Investments

Portfolio Composition:

A summary of fixed maturities available for sale by cost or amortized cost and estimated fair value at June 30, 2017 is as follows:

Portfolio Composition as of June 30, 2017



	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	$	387,331	$	8,552	$	(1,696	)	$	394,187	2
States, municipalities, and political subdivisions	1,182,708		128,175		(185		)	1,310,698		8
Foreign governments	20,720		1,592		—			22,312		—
Corporates, by sector:
Financial	3,152,297		413,004		(25,309		)	3,539,992		22
Utilities	1,909,247		314,825		(3,351		)	2,220,721		14
Energy	1,589,769		170,566		(35,952		)	1,724,383		11
Other corporate sectors	5,847,507		651,703		(20,017		)	6,479,193		40
Total corporates	12,498,820		1,550,098		(84,629		)	13,964,289		87
Collateralized debt obligations	59,871		16,677		(10,303		)	66,245		—
Other asset-backed securities	126,019		3,607		(15		)	129,611		1
Redeemable preferred stocks, by sector:
Financial	347,505		59,206		(5,849		)	400,862		2
Utilities	28,577		1,725		(220		)	30,082		—
Total redeemable preferred stocks	376,082		60,931		(6,069		)	430,944		2
Total fixed maturities	$	14,651,551	$	1,769,632	$	(102,897	)	$	16,318,286	100

(1) Amounts reported on the balance sheet.

(2) At fair value.

A schedule of fixed maturities available for sale by contractual maturity date at June 30, 2017 is shown below on an amortized cost basis and on a fair value basis. Actual maturity dates could differ from contractual maturities due to call or prepayment provisions.



	June 30, 2017
	Amortized Cost		Fair Value
Fixed maturities available for sale:
Due in one year or less	$	143,830	$	148,150
Due after one year through five years	578,037		622,103
Due after five years through ten years	1,434,971		1,597,721
Due after ten years through twenty years	4,363,391		5,019,819
Due after twenty years	7,944,279		8,733,397
Mortgage-backed and asset-backed securities	187,043		197,096
	$	14,651,551	$	16,318,286

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



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Proceeds from sales	$	—	$	36,968	$	—	$	51,299
Gross realized gains	—		3,061		—		3,556
Gross realized losses	—		—		—		(214		)

Fair Value Measurements:

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



Fair Value Measurements at June 30, 2017 using:
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value
Bonds:
U.S. Government direct, guaranteed, and government-sponsored enterprises	$	—		$	394,187		$	—		$	394,187
States, municipalities, and political subdivisions	—			1,310,698			—			1,310,698
Foreign governments	—			22,312			—			22,312
Corporates, by sector:
Financial	—			3,477,619			62,373			3,539,992
Utilities	—			2,065,431			155,290			2,220,721
Energy	—			1,683,064			41,319			1,724,383
Other corporate sectors	—			6,151,889			327,304			6,479,193
Total corporates	—			13,378,003			586,286			13,964,289
Collateralized debt obligations	—			—			66,245			66,245
Other asset-backed securities	—			115,458			14,153			129,611
Redeemable preferred stocks, by sector:
Financial	—			400,862			—			400,862
Utilities	—			30,082			—			30,082
Total redeemable preferred stocks	—			430,944			—			430,944
Total fixed maturities	$	—		$	15,651,602		$	666,684		$	16,318,286
Percent of total	—		%	95.9		%	4.1		%	100.0		%

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

Analysis of Changes in Fair Value Measurements Using

Significant Unobservable Inputs (Level 3)



	Six Months Ended June 30, 2017
	Asset- Backed Securities			Collateralized Debt Obligations			Corporates⁽¹⁾			Total
Balance at January 1, 2017	$	—		$	63,503		$	559,600		$	623,103
Total gains or losses:
Included in realized gains/losses	—			—			—			—
Included in other comprehensive income	261			3,597			11,637			15,495
Acquisitions	14,000			—			21,666			35,666
Sales	—			—			—			—
Amortization	—			2,481			8			2,489
Other⁽²⁾	(108		)	(3,336		)	(6,625		)	(10,069		)
Transfers in and/or out of Level 3⁽³⁾	—			—			—			—
Balance at June 30, 2017	$	14,153		$	66,245		$	586,286		$	666,684
Percent of total fixed maturities	0.1		%	0.4		%	3.6		%	4.1		%

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

(1) Includes redeemable preferred stocks.

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

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

Other-Than-Temporary Impairments:

In accordance with the other-than-temporary impairment (OTTI) policy, the Company evaluated its fixed maturities available for sale in an unrealized loss position to determine if there was any impairment for the quarter. Gross unrealized losses may fluctuate quarter over quarter due to adverse factors in the market that affect our holdings, such as changes in the interest rates or credit spreads. While the Company holds securities that may be in an unrealized loss position from time to time, Torchmark has the ability and intent to hold these investments to recovery, and does not expect to be required to sell any of its securities due to the strong cash flows generated by its insurance operations.

For the six months ended June 30, 2017, the Company recorded $245 thousand ($159 thousand, net of tax) in OTTI. For the comparable period in 2016, the Company concluded that there were no other-than-temporary impairments.

Unrealized Loss Analysis:

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



	Less than Twelve Months	Twelve Months or Longer	Total
Number of issues (CUSIP numbers) held:
As of June 30, 2017	164	76	240
As of December 31, 2016	407	94	501

Torchmark’s entire fixed maturity portfolio consisted of 1,516 issues at June 30, 2017 and 1,565 issues at December 31, 2016. The weighted average quality rating of all unrealized loss positions as of June 30, 2017 was BBB.

The following table discloses unrealized investment losses by class and major sector of fixed maturities available for sale at June 30, 2017 for the period of time in a loss position. Torchmark considers these investments to be only temporarily impaired.

Analysis of Gross Unrealized Investment Losses

At June 30, 2017



	Less than Twelve Months					Twelve Months or Longer					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Investment grade securities:
Bonds:
U.S. Government direct, guaranteed, and government-sponsored enterprises	$	114,030	$	(1,194	)	$	1,501	$	(502	)	$	115,531	$	(1,696	)
States, municipalities and political subdivisions	13,502		(155		)	666		(30		)	14,168		(185		)
Foreign governments	—		—			—		—			—		—

Corporates, by sector:
Financial	123,632		(3,735		)	47,847		(1,157		)	171,479		(4,892		)
Utilities	120,890		(2,481		)	17,710		(870		)	138,600		(3,351		)
Energy	36,740		(486		)	137,991		(9,595		)	174,731		(10,081		)
Other corporate sectors	437,568		(11,357		)	69,796		(2,624		)	507,364		(13,981		)
Total corporates	718,830		(18,059		)	273,344		(14,246		)	992,174		(32,305		)
Other asset-backed securities	9,927		(15		)	—		—			9,927		(15		)
Redeemable preferred stocks, by sector:
Financial	—		—			—		—			—		—
Utilities	5,855		(220		)	—		—			5,855		(220		)
Total redeemable preferred stocks	5,855		(220		)	—		—			5,855		(220		)
Total investment grade securities	862,144		(19,643		)	275,511		(14,778		)	1,137,655		(34,421		)
Below investment grade securities:
Bonds:
States, municipalities and political subdivisions	—		—			—		—			—		—
Corporates, by sector:
Financial	—		—			85,338		(20,417		)	85,338		(20,417		)
Energy	20,173		(185		)	81,387		(25,686		)	101,560		(25,871		)
Other corporate sectors	—		—			56,134		(6,036		)	56,134		(6,036		)
Total corporates	20,173		(185		)	222,859		(52,139		)	243,032		(52,324		)
Collateralized debt obligations	—		—			9,697		(10,303		)	9,697		(10,303		)
Redeemable preferred stocks, by sector:
Financial	—		—			21,269		(5,849		)	21,269		(5,849		)
Total redeemable preferred stocks	—		—			21,269		(5,849		)	21,269		(5,849		)
Total below investment grade securities	20,173		(185		)	253,825		(68,291		)	273,998		(68,476		)
Total fixed maturities	$	882,317	$	(19,828	)	$	529,336	$	(83,069	)	$	1,411,653	$	(102,897	)