966,300		$	869,440		$	400															$	2,836,140
Net investment income										$	758,286												758,286
Other income													$	2,354					$	(233	)	⁽²⁾	2,121
Total revenue	1,966,300			869,440			400			758,286			2,354						(233		)		3,596,547
Expenses:
Policy benefits	1,293,384			559,817			42,005												8,178			⁽⁴⁾	1,903,384
Required interest on:
Policy reserves	(530,192		)	(64,401		)	(55,255		)	649,848													—
Deferred acquisition costs	168,100			22,499			1,453			(192,052		)											—
Amortization of acquisition costs	335,345			72,731			7,838																415,914
Commissions, premium taxes, and non-deferred acquisition costs	143,174			79,475			47												(233		)	⁽²⁾	222,463
Insurance administrative expense ⁽¹⁾													174,832						2,422			⁽³⁾	177,254
Parent expense																$	8,159		(85		)	⁽³⁾	8,074
Stock-based compensation expense																32,203							32,203
Interest expense										76,126													76,126
Total expenses	1,409,811			670,121			(3,912		)	533,922			174,832			40,362			10,282				2,835,418
Subtotal	556,489			199,319			4,312			224,364			(172,478		)	(40,362		)	(10,515		)		761,129
Non-operating items																			10,515			^(3,4)	10,515
Measure of segment profitability (pretax)	$	556,489		$	199,319		$	4,312		$	224,364		$	(172,478	)	$	(40,362	)	$	—			771,644
Deduct applicable income taxes																							(252,041		)
Net operating income from continuing operations																							519,603
Add back income taxes applicable to segment profitability																							252,041
Add (deduct) realized investment gains (losses)																							23,548
Deduct legal settlement expenses ⁽³⁾																							(2,337		)
Deduct administrative settlements ⁽⁴⁾																							(8,178		)
Income before income taxes per Consolidated Statement of Operations																							$	784,677

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

(2) Elimination of intersegment commission.

(3) Legal settlement expenses.

(4) Administrative settlements.

106

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 14—Business Segments (continued)

The following table summarizes the measures of segment profitability as determined in the three preceding tables for comparison with prior periods. The table also reconciles segment profits to net income.

Analysis of Profitability by Segment



	2016			2015			2014			2016 Change			%		2015 Change			%
Life insurance underwriting margin	$	573,762		$	569,402		$	556,489		$	4,360		1		$	12,913		2
Health insurance underwriting margin	210,056			204,377			199,319			5,679			3		5,058			3
Annuity underwriting margin	9,394			4,568			4,312			4,826			106		256			6
Excess investment income	224,031			219,504			224,364			4,527			2		(4,860		)	(2	)
Other insurance:
Other income	1,534			2,379			2,354			(845		)	(36	)	25			1
Administrative expense	(196,598		)	(186,191		)	(174,832		)	(10,407		)	6		(11,359		)	6
Corporate and adjustments	(34,913		)	(37,667		)	(40,362		)	2,754			(7	)	2,695			(7	)
Pre-tax total	787,266			776,372			771,644			10,894			1		4,728			1
Applicable taxes ⁽¹⁾	(237,906		)	(253,459		)	(252,041		)	15,553			(6	)	(1,418		)	1
Net operating income from continuing operations	549,360			522,913			519,603			26,447			5		3,310			1
Discontinued operations (after tax) ⁽²⁾	10,189			10,807			14,865			(618		)	(6	)	(4,058		)	(27	)
Total	559,549			533,720			534,468			25,829			5		(748		)	—
Realized gains (losses)—investments (after tax)	(6,944		)	(5,714		)	15,306			(1,230		)			(21,020		)
Legal settlement expenses (after tax)	—			—			(1,519		)	—					1,519
Administrative settlements (after tax)	(2,467		)	(906		)	(5,316		)	(1,561		)			4,410
Non-operating fees (after tax)	(359		)	—			—			(359		)			—
Net income	$	549,779		$	527,100		$	542,939		$	22,679		4		$	(15,839	)	(3	)

(2) Income from discontinued operations (after tax) is included for purposes of reconciling to net income.

Assets for each segment are reported based on a specific identification basis. The insurance segments’ assets contain deferred acquisition costs (including the value of insurance purchased). The investment segment includes the investment portfolio, cash, and accrued investment income. Goodwill is assigned to the insurance segments at the time of purchase based on the excess of cost over the fair value of assets acquired for the benefit of that segment. All other assets are included in the Other category. The table below reconciles segment assets to total assets as reported in the consolidated financial statements.

Assets by Segment



	At December 31, 2016
	Life		Health		Annuity		Investment		Other		Consolidated
Cash and invested assets							$	15,955,891			$	15,955,891
Accrued investment income							223,148				223,148
Deferred acquisition costs	$	3,261,220	$	512,701	$	9,237					3,783,158
Goodwill	309,609		131,982								441,591
Other assets									$	1,032,299	1,032,299
Total assets	$	3,570,829	$	644,683	$	9,237	$	16,179,039	$	1,032,299	$	21,436,087

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 14—Business Segments (continued)



	At December 31, 2015
	Life		Health		Annuity		Investment		Other		Consolidated
Cash and invested assets							$	14,405,073			$	14,405,073
Accrued investment income							209,915				209,915
Deferred acquisition costs	$	3,098,656	$	502,535	$	15,944					3,617,135
Goodwill	309,609		131,982								441,591
Other assets									$	1,179,499	1,179,499
Total assets	$	3,408,265	$	634,517	$	15,944	$	14,614,988	$	1,179,499	$	19,853,213

Liabilities for each segment are reported also on a specific identification basis similar to the assets. The insurance segments' liabilities contain future policy benefits, unearned and advance premiums, and policy claims and other benefits payable. Other policyholders' funds are included in Other as well as current and deferred income taxes payable. Debt represents both short and long term.

Liabilities by Segment



	At December 31, 2016
	Life		Health		Annuity		Investment		Other		Consolidated
Future policy benefits	$	9,825,776	$	1,706,870	$	1,293,191					$	12,825,837
Unearned and advance premiums	16,828		47,189								64,017
Policy claims and other benefits payable	156,437		143,128								299,565
Debt							$	1,397,640			1,397,640
Other									$	2,282,167	2,282,167
Total liabilities	$	9,999,041	$	1,897,187	$	1,293,191	$	1,397,640	$	2,282,167	$	16,869,226



	At December 31, 2015
	Life		Health		Annuity		Investment		Other		Consolidated
Future policy benefits	$	9,327,561	$	1,600,240	$	1,318,010					$	12,245,811
Unearned and advance premiums	17,381		49,640								67,021
Policy claims and other benefits payable	135,778		137,120								272,898
Debt							$	1,233,862			1,233,862
Other									$	1,978,069	1,978,069
Total liabilities	$	9,480,720	$	1,787,000	$	1,318,010	$	1,233,862	$	1,978,069	$	15,797,661

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 15—Commitments and Contingencies

Reinsurance : Insurance affiliates of Torchmark reinsure that portion of insurance risk which is in excess of their retention limits. Retention limits for ordinary life insurance range up to $2 million per life. Life insurance ceded represented 0.4% of total life insurance in force at December 31, 2016 . Insurance ceded on life and accident and health products represented 0.3% of premium income for 2016 . Torchmark would be liable for the reinsured risks ceded to other companies to the extent that such reinsuring companies are unable to meet their obligations.

Insurance affiliates also assume insurance risks of other companies. Life reinsurance assumed represented 1.9% of life insurance in force at December 31, 2016 and reinsurance assumed on life and accident and health products represented 0.7% of premium income for 2016 .

Leases : Torchmark leases office space, office equipment, and aviation equipment under a variety of operating lease arrangements.

Rental expense for operating leases for each of the three years ended December 31, 2016 is as follows:



	Year Ended December 31,
	2016		2015		2014
Rental expense	$	6,520	$	6,722	$	4,200

Future minimum rental commitments required under operating leases having remaining noncancelable lease terms in excess of one year at December 31, 2016 were as follows:



	Year Ended December 31,
	2017		2018		2019		2020		2021		Thereafter
Operating lease commitments	$	8,182	$	5,254	$	5,047	$	4,898	$	4,625	$	7,801

Low-Income Housing Tax Credit Interests : As described in Note 1—Significant Accounting Policies , Torchmark had $280 million invested in entities which provide certain tax benefits at December 31, 2016 . As of December 31, 2016 , Torchmark remained obligated under these commitments as follows:



	Year Ended December 31,
	2017		2018		2019		2020		2021		Thereafter
Low-Income housing commitments	$	34,162	$	18,350	$	2,964	$	838	$	302	$	202

Investments : As of December 31, 2016 , Torchmark had committed to purchase $8.4 million of private placement fixed maturities managed by a third party in early 2017.

Guarantees : At December 31, 2016 , Torchmark had in place four guarantee agreements, of which were either parent company guarantees of subsidiary obligations to a third party, or parent company guarantees of obligations between wholly-owned subsidiaries. As of December 31, 2016 , Torchmark had no liability with respect to these guarantees.

Letters of Credit : Torchmark has guaranteed letters of credit in connection with its credit facility with a group of banks as disclosed in Note 11—Debt . The letters of credit were issued by TMK Re, Ltd., a wholly-owned subsidiary, to secure TMK Re, Ltd.’s obligation for claims on certain policies reinsured by TMK Re, Ltd. that were sold by other Torchmark insurance companies. These letters of credit facilitate TMK Re, Ltd.’s ability to reinsure the business of Torchmark’s insurance carriers. The agreement expires in 2021. The maximum amount of letters of credit available is $250 million . The Torchmark parent company would be liable to the extent that TMK Re, Ltd. does not pay the reinsured party. Letters of credit outstanding were $177 million at December 31, 2016 and 2015 .

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 15—Commitments and Contingencies (continued)

Equipment leases : Torchmark has guaranteed performance of certain subsidiaries as lessees under three leasing arrangements which include two for aviation equipment and one for computer software, furniture, and equipment. One aviation lease expires in August 2022 and the second expires in September 2024. The office equipment lease expires in December 2017. At December 31, 2016 , total remaining undiscounted payments under the leases were approximately $15 million . The Torchmark parent company would be responsible for any subsidiary obligation in the event the subsidiary did not make payments or otherwise perform under the terms of the lease.

Unclaimed Property Audits : 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 states through their respective Departments of Revenue, and have not resulted in any financial assessment from any state nor indicated any liability. The audits are wide-ranging and seek large amounts of data regarding claims handling, procedures, and payments of contract benefits arising from unreported death claims. No estimate of range can be made at this time for loss contingencies related to possible administrative penalties or amounts that could be payable to the states for the escheatment of abandoned property.

Litigation : 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.

As previously reported, litigation was filed on February 10, 2015 against Torchmark subsidiary, Globe Life And Accident Insurance Company in Oklahoma County, Oklahoma District Court (Proctor v. Globe Life And Accident Insurance Company, Case No. CJ-2015-838) asserting claims for breach of the implied covenants of good faith and fair dealing and for false representation, deceit and conversion in connection with Globe’s denial of plaintiff’s claim on a life insurance policy for non-payment of premium. Plaintiff, who had alleged that Globe had improperly retained 12 monthly premium payments on a policy that was treated as lapsed or not returned to in-force status, seeks actual and punitive damages, prejudgment interest, attorney fees, costs and other relief. Plaintiff subsequently amended his complaint to add allegations of conversion and civil theft on behalf of a purported class of Globe’s U.S. policyholders who had paid premiums retained by Globe when their policies were lapsed and not reinstated at the time of the premium payments. Globe removed the case to the U.S. District Court for the Western District of Oklahoma (Case No. 15-CV-0070-M) on July 10, 2015 and filed a Motion to Dismiss on July 17, 2015. The Court denied plaintiff’s Motion to Remand back to state court on October 26, 2015, but allowed the plaintiff to amend the complaint to assert a putative class action in federal court. Plaintiff filed a Motion for Class Certification on September 23, 2016. Globe filed a Response in Opposition on November 4, 2016. The Court has not yet ruled on Plaintiff’s Motion.

With respect to its current litigation, at this time management believes that the possibility of a material judgment adverse to Torchmark is remote, and no estimate of range can be made for loss contingencies that are at least reasonably possible but not accrued.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 16—Selected Quarterly Data (Unaudited)

The following is an unaudited summary of quarterly results for the two years ended December 31, 2016 . The information includes all adjustments (consisting of normal accruals) which management considers necessary for a fair presentation of the results of operations for these periods.



	Three Months Ended
	March 31,			June 30,			September 30,		December 31,
2016:
Premium income	$	779,860		$	785,855		$	783,411	$	787,908
Net investment income	197,053			201,642			202,720		205,488
Realized investment gains (losses)	293			4,005			3,482		(18,463		)
Total revenue	977,627			991,884			989,773		975,345
Policyholder benefits	524,973			531,485			532,152		540,138
Amortization of deferred acquisition costs	118,806			117,245			116,821		116,191
Pretax income from continuing operations	195,448			199,344			201,461		175,982
Income from continuing operations	133,574			139,294			141,910		124,812
Income from discontinued operations	(9,541		)	(865		)	9,959		10,636
Net income ⁽¹⁾	124,033			138,429			151,869		135,448
Basic net income per common share:
Continuing operations	1.10			1.16			1.19		1.05
Discontinued operations	(0.08		)	(0.01		)	0.08		0.09
Total basic net income per share	1.02			1.15			1.27		1.14
Diluted net income per common share: ⁽¹⁾
Continuing operations	1.08			1.13			1.16		1.03
Discontinued operations	(0.07		)	—			0.09		0.09
Total diluted net income per share	1.01			1.13			1.25		1.12



2015:
Premium income	$	742,056		$	752,484		$	748,109	$	756,071
Net investment income	191,596			194,823			193,213		194,319
Realized investment gains (losses)	119			2,613			5,140		(16,663		)
Total revenue	934,440			950,611			947,154		933,860
Policyholder benefits	497,775			508,316			501,156		508,965
Amortization of deferred acquisition costs	110,660			111,738			111,643		111,584
Pretax income from continuing operations	194,477			196,723			199,009		175,978
Income from continuing operations	130,778			132,527			133,858		119,130
Income from discontinued operations	(9,130		)	(5,417		)	11,528		13,826
Net income	121,648			127,110			145,386		132,956
Basic net income per common share:
Continuing operations	1.03			1.05			1.08		0.97
Discontinued operations	(0.07		)	(0.04		)	0.09		0.11
Total basic net income per share	0.96			1.01			1.17		1.08
Diluted net income per common share:
Continuing operations	1.02			1.04			1.06		0.96
Discontinued operations	(0.07		)	(0.04		)	0.09		0.11
Total diluted net income per share	0.95			1.00			1.15		1.07


(1)	Due to the adoption in 2016 of ASU 2016-09, certain current year balances related to excess tax benefits from stock compensation were adjusted prospectively as described in Note 1—Significant Accounting Policies under "Stock Compensation."

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

No disagreements with accountants on any matter of accounting principles or practices or financial statement disclosure have been reported on a Form 8-K within the twenty-four months prior to the date of the most recent financial statements.

Item 9A. Controls and Procedures

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

As of the end of the fiscal year completed December 31, 2016 , an evaluation was performed under the supervision and with the participation of Torchmark management, including the Co-Chairmen and Chief Executive Officers and the Executive Vice President and Chief Financial Officer, of Torchmark’s disclosure controls and procedures (as those terms are defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon their evaluation, the Co-Chairmen and Chief Executive Officers and the Executive Vice President and Chief Financial Officer have concluded that Torchmark’s disclosure controls and procedures are effective as of the date of this Form 10-K. 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-K.

As of the quarter ended December 31, 2016 , there have not been any changes in Torchmark’s internal control over financial reporting or in other factors that could significantly affect this control over financial reporting subsequent to the date of their evaluation which have materially affected, or are reasonably likely to materially affect, Torchmark’s internal control over financial reporting. No material weaknesses in such internal controls were identified in the evaluation and as a consequence, no corrective action was required to be taken.

Item 9B. Other Information

There were no items required.

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Management’s Report on Internal Control over Financial Reporting

Management at Torchmark Corporation is responsible for establishing and maintaining adequate internal control over financial reporting for the Company and for assessing the effectiveness of internal control on an annual basis. As a framework for assessing internal control over financial reporting, the Company utilizes the criteria for effective internal control over financial reporting described in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

There are inherent limitations in the effectiveness of any internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective internal controls can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control may vary over time.

Management evaluated the Company’s internal control over financial reporting, and based on its assessment, determined that the Company’s internal control over financial reporting was effective as of December 31, 2016 . The Company’s independent registered public accounting firm has issued an attestation report on the Company’s internal control over financial reporting as stated in their report which is included herein.



/s/ Gary L. Coleman
Gary L. Coleman Co-Chairman and Chief Executive Officer

/s/ Larry M. Hutchison
Larry M. Hutchison Co-Chairman and Chief Executive Officer

/s/ Frank M. Svoboda
Frank M. Svoboda Executive Vice President and Chief Financial Officer

February 27, 2017

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Torchmark Corporation

McKinney, Texas

We have audited the internal control over financial reporting of Torchmark Corporation and subsidiaries (Torchmark) as of December 31, 2016 , based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Torchmark's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on Torchmark's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Torchmark maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016 , based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2016 of Torchmark and our report dated February 27, 2017 expressed an unqualified opinion on those financial statements and financial statement schedules.

/s/ DELOITTE & TOUCHE LLP

Dallas, Texas

February 27, 2017

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

Information required by this item is incorporated by reference from the sections entitled “Election of Directors,” “Profiles of Director Nominees,” “Executive Officers,” “Audit Committee Report,” “Governance Guidelines and Codes of Ethics,” “Director Qualification Standards,” “Procedures for Director Nominations by Stockholders,” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement for the Annual Meeting of Stockholders to be held April 27, 2017 (the Proxy Statement), which is to be filed with the Securities and Exchange Commission (SEC).

Item 11. Executive Compensation

Information required by this item is incorporated by reference from the sections entitled “Compensation Discussion and Analysis”, “Compensation Committee Report”, “Summary Compensation Table”, “ 2016 Grants of Plan-based Awards”, “Outstanding Equity Awards at Fiscal Year End 2016 ”, “Option Exercises and Stock Vested during Fiscal Year Ended December 31, 2016 ”, “Pension Benefits at December 31, 2016 ”, “Potential Payments upon Termination or Change in Control”, “ 2016 Director Compensation”, “Payments to Directors” and “Compensation Committee Interlocks and Insider Participation” in the Proxy Statement, which is to be filed with the SEC.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


(a)	Equity Compensation Plan Information as of December 31, 2016



Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants, and rights	Weighted-average exercise price of outstanding options, warrants, and rights		Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders	6,973,591	$	44.64	5,088,461
Equity compensation plans not approved by security holders	—	—		—
Total	6,973,591	$	44.64	5,088,461


(b)	Security ownership of certain beneficial owners:

Information required by this item is incorporated by reference from the section entitled “Principal Stockholders” in the Proxy Statement, which is to be filed with the SEC.


(c)	Security ownership of management:

Information required by this item is incorporated by reference from the section entitled “Stock Ownership” in the Proxy Statement, which is to be filed with the SEC.


(d)	Changes in control:

Torchmark knows of no arrangements, including any pledges by any person of its securities, the operation of which may at a subsequent date result in a change of control.

Item 13. Certain Relationships and Related Transactions and Director Independence

Information required by this item is incorporated by reference from the sections entitled “Related Party Transaction Policy and Transactions” and “Director Independence Determinations” in the Proxy Statement, which is to be filed with the SEC.

Item 14. Principal Accountant Fees and Services

Information required by this Item is incorporated by reference from the section entitled “Principal Accounting Firm Fees” and “Pre-approval Policy” in the Proxy Statement, which is to be filed with the SEC.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

Index of documents filed as a part of this report:



	Page of this report
Financial Statements:

Torchmark Corporation and Subsidiaries:
Report of Independent Registered Public Accounting Firm	50
Consolidated Balance Sheets at December 31, 2016 and 2015	51
Consolidated Statements of Operations for each of the three years in the period ended December 31, 2016	52
Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31, 2016	53
Consolidated Statements of Shareholders’ Equity for each of the three years in the period ended December 31, 2016	54
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2016	55
Notes to Consolidated Financial Statements	56
Schedules Supporting Financial Statements for each of the three years in the period ended December 31, 2016:
II. Condensed Financial Information of Registrant (Parent Company)	124
IV. Reinsurance (Consolidated)	128
Schedules not referred to have been omitted as inapplicable or not required by Regulation S-X.

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EXHIBITS



		Page of this Report
3.1	Restated Certificate of Incorporation of Torchmark Corporation, filed with the Delaware Secretary of State on April 30, 2010 (incorporated by reference from Exhibit 3.1.2 to Form 8-K dated May 5, 2010)

3.2	Amended and Restated By-Laws of Torchmark Corporation, as amended April 20, 2012 (incorporated by reference from Exhibit 3.2 to Form 8-K dated April 24, 2012)

4.1	Specimen Common Stock Certificate (incorporated by reference from Exhibit 4(a) to Form 10-K for the fiscal year ended December 31, 1989)

4.2	Trust Indenture dated as of February 1, 1987 between Torchmark Corporation and Morgan Guaranty Trust Company of New York, as Trustee (incorporated by reference from Exhibit 4(b) to Form S-3 for $300,000,000 of Torchmark Corporation Debt Securities and Warrants (Registration No. 33-11816))

4.3	Junior Subordinated Indenture, dated November 2, 2001, between Torchmark Corporation and The Bank of New York defining the rights of the 7 ³ / 4 % Junior Subordinated Debentures (incorporated by reference from Exhibit 4.3 to Form 8-K dated November 2, 2001)

4.4	Supplemental Indenture, dated as of December 14, 2001, between Torchmark, BankOne Trust Company, National Association and The Bank of New York, supplementing the Indenture Agreement dated February 1, 1987 (incorporated herein by reference to Exhibit 4(b) to Torchmark’s Registration Statement on Form S-3 (File No. 33-11716), and defining the rights of the 6 ¹ / 4 % Senior Notes (incorporated by reference from Exhibit 4.1 to Form 8-K dated December 14, 2001)

4.5	Second Supplemental Indenture dated as of June 23, 2006 between Torchmark Corporation, J.P. Morgan Trust Company, National Association and The Bank of New York Trust Company, N.A. (incorporated by reference from Exhibit 4.1 to Form 8-K filed June 23, 2006)

4.6	Third Supplemental Indenture dated as of June 30, 2009 between Torchmark Corporation and The Bank of New York Mellon Trust Company, N.A. (incorporated by reference from Exhibit 4 to Form 10-Q for the quarter ended June 30, 2009)

4.7	Fourth Supplemental Indenture dated as of September 24, 2012 between Torchmark Corporation and The Bank of New York Mellon Trust Company, N. A., as Trustee, supplementing the Indenture dated February 1, 1987 (incorporated by reference from Exhibit 4.2 to Form 8-K dated September 24, 2012)

4.8	First Supplemental Indenture dated as of September 24, 2012, between Torchmark Corporation and The Bank of New York Mellon Trust Company, N. A., as Trustee, supplementing the Junior Subordinated Indenture dated November 2, 2001, (incorporated by reference from Exhibit 4.5 to Form 8-K dated September 24, 2012)

4.9	Certificate and Declaration of Trust of SAFC Statutory Trust I dated February 16, 2006 (incorporated by reference from Exhibit 4.9 to Form 10-K for the fiscal year ended December 31, 2012)
4.10	Second Supplemental Indenture dated as of April 5, 2016 between Torchmark Corporation and The Bank of New York Mellon Trust Company of New York, N.A., as Trustee, supplementing the Junior Subordinated Indenture dated as of November 2, 2011 (incorporated by reference from Exhibit 4.3 to Form 8-K dated April 5, 2016)

4.11	Amended and Restated Declaration of Trust of SAFC Statutory Trust I dated March 1, 2006 (incorporated by reference from Exhibit 4.10 to Form 10-K for the fiscal year ended December 31, 2012)

4.12	Indenture dated as of March 1, 2006 for Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures due 2036 between Southwestern American Financial Corporation and Wilmington Trust Company (incorporated by reference from Exhibit 4.11 to Form 10-K for the fiscal year ended December 31, 2012)

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		Page of this Report
10.1	Torchmark Corporation and Affiliates Retired Lives Reserve Agreement, as amended, and Trust (incorporated by reference from Exhibit 10(b) to Form 10-K for the fiscal year ended December 31, 1991)*

10.2	Capital Accumulation and Bonus Plan of Torchmark Corporation, as amended, (incorporated by reference from Exhibit 10(c) to Form 10-K for the fiscal year ended December 31, 1988)*

10.3	Torchmark Corporation Supplementary Retirement Plan (incorporated by reference from Exhibit 10(c) to Form 10-K for the fiscal year ended December 31, 1992)*

10.4	Second Amended and Restated Credit Agreement dated as of May 17, 2016 among Torchmark Corporation, as the Borrower, TMK Re, Ltd., as a Loan Party, Wells Fargo Bank, National Association, as Administrative Agent, Swing Line Lender and L/C Administrator and the other lenders party thereto (incorporated by reference from Exhibit 10.1 to Form 8-K dated May 16, 2016)

10.5	Certified Copy of Resolution Regarding Director Retirement Benefit Program (incorporated by reference from Exhibit 10(e) to Form 10-K for the fiscal year ended December 31, 1999)*

10.6	Torchmark Corporation Restated Deferred Compensation Plan for Directors, Advisory Directors, Directors Emeritus and Officers, as amended (incorporated by reference from Exhibit 10(e) to Form 10-K for the fiscal year ended December 31, 1992)*

10.7	The Torchmark Corporation 1987 Stock Incentive Plan (incorporated by reference from Exhibit 10(f) to Form 10-K for the fiscal year ended December 31, 1998)*

10.8	General Agency Contract between Liberty National Life Insurance Company and First Command Financial Services, Inc., (formerly known as Independent Research Agency For Life Insurance, Inc.) (incorporated by reference from Exhibit 10(i) to Form 10-K for the fiscal year ended December 31, 1990)

10.9	Amendment to General Agency Contract between First Command Financial Services and Liberty National Life Insurance Company (incorporated by reference from Exhibit 10.1 to Form 10-Q for the First Quarter 2005)

10.10	Form of Deferred Compensation Agreement Between Torchmark Corporation or Subsidiary and Officer at the Level of Vice President or Above Eligible to Participate in the Torchmark Corporation and Affiliates Retired Lives Reserve Agreement and to Retire Prior to December 31, 1986 (incorporated by reference from Exhibit 10(k) to Form 10-K for the fiscal year ended December 31, 1991)*

10.11	Form of Deferred Compensation Agreement between Torchmark Corporation or Subsidiary and Officer at the Level of Vice President or Above Eligible to Participate in the Torchmark Corporation and Affiliates Retired Lives Reserve Agreement and Not Eligible to Retire Prior to December 31, 1986 (incorporated by reference from Exhibit 10(l) to Form 10-K for the fiscal year ended December 31, 1991)*

10.12	Form of Deferred Compensation Agreement Between Torchmark Corporation or Subsidiary and Officer at the Level of Vice President or Above Not Eligible to Participate in Torchmark Corporation and Affiliates Retired Lives Reserve Agreement (incorporated by reference from Exhibit 10(j) to Form 10-K for the fiscal year ended December 31, 1991)*

10.13	Service Agreement, dated as of January 1, 1991, between Torchmark Corporation and Liberty National Life Insurance Company (prototype for agreements between Torchmark Corporation and other principal operating subsidiaries) (incorporated by reference from Exhibit 10(n) to Form 10-K for the fiscal year ended December 31, 1992)

10.14	The Torchmark Corporation Amended and Restated Pension Plan Generally Effective as of January 1, 2014* (incorporated by reference from Exhibit 10.14 to Form 10-K for the fiscal year ended December 31, 2015)

10.15	The Torchmark Corporation 1998 Stock Incentive Plan (incorporated by reference from Exhibit 10(n) to Form 10-K for the fiscal year ended December 31, 1998)*

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		Page of this Report
10.16	The Torchmark Corporation Savings and Investment Plan (amended and restated as of January 1, 2014)* (incorporated by reference from Exhibit 10.16 to From 10-K for the fiscal year ended December 31, 2015)

10.17	Torchmark Corporation 2013 Management Incentive Plan effective as of January 1, 2013 (incorporated by reference from Exhibit 10.1 to Form 8-K dated April 30, 2013)*

10.18	Coinsurance and Servicing Agreement between Security Benefit Life Insurance Company and Liberty National Life Insurance Company, effective as of December 31, 1995 (incorporated by reference from Exhibit 10(u) to Form 10-K for the fiscal year ended December 31, 1995)

10.19	Torchmark Corporation 1996 Non-Employee Director Stock Option Plan (incorporated by reference from Exhibit 10(w) to Form 10-K for the fiscal year ended December 31, 1996)*

10.20	Torchmark Corporation 1996 Executive Deferred Compensation Stock Option Plan (incorporated by reference from Exhibit 10(x) to Form 10-K for the fiscal year ended December 31, 1996)*

10.21	Form of Retirement Life Insurance Benefit Agreement ($1,995,000 face amount limit) (incorporated by reference from Exhibit 10(z) to Form 10-K for the fiscal year ended December 31, 2001)*

10.22	Form of Retirement Life Insurance Benefit Agreement ($495,000 face amount limit) (incorporated by reference from Exhibit 10(aa) to Form 10-K for the fiscal year ended December 31, 2001)*

10.23	Payments to Directors*

10.24	Form of Non-Formula Based Director Stock Option Agreement pursuant to Torchmark Corporation 2005 Non-Employee Director Incentive Plan (incorporated by reference from Exhibit 10.2 to Form 10-Q for the First Quarter 2005)*

10.25	Form of Stock Option Agreement pursuant to Torchmark Corporation 2005 Incentive Plan (Section 16(a) (restoration)) (incorporated by reference from Exhibit 10.3 to Form 10-Q for the First Quarter 2005)*

10.26	Form of Stock Option Agreement pursuant to Torchmark Corporation 2005 Incentive Plan (restoration general) (incorporated by reference from Exhibit 10.4 to Form 10-Q for the First Quarter 2005)*

10.27	Form of Stock Option Agreement pursuant to Torchmark Corporation 2005 Incentive Plan (bonus) (incorporated by reference from Exhibit 10.36 to Form 10-K for the fiscal year ended December 31, 2005)*

10.28	Form of Stock Option Agreement pursuant to Torchmark Corporation 2005 Incentive Plan (regular vesting) (incorporated by reference from Exhibit 10.37 to Form 10-K for the fiscal year ended December 31, 2005)*

10.29	Torchmark Corporation 2005 Non-Employee Director Incentive Plan (incorporated by reference from Exhibit 10.1 to Form 8-K dated May 4, 2005)*

10.30	Torchmark Corporation 2005 Stock Incentive Plan (incorporated by reference from Exhibit 10.2 to Form 8-K dated May 4, 2005)*

10.31	Form of Deferred Compensation Stock Option Grant Agreement pursuant to the Torchmark Corporation 2005 Non-Employee Director Incentive Plan (incorporated by reference from Exhibit 10.3 to Form 8-K dated May 4, 2005)*

10.32	Torchmark Corporation Amended and Restated 2005 Incentive Plan (incorporated by reference from Exhibit 10.1 to Form 10-Q for quarter ended March 31, 2006)*

10.33	Torchmark Corporation Amended and Restated 2005 Non-Employee Director Incentive Plan (incorporated by reference from Exhibit 10.2 to Form 10-Q for quarter ended March 31, 2006)*

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		Page of this Report
10.34	Form of Director Stock Option Issued under Torchmark Corporation Amended and Restated 2005 Non-Employee Director Incentive Plan (incorporated by reference from Exhibit 10.3 to Form 10-Q for quarter ended March 31, 2006)*

10.35	Amendment One to Torchmark Corporation Supplementary Retirement Plan (incorporated by reference from Exhibit 10.4 to Form 10-Q for quarter ended March 31, 2006)*

10.36	Torchmark Corporation Supplemental Executive Retirement Plan (incorporated by reference from Exhibit 10.1 to Form 8-K dated January 25, 2007)*

10.37	Torchmark Corporation 2007 Long-Term Compensation Plan (incorporated by reference from Exhibit 99.1 to Form 8-K dated May 2, 2007)*

10.38	Form of Stock Option Award Agreement under Torchmark Corporation 2007 Long-Term Compensation Plan (incorporated by reference from Exhibit 99.2 to Form 8-K dated May 2, 2007)*

10.39	Form of Restricted Stock Award (Board grant) under Torchmark Corporation 2007 Long-Term Compensation Plan (incorporated by reference from Exhibit 99.3 to Form 8-K dated May 2, 2007)*

10.40	Torchmark Corporation Non-Employee Director Compensation Plan, as amended and restated (incorporated by reference from Exhibit 10.1 to Form 8-K dated April 29, 2008)*

10.41	Amendment No. 1 to the Torchmark Corporation Supplemental Executive Retirement Plan (incorporated by reference from Exhibit 10.53 to Form 10-K for the fiscal year ended December 31, 2007)*

10.42	Amendment No. 2 to the Torchmark Corporation Supplemental Executive Retirement Plan (incorporated by reference from Exhibit 10.54 to Form 10-K for the fiscal year ended December 31, 2007)*

10.43	Amendment No. 2 to the Torchmark Corporation Supplementary Retirement Plan (incorporated by reference from Exhibit 10.55 to Form 10-K for the fiscal year ended December 31, 2007)*

10.44	Amendment No. 3 to the Torchmark Corporation Supplementary Retirement Plan (incorporated by reference from Exhibit 10.56 to Form 10-K for the fiscal year ended December 31, 2007)*

10.45	Form of Restricted Stock Award Notice under Torchmark Corporation Non-Employee Director Compensation Plan (incorporated by reference from Exhibit 10.57 to Form 10-K for the fiscal year ended December 31, 2007)*

10.46	Form of Restricted Stock Unit Award Notice under Torchmark Corporation Non-Employee Director Compensation Plan (incorporated by reference from Exhibit 10.58 to Form 10-K for the fiscal year ended December 31, 2007)*

10.47	Form of Restricted Stock Award (Compensation Committee grant) under Torchmark Corporation 2007 Long-Term Compensation Plan (incorporated by reference from Exhibit 10.59 to Form 10-K for the fiscal year ended December 31, 2007)*

10.48	Amendment Four to the Torchmark Corporation Supplementary Retirement Plan (incorporated by reference from Exhibit 10.52 to Form 10-K for the fiscal year ended December 31, 2008)*

10.49	Amendment Three to the Torchmark Corporation Supplemental Executive Retirement Plan (incorporated by reference from Exhibit 10.53 to Form 10-K for the fiscal year ended December 31, 2008)*

10.50	Amendment One to the Torchmark Corporation Restated Deferred Compensation Plan for Directors, Advisory Directors, Directors Emeritus and Officers (incorporated by reference from Exhibit 10.54 to Form 10-K for the fiscal year ended December 31, 2008)*

10.51	Amendment Two to the Torchmark Corporation Restated Deferred Compensation Plan (incorporated by reference from Exhibit 10.55 to Form 10-K for the fiscal year ended December 31, 2008)*

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		Page of this Report
10.52	Amendment to the Torchmark Corporation 2007 Long-Term Compensation Plan (incorporated by reference from Exhibit 10.56 to Form 10-K for the fiscal year ended December 31, 2008)*

10.53	Receivables Purchase Agreement dated as of December 31, 2008 among AILIC Receivables Corporation, American Income Life Insurance Company and TMK Re, Ltd. (incorporated by reference from Exhibit 10.1 to Form 8-K dated January 6, 2009)

10.54	Amendment No.1 to Receivables Purchase Agreement dated as of December 31, 2008 among AILIC Receivables Corporation, American Income Life Insurance Company, and TMK Re, Ltd. (incorporated by reference to Exhibit 10.58 to Form 10-K for the fiscal year ended December 31, 2013)

10.55	Torchmark Corporation Amended 2011 Non-Employee Director Compensation Plan, effective January 1, 2017*

10.56	Form of Stock Option under Torchmark Corporation 2011 Non-Employee Director Compensation Plan (incorporated by reference from Exhibit 10.57 to Form 10-K for fiscal year ended December 31,2010)*

10.57	Form of Restricted Stock Award Notice under Torchmark Corporation 2011 Non-Employee Director Compensation Plan (incorporated by reference from Exhibit 10.58 to Form 10-K for fiscal year ended December 31, 2010)*

10.58	Form of Restricted Stock Unit Award Notice under Torchmark Corporation 2011 Non-Employee Director Compensation Plan (incorporated by reference from Exhibit 10.59 to Form 10-K for fiscal year ended December 31, 2010)*

10.59	Torchmark Corporation 2011 Incentive Plan (incorporated by reference from Exhibit 10.1 to Form 8-K dated May 4, 2011)*

10.60	Form of Restricted Stock Award (Executive) under Torchmark Corporation 2011 Incentive Plan (incorporated by reference from Exhibit 10.2 to Form 8-K dated May 4, 2011)*

10.61	Form of Restricted Stock Award (Special) under Torchmark Corporation 2011 Incentive Plan (incorporated by reference from Exhibit 10.3 to Form 8-K dated May 4, 2011)*

10.62	Form of Ten year Stock Option under Torchmark Corporation 2011 Incentive Plan (incorporated by reference from Exhibit 10.4 to Form 8-K dated May 4, 2011)*

10.63	Form of Seven year Stock Option under Torchmark Corporation 2011 Incentive Plan (incorporated by reference from Exhibit 10.5 to Form 8-K dated May 4, 2011)*

10.64	Form of Performance Share Award under Torchmark Corporation 2011 Incentive Plan (incorporated by reference from Exhibit 10.1 to Form 8-K dated February 27, 2012)*

10.65	First Amendment to Torchmark Corporation 2011 Incentive Plan (incorporated by reference from Exhibit 10.1 to Form 8-K dated April 29, 2014)*

10.66	Form of Stock Option Grant Agreement (Special) pursuant to Torchmark Corporation 2011 Incentive Plan (incorporated by reference from Exhibit 10.1 to Form 8-K dated May 31, 2013)*

10.67	Amendment to Restricted Stock Award Agreement of February 26, 2009 between Torchmark Corporation and Mark S. McAndrew (incorporated by reference from Exhibit 10.2 to Form 8-K dated May 31, 2013)*

10.68	Amendment to Restricted Stock Award Agreement of February 25, 2010 between Torchmark Corporation and Mark S. McAndrew (incorporated by reference from Exhibit 10.3 to Form 8-K dated May 31, 2013)*

10.71	Amendment to Restricted Stock Award Agreement of April 28, 2011 between Torchmark Corporation and Mark S. McAndrew (incorporated by reference from Exhibit 10.4 to Form 8-K dated May 31, 2013)*

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		Page of this Report
10.72	Consent and Acknowledgment of Amendment to Non-Qualified Stock Option Grant Agreement dated April 8, 2013 (incorporated by reference from Exhibit 10.1 to Form 8-K dated April 8, 2013)*

10.73	Torchmark Corporation Savings and Investment Plan 2016 Amendment Number One* (incorporated by reference from Exhibit 10.2 to Form 8-K dated May 17, 2016)
10.74	Amendment Five to the Torchmark Corporation Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.1 to Form 8-K dated May 5, 2015)*

10.75	Form of Seven Year Stock Option Grant Agreement under Torchmark Corporation 2011 Incentive Plan, as amended with Non-Compete, Non-Solicit and Confidentiality Provisions*

10.76	Form of Ten Year Stock Option Grant Agreement under Torchmark Corporation 2011 Incentive Plan, as amended with Non-Compete, Non-Solicit and Confidentiality Provisions*
10.77	Form of Performance Share Award Certificate under Torchmark Corporation 2011 Incentive Plan, as amended with Non-Compete, Non-Solicit and Confidentiality Provisions*
10.78	Form of Seven Year Stock Option Grant Agreement (Special) under Torchmark Corporation 2011 Incentive Plan, as amended with Non-Compete, Non-Solicit and Confidentiality Provisions*
10.79	2016 Amendment to the Torchmark Corporation Savings and Investment Plan (effective December 31, 2016)*
10.80	Torchmark Corporation Pension Plan 2016 Amendment to Limit Eligibility (effective December 31, 2016)*

12	Statement re computation of ratios

20	Proxy Statement for Annual Meeting of Stockholders to be held April 27, 2017**

21	Subsidiaries of the registrant	123

23	Consent of Deloitte & Touche LLP

24	Powers of attorney

31.1	Rule 13a-14(a)/15d-14(a) Certification by Gary L. Coleman

31.2	Rule 13a-14(a)/15d-14(a) Certification by Larry M. Hutchison

31.3	Rule 13a-14(a)/15d-14(a) Certification by Frank M. Svoboda

32.1	Section 1350 Certification by Gary L. Coleman, Larry M. Hutchison and Frank M. Svoboda

101	Interactive Data File

* Compensatory plan or arrangement.

** To be filed with the Securities and Exchange Commission within 120 days after the fiscal year ended December 31, 2016 .

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Exhibit 21. Subsidiaries of the Registrant

The following table lists subsidiaries of the registrant which meet the definition of “significant subsidiary” according to Regulation S-X:



Company	State of Incorporation	Name Under Which Company Does Business
American Income Life Insurance Company	Indiana	American Income Life Insurance Company
Globe Life And Accident Insurance Company	Nebraska	Globe Life And Accident Insurance Company
Liberty National Life Insurance Company	Nebraska	Liberty National Life Insurance Company
United American Insurance Company	Nebraska	United American Insurance Company

All other exhibits required by Regulation S-K are listed as to location in the “Index of documents filed as a part of this report” in this report. Exhibits not referred to have been omitted as inapplicable or not required.

123

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TORCHMARK CORPORATION

(PARENT COMPANY)

SCHEDULE II. CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CONDENSED BALANCE SHEETS

(Amounts in thousands)



	December 31,
	2016			2015
Assets:
Long-term investments	$	33,586		$	35,498
Cash	—			—
Investment in affiliates	6,004,429			5,438,749
Due from affiliates	96,005			50,765
Taxes receivable from affiliates	88,406			79,599
Other assets	119,801			93,936
Total assets	$	6,342,227		$	5,698,547

Liabilities and shareholders’ equity:
Liabilities:
Short-term debt	$	264,475		$	490,129
Long-term debt	1,282,891			893,417
Due to affiliates	—			57,157
Other liabilities	228,000			202,292
Total liabilities	1,775,366			1,642,995

Shareholders’ equity:
Preferred stock	351			351
Common stock	127,218			130,218
Additional paid-in capital	840,932			832,795
Accumulated other comprehensive income	577,574			231,947
Retained earnings	3,890,798			3,614,369
Treasury stock	(870,012		)	(754,128		)
Total shareholders’ equity	4,566,861			4,055,552
Total liabilities and shareholders’ equity	$	6,342,227		$	5,698,547

See Notes to Condensed Financial Statements and accompanying Report of Independent Registered

Public Accounting Firm.

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TORCHMARK CORPORATION

(PARENT COMPANY)

SCHEDULE II. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)

CONDENSED STATEMENTS OF OPERATIONS

(Amounts in thousands)



	Year Ended December 31,
	2016			2015			2014
Net investment income	$	25,352		$	23,715		$	22,259
Realized investment gains (losses)	—			8			4,767
Total revenue	25,352			23,723			27,026

General operating expenses	52,613			54,100			53,235
Reimbursements from affiliates	(54,288		)	(53,436		)	(53,040		)
Interest expense	86,853			79,677			79,366
Total expenses	85,178			80,341			79,561

Operating income (loss) before income taxes and equity in earnings of affiliates	(59,826		)	(56,618		)	(52,535		)
Income taxes	23,479			15,542			13,335
Net operating loss before equity in earnings of affiliates	(36,347		)	(41,076		)	(39,200		)
Equity in earnings of affiliates	586,126			568,176			582,139
Net income	549,779			527,100			542,939

Other comprehensive income (loss):
Attributable to Parent Company	(11,314		)	(3,539		)	(28,680		)
Attributable to affiliates	356,941			(761,966		)	815,151
Comprehensive income (loss)	$	895,406		$	(238,405	)	$	1,329,410

See Notes to Condensed Financial Statements and accompanying Report of Independent Registered

Public Accounting Firm.

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TORCHMARK CORPORATION

(PARENT COMPANY)

SCHEDULE II. CONDENSED FINANCIAL INFORMATION OF REGISTRANT—(continued)

CONDENSED STATEMENTS OF CASH FLOWS

(Amounts in thousands)



	Year Ended December 31,
	2016			2015			2014
Net income	$	549,779		$	527,100		$	542,939
Equity in earnings of affiliates	(586,126		)	(568,176		)	(582,139		)
Cash dividends from subsidiaries	437,566			466,416			478,840
Other, net	(6,718		)	20,371			17,842
Cash provided from operations	394,501			445,711			457,482

Cash provided from (used for) investing activities:
Disposition of investments	—			—			5,064
Net decrease (increase) in short-term investments	(3,466		)	17,338			2,729
Investment in subsidiaries	(35,000		)	(2		)	—
Additions to properties	(21,965		)	(468		)	—
Loaned money to affiliates	(363,056		)	(282,508		)	(81,000		)
Repayments from affiliates	318,056			282,508			81,000
Cash provided from (used for) investing activities	(105,431		)	16,868			7,793

Cash provided from (used for) financing activities:
Repayment of debt	(250,000		)	—			—
Proceeds from issuance of debt	400,000			—			—
Payment for debt issuance costs	(9,638		)	—			—
Net issuance (repayment) of commercial paper	22,224			1,978			9,328
Issuance of stock	61,329			35,958			56,294
Acquisitions of treasury stock	(404,784		)	(418,526		)	(449,309		)
Borrowed money from affiliate	60,000			15,000			168,000
Repayments to affiliates	(78,000		)	(15,000		)	(168,000		)
Excess tax benefit on stock option exercises ⁽¹⁾	—			8,180			6,688
Payment of dividends	(90,201		)	(90,169		)	(88,276		)
Cash provided from (used for) financing activities	(289,070		)	(462,579		)	(465,275		)

Net increase (decrease) in cash	—			—			—
Cash balance at beginning of period	—			—			—
Cash balance at end of period	$	—		$	—		$	—


(1)	Certain current year amounts were prospectively adjusted to give effect to the adoption of ASU 2016-09 related to excess tax benefits from stock compensation as described in Note 1—Significant Accounting Policies under "Accounting Pronouncements Adopted in the Current Year."

See Notes to Condensed Financial Statements and accompanying Report of Independent Registered

Public Accounting Firm.

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TORCHMARK CORPORATION

(PARENT COMPANY)

SCHEDULE II. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Amounts in thousands)

Note A—Dividends from Subsidiaries

Cash dividends paid to Torchmark from the subsidiaries were as follows:



	Year Ended December 31,
	2016		2015		2014
Dividends from subsidiaries	$	437,566	$	466,416	$	478,840

Note B—Supplemental Disclosures of Cash Flow Information

The following table summarizes noncash transactions, which are not reflected on the Condensed Statements of Cash Flows :



	Year Ended December 31,
	2016		2015		2014
Stock-based compensation not involving cash	$	26,326	$	28,664	$	32,203
Borrowed money from affiliate	—		56,503		—
Investment in subsidiaries	—		39,206		—
Purchase of agent debit balances	—		17,297		—

The following table summarizes certain amounts paid (received) during the period:



	Year Ended December 31,
	2016			2015			2014
Interest paid	$	84,952		$	77,920		$	77,663
Income taxes received	(20,838		)	(22,009		)	(25,581		)

Note C—Preferred Stock

As of December 31, 2016 , Torchmark had 351 thousand shares of Cumulative Preferred Stock, Series A, issued and outstanding, of which 280 thousand shares were 6.50% Cumulative Preferred Stock, Series A, and 71 thousand shares were 7.15% Cumulative Preferred Stock, Series A (collectively, the “Series A Preferred Stock”). All issued and outstanding shares of Series A Preferred Stock were held by wholly-owned insurance subsidiaries. In the event of liquidation, the holders of the Series A Preferred Stock at the time outstanding would be entitled to receive a liquidating distribution out of the assets legally available to stockholders in the amount of $1 thousand per share or $351 million in the aggregate, plus any accrued and unpaid dividends, before any distribution is made to holders of Torchmark common stock. Holders of Series A Preferred Stock do not have any voting rights nor have rights to convert such shares into shares of any other class of Torchmark capital stock.

See accompanying Report of Independent Registered Public Accounting Firm.

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TORCHMARK CORPORATION

SCHEDULE IV. REINSURANCE (CONSOLIDATED)

(Amounts in thousands)



	Gross Amount		Ceded to Other Companies ⁽¹⁾		Assumed from Other Companies		Net Amount		Percentage of Amount Assumed to Net
For the Year Ended December 31, 2016
Life insurance in force	$	174,314,897	$	725,867	$	3,352,113	$	176,941,143	1.9
Premiums: ⁽²⁾
Life insurance	$	2,152,698	$	4,507	$	22,915	$	2,171,106	1.1
Health insurance	951,137		3,474		—		947,663		—
Total premium	$	3,103,835	$	7,981	$	22,915	$	3,118,769	0.7
For the Year Ended December 31, 2015
Life insurance in force	$	167,677,206	$	729,739	$	3,498,826	$	170,446,293	2.1
Premiums: ⁽²⁾
Life insurance	$	2,034,373	$	4,484	$	24,007	$	2,053,896	1.2
Health insurance	928,659		3,139		—		925,520		—
Total premium	$	2,963,032	$	7,623	$	24,007	$	2,979,416	0.8
For the Year Ended December 31, 2014
Life insurance in force	$	160,455,963	$	795,192	$	3,658,511	$	163,319,282	2.2
Premiums: ⁽²⁾
Life insurance	$	1,924,605	$	4,614	$	25,774	$	1,945,765	1.3
Health insurance	872,391		2,951		—		869,440		—
Total premium	$	2,796,996	$	7,565	$	25,774	$	2,815,205	0.9


(1)	No amounts have been netted against ceded premium.


(2)	Excludes policy charges of $18.3 million , $19.3 million , and $20.9 million in each of the years 2016 , 2015 , and 2014 , respectively.

See accompanying Report of Independent Registered Public Accounting Firm.

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SIGNATURES

Pursuant to the requirements of Section 12 or 15(d) of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	T ORCHMARK C ORPORATION

	By:	/s/ G ARY L. C OLEMAN
		Gary L. Coleman
		Co-Chairman and Chief Executive Officer and Director

	By:	/s/ L ARRY M. H UTCHISON
		Larry M. Hutchison
		Co-Chairman and Chief Executive Officer and Director

	By:	/s/ F RANK M. S VOBODA
		Frank M. Svoboda, Executive Vice President and Chief Financial Officer (Principal Accounting Officer)

Date: February 27, 2017

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



By:	/s/ C HARLES E. A DAIR *	By:	/s/ STEVEN P. JOHNSON *
	Charles E. Adair		Steven P. Johnson
	Director		Director

By:	/ S / M ARILYN A. A LEXANDER *	By:	/s/ L LOYD W. N EWTON *
	Marilyn A. Alexander		Lloyd W. Newton
	Director		Director

By:	/ S / D AVID L. B OREN *	By:	/s/ D ARREN M. R EBELEZ *
	David L. Boren		Darren M. Rebelez
	Director		Director

By:	/s/ J ANE M. B UCHAN *	By:	/s/ L AMAR C. S MITH *
	Jane M. Buchan		Lamar C. Smith
	Director		Director

By:	/s/ R OBERT W. I NGRAM *	By:	/s/ P AUL J. Z UCCONI *
	Robert W. Ingram		Paul J. Zucconi
	Director		Director



Date: February 27, 2017

*By:	/s/ F RANK M. S VOBODA
	Frank M. Svoboda
	Attorney-in-fact

129

EXHIBIT 10.23

Payments to Directors

Effective January 1, 2017, non-employee directors of the Company are compensated on the following basis:

(1) Cash Compensation-(a) Directors are paid $100,000 of their annual retainer in cash in quarterly installments unless a timely election is made under the non-employee director sub-plan of the 2011 Plan to receive an equivalent amount of market value stock options, restricted stock or RSUs or to defer the cash to an interest-bearing account under the terms of that sub-plan of the 2011 Plan; (b) The Lead Director receives an additional $40,000 annual retainer in cash, payable in quarterly installments; (c) Annual Board committee chair retainers, payable in quarterly installments in cash, are $35,000 for the Audit Committee Chair and $12,500 for each of the Chairs of the Compensation Committee and the Governance and Nominating Committee; and (d) All members of the Audit Committee (excluding the Audit Committee Chair) receive an additional annual Audit Committee Member Retainer of $12,500, payable in quarterly installments; and

(2) Equity Compensation-Directors are paid $135,000 of their annual retainer in equity, either in the form of market value stock options, restricted stock or RSUs, based on the director’s timely election, with the equity issued on the first NYSE trading day of January of each calendar year valued at the NYSE market closing price of Company common stock on that date. If no timely election is made, the non-employee director receives his or her annual equity compensation in the form of $135,000 of market value stock options awarded on the first NYSE trading day of each year.

Directors do not receive meeting fees or fees for the execution of written consents in lieu of Board meetings or in lieu of Board committee meetings. They receive reimbursement for their travel and lodging expenses if they do not live in the area where a meeting is held.

Pursuant to the non-employee director sub-plan of the 2011 Plan, newly elected non-employee directors receive upon the date of their initial election to the Board $100,000 of restricted stock, valued at the market closing price of Company common stock on that date.

Non-employee directors may currently elect to defer all or a designated portion of their cash-based annual director compensation into an interest-bearing account pursuant to a timely election made under the non-employee director sub-plan of the 2011 Plan. These accounts bear interest at non-preferential rates set from time to time by the Compensation Committee. The amounts in such accounts are paid to the director in a lump sum or equal monthly installments for up to 120 months as elected by the director with payments commencing on the earliest of (a) December 31 of the fifth year after the year for which the deferral was made, (b) the first business day of the fourth month after the director’s death or (c) the director’s termination as a non-employee director of the Company or any of its subsidiaries for a reason other than death.

Directors who are employees of the Company or its subsidiaries receive no compensation for Board service.

EXHIBIT 10.55

TORCHMARK CORPORATION

AMENDED 2011 NON-EMPLOYEE DIRECTOR COMPENSATION PLAN

SECTION I: GENERAL PURPOSE OF PLAN; DEFINTIONS-

The name of this plan is the Torchmark Corporation 2011 Non-Employee Director Compensation Plan (the "Plan"). The purpose of the Plan is to enable Torchmark Corporation (the "Company") and its Subsidiaries and Affiliates to attract and retain directors who contribute to the Company's success by their ability, ingenuity and industry, and to enable such directors to participate in the long-term success and growth of the Company through an equity interest in the Company. The Plan is adopted to be effective as of January I, 2011, and is intended to replace and supersede the Company's existing Non-Employee Director Compensation Plan.

The Plan is adopted as a subplan of the Torchmark Corporation 2007 Long-Term Compensation Plan (the "2007 Compensation Plan"). The Company intends to submit a new equity incentive plan, which shall be referred to as the 20 II Incentive Plan, for approval by the Company's stockholders at the Company's 2011 annual meeting. If the 2011 Incentive Plan is approved by stockholders, the Plan will automatically become a subplan of the 2011 Incentive Plan, and all references in the Plan to the 2007

Compensation Plan shall mean the 2011 Incentive Plan.

Capitalized terms used in the Plan but not otherwise defined shall have the meanings given such terms in the 2007

Compensation Plan. In addition, the following terms shall be defined for purposes of the Plan as set forth below:

"Annual Compensation" means the total annual retainer, expressed as a dollar amount, payable by the Company to a Non Employee Director for services as a director (excluding, if applicable any retainers or fees payable for services as the member or chairman of a committee of the Board, which shall be payable separate and apart from the provisions of this Plan) of the Company, as such amount may be changed from time to time.

"Award Notice" means a written award notice to a Non-Employee Director from the Company evidencing an award of Stock

Options, Restricted Stock or Restricted Stock Units.

"Beneficiary" means any person or persons designated by a Participant, in accordance with procedures established by the Committee or Plan Administrator, to receive benefits hereunder in the event of the Participant's death. If any Participant shall fail to designate a Beneficiary or shall designate a Beneficiary who shall fail to survive the Participant, the Beneficiary shall be the Participant's surviving spouse, or, if none, the Participant's surviving descendants (who shall take per stirpes) and if there are no surviving descendants, the Beneficiary shall be the Participant's estate.

"Business Day" shall mean a day on which the New York Stock Exchange or any national securities exchange or over-the

counter market on which the Stock is traded is open for business.

"Committee" means the Compensation Committee of the Board. If at any time no Committee shall be in office, then the functions of the Committee specified in the Plan shall be exercised by the Board.

"Election Date" means the date by which a Non-Employee Director must submit a valid Election Form to the Plan Administrator. For each calendar year, the Election Date is December 31 of the preceding calendar year; provided, however, that the Election Date for a newly eligible Participant shall be the 30th day following the date on which such individual becomes a Non Employee Director.

"Election Form" means an Election Form for Annual Compensation, substantially in the form attached hereto as Exhibit A, pursuant to which a Non-Employee Director elects to receive all or a portion of his or her Annual Compensation in the form of cash, Stock Options, Restricted Stock or Restricted Stock Units, or to defer Annual Compensation under the Plan.

"Grantee" means a Non-Employee Director to whom a Stock Option, Restricted Stock, or Restricted Stock Unit has been granted.

EXHIBIT 10.55

"Interest Account" means the account established by the Company for each Non-Employee Director for Annual Compensation deferred pursuant to the Plan and which shall be credited with interest on the last day of each calendar quarter (or such other day as determined by Plan Administrator) pursuant to Section 6(f) of the Plan.

"Plan" means this 2011 Non-Employee Director Compensation Plan.

"Plan Administrator" means one or more agents to whom the Board shall have delegated administrative duties under the Plan or the Committee if no such delegation shall have occurred.

"Restricted Stock" means shares of Stock granted to a Participant under Section 5 or 6 that are subject to certain restrictions and to risk of forfeiture.

"Restricted Stock Unit" means a right granted to a Participant under Section 6 to receive shares of Stock in the future, which right is subject to certain restrictions and to risk of forfeiture.

"Stock Option" means any option granted to a Participant to purchase shares of Stock granted pursuant to Section 6.

SECTION2. ADMINISTRATION.

The Plan shall be administered by the Committee. The Committee shall have the discretionary authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall, from time to time, deem advisable; to

construe and interpret the terms and provisions of the Plan and any award issued under the Plan (and any agreements relating thereto);

and to otherwise supervise the administration of the Plan. The Committee may delegate administrative duties under the Plan to one or more agents as it shall deem necessary or advisable. No member of the Committee or the Board or the Plan Administrator shall be personally liable for any action or determination made in good faith with respect to the Plan or any Options, Restricted Stock or Restricted Stock Units, or to any settlement of any dispute between a Non-Employee Director and the Company.

All decisions made by the Board or the Committee pursuant to the provisions of the Plan shall be final and binding on all persons, including the Company and Participants.

SECTION3. SOURCE OF SHARES FOR THE PLAN.

The shares of Stock that may be issued pursuant to the Plan shall be issued under the 2007 Compensation Plan, subject to all of the terms and conditions of the 2007 Compensation Plan. The terms contained in the 2007 Compensation Plan are incorporated into and made a part of this Plan with respect to Stock Options, Restricted Stock or Restricted Stock Units granted pursuant hereto, and any such Stock Options, Restricted Stock or Restricted Stock Units shall be governed by and construed in accordance with the 2007 Compensation Plan. In the event of any actual or alleged conflict between the provisions of the 2007 Compensation Plan and the provisions of this Plan, the provisions of the 2007 Compensation Plan shall be controlling and determinative. This Plan does not constitute a separate source of shares for the grant of the equity awards described herein.

SECTION4. ELIGIBILITY.

All Non-Employee Directors are eligible to participate in the Plan.

SECTION 5. INITIAL GRANT OF RESTRICTED STOCK.

On the effective day of a Non-Employee Director's first appointment to the Board (which shall be the "Restricted Stock Grant Date" for purposes of Restricted Stock granted under this Section 5), he or she

EXHIBIT 10.55

shall be granted a number of whole shares of Restricted Stock equal to X divided by Y, where:

X= $100,000; and

Y =the Fair Market Value per Share on the Restricted Stock Grant Date.

Restricted Stock granted under this Section 5 shall be evidenced by an Award Notice in such form as the Committee shall from time to time approve, and shall have terms and conditions identical to Restricted Stock granted pursuant to Section 6(d).

SECTION 6. ELECTION TO RECEIVE ANNUAL COMPENSATION IN CASH, STOCK OPTIONS, RESTRICTED

STOCK, RESTRICTED STOCK UNITS OR TO DEFER ANNUAL COMPENSATION.

(a)

Election Regarding Annual Compensation . Effective January 1, 2017, with respect to $100,000 of his or her Annual Compensation, a Non Employee Director may receive cash, payable in quarterly installments, or may elect (i) to receive Stock Options, Restricted Stock or Restricted Stock Units pursuant to subsections (c), (d) or (e) below, or (ii) to defer receipt of this portion of his or her Annual Compensation pursuant to subsection (f) below for a calendar year, in either case by delivering a properly completed and signed Election Form to the Plan Administrator on or before the Election Date. Effective January 1, 2017, with respect to the remaining $135,000 of his or her Annual Compensation, a Non-Employee Director must elect to receive Stock Options, Restricted Stock or Restricted Stock Units pursuant to subsections (c), (d) or (e) below, by delivering a properly completed and signed Election Form to the Plan Administrator on or before the Election Date. Such election will be effective as of the first day of the calendar year beginning after the Plan Administrator receives the Non-Employee Director's Election Form, or, in the case of a newly eligible Participant, on the first day of the calendar month beginning after the Plan Administrator receives such Non-Employee Director's Election Form, provided that the Election Form is received within thirty (30) days following the Non-Employee Director's date of initial eligibility to participate in the Plan. If a Non-Employee Director fails to make a timely election under this Section 6(a), he or she will receive $100,000 of his or her Annual Compensation in the form of cash, payable in quarterly installments, and the remaining $135,000 of his or her Annual Compensation in the form of Stock Options.

(b) Irrevocable Election . A Participant may not revoke or change his or her Election Form.

(c) Election to Receive Stock Options . Effective January 1, 2017, a Non-Employee Director may elect to receive $135,000 or $235,000 of his or her Annual Compensation in Stock Options in accordance with the provisions of this subsection (c). Stock Options granted under this subsection (c) shall be evidenced by an Award Notice in such form as the Committee shall from time to time approve, which agreements shall comply with and be subject to the following terms and conditions:


(i)	Time of Issuance of Stock Options . If an election is made under this subsection, Stock Options will be issued to the Non-Employee Director on the first Business Day in the calendar year to which the election relates (the "Option Grant Date").


(ii)	Number of Stock Options . The number of shares subject to a Stock Option granted pursuant to this Article 6(c) shall be the number of whole Shares equal to A divided by B, where:

A = the dollar amount which the Non-Employee Director has elected to receive in Stock Options; and

B =the per share value of a Stock Option on the Option Grant Date, as determined by the Committee using any recognized option valuation model selected by the Board in its discretion (such value to be expressed as a percentage of the Fair Market Value per Share on the Option Grant Date).

In determining the number of shares subject to a Stock Option, (A) the Board may designate the assumptions to be used in the selected option valuation model, and (B) any fraction of a Share will be rounded up to the next whole number of Shares.

EXHIBIT 10.55

(iii) Exercise Price of Stock Options . The exercise price per share of each Stock Option shall be 100% of the Fair Market

Value of the underlying Stock on the date of the grant of the Stock Option.

(iv)

Vesting and Forfeiture of Stock Options . Except as provided in Section 9, Stock Options shall vest (become exercisable) on the six-month anniversary of the Option Grant Date, provided that the Grantee is still serving as a Non-Employee Director at such time. Notwithstanding the foregoing vesting schedule, Stock Option shall become fully vested and exercisable upon Grantee's termination of service as a Non-Employee Director due to death, Disability or Retirement. Upon a Grantee's termination of status as a Non-Employee Director with the Company for any reason other than due to death, Disability or Retirement, any unvested Stock Options held by such Grantee shall be forfeited.

(v)

Method of Exercise . Any Stock Option granted pursuant to the Plan may be exercised in whole or in part at any time during the option period, by giving written notice of exercise to the Company specifying the number of shares to be purchased, accompanied by payment in full of the purchase price, in cash, by check or such other instrument as may be acceptable to the Committee (including "net" or "cashless exercise" arrangements). Payment in full or in part

may also be made in the form of unrestricted Stock already owned by the Grantee (based on the Fair Market Value of the Stock on the date the Option is exercised). No shares of Stock shall be issued upon exercise of a Stock Option

until the exercise price has been fully paid or satisfied.


(vi)	Transferability of Stock Options . Stock Options shall not be transferable by the Grantee otherwise than by will or by the laws of descent and distribution, and all Stock Options shall be exercisable, during the Grantee's lifetime, only

by the Grantee; provided, however, that the Committee may (but need not) permit other transfers where the Committee concludes that such transferability (i) does not result in accelerated taxation, and (ii) is otherwise appropriate and desirable, taking into account any state or federal securities laws applicable to transferable options.

(vii) Term of Stock Options . The term of any Stock Option granted pursuant to the Plan shall be for a period of seven years, expiring on the seventh anniversary of the Option Grant Date (the "Expiration Date"). Following Grantee's termination of status as a Non-Employee Director for any reason, vested Stock Options held by such Grantee shall be retained and may thereafter be exercised during the period ending on the Expiration Date.

(d) Election to Receive Restricted Stock . Effective January 1, 2017, a Non-Employee Director may elect to receive $135,000 or $235,000 of his or her Annual Compensation in Restricted Stock in accordance with the provisions of this subsection (d). Restricted Stock granted

under this subsection (d) shall be evidenced by an Award Notice in such form as the Committee shall from time to time

approve, which agreements shall comply with and be subject to the following terms and conditions:


(i)	Time of Issuance of Restricted Stock . If an election is made under this subsection, Restricted Stock will be issued to the Non-Employee Director on the first Business Day in the calendar year to which the election relates (which shall be the "Restricted Stock Grant Date" for purposes of Restricted Stock granted under this Section 6).


(ii)	Number of Shares of Restricted Stock . The number of shares of Restricted Stock granted pursuant to this Article 6 (d) shall be the number of whole Shares equal to A divided by B, where:

A= the dollar amount which the Non-Employee Director has elected to receive in shares of Restricted Stock; and

B =the Fair Market Value per Share on the Restricted Stock Grant Date.

In determining the number of shares of Restricted Stock, any fraction of a Share will be rounded up to the next whole number of Shares.

EXHIBIT 10.55

(iii) Terms and Conditions of Restricted Stock . Restricted Stock shall comply with and be subject to the following terms and

conditions:

(1) Vesting . Except as provided in Section 9, Restricted Stock granted under this Section 6 shall become fully vested on the six-month anniversary of the Restricted Stock Grant Date, provided that the Grantee is still serving as a Non-Employee Director at such time. Notwithstanding the foregoing vesting schedule, Restricted Stock shall become fully vested upon Grantee's termination of service as a Non-Employee Director due to death, Disability or Retirement.

(2) Restrictions on Unvested Restricted Stock . Unvested Restricted Stock may not be sold, transferred, exchanged, assigned, pledged, hypothecated or otherwise encumbered. If a Non-Employee Director's service as a director of the Company terminates for any reason other than death, Disability or Retirement, then the Non-Employee Director shall forfeit all of his or her right, title and interest in and to any unvested Restricted Stock as of the date of such termination from the Board, and such Restricted Stock shall be re-conveyed to the Company

without further consideration or any act or action by the Non-Employee Director.

(3) Rights as a Shareholder . A Non-Employee Director shall have full voting and dividend rights with respect to the Restricted Stock. If a Non-Employee Director forfeits any shares of Restricted Stock, he or she shall no longer have any rights as a stockholder with respect to the Restricted Stock or any interest therein and the Participant shall no longer be entitled to receive dividends on such stock.

(e) Election to Receive Restricted Stock Units . Effective January 1, 2017, a Non-Employee Director may elect to receive $135,000 or $235,000 of his or her Annual Compensation in Restricted Stock Units in accordance with the provisions of this subsection (e). Restricted Stock Units granted under this subsection (e) shall be evidenced by an Award Notice in such form as the Committee shall from time to time approve, which agreements shall comply with and be subject to the following terms and conditions:


(i)	Time of Issuance of Restricted Stock Units . If an election is made under this subsection, Restricted Stock Units will be issued to the Non-Employee Director on the first Business Day in the calendar year to which the election relates (the "Restricted Stock Unit Grant Date").


(ii)	Number of Restricted Stock Units . The number of Restricted Stock Units granted pursuant to this Article 6(d) shall be the number of whole Shares equal to A divided by B, where:

A= the dollar amount which the Non-Employee Director has elected to receive in Restricted Stock Units; and

B = the Fair Market Value per Share on the Restricted Stock Unit Grant Date.

In determining the number of Restricted Stock Units, any fraction of a Share will be rounded up to the next whole number of Shares.


(iii)	Terms and Conditions of Restricted Stock Units . Restricted Stock Units will be credited to a bookkeeping account on behalf of the Non-Employee Director and shall comply with and be subject to the following terms and conditions:

(1) Vesting and Forfeiture . Except as provided in Section 9, Restricted Stock Units shall vest and become nonforfeitable on the six-month anniversary of the Restricted Stock Unit Grant Date, provided that the Grantee is still serving as a Non-Employee Director at such time. Notwithstanding the foregoing vesting schedule, Restricted Stock Units shall become fully vested upon Grantee's termination of service as a Non-Employee Director due to death, Disability or Retirement. If a Non-Employee Director's service as a director of the Company terminates for any reason other than death, Disability or Retirement, then the Non-Employee Director shall forfeit all of his or her right, title and interest in and to any unvested Restricted Stock Units as of the date of such termination from the Board, and such Restricted Stock Units

EXHIBIT 10.55

shall be reconveyed to the Company without further consideration or any act or action by the Non-Employee Director.

(2) Conversion to Common Stock . Unless forfeited prior to vesting, Restricted Stock Units shall be converted to actual shares of Stock on the Non-Employee Director's termination of service as a

director of the Company for any reason. Upon conversion, stock certificates evidencing the conversion of Restricted Stock Units into shares of Stock shall be registered on the books of the Company in the Non-Employee Director's name (or in street name to the Non-Employee Director's brokerage account) in uncertificated (book-entry) form unless the Non Employee Director requests a stock certificate or certificates for the Shares.

(3) Dividend Equivalents . If any dividends or other distributions are paid with respect to the Shares while Restricted Stock Units are outstanding, the dollar amount or fair market value of such dividends or distributions with respect to the number of Shares then underlying the outstanding Restricted Stock Units shall be converted into additional Restricted Stock Units in Non-Employee Director's name, based on the Fair Market Value of the Stock as of the date such dividends or distributions were payable, and such additional Restricted Stock Units shall be immediately vested and non-forfeitable upon grant, and shall convert to actual shares of Stock on the Non-Employee Director's termination of service as a director of the Company for any reason .

(4)

Restrictions on Transfer . Restricted Stock Units are not assignable or transferable other than by will or the laws of descent and distribution. Restricted Stock Units may not be pledged, hypothecated or otherwise encumbered to or in favor of any party other than the Company or an affiliate, or be subjected to any lien, obligation or liability of a Non-Employee Director to any other party other than the Company or an affiliate.

(5) Rights as a Shareholder . A Non-Employee Director shall not have voting or any other rights as a shareholder of the Company with respect to the Restricted Stock Units. Upon conversion of the Restricted Stock Units into shares of Stock, the Non-Employee Director will obtain full voting and other rights as a shareholder of the Company.

(f)

Election to Defer Annual Compensation . Effective January 1, 2017, a Non-Employee Director may elect to defer $100,000 of his or her Annual Compensation to his or her Interest Account. For bookkeeping purposes, the amount of the Annual Compensation, which the Participant elects to defer pursuant to the Plan, shall be transferred to and held in individual Interest Accounts (in annual designations) pending distribution in cash pursuant to subsection (iii) below.

(i)

Interest Accounts . Amounts in a Participant's Interest Account will be credited with interest as of the last day of each calendar quarter (or such other day as determined by the Plan Administrator) at the rate set from time to time by the Committee to be applicable to the Interest Accounts of all Participants under the Plan. To the extent required for bookkeeping purposes, a Participant's Interest Accounts will be segregated to reflect Deferred Compensation on a year-by-year basis. Within a reasonable time after the end of each calendar year, the Plan Administrator shall report in writing to each Participant the amount held in his or her Interest Accounts at the end of the year.


(ii)	Payment Commencement Date . Payment of the balances in a Participant's Interest Accounts shall commence on the earliest to occur of (a) December 31 of the fifth year after the year with respect to which the deferral was made,

(b) the first Business Day of the fourth month after the Participant's death, or (c) the Participant's termination as a

Non-Employee Director of the Company or any of its Subsidiaries or Affiliates, other than by reason

EXHIBIT 10.55

of death.


(iii)	Optional Forms of Payment. Distributions from a Participant's Interest Accounts may be paid to the Participant either in a lump sum or in a number (not to exceed ten) of approximately equal annual installments designated by the Participant on his or her Election Form. In the event of the Participant's death during the payout period, the

remaining balance shall be payable to the Participant's Beneficiary in a lump sum on or about the first Business Day of the fourth month after the Participant's death. If a Participant elects to receive a distribution of his or her Interest Accounts in installments, the Plan Administrator may purchase an annuity from an insurance company which annuity will pay the Participant the desired annual installments. If the Plan Administrator purchases an annuity contract, the Participant will have no further rights to receive payments from the Company or the Plan with respect

to the amounts subject to the annuity. If the Plan Administrator does not purchase an annuity contract, the value of

the Interest Accounts remaining unpaid shall continue to receive allocations of return as provided in subsection

(f) above. If the Participant fails to designate a payment method in the Participant's Election Form, the Participant's

Account shall be distributed in a lump sum.


(iv)	Irrevocable Elections . A Participant may elect a different payment form for each year’s Annual Compensation deferred under the Plan. The payment form elected or deemed elected on the Participant's election form shall be irrevocable.


(v)	Acceleration of Payment . If a Participant elects an installment distribution and the aggregate value of the Participant's Interest Accounts at the time the installments are due to commence is less than $16,500, the Plan Administrator will accelerate payment of the Participant's benefits in a single lump sum.

(vi)

Effect of Adverse Determination . Notwithstanding the Election Form or any provision set forth herein, if the Internal Revenue Service determines that all or any portion of the amounts credited under this Plan is currently includable in the taxable income of any Participant due to a failure of the Plan to meet the requirements of Code Section 409A or the regulations thereunder, then the amounts so determined to be includable in income shall be distributed in a lump sum to such Participant as soon as practicable.

(g) Unforeseeable Emergency. The Plan Administrator may, in its sole discretion, accelerate the making of payment to a Participant in the event that a participant incurs a financial hardship as a result of an "unforeseeable emergency" (as such term is defined below). All unforeseeable emergency distributions shall be made in cash in a lump sum. Such payments will be made on a first-in, first-out basis so that the oldest Annual Compensation deferred under the Plan shall be deemed distributed first. For purposes hereof, an "unforeseeable emergency" means a severe financial hardship to the Participant resulting from illness or accident of the Participant, the Participant's spouse, or a dependent (as defined in Section 152 of the Code without regard to Section l52(b)(I), (b)(2), and (d)( I )(B)) of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The amounts distributable because of an unforeseeable emergency cannot exceed the amounts necessary to satisfy such emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such emergency is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Participant's assets (to the extent the liquidation of such assets would not itself cause severe financial hardship). Notwithstanding any provision in the Plan to the contrary, any payment made pursuant to this Section 6(g) shall comply with Section 409A(a)(2)(A)(vi) of the Code and the regulations (or similar guidance) promulgated thereunder (or any successor provisions).

(h) Payment to Minors and Incapacitated Persons . In the event that any amount is payable to a minor or to any person who, in the judgment of the Plan Administrator, is incapable of making proper disposition thereof, such payment shall be made for the benefit of such minor or such person in any of the following ways as the Plan Administrator, in its sole discretion, shall determine:

EXHIBIT 10.55

(i) By payment to the legal representative of such minor or such person;

(ii) By payment directly to such minor or such person;

(iii)

By payment in discharge of bills incurred by or for the benefit of such minor or such person. The Plan Administrator shall make such payments without the necessary intervention of any guardian or like fiduciary, and without any obligation to require bond or to see to the further application of such payment. Any payment so made shall be in complete discharge of the Plan's obligation to the Pru1icipant and his or her Beneficiaries.

(i)

Application for Benefits . The Plan Administrator may require a Participant or Beneficiary to complete and file certain forms as a condition precedent to receiving the payment of benefits. The Plan Administrator may rely upon all such information given to it, including the Participant's current mailing address. It is the responsibility of all persons interested in receiving a distribution pursuant to the Plan to keep the Plan Administrator informed of their current mailing addresses.

(j)

Designation of Beneficiary . Each Participant from time to time may designate any person or persons (who may be designated contingently or successively and who may be an entity other than a natural person) as his or her Beneficiary or Beneficiaries to whom the Participant's Interest Accounts are to be paid if the Participant dies before receipt of all such benefits. Each Beneficiary designation shall be on the form prescribed by the Plan Administrator and will be effective only when filed with the Plan Administrator during the Pru1icipant's lifetime. Each Beneficiary designation filed with the Plan Administrator will cancel all Beneficiary designations previously filed with the Plan Administrator. The revocation of a Beneficiary designation, no matter how effected, shall not require the consent of any designated Beneficiary.

SECTION7. AMENDMENTS AND TERMINATION.

The Board may amend, alter, or discontinue the Plan, but no amendment, alteration, or discontinuation shall be made which would impair the right of a Participant or a Grantee of an award of Stock Options, Restricted Stock or Restricted Stock Units heretofore granted, without the Participant's or Grantee's consent.

Amendments may be made without stockholder approval except as required to satisfy stock exchange listing requirements or other regulatory requirements.

The Board may amend the terms of any Stock Option, Restricted Stock or Restricted Stock Unit award theretofore granted, prospectively or retroactively; provided, however, (a) no such amendment shall impair the rights of any holder without his/her consent; (b) the original term of a Stock Option may not be extended without prior approval of the stockholders of the Company; and (c) the exercise price of a Stock Option may not be reduced, directly or indirectly, without prior approval of the stockholders of the Company.

SECTION 8. UNFUNDED STATUS OF PLAN.

The Plan is intended to constitute an "unfunded" plan for incentive and deferred compensation. With respect to any payments not yet made to a Participant or Grantee by the Company, nothing set forth herein shall give any such Participant or Grantee any

rights that are greater than those of a general creditor of the Company. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Stock or payments in lieu of or with respect to awards hereunder, provided, however, that the existence of such trusts or other arrangements is consistent with the unfunded status of the Plan.

SECTION 9. CHANGE IN CONTROL.

In the event of a "Change in Control," unless otherwise determined by the Board in writing at or after grant, but prior to the occurrence of such Change in Control, any Stock Options awarded under the Plan not previously exercisable and vested shall become fully exercisable and vested, and any Restricted Stock or Restricted Stock Units awarded under the Plan not previously vested shall become fully vested.

SECTION l0. GENERAL PROVISIONS.

EXHIBIT 10.55

(a) Nothing set forth in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in the specified cases. The adoption of the Plan shall not confer upon any director of the Company, any Subsidiary or any Affiliate, any right to continued retention as a director with the Company, a Subsidiary or an Affiliate, as the case may be.

(b) At the time of grant or exercise, the Committee may provide in connection with any grant or exercise made under this Plan that the shares of Stock received as a result of such grant or purchase shall be subject to a right of first refusal, pursuant to which the Participant shall be required to offer to the Company any shares that the participant wishes to sell, with the price being the then Fair Market Value of the Stock, subject to the provisions of Section 9 hereof and to such other terms and conditions as the Board may specify at the time of grant.

(c)

No member of the Board or the Committee, nor any officer or employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination or interpretation.

(d) In the event that any provision of the Plan or any related Award Notice is held to be invalid, void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of the Plan or any related Award Notice.


(e)	The rights and obligations under the Plan and any related agreements shall inure to the benefit of, and shall be binding upon the Company, its successors and assigns, and the Non-Employee Directors and their beneficiaries.

(f) Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of the Plan. (g) The Plan shall be construed, governed and enforced in accordance with the Jaw of Delaware, except as such laws are preempted by applicable federal law.

SECTION 11. EFFECTIVE DATE OF PLAN.

The Plan shall be effective as of January 1, 2011.

SECTION 12- TERM OF PLAN.

No Stock Options, Restricted Stock or Restricted Stock Units shall be granted pursuant to the Plan following the termination of the 2007 Compensation Plan or the 2011 Incentive Plan, as applicable, but awards theretofore granted may extend beyond that date.

Exhibit 10.75

STATE OF TEXAS

COLLIN COUNTY

TORCHMARK CORPORATION NON-QUALIFIED STOCK OPTION

GRANT AGREEMENT

TORCHMARK CORPORATION, a corporation organized and existing under the laws of the state of Delaware (the "Company"), does hereby grant and give unto ___________________ (the "Optionee"), the following non-qualified stock option (the "Option") upon the terms and conditions hereinafter set forth.

AUTHORITY FOR GRANT

1. Stock Incentive Plan/Consideration . The Option is granted under the provisions of the Torchmark Corporation 2011 Incentive Plan (the "Plan"), as a non-qualified option and is subject to the terms and provisions of the Plan and in return for Optionee’s promises contained herein including the terms and provisions of Section 12. Capitalized terms used but not defined herein shall have the meanings given them in the Plan which is incorporated by reference herein.

TERMS OF OPTION

2. Number of Shares . The Optionee is hereby granted an option to purchase from the Company XXXXXX shares (the "Shares") of the company's common capital stock.

3. Option Price Per Share . The option price for each Share subject to the Option shall be $_______ , the closing price of the Stock on the New York Stock Exchange Composite Tape on February ___, 2017, which is the "Grant Date".

4. Option Period . The Option shall be and become first exercisable to the extent of 50% of the Shares on and after February __, 2019.The remaining Shares shall become exercisable on and after February ___, 2020. Notwithstanding any other provision of this Agreement, if the Option is not exercised with respect to all Shares prior to seven (7) years from the Grant Date, the Option shall terminate and the parties hereto shall have no further rights or obligations hereunder. For

the purposes of this agreement, "Option Period" shall mean the seven (7) year period commencing on the Grant Date.

5. Method of Exercise . The Option may be exercised in whole or in part at any time during the Option Period, by giving written notice of exercise to the Company specifying the number of Shares to be purchased, accompanied by payment in full of the purchase price, in cash, by check or such other instrument as may be acceptable to the Compensation Committee of the Torchmark Board of Directors (the "Committee"). Payment in full or in part may also be made in the form of unrestricted stock already owned by the Optionee (based on the fair market value of the stock on the date the Option is exercised). The Optionee shall have the rights to dividends or other rights of a stockholder with respect to the Shares subject to the option when the Optionee has given written notice of exercise and has paid in full for such Shares.

6. Transferability of Option . The Option may be transferred by the Optionee to members of his or her Immediate Family (the children, grandchildren or spouse of the Optionee), to one or more trusts for the benefit of such Immediate Family members or to one or more partnerships where such Immediate Family members are the only partners if (i) the Optionee has received express written approval of such transfer from the Committee and (ii) the Optionee does not receive any consideration in any form whatsoever for said transfer. Except as provided in the foregoing sentence, the Option shall not be transferable by the Optionee other than by will or by the laws of descent and distribution.

TERMINATION OF OPTION

7. Termination by Death . If the Optionee's employment with the Company, any Subsidiary and/or any Affiliate terminates by reason of death (or if Optionee dies following termination of employment by reason of disability or retirement at or after age 65), the Option shall become immediately exercisable and may thereafter be exercised by the legal representative of the estate or by the legatee of the Optionee under the will of the Optionee, during the period ending on the

expiration of the stated term of the Option or the first anniversary of the Optionee's death, whichever is later.

8. Termination by Reason of Disability . If the Optionee's employment with the Company, any Subsidiary, and/or any Affiliate terminates by reason of Disability, the Option shall be immediately exercisable and may thereafter be exercised during the period ending on the expiration of the stated term of the Option.

9. Termination by Reason of Retirement . If the Optionee's employment with the Company, any Subsidiary, and/or any Affiliate terminates by reason of Retirement (i) at or after age 65 and (ii) after the first anniversary of the Grant Date, the Option shall become immediately exercisable (the “Retirement Acceleration”) and may thereafter be exercised during the period ending on the expiration of the stated term of the Option.

If the Optionee's employment with the Company, any Subsidiary, and/or any Affiliate terminates by reason of Retirement at or after age 60, the Option shall terminate five (5) years from the date of such Retirement or upon the expiration of the stated term of the Option, whichever is shorter. If the Optionee's employment with the Company, any Subsidiary and/or any Affiliate terminates by reason of Retirement at or after age 55, the Option shall terminate three (3) years from the date of such Retirement or upon the expiration of the stated term of the Option, whichever is shorter. In the event of Retirement at or after ages 55 or 60, there shall be no acceleration of vesting of the Option, but the Option shall continue to vest in accordance with its regular schedule and may be exercised to the extent it is or becomes exercisable prior to the termination of the Option (the “Continued Vesting Shares”); provided that the Participant’s Retirement occurs after the first anniversary of the Grant Date.

In the event the Participant’s employment is terminated due to Retirement prior to the first anniversary of the Grant Date, all Options shall be forfeited.

10. Termination for Cause . If the Optionee's employment with the Company, any Subsidiary and/or any Affiliate is terminated for Cause, or the Committee determines that the Optionee has

engaged in conduct that would be grounds for termination with Cause, the Option shall be immediately forfeited to the Company upon the giving of notice of termination of employment.

11. Other Termination . If the Optionee's employment with the Company, any Subsidiary and/or any Affiliate is involuntarily terminated by the Optionee's employer without Cause, the Option shall terminate three (3) months from the date of termination of employment or upon the expiration of the stated term of the Option, whichever is shorter. If the Optionee's employment with the Company, any Subsidiary and/or any Affiliate is voluntarily terminated for any reason, the Option shall terminate one (1) month from the date of termination of employment or upon the expiration of the stated term of the Option, whichever is shorter. In the event of involuntary termination without Cause or voluntary termination, there shall be no acceleration of vesting, but the Option shall continue to vest in accordance with its regular schedule and may only be exercised to the extent it is or becomes exercisable prior to such termination.

12. Noncompetition/Confidentiality/Nonsolicitation. Upon Participant’s separation from employment from the Company for any reason for a period of two (2) years from the date of such separation or in the event of termination under circumstances that entitle him to Retirement Acceleration or Continued Vesting Shares, during the remaining vesting period prior to the Vesting Date, whichever is longer (the “Restriction Period”), Participant agrees not to engage or participate, directly or indirectly, in any capacity, including but not limited to as an employee, consultant, advisor, contractor, partner, owner or otherwise, in a competing business, which is one that provides the same or substantially similar products or services as the Business. “Business” is defined as product development, marketing, sales and servicing of life insurance, health insurance and annuity products through captive agents, independent agents and direct response marketing channels. Life insurance includes individual life or group life, with or without return-of-premium benefit. Health insurance includes accidental death or supplemental health insurance products, with or without return-of premium benefits, including cancer, critical illness, hospital indemnity, Medicare supplement or Medicare Part D prescription drug coverage. Annuity includes deferred annuities

or single premium immediate annuities. (All of the foregoing are referred to collectively as the “Business”). Participant further agrees that he will not serve as a Board member for any company that provides the same or similar products or services as the Business. Participant also agrees and understands that this noncompetition agreement extends to competition in any state in which Participant worked or directed work for the Company or in which the Company has plans or intentions for future business operations for which the Participant was involved (referred to as the “Restricted Area”).

Participant acknowledges that the Restricted Area, scope of prohibited activities, and the Restriction Period are reasonable and are no broader than are necessary to protect Company’s legitimate business interests. Participant also acknowledges that the Company would not be providing the benefits set forth in this Agreement but for Participant’s covenants and promises contained in this Section. Participant further agrees that during the non-competition term, Participant shall immediately notify the Company in writing of any employment, work, or business he undertakes with or on behalf of any person (including himself) or entity other than the Company and acknowledges and agrees that the Company may place Participant’s future employer on notice of the Participant’s post-employment obligations.

Participant further expressly agrees and understands that the Company has disclosed confidential, proprietary and/or trade secret information to Participant. Participant agrees that he will not utilize nor disclose to any third party any of the Company’s confidential, proprietary or trade secret information at any time in the future. In consideration of the Company disclosing such information to Participant and/or for the consideration provided to Participant by the Company in this Agreement, which Participant acknowledges is sufficient and reasonable consideration, Participant has agreed to the non-competition provisions set forth herein.

Prior authorization from the Company is not required in order to make any such reports or disclosures and Participant is not required to notify the Company that such reports or disclosures have been made.

IMMUNITY NOTICE . Pursuant to the Defend Trade Secrets Act of 2016, Participant may not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and solely for the purpose of reporting or investigating a suspected violation of the law; or is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Should any provision in this Agreement conflict with this provision, this provision shall control.

Participant also agrees that during the Restriction Period he will not solicit the clients or customers of the Company in order to request or advise such clients or customers to end, change or curtail their business relationship with the Company. In addition, Participant agrees that during the Restriction Period he will not solicit any employee of the Company in order to request or advise any such employee to end, change or curtail their employment relationship with the Company.

If for any reason any court of competent jurisdiction finds any provision of this Section to be unreasonable in duration or scope or otherwise, Company and Participant agree that the restrictions and prohibitions contained in this Section shall be effective to the fullest extent allowed under applicable law. Each covenant set forth in this Section shall survive the termination of this Agreement and Participant’s employment for any reason and shall be construed as an agreement independent of any other provision of this Agreement.

(without the requirement to post bond) as a court of competent jurisdiction may deem necessary or appropriate to restrain Participant from committing any violation of the covenants, obligations or agreements referred to in this Agreement. These injunctive remedies are cumulative and in addition to any other rights and remedies Company may have against Participant.

In addition, Participant agrees that if he violates the terms of this Section or if the terms of this Section are determined to be unenforceable by any court of competent jurisdiction, Participant shall forfeit and not be entitled to receive Retirement Acceleration or the Continued Vesting Shares herein. The Company shall be relieved from any obligation to provide Participant with Retirement Acceleration or the Continued Vesting Shares. If Participant has already received the Retirement Acceleration or the Continued Vesting Shares, Participant agrees that he shall repay the Company the value of the Retirement Acceleration or the Continued Vesting Shares on the date it was received by Participant upon five (5) days written notice.

GENERAL TERMS AND PROVISIONS

13. Shares Listed on the Exchange . The Shares for which the Option is hereby granted shall have been listed on the New York Stock Exchange at the time the Option is exercised.

14. Shares May be Newly Issued or Purchased . The Shares to be delivered upon exercise of the Option shall be made available, at the discretion of the Company, either from authorized but previously unissued Shares or from Shares held in the treasury of the Company.

15. Adjustment of Shares for Recapitalization . In the event of any merger, reorganization, consolidation, recapitalization, stock dividend, or other change in corporate structure affecting the Stock, a substitution or adjustment shall be made in the number and price of Shares.

required by the law to be withheld with respect to the Option. The obligations of the Company under this Agreement shall be conditional on such payment or arrangements.

The Optionee may elect, subject to the approval of the Committee, to satisfy his/her minimum Federal, and where applicable, FICA, state and local tax withholding obligations arising from all awards by the reduction in an amount necessary to pay any such minimum withholding tax obligations, of the number of Shares of stock or amount of cash otherwise issuable or payable to said Optionee upon the issuance of Shares or payment of cash in respect of an Option. The Company and, where applicable, its Subsidiaries and Affiliates shall, to the extent permitted by law, have the right to deduct any such minimum withholding taxes owed by an Optionee who is not subject to Section 16 of the 1934 Act from any payment of any kind otherwise due to said Optionee.

17. Headings . The headings contained herein are for convenience of reference only, do not constitute a part of this Grant Agreement and shall not be deemed to limit or affect any of the provisions hereof.

18. Notices . Any notices required by or permitted to be given to the Company under this Agreement shall be made in writing and addressed to the Secretary of the Company in care of the Company's Legal Department, 3700 South Stonebridge Drive, McKinney, Texas 75070. Any such notice shall be deemed to have been given when received by the Company.

19. Governing Law/Venue . All questions pertaining to the construction, regulation, validity and effect of the provisions of this Agreement shall be determined in accordance with the laws of the State of Texas. In addition, Participant and Company agree that any disputes or claims concerning or relating to the terms and provisions of this Agreement shall be filed in Collin County, State of Texas or the United States District Court for the Eastern District of Texas.

20. Effective Date of Stock Option . This Option has been executed this ____ day of ______________, 2017, effective as of February 21, 2017.

TORCHMARK CORPORATION

By:

Its: Authorized Officer

Optionee

Exhibit 10.76

STATE OF TEXAS

COLLIN COUNTY

TORCHMARK CORPORATION NON-QUALIFIED

STOCK OPTION GRANT AGREEMENT

TORCHMARK CORPORATION, a corporation organized and existing under the laws of the state of Delaware (the "Company"), does hereby grant and give unto ________________ (the "Optionee"), the following non-qualified stock option (the "Option") upon the terms and conditions hereinafter set forth.

AUTHORITY FOR GRANT

1. Stock Incentive Plan/Consideratiion . The Option is granted under the provisions of the Torchmark Corporation 2011 Incentive Plan (the "Plan"), as a non-qualified option and is subject to the terms and provisions of the Plan and in return for Optionee’s promises contained herein including the terms and provisions of Section 12. Capitalized terms used but not defined herein shall have the meaning given them in the Plan which is incorporated by reference herein.

TERMS OF OPTION

2. Number of Shares . The Optionee is hereby granted an option to purchase from the Company _______ shares (the "Shares") of the company's common capital stock.

3. Option Price Per Share . The option price for each Share subject to the Option shall be $_____ , the closing price of the Stock on the New York Stock Exchange Composite Tape on February __, 2017 , which is the "Grant Date".

4. Option Period . The Option shall be and become first exercisable to the extent of the Shares shown in the schedule below on and after the dates set forth therein:



Shares as to which Option is First Exercisable	Date First Exercisable
25%	February __, 2019
50%	February __, 2020
75%	February __, 2021
100%	February __, 2022

Notwithstanding any other provision of this Agreement, if the Option is not exercised with respect to all Shares prior to ten (10) years from the Grant Date, it shall terminate and the parties hereto shall have no further rights or obligations hereunder. For the purposes of this agreement, "Option Period" shall mean the ten (10) year period commencing on the Grant Date.

sentence, the Option shall not be transferable by the Optionee other than by will or by the laws of descent and distribution.

TERMINATION OF OPTION

vesting of the Option, but the Option shall continue to vest in accordance with its regular schedule and may be exercised to the extent it is or becomes exercisable prior to the termination of the Option (the “Continued Vesting Shares”); provided that the Participant’s Retirement occurs after the first anniversary of the Grant Date.

In the event the Participant’s employment is terminated due to Retirement prior to the first anniversary of the Grant Date, all Options shall be forfeited.

10. Termination for Cause . If the Optionee's employment with the Company, any Subsidiary and/or any Affiliate is terminated for Cause, or the Committee determines that the Optionee has engaged in conduct that would be grounds for termination with cause, the Option shall be immediately forfeited to the Company upon the giving of notice of termination of employment.

11. Other Termination . If the Optionee's employment with the Company, any Subsidiary and/or any Affiliate is involuntarily terminated by the Optionee's employer without Cause, the Option shall terminate three (3) months from the date of termination of employment or upon the expiration of the stated term of the Option, whichever is shorter. If the Optionee's employment with the Company, any Subsidiary and/or any Affiliate is voluntarily terminated for any reason, the Option shall terminate one (1) month from the date of termination of employment or upon the expiration of the stated term of the Option, whichever is shorter. In the event of involuntary termination without Cause or voluntary termination, there shall be no acceleration of vesting of the Option, but the Option shall continue to vest in accordance with its regular schedule and may only be exercised to the extent it is or becomes exercisable prior to such termination.

contractor, partner, owner or otherwise, in a competing business, which is one that provides the same or substantially similar products or services as the Business. “Business” is defined as product development, marketing, sales and servicing of life insurance, health insurance and annuity products through captive agents, independent agents and direct response marketing channels. Life insurance includes individual life or group life, with or without return-of-premium benefit. Health insurance includes accidental death or supplemental health insurance products, with or without return-of premium benefits, including cancer, critical illness, hospital indemnity, Medicare supplement or Medicare Part D prescription drug coverage. Annuity includes deferred annuities or single premium immediate annuities. (All of the foregoing are referred to collectively as the “Business”). Participant further agrees that he will not serve as a Board member for any company that provides the same or similar products or services as the Business. Participant also agrees and understands that this noncompetition agreement extends to competition in any state in which Participant worked or directed work for the Company or in which the Company has plans or intentions for future business operations for which the Participant was involved (referred to as the “Restricted Area”).

Participant further expressly agrees and understands that the Company has disclosed confidential, proprietary and/or trade secret information to Participant. Participant agrees that he

will not utilize nor disclose to any third party any of the Company’s confidential, proprietary or trade secret information at any time in the future. In consideration of the Company disclosing such information to Participant and/or for the consideration provided to Participant by the Company in this Agreement, which Participant acknowledges is sufficient and reasonable consideration, Participant has agreed to the non-competition provisions set forth herein.

Notwithstanding any other provision of this Agreement, nothing herein shall prohibit Participant from reporting possible violations of federal law or regulation to any governmental agency or entity or making other disclosures that are protected pursuant to federal law or regulation. Prior authorization from the Company is not required in order to make any such reports or disclosures and Participant is not required to notify the Company that such reports or disclosures have been made.

under applicable law. Each covenant set forth in this Section shall survive the termination of this Agreement and Participant’s employment for any reason and shall be construed as an agreement independent of any other provision of this Agreement.

Participant acknowledges and agrees that the covenants, obligations and agreements of Participant contained in this Section concern special, unique and extraordinary matters and that a violation of any of the terms of these covenants, obligations or agreements will cause Company irreparable injury for which adequate remedies at law are not available. Therefore, Participant agrees that Company will be entitled to an injunction, restraining order, or any other equitable relief (without the requirement to post bond) as a court of competent jurisdiction may deem necessary or appropriate to restrain Participant from committing any violation of the covenants, obligations or agreements referred to in this Agreement. These injunctive remedies are cumulative and in addition to any other rights and remedies Company may have against Participant.

GENERAL TERMS AND PROVISIONS

13. Shares Listed on the Exchange . The Shares for which the Option is hereby granted shall have been listed on the New York Stock Exchange at the time the Option is exercised.

16. Payment of Taxes . The Optionee shall, no later than the date as of which the value of any portion of the Option first becomes includable in his/her gross income for Federal income tax purposes, pay to the Company, or make other arrangements satisfactory to the Committee, in its sole discretion, regarding payment of, the minimum Federal, state, local or FICA taxes of any kind required by the law to be withheld with respect to the Option. The obligations of the Company under this Agreement shall be conditional on such payment or arrangements.

20. Effective Date of Stock Option . This Option has been executed this day of

, 2017, effective as of February 21, 2017.

TORCHMARK CORPORATION

By:

Its: Authorized Officer

Optionee

Exhibit 10.77

Torchmark Corporation

Performance Share Award Certificate

Non-transferable

G R A N T T O

(“Grantee”)

by Torchmark Corporation (the “Company”) of Performance Shares (the “Performance Shares”) representing the right to earn, on a one-for-one basis, shares of the Company’s Common Stock, $1.00 par value (“Stock”), pursuant to and subject to the provisions of the Torchmark Corporation 2011 Incentive Plan (the “Plan”) and to the terms and conditions set forth on the following pages of this award certificate (this “Certificate”).

The target number of Performance Shares subject to this award is (the “Target Award”). Depending on the Company’s level of attainment of specified targets for earnings per share, underwriting income, and return on equity for fiscal years 2017, 2018, and 2019. Grantee may earn 0% to 200% of the Target Award, in accordance with the matrices attached hereto as Exhibit A and the terms of this Certificate.

By accepting this Award, Grantee shall be deemed to have agreed to the terms and conditions of this Certificate and the Plan.

IN WITNESS WHEREOF, Torchmark Corporation, acting by and through its duly authorized officers, has caused this Certificate to be executed.



TORCHMARK CORPORATION By:______________________________________ Its: Authorized Officer	Grant Date: February, 2017 Accepted by Grantee: __________________________

TERMS AND CONDITIONS


1.	Defined Terms . Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Plan. In addition, for purposes of this Certificate:

(i) “ Confirmation Date ” the date of the Committee’s certification of achievement of the Performance Objectives and determination of the Performance Multiplier following the end of the Performance Period.

(ii) “Early Retirement” means resignation or termination of employment without Cause from the Company at or after age 60 and before age 65.

(iii)”Normal Retirement” means resignation or termination of employment without Cause from the Company at or after age 65.

(ii) “ Performance Multiplier ” means the percentage, from 0% to 200%, that will be applied to the Target Award to determine the number of Performance Shares that will convert to shares of Stock on the Conversion Date, as more fully described in Exhibit A hereto.

(iii) “ Performance Objectives ” are the performance objectives relating to Earnings per Share, Underwriting Income, and Return on Equity set forth on Exhibit A that must be achieved in order for any Performance Shares to be earned by Grantee pursuant to this Award.

(iv) “ Performance Period ” means the three-year period commencing on January 1, 2016 and ending on December 31, 2018.

(v) “ Prorated Target Award ” means, in the case of Grantee’s Early Retirement prior to the Vesting Date, a specified percentage of the Target Award, as follows:



Age at Early Retirement	Prorated Target Award
60	10% of Target Award
61	20% of Target Award
62	40% of Target Award
63	60% of Target Award
64	80% of Target Award

(vi) “Vesting Date” is defined in Section 3 of this Agreement.

2. Earning and Vesting of Performance Shares . The Performance Shares have been credited to a bookkeeping account on behalf of Grantee and do not represent actual shares of Stock. The Performance Shares are being awarded to the Grantee in return for Grantee’s promises contained herein including the terms and provisions of Section 6. The Performance Shares represent the right to earn up to 200% of the Target Award (or up to the Prorated Target Award, in the event of Grantee’s Early Retirement prior to the Vesting Date or up to the full Target Award, in the event of Grantee’s Normal Retirement prior to the Vesting Date), based on (i) the Company’s attainment of the Performance Objectives and (ii) the application of the Performance Multiplier to the Target Award in accordance with Exhibit A . Notwithstanding the foregoing, in the event of Grantee’s death or Disability during the Performance Period, Grantee shall be deemed to have earned 100% of the Target Award upon such event (without application of any Performance Multiplier). In addition, notwithstanding the foregoing or anything in the Plan to the contrary, upon a Change in Control of the Company in which the Performance Shares are not assumed by the Surviving Entity or otherwise equitably converted or substituted in connection with the Change in Control in a manner approved by the Committee or the Board, Grantee shall be deemed to have earned 100% of the Target Award upon such event (without application of any Performance Multiplier), and there shall be a prorata payout to Grantee within thirty (30) days following the Change in Control, based upon the length of time within the Performance Period that has elapsed prior to the Change in Control. Further, upon a Change in Control of the Company in which the Performance Shares are assumed by the Surviving Entity or otherwise equitably converted or substituted in connection with the Change in Control, if within two years after the effective date of the Change in Control, Grantee’s employment is terminated without Cause or Grantee resigns for Good Reason, Grantee shall be deemed to have earned 100% of the Target Award as of the date of termination (without application of any Performance Multiplier), and there shall be a prorata payout to Grantee within thirty (30) days following the date of termination, based upon the length of time within the Performance Period that has elapsed prior to the date of termination.

Any earned Performance Shares will vest and become non-forfeitable on the earliest to occur of the following (the “ Vesting Date ”):

(a) the Confirmation Date, provided either (i) Grantee has continued in the employment of the Company or its Affiliates through such date or (ii) Grantee’s employment with the Company has terminated due to Grantee’s Normal Retirement or Early Retirement, or

(b) the termination of Grantee’s employment due to death or Disability, or

In the event Grantee’s employment terminates for any reason other than as described above at any time prior to the applicable Vesting Date, all of Grantee’s Performance Shares will immediately be forfeited to the Company without further consideration or any act or action by Grantee.

Conversion to Stock . Any earned and vested Performance Shares will be converted to actual unrestricted shares of Stock (one share per vested Performance Share) within thirty (30) days following the Vesting Date (and in no event later than March 15, 2019). These shares will be registered on the books of the Company in Grantee’s name as of the Conversion Date and stock certificates for the Stock shall be delivered to Grantee or Grantee’s designee upon request of the Grantee. Any Performance Shares that fail to vest in accordance with the terms of this Certificate will be forfeited and reconveyed to the Company without further consideration or any act or action by Grantee.

Restrictions on Transfer and Pledge . No right or interest of Grantee in the Performance Shares may be pledged, encumbered, or hypothecated or be made subject to any lien, obligation, or liability of Grantee to any other party other than the Company or an Affiliate. The Performance Shares may not be sold, assigned, transferred or otherwise disposed of by Grantee other than by will or the laws of descent and distribution.

Restrictions on Issuance of Stock . If at any time the Committee shall determine, in its discretion, that registration, listing or qualification of the Stock underlying the Performance Shares upon any securities exchange or similar self-regulatory organization or under any foreign, federal, or local law or practice, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition to the settlement of the Performance Shares, stock units will not be converted to Stock in whole or in part unless and until such registration, listing, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee.

6. Noncompetition/Confidentiality/Nonsolicitation. Upon Grantee’s separation from employment from the Company for any reason for a period of two (2) years from the date of such separation or in the event of termination due to Early Retirement or Normal Retirement, during the remaining vesting period prior to the Vesting Date, whichever is longer (the “Restriction Period”), Grantee agrees not to engage or participate, directly or indirectly, in any capacity, including but not limited to as an employee, consultant, advisor, contractor, partner, owner or otherwise, in a competing business, which is one that provides the same or substantially similar products or services as the Business. “Business” is defined as product development, marketing, sales and servicing of life insurance, health insurance and annuity products through captive agents, independent agents and direct response marketing channels. Life insurance includes individual life or group life, with or without return-of-premium benefit. Health insurance includes accidental death or supplemental health insurance products, with or without return-of premium benefits, including cancer, critical illness, hospital indemnity, Medicare supplement or Medicare Part D prescription drug coverage. Annuity includes deferred annuities or single premium immediate annuities. (All of the foregoing are referred to collectively as the “Business”). Grantee further agrees that he will not serve as a Board member for any company that provides the same or similar products or services as the Business. Grantee also agrees and understands that this noncompetition agreement extends to competition in any state in which Grantee worked or directed work for the Company or in which the Company has plans or intentions for future business operations for which the Grantee was involved (referred to as the “Restricted Area”).

Grantee acknowledges that the Restricted Area, scope of prohibited activities, and the Restriction Period are reasonable and are no broader than are necessary to protect Company’s legitimate business interests. Grantee also acknowledges that the Company would not be providing the benefits set forth in this Agreement but for Grantee’s covenants and promises contained in this Section. Grantee further agrees that during the non-competition term, Grantee shall immediately notify the Company in writing of any employment, work, or business he undertakes with or on behalf of any person (including himself) or entity other than the Company and acknowledges and agrees that the Company may place Grantee’s future employer on notice of the Grantee’s post employment obligations.

Grantee further expressly agrees and understands that the Company has disclosed confidential, proprietary and/or trade secret information to Grantee. Grantee agrees that he will not utilize nor disclose to any third party any of the Company’s confidential, proprietary or trade secret information at any time in the future. In consideration of the Company disclosing such information to Grantee and/or for the consideration provided to Grantee by the Company in this Agreement, which Grantee acknowledges is sufficient and reasonable consideration, Grantee has agreed to the non-competition provisions set forth herein.

Notwithstanding any other provision of this Agreement, nothing herein shall prohibit Grantee from reporting possible violations of federal law or regulation to any governmental agency or entity or making other disclosures that are protected pursuant to federal law or regulation. Prior authorization from the Company is not required in order to make any such reports or disclosures and Grantee is not required to notify the Company that such reports or disclosures have been made.

IMMUNITY NOTICE. Pursuant to the Defend Trade Secrets Act of 2016, Grantee may not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and solely for the purpose of reporting or investigating a suspected violation of the law; or is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Should any provision in this Agreement conflict with this provision, this provision shall control.Grantee also agrees that during the Restriction Period he will not solicit the clients or customers of the Company in order to request or advise such clients or customers to end, change or curtail their business relationship with the Company. In addition, Grantee agrees that during the Restriction Period he will not solicit any employee of the Company in order to request or advise any such employee to end, change or curtail their employment relationship with the Company.

If for any reason any court of competent jurisdiction finds any provision of this Section to be unreasonable in duration or scope or otherwise, Company and Grantee agree that the restrictions and prohibitions contained in this Section shall be effective to the fullest extent allowed under applicable law. Each covenant set forth in this Section shall survive the termination of this Agreement and Grantee’s employment for any reason and shall be construed as an agreement independent of any other provision of this Agreement.

Grantee acknowledges and agrees that the covenants, obligations and agreements of Grantee contained in this Section concern special, unique and extraordinary matters and that a violation of any of the terms of these covenants, obligations or agreements will cause Company irreparable injury for which adequate remedies at law are not available. Therefore, Grantee agrees that Company will be entitled to an injunction, restraining order, or any other equitable relief (without the requirement to post bond) as a court of competent jurisdiction may deem necessary or appropriate to restrain Grantee from committing any violation of the covenants, obligations or agreements referred to in this Agreement. These injunctive remedies are cumulative and in addition to any other rights and remedies Company may have against Grantee.

In addition, Grantee agrees that if he violates the terms of this Section or if the terms of this Section are determined to be unenforceable by any court of competent jurisdiction, Grantee shall forfeit and not be entitled to receive the Performance Shares granted herein. If Grantee has already received the Performance Shares, Grantee agrees that he shall repay the Company the value of the Performance Shares on the date it was received by Grantee upon five (5) days written notice.

Limitation of Rights . The Performance Shares do not confer to Grantee or Grantee’s beneficiary, executors or administrators any rights of a shareholder of the Company unless and until shares of Stock are in fact issued to such person in connection with the units. Nothing in this Certificate shall interfere with or limit in any way the right of the Company or any Affiliate to terminate Grantee’s employment at any time, nor confer upon Grantee any right to continue in employment of the Company or any Affiliate.

8. No Entitlement to Future Awards . The grant of the Performance Shares does not entitle Grantee to the grant of any additional units or other awards under the Plan in the future. Future grants, if any, will be at the sole discretion of the Company, including, but not limited to, the timing of any grant, the number of units, and vesting provisions.

Payment of Taxes . The Company or any Affiliate employing Grantee has the authority and the right to deduct or withhold, or require Grantee to remit to the employer, an amount sufficient to satisfy federal, state, and local taxes (including Grantee’s FICA obligation) required by law to be withheld with respect to any taxable event arising as a result of the vesting or settlement of the Performance Shares. With respect to withholding required upon any taxable event arising as a result of the Performance Awards, the employer may satisfy the tax withholding requirement by withholding shares of Stock having a Fair Market Value as of the date that the amount of tax to be withheld is to be determined as nearly equal as possible to (but no more than) the total minimum statutory tax required to be withheld The obligations of the Company under this Agreement will be conditional on such payment or arrangements, and the Company, and, where

applicable, its Affiliates will, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to Grantee.

10.

Recoupment . Any shares of Stock issued upon conversion of the Performance Shares shall be subject to forfeiture and recoupment by the Company based on a later determination that the vesting of such Performance Shares was based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria, whether or not the Participant caused or contributed to such material inaccuracy.

11.

Amendment . Subject to the terms of the Plan, the Committee may amend, modify or terminate this Certificate without approval of Grantee; provided, however, that such amendment, modification or termination shall not, without Grantee’s consent, reduce or diminish the value of this award determined as if it had been fully vested and subject to application of the Performance Multiplier (i.e., as if all restrictions on the Performance Shares hereunder had expired) on the date of such amendment or termination. Notwithstanding the foregoing, Grantee hereby expressly agrees to any amendment to the Plan and this Agreement to the extent necessary to comply with applicable law or changes to applicable law (including, but not limited to, Code Section 409A) and related regulations or other guidance and federal securities laws.

12. Plan Controls . The terms contained in the Plan shall be and are hereby incorporated into and made a part of this Certificate and this Certificate shall be governed by and construed in accordance with the Plan. Without limiting the foregoing, the terms and conditions of the Performance Shares, including the number of shares and the class or series of capital stock which may be delivered upon settlement of the Performance Shares, are subject to adjustment as provided in Article 15 of the Plan. In the event of any actual or alleged conflict between the provisions of the Plan and the provisions of this Certificate, the provisions of the Plan shall be controlling and determinative. Any conflict between this Certificate and the terms of a written employment with Grantee that has been approved, ratified or confirmed by the Committee shall be decided in favor of the provisions of such employment agreement.

13.

Governing Law/Venue . Except as noted below, this Certificate shall be construed in accordance with and governed by the laws of the State of Delaware, United States of America, regardless of the law that might be applied under principles of conflict of laws. However, the terms and provisions set forth in Section 6 shall be governed by the laws of the State of Texas. In addition, Grantee and the Company agree that any disputes or claims concerning or relating to the terms and provisions of this Agreement (including Section 6) shall be filed in Collin County, State of Texas or the United States District Court for the Eastern District of Texas.


14.	Severability . If any one or more of the provisions contained in this Certificate is deemed to be invalid, illegal or unenforceable, the other provisions of this Certificate will be construed and enforced as if the invalid, illegal or unenforceable provision had never been included.


15.	Relationship to Other Benefits . The Performance Shares shall not affect the calculation of benefits under any other compensation plan or program of the Company, except to the extent specially provided in such other plan or program.

16.

Notice . Notices and communications hereunder must be in writing and either personally delivered or sent by registered or certified United States mail, return receipt requested, postage prepaid. Notices to the Company must be addressed to Torchmark Corporation., 3700 South Stonebridge Drive, McKinney, Texas 75070, Attn: Corporate Secretary, or any other address designated by the Company in a written notice to Grantee. Notices to Grantee will be directed to the address of Grantee then currently on file with the Company, or at any other address given by Grantee in a written notice to the Company.

EXHIBIT A

The Performance Shares will be earned, in whole or in part, based on the Company’s achievement of Performance Objectives relating to Earnings per Share, Underwriting Income, and Return on Equity (each as defined below).



		Performance Goals / Percent Earned			Actual Performance	Performance Multiplier Earned Performance below the Threshold level results in 0% earned. All other percentages earned are determined by pro-ration between the appropriate Performance Goals.	Weighted Performance Multiplier Earned Performance Multiplier for the Performance Measure multiplied by the Weighting assigned to that Performance Measure
Performance Measure	Weighting	Threshold 50%	Target 100%	Maximum 200%	Actual Performance
Cumulative EPS ³	40%
Underwriting Income ⁴ ($million)	30%
Return on Equity ⁵	30%
					Performance Multiplier ⁶

1 Performance below the Threshold level results in 0% earned. All other percentages earned are determined by pro-ration between the appropriate Performance Goals.

2 Performance Multiplier for the Performance Measure multiplied by the Weighting assigned to that Performance Measure

3 “Earning per Share” means the cumulative sum of “total diluted net operating income per share,” as reported on the Company’s Operating Summary for each fiscal year in the Performance Period.

4 “Underwriting Income” means the cumulative sum of the insurance underwriting margins of the life, health and annuity segments, plus other income, less insurance administrative expenses (excluding the investment segment, parent company expense and income taxes) for each fiscal year during the Performance Period.

5 “Return on Equity” means average return on equity earned for the three-year Performance Period (calculated to two decimal places) using “Net Operating Income” per the Company's Operating Summary as the numerator in this ratio and excluding the effect of accounting rule FAS 115 on Shareholder’s Equity in the denominator. Thus if the ROE earned for 2016, 2017 and 2018 were 14%, 15% and 16% respectively, average ROE would be 15%.

6 Total of the Weighted Performance Multiplier Earned.

Exhibit 10.78

STATE OF TEXAS

COLLIN COUNTY

TORCHMARK CORPORATION NON-QUALIFIED STOCK OPTION

GRANT AGREEMENT

TORCHMARK CORPORATION, a corporation organized and existing under the laws of the state of Delaware (the "Company"), does hereby grant and give unto _________________ (the "Optionee"), the following non-qualified stock option (the "Option") upon the terms and conditions hereinafter set forth.

AUTHORITY FOR GRANT

TERMS OF OPTION

2. Number of Shares . The Optionee is hereby granted an option to purchase from the Company ________ shares (the "Shares") of the company's common capital stock.

3. Option Price Per Share . The option price for each Share subject to the Option shall be $______ , the closing price of the Stock on the New York Stock Exchange Composite Tape on February __, 2017, which is the "Grant Date".

is not exercised with respect to all Shares prior to seven (7) years from the Grant Date, the Option shall terminate and the parties hereto shall have no further rights or obligations hereunder. For the purposes of this agreement, "Option Period" shall mean the seven (7) year period commencing on the Grant Date.

TERMINATION OF OPTION

or by the legatee of the Optionee under the will of the Optionee, during the period ending on the expiration of the stated term of the Option or the first anniversary of the Optionee's death, whichever is later.

9. Termination by Reason of Retirement . If the Optionee's employment with the Company, any Subsidiary, and/or any Affiliate terminates by reason of Retirement at or after age 65, the Option shall become immediately exercisable (the “Retirement Acceleration”) and may thereafter be exercised during the period ending on the expiration of the stated term of the Option.

10. Termination for Cause . If the Optionee's employment with the Company, any Subsidiary and/or any Affiliate is terminated for Cause, or the Committee determines that the Optionee has engaged in conduct that would be grounds for termination with Cause, the Option shall be immediately forfeited to the Company upon the giving of notice of termination of employment.

that provides the same or similar products or services as the Business. Participant also agrees and understands that this noncompetition agreement extends to competition in any state in which Participant worked or directed work for the Company or in which the Company has plans or intentions for future business operations for which the Participant was involved (referred to as the “Restricted Area”).

disclosures and Participant is not required to notify the Company that such reports or disclosures have been made.

or appropriate to restrain Participant from committing any violation of the covenants, obligations or agreements referred to in this Agreement. These injunctive remedies are cumulative and in addition to any other rights and remedies Company may have against Participant.

GENERAL TERMS AND PROVISIONS

13. Shares Listed on the Exchange . The Shares for which the Option is hereby granted shall have been listed on the New York Stock Exchange at the time the Option is exercised.

20. Effective Date of Stock Option . This Option has been executed this ____ day of ______________, 2017, effective as of February 21, 2017.

TORCHMARK CORPORATION

By :

Its: Authorized Officer

Optionee

Exhibit 10.79

2016 AMENDMENT TO THE

TORCHMARK CORPORATION SAVINGS AND INVESTMENT PLAN

Pursuant to the authority vested in the undersigned, the Torchmark Corporation Savings and Investment Plan (the “Plan”) is hereby amended as follows:


SECTION 1

SECTION 2 PURPOSE AND EFFECTIVE DATE

1.1 Purpose. Torchmark Corporation (“Torchmark”) is the Sponsor of the Torchmark Corporation Savings and Investment Plan (the “Plan”). Torchmark intends to amend the Savings and Investment Plan to reflect the merger of the Liberty National Life 401(k) Plan into the Plan.

1.2 Effective date of Amendment . This Amendment is effective December 31, 2016.

1.3 Superseding of inconsistent provisions . This Amendment supersedes the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this Amendment.

SECTION 3

SECTION 4 EMPLOYER CONTRIBUTIONS FOR CERTAIN EMPLOYEES

Article 3 is hereby amended to include the following additional section:

3.24 Contribution for Certain Liberty National Life Employees . Subject to the limitations set forth in this Plan, the Employer may in its discretion designate a contribution allocable to Employees (referred to as “LNL DC Participants”) who were eligible to receive contributions under the Liberty National Life Insurance Company Defined Contribution Plan as of December 31, 2016. Such contribution (the “LNL DC Contribution”) shall be allocated among the Accounts of each LNL DC Participant who (a) performed at least 1000 Hours of Service during the Plan Year or (b) who terminated employment with the Employer on account of Retirement or death, or who terminated active employment with the Employer on account of Disability during the Plan Year will be credited with a share of the Employer’s contribution for such Plan Year. The specific share

to be allocated to each Account will be in direct proportion to the ratio of the LNL DC Participant’s Weighted Compensation to the total Weighted Compensation for all LNL DC Participants who are eligible for a share of the contribution for that year. Weighted Compensation for an LNL DC Participant is determined by multiplying the Compensation of the LNL DC Participant for the Plan Year by the appropriate factor from the following table.



Age of Participant on Birthday in Plan Year		Factor
25 or under		0.06678
26-30		0.08181
31-35		0.11474
36		0.14056
37		0.15040
38		0.16093
39		0.17220
40		0.18425
41		0.19715
42		0.21095
43		0.22571
44		0.24151
45		0.25842
46		0.27651
47		0.29586
48		0.31657
49		0.33874
50		0.35245
51		0.38782
52		0.41496
53		0.44401
54		0.47509
55		0.50835
56		0.54393
57		0.58201
58		0.62275
59		0.66634
60		0.71299
61		0.76290
62		0.81630
63		0.87344
64		0.93458
65 or over		1.00000

Allocations shall be made as of the last day of each Plan Year. Notwithstanding the foregoing, if a LNL DC Participant who is entitled to share in the Employer’s LNL DC Contribution for a given Plan Year is to receive either his entire Vested Account Balance or his first annuity payment as of a date preceding the date as of which allocations are made for such Plan Year, then a different method shall be used to determine his share of the Employer’s LNL DC Contribution for such Plan Year. Such a Participant shall receive as his allocation for such Plan Year “A” times “B” divided by “C,” where “A” equals the dollar amount allocated to his Account as a share of the Employer’s LNL DC Contribution for the preceding Plan Year, “B” equals the number of days during which the LNL DC Participant was employed by the Employer during the Plan Year in question, and “C” equals the number of days during which the LNL DC Participant was employed by the Employer during the preceding Plan Year.

Allocations shall satisfy Treasury Regulation Section 1.401(a)(4)-8(b).

Notwithstanding the foregoing, if an LNL DC Participant terminates employment with the Employer due to retirement, death, or disability prior to the date upon which allocations are to be made and such LNL DC Participant did not share in the Employer’s LNL DC Contribution for the preceding Plan Year due to not having satisfied the Plan’s requirements for becoming a Participant, such Employee shall receive an allocation of a specific share of Employer Contributions determined as follows:

(i) the Employee’s Weighted Compensation shall be determined as specified in the first paragraph of this Section 3.24;

(ii) the Employee’s Weighted Compensation shall then be multiplied by a fraction, the numerator of which shall be the total number of days the Employee was employed by the Company during the current and immediately preceding Plan Years (not to exceed 365) and the denominator of which shall be 365; and

(iii) the Employee shall be allocated a specific share of the Employer Contributions in direct proportion to the ratio of the Employee’s Weighted Compensation (as adjusted pursuant to paragraph (ii) above) to the total Weighted Compensation of all Participants who are eligible to share in Employer Contributions for that year. To the extent required by the Uniformed Service Employment and Reemployment Rights Act of 1994, the Employer shall

make up missed contributions (but not earnings) for Participants absent from work by reason of military duty.

SECTION 3

MERGER

Article XIV of the Plan is hereby amended to add the following Section 14.17:

“Section 14.17 Merger of LNL Plan : Effective December 31, 2016, the Liberty National Life Insurance Company 401(k) Plan (the “LNL Plan”) is merged into this Plan, with this Plan being the resulting Plan. No reduction in the benefits accrued by or on behalf of each participant in the LNL Plan as of December 31, 2016 occurred as a result of the merger into this Plan. Each employee who was a participant in the LNL Plan as of the Effective Date shall be a participant in this Plan, and service under the LNL Plan shall be counted as service under this Plan for purposes of determining Vesting Service under Article V. All such benefits earned by any such Participant pursuant to the terms and provisions of the LNL Plan will be paid in accordance with the terms and provisions of this Plan.”

EXECUTED as of the 30th day of December, 2016.

Torchmark Corporation

By: /s/ Carol A. McCoy

Name: Carol A. McCoy

Title: V.P., Assoc. Counsel and Corp. Sec.

Exhibit 10.80

TORCHMARK CORPORATION PENSION PLAN

2016 AMENDMENT TO LIMIT ELIGIBILITY

I. PURPOSE AND EFFECTIVE DATE


1.1	Purpose and Explanation of Amendment. Torchmark Corporation (“Torchmark”) is the Sponsor of the Torchmark Corporation Pension Plan (the “Pension Plan”). Torchmark intends to amend the Pension Plan to limit the provisions related to eligibility to participate in the Pension Plan by employees of Affiliated Entities.

1.2 Effective date of Amendment . This Amendment is effective as of December 31, 2016.

1.3 Superseding of inconsistent provisions . This Amendment supersedes the provisions of the Pension Plan to the extent those provisions are inconsistent with the provisions of this Amendment.

II. AMENDMENT OF PLAN DOCUMENT

2.1 Eligibility. The second full paragraph of Section 1.21 of the Pension Plan’s governing document is hereby amended in its entirety to read as follows:

“The foregoing paragraph notwithstanding, the following Employees of the Company and of each Affiliate (including Liberty National Life Insurance Company) are not included in the term “Eligible Employee:” (d) Employees who are classified, treated or otherwise characterized by the Employer as general agents, trainers, agents, branch managers, regional managers, district managers, brokers, solicitors, unit managers, assistant unit managers or any other individual whose primary duty involves the direct sale of insurance, regardless of the mode of compensation; (e) Employees included in a unit of employees covered by a collective bargaining agreement between the Employer and the employee representatives in the negotiation of which retirement benefits were the subject of good faith bargaining unless such bargaining agreement provides for participation in the Plan; (f) Leased Employees; (g) an Employee of a former “Employer,” including, without limitation, a “Participating Employer,” as those terms were defined in the Liberty National Pension Plan or the Liberty National Non-Commissioned Pension Plan if such Employee was first credited with an Hour of Service on or after January 1, 1995 and before January 1, 2012; and (h) employees of Globe Life And Accident Insurance Company or any other Affiliate who work at 6001 East Royalton Road, Suite 200, Cleveland, OH 44147 or any location to which such office is relocated. The term “Eligible Employee” shall not include, prior to January 1, 2004, Employees of a Participating Employer in the Plan if the Participating Employer was identified as an “Employer,” including, without limitation, a “Participating Employer,” in the Liberty National Pension Plan for the Liberty National Non-Commissioned Pension Plan prior to January 1, 2004.”

This amendment has been executed this 30th day of December, 2016.

TORCHMARK CORPORATION

By: /s/ Carol A. McCoy

Name: Carol A. McCoy

Title: V.P., Assoc. Counsel and Corp. Sec.



Exhibit 12. Statement re computation of ratios

TORCHMARK CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in thousands)

	Year Ended December 31,
	2016		2015		2014		2013		2012
Earnings:
Pre-tax earnings	$	772,235	$	766,187	$	784,677	$	755,315	$	757,670
Fixed charges	85,497		78,860		77,515		81,807		81,725
Earnings before fixed charges	$	857,732	$	845,047	$	862,192	$	837,122	$	839,395

Fixed charges:
Interest expense ⁽¹⁾	$	82,153	$	75,286	$	74,862	$	79,187	$	79,449
Amortization of bond issue costs	1,192		1,356		1,264		1,274		1,063
Estimated interest factor of rental expense	2,152		2,218		1,389		1,346		1,213
Total fixed charges	$	85,497	$	78,860	$	77,515	$	81,807	$	81,725

Ratio of earnings to fixed charges	10.0		10.7		11.1		10.2		10.3

Earnings before fixed charges	$	857,732	$	845,047	$	862,192	$	837,122	$	839,395
Interest credited for deposit products	62,503		65,172		68,718		70,555		71,918
Adjusted earnings before fixed charges	$	920,235	$	910,219	$	930,910	$	907,677	$	911,313

Fixed charges	$	85,497	$	78,860	$	77,515	$	81,807	$	81,725
Interest credited for deposit products	62,503		65,172		68,718		70,555		71,918
Adjusted fixed charges	$	148,000	$	144,032	$	146,233	$	152,362	$	153,643

Ratio of earnings to fixed charges including interest credited on deposit products as a fixed charge	6.2		6.3		6.4		6.0		5.9

Rental expense	$	6,520	$	6,722	$	4,210	$	4,079	$	3,677

Estimated interest factor of rental expense (33%)	2,152		2,218		1,389		1,346		1,213

(1) There was no interest capitalized in any period indicated.

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements Nos. 333-182473, 333-207130 on Form S-3, and Registration Statement Nos. 2-76378, 2-93760, 33-23580, 33-1032, 33-65507, 333-27111, 333-83317, 333-40604, 333-125409, 333-125400, 333-144554, 333-148244, 333-175185, 333-195314, 333-208999 on Form S-8 of our reports dated February 27, 2017, relating to the consolidated financial statements and financial statement schedules of Torchmark Corporation and subsidiaries (Torchmark Corporation) and the effectiveness of Torchmark Corporation's internal control over financial reporting, appearing in this Annual Report on Form 10-K of Torchmark Corporation for the year ended December 31, 2016.

/s/ DELOITTE & TOUCHE LLP

Dallas, Texas

February 27, 2017

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

That the undersigned Director of Torchmark Corporation does hereby constitute and appoint Frank M. Svoboda, R. Brian Mitchell and Carol A. McCoy, and each of them severally, his lawful attorneys and agents, for him and in his name and in the capacity indicated below, with full power and authority to do any and all acts and things and to execute any and all instruments which said attorneys and agents determine may be necessary, advisable, or required to enable the said Corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, or requirements of the Securities and Exchange Commission in connection with the Form 10‑K for the fiscal year ended December 31, 2016 . Without limiting the generality of the foregoing, the powers granted include the power and authority to execute and file the Form 10-K, any and all amendments to the Form 10‑K and any and all instruments or documents submitted as a part of or in conjunction with the Form 10‑K. The undersigned hereby ratifies and confirms his signature as it may be signed by said attorneys and all that said attorneys and agents shall do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the date indicated below his name.



		/s/ Charles E. Adair
		Charles E. Adair, Director
		Date: February 27, 2017

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the date indicated below his name.



		/s/ Marilyn A. Alexander
		Marilyn A. Alexander, Director
		Date: February 27, 2017

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the date indicated below his name.



		/s/ David L. Boren
		David L. Boren, Director
		Date: February 27, 2017

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

That the undersigned Director of Torchmark Corporation does hereby constitute and appoint Frank M. Svoboda, R. Brian Mitchell and Carol A. McCoy, and each of them severally, his lawful attorneys and agents, for her and in her name and in the capacity indicated below, with full power and authority to do any and all acts and things and to execute any and all instruments which said attorneys and agents determine may be necessary, advisable, or required to enable the said Corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, or requirements of the Securities and Exchange Commission in connection with the Form 10‑K for the fiscal year ended December 31, 2016 . Without limiting the generality of the foregoing, the powers granted include the power and authority to execute and file the Form 10-K, any and all amendments to the Form 10‑K and any and all instruments or documents submitted as a part of or in conjunction with the Form 10‑K. The undersigned hereby ratifies and confirms her signature as it may be signed by said attorneys and all that said attorneys and agents shall do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the date indicated below her name.



		/s/ Jane M. Buchan
		Jane M. Buchan, Director
		Date: February 27, 2017

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the date indicated below his name.



		/s/ Robert W. Ingram
		Robert W. Ingram, Director
		Date: February 27, 2017

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the date indicated below his name.



		/s/ Steven P. Johnson
		Steven P. Johnson, Director
		Date: February 27, 2017

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the date indicated below his name.



		/s/ Lloyd W. Newton
		Lloyd W. Newton, Director
		Date: February 27, 2017

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the date indicated below his name.



		/s/ Darren M. Rebelez
		Darren M. Rebelez, Director
		Date: February 27, 2017

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

That the undersigned Director of Torchmark Corporation does hereby constitute and appoint Frank M. Svoboda, R. Brian Mitchell and Carol A. McCoy, and each of them severally, his lawful attorneys and agents, for him and in his name and in the capacities indicated below, with full power and authority to do any and all acts and things and to execute any and all instruments which said attorneys and agents determine may be necessary, advisable, or required to enable the said Corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, or requirements of the Securities and Exchange Commission in connection with the Form 10‑K for the fiscal year ended December 31, 2016 . Without limiting the generality of the foregoing, the powers granted include the power and authority to execute and file the Form 10-K, any and all amendments to the Form 10‑K and any and all instruments or documents submitted as a part of or in conjunction with the Form 10‑K. The undersigned hereby ratifies and confirms his signature as it may be signed by said attorneys and all that said attorneys and agents shall do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the date indicated below his name.



		/s/ Lamar C. Smith
		Lamar C. Smith, Director
		Date: February 27, 2017

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the date indicated below his name.



		/s/ Paul J. Zucconi
		Paul J. Zucconi, Director
		Date: February 27, 2017

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

That the undersigned Officer and Director of Torchmark Corporation does hereby constitute and appoint Frank M. Svoboda, R. Brian Mitchell and Carol A. McCoy, and each of them severally, his lawful attorneys and agents, for him and in his name and in the capacity indicated below, with full power and authority to do any and all acts and things and to execute any and all instruments which said attorneys and agents determine may be necessary, advisable, or required to enable the said Corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, or requirements of the Securities and Exchange Commission in connection with the Form 10‑K for the fiscal year ended December 31, 2016 . Without limiting the generality of the foregoing, the powers granted include the power and authority to execute and file the Form 10-K, any and all amendments to the Form 10‑K and any and all instruments or documents submitted as a part of or in conjunction with the Form 10‑K. The undersigned hereby ratifies and confirms his signature as it may be signed by said attorneys and all that said attorneys and agents shall do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the date indicated below his name.



		/s/ Gary L. Coleman
		Gary L. Coleman
		Co-Chairman and Chief Executive Officer and Director
		Date: February 27, 2017

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

That the undersigned Officer of Torchmark Corporation does hereby constitute and appoint R. Brian Mitchell and Carol A. McCoy, and each of them severally, his lawful attorneys and agents, for him and in his name and in the capacity indicated below, with full power and authority to do any and all acts and things and to execute any and all instruments which said attorneys and agents determine may be necessary, advisable, or required to enable the said Corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations, or requirements of the Securities and Exchange Commission in connection with the Form 10‑K for the fiscal year ended December 31, 2016 . Without limiting the generality of the foregoing, the powers granted include the power and authority to execute and file the Form 10-K, any and all amendments to the Form 10‑K and any and all instruments or documents submitted as a part of or in conjunction with the Form 10‑K. The undersigned hereby ratifies and confirms his signature as it may be signed by said attorneys and all that said attorneys and agents shall do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the date indicated below his name.



		/s/ Frank M. Svoboda
		Executive Vice President and
		Chief Financial Officer
		(Chief Accounting Officer)
		Date: February 27, 2017

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the date indicated below his name.



		/s/ Larry M. Hutchison
		Larry M. Hutchison,
		Co-Chairman and Chief Executive Officer and Director
		Date: February 27, 2017

Exhibit 31.1

CERTIFICATIONS

I, Gary L. Coleman, certify that:


1.	I have reviewed this annual report on Form 10-K of Torchmark Corporation;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: February 27, 2017			/s/ Gary L. Coleman
			Gary L. Coleman Co-Chairman and Chief Executive Officer

Exhibit 31.2

CERTIFICATIONS

I, Larry M. Hutchison, certify that:

I have reviewed this annual report on Form 10-K of Torchmark Corporation;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and


d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: February 27, 2017			/s/ Larry M. Hutchison
			Larry M. Hutchison Co-Chairman and Chief Executive Officer

Exhibit 31.3

CERTIFICATIONS

I, Frank M. Svoboda, certify that:

I have reviewed this annual report on Form 10-K of Torchmark Corporation;


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and


d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: February 27, 2017			/s/ Frank M. Svoboda
			Frank M. Svoboda Executive Vice President and Chief Financial Officer

Exhibit 32.1

CERTIFICATION OF PERIODIC REPORT

We, Gary L. Coleman, Co-Chairman and Chief Executive Officer, Larry M. Hutchison, Co-Chairman and Chief Executive Officer and Frank M. Svoboda, Executive Vice President and Chief Financial Officer of Torchmark Corporation, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that, to the best of our knowledge:


(1)	the Annual Report on Form 10-K of the Company for the period ended December 31, 2016 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date: February 27, 2017			/s/ Gary L. Coleman
			Gary L. Coleman Co-Chairman and Chief Executive Officer

			/s/ Larry M. Hutchison
			Larry M. Hutchison Co-Chairman and Chief Executive Officer

			/s/ Frank M. Svoboda
			Frank M. Svoboda Executive Vice President and Chief Financial Officer