Torchmark Corporation Insurance Investor Conference February 24, 2009
Net Operating Income Per Share 10 -Year Compound Annual Growth Rate – 9. 3% $6. 00 5. 80 5. 45 4. 99 5. 00 4. 59 4. 23 4. 00 3. 87 2. 94 3. 21 3. 51 2. 64 2. 00 1. 00 0 1999 2000 2001 2002 2003 2 2004 2005 2006 2007 2008 Torchmark Corporation
Underwriting 3 Torchmark Corporation
Underwriting Income 2008 ($ in millions) Life Premium U/W Inc. Health Share of U/W Inc. Premium U/W Inc. Total Life and Health Share of U/W Inc. Premium U/W Inc. Share of U/W Inc. American Income $474 $128 38% $73 $23 19% $547 $151 33% Direct Response 511 92 27% 45 3 3% 556 95 21% Liberty National 287 53 15% 135 28 24% 422 81 18% Military 201 43 13% 0 0 0% 201 43 9% UA Independent 32 1 0% 357 39 33% 389 40 9% UA Branch 17 3 1% 341 25 21% 358 28 6% Other 95 20 6% 0 0 0% 95 20 4% $340 100% $951 $118 100% $2, 568 $458 100% Total $1, 617 Underwriting Income is premium and other operating income less policy obligations, commission and other acquisition and administrative expenses. 4 Torchmark Corporation
Net Life Sales ($ in millions) Net Sales Change from Year-Ago Quarter 1 Q 07 $62. 4 (8%) 2 Q 07 67. 4 (5%) 3 Q 07 66. 1 1% 4 Q 07 68. 3 12% 1 Q 08 70. 5 13% 2 Q 08 76. 0 13% 3 Q 08 75. 0 13% 4 Q 08 77. 0 13% 5 Torchmark Corporation
Investments 6 Torchmark Corporation
Investment Portfolio at 12/31/08 ($ in millions) Amortized Cost % of Total Industry $9, 610 94% 78% Equities 17 0% 3% Mortgage Loans 17 0% 10% 2 0% 1% 360 4% 4% 53 1% 3% 131 1% 1% $10, 190 100% Fixed Maturities Investment Real Estate Policy Loans Other Long-Term Investments Short-Term Investments TOTAL 7 Torchmark Corporation
Fixed Maturities by Type 12/31/08 ($ in millions) Amortized Cost Corporates Redeemable Preferred Stock: U. S. Foreign Municipals Government-Sponsored Enterprises Government & Agencies Residential Mortgage-Backed Securities Commercial Mortgage-Backed Securities CDO’s Other Asset-Backed Securities TOTAL Net Unreal. Gain (Loss) $7, 463 $(1, 188) BBB+ 78% 1, 334 115 261 202 23 23 17 131 (384) (52) (44) (8) 2 2 0 (117) (4) BBB+ AA AA+ AAA AA- 14% 1% 3% 2% 0% 0% 0% 1% 0% $9, 610 $(1, 793) BBB+ 100% 41 8 Average Rating % of Total Amortized Cost Torchmark Corporation
Net Unrealized Losses Fixed Maturities ($ in millions) Net Unrealized Losses: 12/31/08 $1, 793 06/30/08 670 Increase in Unrealized Losses* $1, 123 *% of Increase in Unrealized Losses From Fixed Maturities With: No Change in Rating 74% One Notch Downgrade 18% 9 Torchmark Corporation
Fixed Maturities by Sector 12/31/08 ($ in millions) Net Unreal. Loss Amort. Cost Financial – Life/Health/PC Insurance Average Rating $1, 764 $(494) Financial – Bank 1, 659 (328) Financial – Other 508 (185) BBB+ 5% 1, 105 (60) BBB+ 11% Transportation & Other Industrials 831 (82) BBB+ 9% Energy 793 (96) BBB 8% Consumer – Non-cyclical 644 (54) BBB+ 7% Consumer – Cyclical 471 (117) BBB 5% Communications 600 (103) BBB- 6% Basic Materials 578 (107) BBB 6% Other 657 (167) AA 7% $9, 610 $(1, 793) Utilities TOTAL 10 BBB+ % of Total Amort. Cost A BBB+ 18% 17% 100% Torchmark Corporation
Fixed Maturities by Rating ($ in millions) Amortized Cost Net Unreal. Loss % of Amortized Cost to Total TMK Industry Investment Grade: AAA AA A BBB } $492 442 3, 366 4, 597 8, 897 ($9) (27) (511) (995) (1, 542) 5% 5% 35% 48% 92. 6% 470 131 713 (150) (51) (251) 5% 1% 1% 7. 4% 3% 2% 1% 6% $9, 610 ($1, 793) 100% 69% 25% 94% Below Investment Grade: BB B Less Than B TOTAL 112 11 Torchmark Corporation
Capitalization and Liquidity 12 Torchmark Corporation
Capitalization 12/31/08 ($ in millions) Insurance Company Risk Based Capital Required Capital Company Action Level RBC $1, 281 $389 329% Corporate Debt to Capital Commercial Paper Senior Debentures & Notes Trust Preferred Total Debt Equity, Excluding FAS 115 $304 602 120 $1, 026 3, 318 Total Capitalization 7. 0% 13. 9% 2. 7% 23. 6% $4, 344 13 Torchmark Corporation
Insurance Companies Net Cash Flow ($ in millions) 2008 2009 E Cash From Operations Insurance Underwriting Excess Investment Income Taxes and Parent Expenses Net Cash From Operations $494 $485 608 (171) (180) $931 587 Investment Maturities Net Cash Flow $1, 518 14 $940 - $960 600 $1, 540 - $1, 560 Torchmark Corporation
Parent Company Free Cash Flow ($ in millions) 2008 2009 E Insurance Companies: Net Cash Flow Less Cash Retained Cash Dividended to TMK $1, 518 1, 081 $437 Torchmark Parent Company Dividends Received From Insurance Companies $437 Less Cash Outflow: Interest Expense Dividends to Shareholders Other, Net Outflow 62 49 (17) $94 Free Cash Flow $343 15 $320 - $330 Torchmark Corporation
2009 Debt Maturities ($ in millions) Cash Needed for 2009 Debt Maturities: Commercial Paper Senior Notes Due 8/09 $305 99 $404 Sources of 2009 Debt Repayment > Preference is to Refinance > Sources of Cash if Refinancing Terms Aren’t Favorable 2009 Free Cash Flow Loans From Subsidiaries Issuance of Preferred Shares to Subs Draw Down Bank Line Other Sources $325 390 335 400 $1, 850 16 Torchmark Corporation
Long-Term Debt Maturities ($ in millions) Maturity Schedule $300 $250 200 $166 150 $120 100 $99 $94 50 0 ’ 09 ’ 11 ’ 13 ’ 15 ’ 17 ’ 19 ’ 21 ’ 23 ’ 25 ’ 27 ’ 29 17 ’ 31 ’ 33 ’ 35 ’ 37 > Torchmark Corporation
Share Repurchases 18 Torchmark Corporation
Share Repurchases Year Average Price 2009 * $29. 45 2008 No. of Shares (in 000’s) PE Ratio 500 7, 638 $55. 86 4. 7 – 4. 9 9. 6 2007 $65. 39 6, 150 12. 0 2006 $57. 47 5, 575 11. 5 2005 $53. 15 5, 647 11. 6 2004 $51. 39 5, 221 12. 1 2003 $38. 17 5, 902 9. 9 2002 $37. 82 4, 817 10. 8 2001 $37. 25 4, 265 11. 6 2000 $23. 22 5, 806 7. 9 1999 $32. 50 5, 398 12. 3 1998 $36. 63 3, 436 15. 4 * Information based on transactions thru 2/17/09 and management’s guidance for 2009 operating income per share. 19 Torchmark Corporation
Summary Core Operations • • • Steady earnings per share growth Straightforward protection coverage – minimal exposure to variable annuities Double-digit growth in life sales Strong growth in agent recruiting at Liberty National and American Income Stable persistency in life business Investments • • • Primarily investment grade fixed maturities Little exposure to equities, mortgages, real estate No direct exposure to subprime or Alt A mortgages No credit default swaps or other derivatives Ratio of invested assets to equity is 3 X versus peer average of 7 X Capitalization and Liquidity • Well capitalized • Strong and consistent free cash flow • More than sufficient liquidity to retire debt Share Repurchase Program • Still the best use of free cash flow along with possible retirement of debt • Program will be continued prudently 20 Torchmark Corporation
This presentation may contain forward-looking statements within the meaning of the federal securities laws. These prospective statements reflect management’s current expectations, but are not guarantees of future performance. Accordingly, please refer to Torchmark’s cautionary statement regarding forward-looking statements, and the business environment in which the Company operates, contained in the Company’s Form 10 -K for the period ended December 31, 2007, and subsequent Forms 10 -Q, on file with the Securities and Exchange Commission, and on the Company’s web site at www. torchmarkcorp. com on the Investor Relations page. Torchmark specifically disclaims any obligation to update or revise any forward-looking statement because of new information, future developments or otherwise. This presentation contains certain financial measures that differ from the comparable GAAP measures. Reconciliations between the non-GAAP measures and the comparable GAAP measures may be found on the Company’s web site at www. torchmarkcorp. com on the Investor Relations page under SEC filings (form 10 -K for 2007) and subsequent quarterly earnings press releases. 21 Torchmark Corporation
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