10-K

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

Commission file number

December 31, 2002

1-8052

TORCHMARK CORPORATION

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Delaware

63-0780404

(STATE OR OTHER JURISDICTION OF

(I.R.S. EMPLOYER

INCORPORATION OR ORGANIZATION)

IDENTIFICATION NO.)

2001 Third Ave. South, Birmingham, AL

35233

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

(ZIP CODE)

Registrant’s telephone number, including area code:

(205) 325-4200

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

TITLE OF EACH CLASS	CUSIP NUMBER:	NAME OF EACH EXCHANGE ON WHICH REGISTERED:
Common Stock, $1.00 Par Value	891027104	New York Stock Exchange The International Stock Exchange, London, England
7 3/4% Trust Preferred Securities	89102Q201	New York Stock Exchange
7 3/4% Trust Preferred Securities	89102T205	New York Stock Exchange

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

None

Securities reported pursuant to Section 15(d) of the Act:

TITLE OF EACH CLASS:	CUSIP NUMBER:
6 1/4% Senior Notes due 2006	891027 AL 8
8 1/4% Senior Debentures due 2009	891027 AE 4
7 7/8% Notes due 2023	891027 AF 1
7 3/8% Notes due 2013	891027 AG 9

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) 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 (§229.405 OF THIS CHAPTER) 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 IS AN ACCELERATED FILER (AS DEFINED IN RULE 12b-2 OF THE ACT)

YES  x        NO  ¨

THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT $4,379,405,993

THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT’S CLASSES OF COMMON STOCK, AS OF

FEBRUARY 28, 2003:    116,931,462

DOCUMENTS INCORPORATED BY REFERENCE

PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 24, 2003, PART III

INDEX OF EXHIBITS (PAGES 93 through 96)

TOTAL NUMBER OF PAGES INCLUDED ARE 105

PART 1

Item 1.  Business

Torchmark Corporation (Torchmark), an insurance holding company, was incorporated in Delaware in 1979, as Liberty National Insurance Holding Company and was renamed Torchmark Corporation in 1982. Its primary subsidiaries are American Income Life Insurance Company (American Income), Liberty National Life Insurance Company (Liberty), Globe Life And Accident Insurance Company (Globe), United American Insurance Company (United American), and United Investors Life Insurance Company (United Investors).

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.

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

Primary Distribution Method	Company	Products	Distribution
Direct Response	Globe Life And Accident Insurance Company Oklahoma City, Oklahoma	Individual life and supplemental health insurance including juvenile and senior life coverage and Medicare Supplement.	Direct response, mail, television, magazine; nationwide.
Liberty National Exclusive Agency	Liberty National Life Insurance Company Birmingham, Alabama	Individual life and supplemental health insurance.	2,203 full-time sales representatives; 111 district offices in the Southeastern U.S.
American Income Exclusive Agency	American Income Life Insurance Company Waco, Texas	Individual life and supplemental health insurance to union and credit union members and other associations.	1,975 agents in the U.S., Canada, and New Zealand.
United Investors Agency	United Investors Life Insurance Company Birmingham, Alabama	Individual life insurance and annuities.	Independent Agency.
Military	Liberty National Life Insurance Company Birmingham, Alabama Globe Life And Accident Insurance Company Oklahoma City, Oklahoma	Individual life insurance.	Independent Agency through career agents nationwide.
United American Independent Agency and Branch Office Agency	United American Insurance Company McKinney, Texas	Senior life and supplemental health insurance including Medicare Supplement coverage and other supplemental health insurance.	34,841 independent agents in the U.S., Puerto Rico and Canada; 1,280 exclusive producing agents in branch offices.

Additional information concerning industry segments may be found in Management’s Discussion and Analysis and in Note 19—Business Segments in the Notes to Consolidated Financial Statements beginning on page 82.

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:

	(Amounts in thousands)
	Annualized Premium Issued						Annualized Premium in Force
	2002		2001		2000		2002		2001		2000
Whole life:
Traditional	$	182,223	$	147,889	$	133,413	$	758,770	$	695,261	$	652,195
Interest-sensitive		6,897		9,330		13,907		146,985		154,743		160,865
Term		137,647		133,869		139,990		411,534		387,695		368,045
Other		7,279		3,544		3,433		25,867		19,714		19,039
	$	334,046	$	294,632	$	290,743	$	1,343,156	$	1,257,413	$	1,200,144

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The distribution methods for life insurance products include sales by direct response, exclusive agents and independent agents. These methods are discussed in more depth under the heading Marketing on page 3. The following table presents life annualized premium issued by distribution method:

	(Amounts in thousands)
	Annualized Premium Issued						Annualized Premium in Force
	2002		2001		2000		2002		2001		2000
Direct response	$	123,260	$	112,041	$	112,918	$	357,393	$	326,111	$	306,162
Exclusive Agents:
Liberty National		56,341		54,853		53,608		318,613		314,676		312,173
American Income		91,882		66,421		56,560		302,064		265,912		245,433
United American		5,643		4,913		4,730		21,286		21,158		21,362
Military		23,479		21,182		19,863		158,840		141,565		125,920
Independent Agents:
United American		25,675		24,453		25,708		58,087		54,143		53,269
Other		7,766		10,769		17,356		126,873		133,848		135,825
	$	334,046	$	294,632	$	290,743	$	1,343,156	$	1,257,413	$	1,200,144

Health insurance

Torchmark insurance subsidiaries offer supplemental health insurance products. These are generally classified as (1) Medicare Supplement, (2) cancer and (3) other supplemental health policies.

Medicare Supplement policies are offered on both an individual and group basis through exclusive and independent agents, and direct response. These guaranteed renewable policies provide reimbursement for certain expenses not covered by the federal Medicare program. One popular feature is an automatic claim filing system for Medicare Part B benefits whereby policyholders do not have to file most claims because they are paid from claim records sent electronically directly to the Torchmark insurers by Medicare.

Cancer policies are offered on an individual basis through exclusive and independent agents as well as direct response. These guaranteed renewable policies are designed to fill gaps in existing medical coverage. Benefits are triggered by a diagnosis of cancer or health-related events or medical expenses related to the treatment of cancer. Benefits may be in the form of a lump sum payment, stated amounts per diem, per medical procedure, or reimbursement for certain medical expenses.

Other health policies include accident, long-term care and limited-benefit hospital and surgical coverages. These policies are generally issued as guaranteed-renewable and are offered on an individual basis through exclusive and independent agents, and direct response. They are designed to supplement existing medical coverages. Benefits are triggered by certain health-related events or incurred expenses. Benefit amounts are per diem, per health related event or defined expenses incurred up to a stated maximum.

The following table presents supplemental health annualized premium for the three years ended December 31, 2002 by marketing (distribution) method:

	(Amounts in thousands)
	Annualized Premium Issued						Annualized Premium in Force
	2002		2001		2000		2002		2001		2000
Direct response	$	6,752	$	3,295	$	3,572	$	23,932	$	18,817	$	16,167
Exclusive agents:
Liberty National		12,157		10,747		10,081		165,394		162,724		163,387
American Income		11,438		10,019		8,615		51,299		49,260		47,659
United American		75,383		115,684		145,089		316,337		337,026		310,526
Independent agents:
United American		96,052		73,539		85,115		473,520		474,816		466,560
	$	201,782	$	213,284	$	252,472	$	1,030,482	$	1,042,643	$	1,004,299

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The following table presents supplemental health annualized premium information for the three years ended December 31, 2002 by product category:

	(Amounts in thousands)
	Annualized Premium Issued						Annualized Premium in Force
	2002		2001		2000		2002		2001		2000
Medicare Supplement	$	99,429	$	158,621	$	201,396	$	714,112	$	760,848	$	728,918
Cancer		11,722		10,797		10,073		172,830		169,341		169,013
Other health-related policies		90,631		43,866		41,003		143,540		112,454		106,368
	$	201,782	$	213,284	$	252,472	$	1,030,482	$	1,042,643	$	1,004,299

The number of individual health policies in force were 1.50 million, 1.59 million and 1.64 million at December 31, 2002, 2001 and 2000 respectively.

Annuities

Annuity products offered by Torchmark insurance subsidiaries include single-premium deferred annuities, flexible-premium deferred annuities, and variable annuities. Single-premium and flexible-premium products are fixed annuities where a portion of the interest credited is guaranteed. Additional interest may be credited on certain contracts. Variable annuity policyholders may select from a variety of mutual funds which offer different degrees of risk and return. The ultimate benefit on a variable annuity results from the account performance. Variable annuities have declined following the termination in 2001 of the contract with the variable annuity distributor.

Marketing

Torchmark insurance subsidiaries are licensed to sell insurance in all 50 states, the District of Columbia, Puerto Rico, the Virgin Islands, Guam, New Zealand and Canada. Distribution is through direct response, independent and exclusive agents. The number of independent and exclusive agents are presented below as of December 31, 2002.

Direct Response.  Various Torchmark insurance companies offer life insurance products directly to consumers primarily through direct mail but also through co-op mailings, television, national newspaper supplements and national magazines. Torchmark operates a full service letterpress which enables the direct response operation to maintain high quality standards while producing materials much more efficiently than they could be purchased from outside vendors.

Exclusive Agents.  Liberty National’s 2,203 agents sell life and health insurance, primarily in the seven state area of Alabama, Florida, Georgia, Tennessee, Mississippi, South Carolina, and North Carolina. These agents are employees of Liberty and are primarily compensated by commissions based on sales. During the past several years this operation has emphasized bank draft and direct billing collection of premium rather than agent collection, because of the resulting lower cost and improved persistency.

Through the American Income Agency, individual life and fixed-benefit accident and health insurance are sold through approximately 1,975 exclusive agents who target moderate income wage earners through the cooperation of labor unions, credit unions, and other associations. These agents are authorized to use the “union label” because this sales force is represented by organized labor.

The United American Branch Office Agency specializes in the sale of Medicare Supplement and other life and health products for the over-age 50 market through 1,280 producing agents in 78 branch offices throughout the United States.

Independent Agents.  Torchmark insurance companies offer a variety of life and health insurance policies through 34,841 independent agents, brokers, and licensed sales representatives. Torchmark is not committed or obligated in any way to accept a fixed portion of the business submitted by any

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independent agent. All policy applications, both new and renewal, are subject to approval and acceptance by Torchmark. Torchmark is not dependent on any single agent or any small group of independent agents, the loss of which would have a materially adverse effect on insurance sales.

Torchmark subsidiaries distribute life insurance through a nationwide independent agency whose sales force is comprised of former commissioned and noncommissioned military officers who sell exclusively to commissioned and noncommissioned military officers and their families.

Pricing

Premium rates for life and health insurance products are established using assumptions as to future mortality, morbidity, persistency, and expenses, all of which are generally based on the experience of each insurance subsidiary, and on 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 certain individual life products. Profitability is affected to the extent actual experience deviates from that which has been assumed in premium pricing and to the extent investment income exceeds 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 policy accounts.

Underwriting

The underwriting standards of each Torchmark insurance subsidiary are established by management. Each company uses information from the application and, in some cases, telephone interviews with applicants, inspection reports, 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.

For life insurance in excess of certain prescribed amounts, each insurance company requires medical information or examinations of applicants. These are graduated according to the age of the applicant and may vary with the kind of insurance. Except for the use of information from the Medical Information Bureau, generally, the maximum amount of insurance issued without additional medical information is $100,000 through age 50. In certain circumstances, the maximum amount is raised to $250,000 through age 35. Additional medical information is requested of all applicants, regardless of age or amount, if information obtained from the application or other sources indicates that such information is warranted.

Reinsurance

As is customary among insurance companies, Torchmark insurance subsidiaries cede insurance to other unaffiliated insurance companies on policies issued they issue in excess of retention limits. In the event insurance business is ceded, the Torchmark insurance subsidiaries remain contingently liable with respect to ceded insurance should any reinsurer be unable to meet the obligations it assumes. (See Note 18—Commitments and Contingencies in the Notes to Consolidated Financial Statements on page 75 and Schedule IV—Reinsurance [Consolidated] on page 102.)

Reserves

The life insurance policy reserves reflected in Torchmark’s financial statements as future policy benefits are calculated based on generally accepted accounting principles (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

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these policies generally are issued on a guaranteed-renewable basis. A list of the assumptions used in the calculation of Torchmark’s reserves are reported in the financial statements (See Note 7—Future Policy Benefit Reserves in the Notes to Consolidated Financial Statements on page 62). Reserves for annuity products consist of the policyholders’ account values and are increased by policyholder deposits and interest credits 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 that generally permit investments in qualified municipal, state, and federal government obligations, corporate bonds, preferred and common stock, real estate, and mortgages where the value of the underlying real estate exceeds the amount of the loan. The investments of Torchmark insurance subsidiaries consist predominantly of high-quality, investment-grade securities. Fixed maturities represented 92% of total investments at December 31, 2002. Approximately 3% of fixed maturity investments were securities guaranteed by the United States government or its agencies or investments that were collateralized by U.S. government securities. Most of these investments were in GNMA securities that are backed by the full faith and credit of the United States government. The remainder of these government investments were U.S. Treasuries, agency securities or collateralized mortgage obligations (CMO’s) that are fully backed by GNMA’s. (See Note 3—Investments in the Notes to Consolidated Financial Statements on page 59 and Management’s Discussion and Analysis on page 28.)

The following table presents the fair market value of fixed maturity investments at December 31, 2002 on the basis of ratings as determined by the Bloomberg Composite or the equivalent NAIC designation. Ratings of BBB and higher (or their equivalent) are considered investment grade by the rating services.

Rating	Amount (in thousands)		%
AAA	$	481,051	6.7	%
AA		356,109	4.9
A		3,420,983	47.6
BBB		2,374,271	33.0
BB		325,730	4.5
B		148,435	2.1
Less than B		77,752	1.1
Not rated		10,061	0.1
	$	7,194,392	100.0	%

Securities are assigned ratings when acquired. All ratings are reviewed and updated quarterly. Specific security ratings are updated as information becomes available during the year.

Ratings

The following list indicates the ratings currently held by Torchmark’s five largest insurance companies as rated by A.M. Best Company:

	A.M. Best Company
Liberty National Life Insurance Company	A+	(Superior)
Globe Life And Accident Insurance Company	A+	(Superior)
United Investors Life Insurance Company	A+	(Superior)
United American Insurance Company	A+	(Superior)
American Income Life Insurance Company	A	(Excellent)

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A.M. Best states that it assigns A+ (Superior) ratings to those companies which, in its opinion, have demonstrated superior overall performance when compared to the norms of the life/health insurance industry. A+ (Superior) companies have a superior ability to meet their obligations to policyholders over a long period of time. A.M. Best states that it assigns A (Excellent) ratings to those companies which, in its opinion, have demonstrated excellent overall performance when compared to the norms of the life/health insurance industry. A (Excellent) companies have an excellent ability to meet their obligations to policyholders over a long period of time.

Liberty, Globe, United American, American Income, and UILIC have ratings of AA by Standard & Poor’s Corporation. This AA rating is assigned by Standard & Poor’s Corporation to those companies who offer excellent financial security on an absolute and relative basis and whose capacity to meet policyholders obligations is overwhelming under a variety of economic and underwriting conditions.

Competition

Torchmark competes with other insurance carriers through policyholder service, price, product design, and sales efforts. In addition to competition with other insurance companies, Torchmark faces competition from other financial services organizations. 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.

Torchmark companies operate at lower policy acquisition and administrative expense levels than peer companies, allowing Torchmark to have competitive rates while maintaining underwriting margins. In the case of Medicare Supplement business, having low expense levels is necessary in order to meet federally mandated loss ratios and achieve the desired underwriting margins. Torchmark’s years of experience in the direct response business are a valuable asset in implementing direct response marketing operations.

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. Insurance companies can also be required under the solvency or guaranty laws of most states in which they do business to pay assessments up to prescribed limits to fund policyholder losses or liabilities of insolvent insurance companies. 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 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 of the insurance subsidiaries of Torchmark are adequately capitalized under the risk based capital formula.

Guaranty Assessments. State guaranty laws provide for assessments from insurance companies 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 determined according to the extent of these unsatisfied obligations in each state. Assessments are recoverable to a great extent as offsets against state premium taxes.

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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 Alabama, Delaware, Missouri, New York, Texas, and Indiana.

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

Personnel

At the end of 2002, Torchmark had 1,978 employees and 2,724 licensed employees under sales contracts. Additionally, approximately 43,000 independent and exclusive agents and brokers, who were not employees of Torchmark, were associated with Torchmark’s marketing efforts.

Item 2.    Real Estate

Torchmark, through its subsidiaries, owns or leases buildings that are used in the normal course of business. Liberty owns a 487,000 square foot building at 2001 Third Avenue South, Birmingham, Alabama which currently serves as Liberty’s, UILIC’s, and Torchmark’s home office. Approximately 160,000 square feet of this building is leased or available for lease to unrelated tenants by Liberty. Liberty also operates from 55 company-owned district offices used for agency sales personnel.

United American owns and is the sole occupant of a 140,000 square foot facility, located in the Stonebridge Ranch development in McKinney, Texas (a north Dallas suburb).

Globe owns a 300,000 square foot office building at 204 N. Robinson, Oklahoma City, of which Globe occupies 56,000 square feet as its home office and the remaining space is either leased or available for lease. Globe also owns an 80,000 square foot office building at 120 Robert S. Kerr Avenue, Oklahoma City, which is available for lease. Further, Globe owns a 112,000 square foot facility located at 133 NW 122 Street in Oklahoma City which houses the Direct Response operation.

American Income owns and is the sole occupant of an office building located at 1200 Wooded Acres Drive, Waco, Texas. The building is a two-story structure containing approximately 72,000 square feet of usable floor space. American Income also owns a 43,000 square foot facility located at 1001 Jewell Drive in Waco, which houses a direct response operation.

Liberty and Globe also lease district office space for their agency sales personnel.

Item 3.    Legal Proceedings

Torchmark and its subsidiaries continue to be named as parties to pending or threatened legal proceedings. These lawsuits involve 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. Many of these lawsuits involve claims for punitive damages in state courts of Alabama, a jurisdiction particularly recognized for its large punitive damage verdicts. A number of such actions involving Liberty also name Torchmark as a defendant. In 1999, Alabama enacted legislation limiting punitive damages in non-physical injury cases to the greater of $500,000 or three times compensatory damages. Since this legislation has not undergone scrutiny by appellate courts regarding its constitutionality and a jury’s discretion regarding the amount of compensatory damages (including mental anguish) awarded in any given case is not precisely defined, the effect of this legislation on Torchmark’s litigation remains unclear. Additionally, it should be noted that Torchmark subsidiaries actively market insurance in the State of Mississippi, a jurisdiction which is recognized nationally for large punitive damage verdicts. Bespeaking caution is the fact that the likelihood

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or extent of a punitive damage award in any given case is currently impossible to predict. As of December 31, 2002, Liberty was a party to approximately 93 active lawsuits (including 9 employment related cases and excluding interpleaders and stayed cases), 69 of which were Alabama proceedings and 9 of which were Mississippi proceedings in which punitive damages were sought. Liberty faces trial settings in these cases on an on-going basis.

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 management to be material. It should be noted, however, that large punitive damage awards bearing little or no relation to actual damages awarded by juries in jurisdictions in which Torchmark has substantial business, particularly Alabama and Mississippi, continue to occur, creating the potential for unpredictable material adverse judgments in any given punitive damage suit.

As previously reported, Liberty was served on October 28, 1999 with a subpoena from the Florida Department of Insurance in connection with that Department’s investigation into Liberty’s sales practices and disclosures in the State of Florida regarding industrial life insurance and low coverage life insurance policies. Liberty has also received similar subpoenas from the Alabama, Georgia, Kentucky, Texas, South Carolina and Minnesota Insurance Departments regarding its industrial life insurance and other low face-amount life insurance policies sold in those states. Specific inquiry is made into the historical use of race-distinct mortality in the design or pricing of industrial insurance, a practice believed to be actuarially sound, but nevertheless discontinued by Liberty many years ago. In 1988, Liberty endeavored to convert to paid-up status those policies utilizing race-distinct mortality that remained in premium-paying status at that time. Liberty has been and continues responding to these subpoenas in a timely fashion. In July 2000, the Florida and Georgia Insurance Departments issued cease and desist orders to all companies reporting premium income from industrial life insurance, including Liberty, stating that, to the extent that any company is currently collecting any race-distinct insurance premiums from Florida and Georgia residents, respectively, it immediately cease and desist from collecting any premium differential based on the race of the policyholders. Upon receiving the Georgia order, Liberty informed the Georgia Insurance Department that Liberty did not interpret the Georgia Department’s directive as a cease and desist order since it did not afford Liberty the opportunity for a mandatory or voluntarily requested hearing thereunder. On August 22, 2000, the Florida District Court of Appeals issued an order staying the Florida Insurance Department’s immediate final cease and desist order, pending appeals to the Florida Supreme Court. The Florida Supreme Court subsequently reversed and rendered the District Court of Appeals’ order, and thus declared the cease and desist order null and void. Liberty, as an Alabama domestic company, was examined by representatives of the Alabama Department of Insurance with regard to issues parallel to those raised by the State of Florida. By order dated January 28, 2002, the Alabama Department finalized a report of its examination of Liberty. The report has now been turned over to the Alabama Department’s Legal Division for further consideration.

On December 8, 1999, purported class action litigation was filed against Liberty in the United States District Court for the Northern District of Alabama (Moore v. Liberty National Life Insurance Company, Case No. CV-99-BU-3262-S), on behalf of all African-Americans who have or have had at the time of policy termination an ownership interest in certain life insurance policies ($25,000 face amount or less) marketed by Liberty and certain of its former subsidiaries. The alleged class period covers virtually the entire twentieth century. Plaintiffs allege racial discrimination in Liberty’s premium rates in violation of 42 U.S.C. § 1981, breach of fiduciary duty in sales and administrative practices, receipt of excessive and unreasonable premium payments by Liberty, improper hiring, supervision, retention and failure to monitor actions of officers, agents and employees, breach of contract in dismantling the debit premium collection system, fraudulent inducement and negligent misrepresentation. Unspecified compensatory and punitive damages are sought together with a declaratory judgment and equitable and/or injunctive relief, including establishment of a constructive trust for the benefit of class members. Defendants filed a motion for judgment on the pleadings or in the alternative for summary judgment on January 27, 2000. On April 7, 2000, the District Court entered an order granting Liberty’s motion for judgment on the pleadings and dismissing plaintiffs’ claims under 42 U.S.C. § 1981 with prejudice as time-barred and dismissing their state law claims without prejudice to re-file in state court if desired. Plaintiffs subsequently filed motions with the District Court to reconsider its April 7, 2000 order and for permission to file an amended complaint adding similar claims under 24 U.S.C. § 1982. Liberty opposed this motion. On June 22, 2000, purported class action litigation with allegations comparable to those in the Moore case was filed

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against Liberty in the Circuit Court of Jefferson County, Alabama (Baldwin v. Liberty National Life Insurance Company, Case No. CV 00-684). The Baldwin case is currently stayed pending disposition of the Moore case.

On July 3, 2000, the District Court issued an order in the Moore case granting in part and denying in part the plaintiffs’ motions. The District Court ordered the Moore plaintiffs to file an amended complaint setting forth their claims under 28 U.S.C. §§ 1981 and 1982 and, if such claims are timely, any state law claims for breach of contract related to the discontinuance of debit collections, and dismissed with prejudice all remaining state law claims of the plaintiffs as time-barred by the common law rule of repose. On July 14, 2000, plaintiffs filed their amended complaint with the District Court and Liberty filed a motion to alter or amend the District Court’s July order or, in the alternative, requested that the District Court certify for purposes of appeal the issue whether the state law doctrine of repose should be applied to and bar plaintiffs’ actions under 28 U.S.C. §§ 1981 and 1982. The District Court entered such an order on July 21, 2000 and stayed proceedings in Moore pending resolution of Liberty’s petition to the U.S. Circuit Court of Appeals for the Eleventh Circuit. Liberty filed a petition on July 30, 2000 with the Eleventh Circuit seeking that Court’s permission to appeal the portions of the District Court’s July order in Moore granting the plaintiffs the right to file the amended complaint. The Eleventh Circuit Court granted Liberty’s motion and agreed to consider Liberty’s arguments regarding the applicability of the state law of repose to actions under 28 U.S.C. §§ 1981 and 1982. Oral arguments were heard by the Eleventh Circuit Court on July 20, 2001. On September 28, 2001, the Eleventh Circuit Court ruled that the rule of repose was not a bar to the Moore claims in federal court and that there is no reverse pre-emption under the McCarrin Ferguson Act. Liberty filed a petition seeking an en banc rehearing in the Eleventh Circuit Court, which was subsequently denied. Liberty filed a petition for a writ of certiorari with the U.S. Supreme Court on February 21, 2002, which has been denied. The plaintiffs filed their motion for class certification in Moore with the District Court on December 20, 2002 and Liberty filed its opposition to this motion on February 3, 2003.

Four individual cases with similar allegations to those in the Moore case which were filed against Liberty in various state Circuit Courts in Alabama remain pending and have been removed and/or transferred to the U.S. District Court for the Northern District of Alabama. The Moore case and all cases transferred to the Northern District of Alabama have been assigned to Judge U.W. Clemon, a noted former civil rights attorney. In the earliest filed of the individual state court actions, Walter Moore v. Liberty National Life Insurance Company (Circuit Court of Dallas County, Alabama, CV 00-306) the Court entered an order granting summary judgment in favor of Liberty based upon the doctrine of repose and has subsequently denied a motion to reconsider its dismissal of this case.

Hudson v. Liberty National Life Insurance Company, one of the four individual cases referenced above, was filed in the Circuit Court of Bullock County, Alabama on February 28, 2001 (Case No. CV 2001-25) and contains similar allegations to those in Moore. After denials by the Bullock Circuit Court of Liberty’s motion to dismiss and request that certain questions arising in the litigation be certified to the Alabama Supreme Court, Liberty sought a writ of mandamus on the certified questions issue from the Alabama Supreme Court. The Alabama Supreme Court agreed to hear Liberty’s petition for writ of mandamus seeking to have the Supreme Court direct the trial court to grant Liberty’s motion to dismiss or for a summary judgment or to certify for interlocutory appeal the Circuit Court’s denial of such motion. On January 18, 2002, the Alabama Supreme Court denied Liberty’s request for the writ of mandamus but noted that Liberty’s motion for summary judgment based on the rule of repose remained pending in the trial court and was ripe for adjudication. Upon remand, plaintiff amended his complaint to add causes of action under federal law and this case has been removed to federal court as discussed above.

In the fifth individual state court action, (Edwards v. Liberty National Life Insurance Company, Case No. CV 0005872), the trial court denied Liberty’s motion seeking a summary judgment based upon the rule of repose but indicated that it would reconsider that motion after discovery. Liberty filed a motion to alter or amend the trial court’s order, or in the alternative, for an interlocutory appeal. In September 2001, the trial court in that case vacated its earlier order and stayed the litigation pending resolution of the Hudson case, which is discussed above. On February 22, 2002, the trial court held a hearing regarding the stay in Edwards. The trial court permitted the plaintiffs very limited discovery.

On March 15, 2001, purported class action litigation was filed against Liberty in the United States District Court for the District of South Carolina (Hinton v. Liberty National Life Insurance Company, Civil

9

Action No. 3-01-68078 19), containing allegations largely similar to the Moore case filed in the Federal District Court for the Northern District of Alabama. Liberty was described in the suit as successor in interest of New South Life Insurance Company (New South), an insurer acquired out of receivership by an entity which was subsequently acquired by Peninsular Life Insurance Company (Peninsular). In 1985, Liberty reinsured a block of insurance business from Peninsular, including business formerly written by New South. Liberty has requested indemnification in the Hinton litigation from Peninsular and its successors in interest. Liberty sought a writ of mandamus in Hinton from the Fourth Circuit Court of Appeals as well as a change of venue to consolidate the Hinton case with the Moore case currently pending in Federal District Court in Alabama. Both the change in venue and the writ of mandamus were denied. However, the South Carolina District Court issued an order inviting the parties to resubmit a motion for change of venue. Liberty National filed such a motion to transfer the case to the U.S. District Court for the Northern District of Alabama, which was granted by the South Carolina District Court on February 12, 2002.

Another action with similar allegations to Moore, which also includes claims for race discrimination under 24 U.S.C. §§1981 and 1982, was filed against Liberty in U.S. District Court for the Northern District of Alabama on January 28, 2002 (Hull v. Liberty National Life Insurance Company, Civil Action No. CV-02-C-0219-W).

There are a total of 16 race-distinct mortality cases pending in the U.S. District Court for the Northern District of Alabama (with two of such cases having been originally filed in the U.S. District Court for the Northern District of Georgia), including Sunday v. Liberty National Life Insurance Company, Case No. CV02-BE-0639-S), in which approximately 460 individuals assert that they had discriminatory insurance policies with Liberty. The Baldwin and Edwards cases remain pending in Alabama Circuit Courts. Plaintiffs’ attorneys have actively advertised for additional plaintiffs to join these suits or file additional suits.

On December 23, 2002, seventy individual plaintiffs filed an action against Liberty and certain of its sales agents in the Circuit Court of Holmes County, Mississippi (Thurmond v. Liberty National Life Insurance Company, Cause No.: 2002-517). The plaintiffs, all African Americans, assert claims of fraudulent and reckless misrepresentation, innocent misrepresentation, fraudulent concealment and suppression, breach of contract in the dismantling of Liberty’s debit collection system and racial discrimination under various sections of the Mississippi Code Annotated in connection with the marketing, sale and administration by Liberty of plaintiffs’ industrial low value whole life, accident and/or burial insurance policies. Actual and punitive damages in an unspecified amount, interest and costs are sought.

On December 27, 2002, individual litigation involving 120 separate plaintiffs with substantially similar allegations, was filed against Liberty in the Circuit Courts of Holmes County, Mississippi (Billingsley v. Liberty National Life Insurance Company, Civil Action No.: 2002-532), of Bolivar County, Mississippi (Hudson v. Liberty National Life Insurance Company, Civil Action No.: 2002-170) and of Leflore County, Mississippi (Teague v. Liberty National Life Insurance Company, Civil Action No.: 2002-0218-CICI). Plaintiffs in each action assert that Liberty and its sales agents marketed small value debit insurance policies at racially discriminatory rates to African Americans using racially discriminatory sales and administrative practices and collected premium payments which are alleged to be excessive and unconscionable in that such premiums exceeded the face amount of insurance issued. Unspecified actual and punitive damages, attorneys fees, costs and interest, as well as the imposition of a constructive trust or disgorgement are sought for claims of fraud and fraudulent inducement, breach of the duty of good faith and fair dealing, tortuous breach of contract, breach of fiduciary duty, money had and received, unjust enrichment, negligence and/or gross negligence, violations of the Mississippi Consumer Protection Act, conversion and violations of Mississippi Code Ann. § 83-7-3 (prohibiting discrimination by life insurers in the assessment of premiums to policyholders).

On July 26, 2001, litigation was filed against Torchmark and three current members of Torchmark’s Board of Directors in the United States District Court for the District of Kansas (Waddell & Reed Financial, Inc. v. Torchmark Corporation, Civil Action No. 01-2372-KHV). Plaintiffs assert that defendants engaged in a scheme to control and injure Waddell & Reed Financial, Inc. (Waddell & Reed) after it was spun-off by Torchmark in November 1998, to interfere with the business relationship between a Waddell & Reed subsidiary, Waddell & Reed, Inc. (W&R) and a Torchmark subsidiary, United Investors, and to injure

10

Waddell & Reed as well as asserting that one of the individual defendants sought to interfere with Waddell & Reed’s relationship with the United Group of Mutual Funds. The litigation alleges RICO violations, breaches of fiduciary duty by the three individual defendants, knowing participation in such breaches of fiduciary duty by Torchmark and intentional interference with prospective business relations in connection with the relationship between W&R and United Investors. Plaintiffs seek actual, punitive and treble damages, interest, fees and costs under RICO of $29 million, $13.4 million plus punitive damages, interest and costs on the intentional interference allegations and a total of $58 million on the remaining two counts.

Defendants filed a motion to abstain or, in the alternative, to dismiss the Kansas District Court litigation on August 22, 2001, citing pending litigation filed in Jefferson County Alabama state circuit court by Torchmark and its subsidiary, United Investors against Waddell & Reed and W&R (United Investors Life Insurance Company v. Waddell & Reed Financial, Inc., et al, Case No. CV 00-2720), involving an alleged agreement dealing with existing in-force United Investors variable annuity business marketed by W&R as well as the prior dismissal by the Kansas District Court of litigation originally filed by W&R against United Investors in Kansas state court involving such variable annuity business. Defendant’s motion was denied but the Kansas District Court ruled that a judgment in the prior Alabama litigation would likely be res judicata as to the claims against Torchmark and one of the individual defendants in the current Kansas litigation. Trial of the Alabama state court litigation began February 19, 2002.

On March 19, 2002, a Jefferson County, Alabama Circuit Court jury awarded $50 million compensatory damages to Torchmark’s subsidiary United Investors in the Alabama state court litigation. United Investor’s claims in this litigation for additional injunctive relief prohibiting unlawful future policy replacements by W&R remained to be decided by the Circuit Court. Based upon the Alabama jury verdict, Torchmark filed a motion for summary judgment in the Kansas District Court.

On June 25, 2002, the Jefferson County Circuit Court entered an order in United Investor’s Alabama state court litigation granting a declaratory judgment for United Investors against W&R. The Circuit Court refused to set aside or reduce the $50,000,000 compensatory damage verdict awarded against W&R by the trial jury in the original litigation. The Circuit Court’s order stated that there was no valid and binding contractual or other obligation requiring United Investors to pay certain additional compensation that W&R had sought in connection with United Investor’s in-force block of variable annuity business for which W&R had formerly been the distributor. Escrowed funds for the commissions owed by W&R to United Investors were ordered to be released to United Investors. The Circuit Court also denied W&R’s motions to set aside the jury’s verdict or to order a new trial and denied United Investor’s motion for additional injunctive relief to prohibit future replacements of United Investors policies by W&R since United Investors has an adequate remedy at law through additional litigation against W&R.

On July 25, 2002, W&R filed notice of appeal to the Alabama Supreme Court of the Jefferson County Circuit Court’s order, which notice of appeal was supplemented on July 31, 2002 and the record of the same was certified to the Alabama Supreme Court in September, 2002. On October 25, 2002, the Alabama Supreme Court affirmed the trial court’s judgment dismissing with prejudice all of W&R’s third party counterclaims against Torchmark and R.K. Richey. Oral arguments were heard by the Alabama Supreme Court on February 19, 2003 in W&R’s appeal from the jury verdict and trial court judgment against W&R on United Investors’ claims.

On February 4, 2003, an order was entered in the Kansas District Court litigation granting that portion of the defendants’ judgment as regarded claims against Torchmark and one individual defendant by Waddell & Reed and W&R. Other portions of the defendants’ motion were denied so that Waddell & Reed and W&R’s claims against the other two individuals defendants as well as all claims of Waddell & Reed Investment Management Company, another Waddell & Reed subsidiary, remain pending. The order also lifted the discovery stay.

On September 28, 2001, a shareholder derivative action was filed in the Circuit Court of Jefferson County, Alabama against Torchmark, two unaffiliated limited liability companies, and three individual defendants (Bomar v. Torchmark Corporation, Case No. CV 0105981). The derivative action arises from an October 1, 1999 transaction in which the three individual defendants (one of whom is a director and former Chairman of Torchmark and a second of whom is a former officer of a former real estate subsidiary of Torchmark) acting through two unaffiliated limited liability companies acquired the majority of the investment real estate of Torchmark together with other properties. Plaintiff alleges that, despite

11

review and approval of the transaction by all independent and disinterested members of the Torchmark Board of Directors, the transaction was procedurally and substantively unfair to Torchmark and resulted from the breach of fiduciary duties of loyalty owed to Torchmark by two of the above described individual defendants and the knowing participation of the third individual defendant in the alleged breach of fiduciary duty. Establishment of a constructive trust for such assets for the benefit of Torchmark and its shareholders, an accounting for profits and unspecified compensatory and punitive damages were sought. The request for establishment of a constructive trust was subsequently deleted by the plaintiff.

On October 16, 2001, defendant Torchmark filed a motion to dismiss and to stay discovery in the Bomar action, asserting plaintiff’s lack of standing, failure to make a legally-required demand on the Board of Directors of Torchmark and failure to comply with certain Alabama Rules of Civil Procedure. On October 17, 2001, the Board of Directors created a special litigation committee comprised of two independent, disinterested directors to review and make determinations and a report with regard to the transactions involved in such suit. Defendant Torchmark’s motion was amended on October 19, 2001 to include as further grounds for dismissal and stay the creation of that special litigation committee and the delegation of complete authority to said committee to review the transaction and determine whether prosecution of the Bomar action was in the interests of Torchmark and its shareholders and what action Torchmark should take with regard to the Bomar action. The committee, through its separately retained counsel, advised the Court that it concurred in Torchmark’s motions. A hearing on Torchmark’s amended motion to dismiss and stay discovery was held November 13, 2001 and on November 26, 2001, the Circuit Court issued an order staying all proceedings in Bomar for 150 days during which the special litigation committee was charged with investigating, reviewing and analyzing the asserted claims, completing its written report and filing the same with the Circuit Court. The special litigation committee began its interview process in February, 2002. On April 24, 2002, the plaintiff filed a motion to modify the stay so as to permit the filing of a second amended complaint, which sought to assert that the transaction violated a 1982 Torchmark Board of Directors resolution relating to conflicts of interest as well as the Alabama Insurance Holding Company System Regulatory Act; that the consideration received by Torchmark was unfairly low and was the result of two of the defendants’ violations of their fiduciary duty of loyalty to Torchmark; and that defendants concealed and suppressed material facts intentionally, knowingly and wantonly. The Circuit Court, on May 6, 2002, ordered the special litigation committee to also consider the allegations made in plaintiff’s second amended complaint (although the same was never formally filed with the Court). The Circuit Court granted the Committee extensions of time for the filing of its report until August 1, 2002. On July 31, 2002, the special litigation committee released and filed its written report with the Circuit Court.

On October 3, 2002, the Circuit Court entered an order granting motions for summary judgment in favor of all defendants in Bomar. The Circuit Court stated in its order that demand on the Torchmark Board of Directors by the plaintiff was not excused, that a majority of the Board and all members of the special litigation committee were independent and disinterested, that the special litigation committee conducted its investigation thoroughly and in good faith, that the special litigation committee’s findings and conclusion that the Bomar action should be dismissed and that the real estate transaction in question was well within the scope of the business judgment rule was correct and such findings were adopted by the Circuit Court and that the special litigation committee’s conclusion that the transaction “was entirely fair to Torchmark” was fully supported by the record and the law. On November 13, 2002, the plaintiff filed a notice of appeal to the Alabama Supreme Court of the Circuit Court’s order.

On September 12, 2002, a trial court jury in Chambers County, Alabama Circuit Court returned a $3.2 million verdict against Liberty in Ingram v. Liberty National Life Insurance Company (Civil Action No. CV-96-62). This case, originally filed in March 1996, alleged that the plaintiff purchased an interest-sensitive life insurance policy from Liberty based upon agent representations that premiums on the policy would be due for ten years and thereafter it would have paid-up policy status. Plaintiff asserted fraud, misrepresentation of material facts, suppression, deceit, fraudulent deceit, wanton or intentional conduct, civil conspiracy, wanton hiring, retention, supervision of agents, bad faith, and conversion since the policy did not reach paid-up status at the end of the ten years of premium payments. The plaintiff had sought a declaratory judgment and compensatory and punitive damages in the Circuit Court. Liberty has pursued all available post judgment motions and will pursue appellate relief. On January 29, 2003 the Circuit Court denied Liberty’s motion for a new trial and ordered the $3.2 million verdict reduced to $240,000.

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On January 30, 2003, purported class action litigation was filed against Liberty in the Circuit Court of Lowndes County, Alabama (Gordon v. Liberty National Life Insurance Company, Civil Action No. CV03-13). Plaintiffs assert state law claims that Liberty breached the insurance contracts with them, engaged in intentional, willful and/or negligent conduct and was unjustly enriched when Liberty allowed them to pay premiums on insurance policies that exceeded the “face value” and/or “amount of insurance” of the insurance policies. Unspecified monetary damages, injunctive relief and return of all proceeds is sought.

Item 4. Submission of Matters to a Vote of Security Holders

No matter was submitted to a vote of shareholders, through the solicitation of proxies or otherwise, during the fourth quarter of 2002.

PART II

Item 5. Market for the Registrant’s Common Stock and Related Stockholder Matters

The principal market in which Torchmark’s common stock is traded is the New York Stock Exchange. There were 5,133 shareholders of record on December 31, 2002, excluding shareholder accounts held in nominee form. Information concerning restrictions on the ability of Torchmark’s subsidiaries to transfer funds to Torchmark in the form of cash dividends is set forth in Note 16—Shareholders’ Equity in the Notes to Consolidated Financial Statements on page 71. The market prices and cash dividends paid by calendar quarter for the past two years are as follows:

	2002 Market Price
Quarter	High		Low		Dividends Per Share
1	$	41.8600	$	36.8700	$	.0900
2		41.7500		37.4500		.0900
3		37.8500		31.0000		.0900
4		37.9500		32.3400		.0900
Year-end closing price		$36.5300

	2001 Market Price
Quarter	High		Low		Dividends Per Share
1	$	38.8300	$	33.2500	$	.0900
2		40.2100		36.5700		.0900
3		43.0500		35.6000		.0900
4		39.9500		37.0300		.0900
Year-end closing price		$39.3300

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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,	2002			2001			2000			1999			1998
Premium revenue:
Life	$	1,220,688		$	1,144,499		$	1,082,125		$	1,018,301		$	959,766
Health		1,019,120			1,010,753			911,156			824,816			759,910
Other		39,225			59,917			52,929			40,969			33,954
Total		2,279,033			2,215,169			2,046,210			1,884,086			1,753,630
Net investment income		518,618			491,830			472,426			447,337			459,558
Realized investment gains (losses)		(61,805	)		(2,432	)		(5,322	)		(110,971	)		(57,637	)
Total revenue		2,737,966			2,707,042			2,515,894			2,226,895			2,157,876
Net income from continuing operations		383,435			390,930			361,833			258,930			255,776
Net income		383,433			356,513			362,035			273,956			244,441
Net operating income(1)		423,609			404,585			377,367			353,242			336,390
Annualized premium issued:
Life		334,046			294,632			290,743			257,207			244,467
Health		201,782			213,284			252,472			192,826			138,899
Total		535,828			507,916			543,215			450,033			383,366
Per common share:
Basic earnings:
Net income from continuing operations		3.19			3.12			2.83			1.95			1.83
Net income		3.19			2.85			2.83			2.06			1.75
Net operating income(1)		3.52			3.23			2.95			2.65			2.40
Diluted earnings:
Net income from continuing operations		3.18			3.11			2.82			1.93			1.81
Net income		3.18			2.83			2.82			2.04			1.73
Net operating income(1)		3.51			3.21			2.94			2.64			2.38
Cash dividends paid		0.36			0.36			0.36			0.36			0.36
Return on average common equity(2)(3)		16.5	%		16.6	%		16.9	%		16.8	%		15.4	%
Basic average shares outstanding		120,259			125,135			128,089			133,197			139,999
Diluted average shares outstanding		120,669			125,861			128,353			133,986			141,352
As of December 31,	2002			2001			2000			1999			1998
Cash and invested assets	$	7,790,932		$	7,108,088		$	6,506,292		$	6,202,251		$	6,417,511
Total assets		12,360,722			12,428,153			12,962,558			12,131,664			11,249,028
Short-term debt		201,479			204,037			329,148			418,394			355,392
Long-term debt		551,564			536,152			365,989			371,555			383,422
Shareholders’ equity		2,851,453			2,497,127			2,202,360			1,993,337			2,259,528
Per common share		24.11			20.32			17.43			15.10			16.51
Per common share excluding effect of SFAS 115		22.53			20.32			18.53			16.32			15.43
Annualized premium in force:
Life		1,343,156			1,257,413			1,200,144			1,130,609			1,062,647
Health		1,030,482			1,042,643			1,004,299			884,358			796,863
Total		2,373,638			2,300,056			2,204,443			2,014,967			1,859,510

(1) Net operating income is defined on pages 16-18 of this report. It also excludes the nonrecurring charge described in (3) below.

(2) Return on average equity is defined on page 37 of this report.

(3) The nonrecurring charge relates to a 1999 marketing agreement whereby Torchmark guaranteed compensation to another party, regardless of Torchmark’s marketing success. Unfavorable results indicated that the full amount of guaranteed compensation was not recoverable. As a result, Torchmark recorded a charge in an after-tax amount of $13 million, or $.10 per share. The relationship with the counterparty was terminated in 2002.

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

Cautionary Statements.    Torchmark cautions readers regarding certain forward-looking statements contained in the following discussion and elsewhere in this document, and in any other statements made by, or on behalf of Torchmark whether or not in future filings with the Securities and Exchange Commission. Any statement that is not a historical fact, or that might otherwise be considered an opinion or projection concerning Torchmark or its business, whether express or implied, is meant as and should be considered a forward-looking statement. Such statements represent management’s opinions concerning future operations, strategies, financial results or other developments.

Forward-looking statements are based upon estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond Torchmark’s control. If these estimates or assumptions prove to be incorrect, the actual results of Torchmark may differ materially from the forward-looking statements made on the basis of such estimates or assumptions. Whether or not actual results differ materially from forward-looking statements may depend on numerous foreseeable and unforeseeable events or developments, which may be national in scope, related to the insurance industry generally, or applicable to Torchmark specifically.  Such events or developments could include, but are not necessarily limited to:

1)  Changing general economic conditions leading to unexpected changes in lapse rates and/or sales of Torchmark’s policies as well as levels of mortality, morbidity and utilization of healthcare services that differ from Torchmark’s assumptions;

2)  Regulatory developments, including changes in governmental regulations (particularly those impacting taxes and changes to the federal Medicare program that would affect Medicare Supplement insurance) and regulatory inquiries regarding industrial life insurance;

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 owned by Torchmark, or that may impair issuers ability to pay interest due Torchmark on those securities;

6)  Changes in pricing competition;

7)  Litigation results;

8)  Levels of administrative and operational efficiencies that differ from Torchmark’s assumptions;

9)  The inability of Torchmark to obtain timely and appropriate premium rate increases for health insurance policies due to regulatory delay;

10)  The customer response to new products and marketing initiatives; and

11)  Reported amounts in the financial statements which are based on management’s estimates and judgments which may differ from the actual amounts ultimately realized.

Readers are also directed to consider other risks and uncertainties described in other documents filed by Torchmark with the Securities and Exchange Commission.

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.

15

RESULTS OF OPERATIONS

Summary of Operating Results.    Torchmark’s management computes a classification of income called “net operating income” that it has used consistently over time to evaluate the operating performance of the company. Net operating income is also the corresponding after-tax sum of the pretax measures of profit or loss for each of Torchmark’s reportable segments required to be disclosed in accordance with GAAP. (See Note 19 Business Segments in the Notes to Consolidated Financial Statements.) Torchmark’s core operations are segmented into insurance underwriting operations and investment operations. Insurance underwriting operations are further segmented into life insurance, health insurance, and annuity products. The measure of profitability for its insurance segments is underwriting income before other income and administrative expense. This represents the gross profit margin on insurance products before administrative expenses. This measure of underwriting income is computed as premium income less net policy obligations, commissions, and acquisition expenses. Insurance segments are further subdivided into component distribution channels which are also evaluated by underwriting income. The measure of profitability for the investment segment is excess investment income. Excess investment income represents the earnings on the investment portfolio, less the interest required to service net policy liabilities and less the financing costs associated with Torchmark’s debt and preferred securities.

These designated measures of profitability are highly useful to management in evaluating the performance of the segments and the underlying marketing groups within each insurance segment. These measures enable management to view period-to-period trends which are helpful in the determination of future courses of action to be taken. Since net operating income is basically a composite of the results of these operating units, it is a valuable aid to management and to investors in evaluating total corporate trends and performance. Net operating income and other measurements of segment profitability, along with associated ratios, are also used in determining a portion of executive management compensation.

Net operating income differs from net income as reported on the income statement because it excludes certain nonoperating items, nonrecurring items, and discontinued operations which must be recorded in the GAAP income statement. These nonoperating items sometimes cause distorted comparisons with prior year results if only net income is considered and financial statements are not taken as a whole.

The differences between net income as reported in Torchmark’s financial statements and net operating income are as follows:

1) Realized investment losses, including the realized gains from the adjustment in fair value of Torchmark’s interest rate swaps, net of tax;

2) The loss from the redemption by Torchmark of its Monthly Income Preferred Securities (MIPS) in the amount of $4.3 million net of tax in 2001;

3) The after-tax gain or loss from the redemption of Torchmark debt as follows: a loss of $2 thousand in 2002, a loss of $277 thousand in 2001, and a gain of $202 thousand in 2000;

4) The effect of the required change to a new accounting principle revising the method for valuing certain asset-backed security investments, which resulted in an after-tax charge of $26.6 million in 2001;

5) A one-time charge relating to discontinued energy operations in 2001 in the amount of $3.3 million; and

6) The effect of adoption of a new accounting standard which does not permit the amortization of goodwill after 2001.

Net realized investment losses were $62 million in 2002, compared with $2 million in 2001 and $5 million in 2000. A component of realized investment losses is the gain or loss from adjusting Torchmark’s interest rate swaps to fair market value at the end of each accounting period as required by accounting rules. The market value adjustments resulted in pretax gains in each of the three years as

16

follows: 2002, $18 million; 2001, $5 million; and 2000, $8 million. During 2002, Torchmark wrote down $89 million in fixed maturities due to impairments. For more information regarding these writedowns and Torchmark’s policies for evaluating other-than-temporary impairments, see the discussions of Investments on page 28 of this report and Critical Accounting Policies on page 41.

Torchmark does not consider realized investment gains and losses a component of its core operations and, accordingly, they are not a component of net operating income. Fixed maturities, which comprise 92% of the investment portfolio, are generally held to maturity, but are sometimes sold because of deteriorating credit quality, for tax purposes, or other reasons. These sales result in gains and losses which can be significant in relation to Torchmark’s core earnings. Torchmark’s core insurance business is very long-term in nature, with the realization of actual profits emerging over many years. Including investment gains and losses in net operating income could distort the operating trends.

The charge related to previously discontinued energy operations arose from litigation which was ongoing at the time of Torchmark’s divestiture of energy activities in 1996. This litigation was settled during 2001 and resulted in the charge. More information concerning this matter is found in Note 18—Commitments and Contingencies beginning on page 75 of this report.

Effective January 1, 2002, Torchmark adopted Statement of Financial Accounting Standards No. 142—Goodwill and Other Intangible Assets (SFAS 142). This statement prohibits goodwill amortization after 2001, but does not allow the restatement of prior periods for comparability when goodwill has been amortized. Instead, after adoption, companies are required to consider goodwill for impairment under a set of guidelines described in the Statement. Torchmark tested its goodwill in accordance with the provisions of SFAS 142 and determined that goodwill was not impaired. Therefore, Torchmark’s unamortized goodwill balance at December 31, 2001, in the amount of $378 million, was unchanged in 2002. In order to compare operating performance in prior periods with 2002, Torchmark has restated net operating income in 2001 and 2000 to remove the effect of goodwill amortization. The goodwill amortization charge was $12 million in both 2001 and 2000. See Note 1—Significant Accounting Policies in the Notes to Consolidated Financial Statements for more information.

The redemption of Torchmark’s debt and MIPS are discussed under the caption Capital Resources beginning on page 34 of this report. Because of Torchmark’s adoption in 2003 of Statement of Financial Accounting Standards No. 145 (SFAS 145) which amends certain previously issued accounting rules, Torchmark will include gains and losses on the redemption of its debt and preferred securities as a component of realized gains and losses in future income statements. Prior periods will be restated for comparability.

The change in accounting principle is discussed in Note 11—Change in Accounting Principle in the Notes to Consolidated Financial Statements on page 65 of this report.

A reconciliation of net operating income to net income in total and on a per diluted share basis is as follows:

Reconciliation of Net Operating Income to Reported Net Income

(Dollar amounts in thousands except per share data)

	2002						2001						2000
	Amount			Per Diluted Share			Amount			Per Diluted Share			Amount			Per Diluted Share
Net operating income	$	423,609		$	3.51		$	404,585		$	3.21		$	377,367		$	2.94
Realized investment losses, net of tax		(51,728	)		(.43	)		(4,764	)		(.04	)		(8,393	)		(.07	)
Realized gains–interest rate swaps, net of tax		11,554			.10			3,184			.03			4,934			.04
Amortization of goodwill		–0–			—			(12,075	)		(.09	)		(12,075	)		(.09	)
Net income from continuing operations		383,435			3.18			390,930			3.11			361,833			2.82
Discontinued operations, net of tax		–0–			—			(3,280	)		(.03	)		–0–			—
Gain (loss) on redemption of MIPS and debt, net of tax		(2	)		—			(4,553	)		(.04	)		202			—
Change in accounting principle, net of tax		–0–			—			(26,584	)		(.21	)		–0–			—
Net income	$	383,433		$	3.18		$	356,513		$	2.83		$	362,035		$	2.82

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The following table is a summary of Torchmark’s net operating income by source.

Summary of Net Operating Income

(Dollar amounts in thousands except per share data)

	2002					2001					2000
	Amount			% of Total		Amount			% of Total		Amount			% of Total
Insurance underwriting income before other income and administrative expenses:
Life	$	298,008		62.1	%	$	283,392		58.7	%	$	270,663		58.5	%
Health		167,487		34.9			173,458		36.0			161,116		34.8
Annuity		14,634		3.0			25,696		5.3			30,959		6.7
Total		480,129		100.0	%		482,546		100.0	%		462,738		100.0	%
Other income		3,906					4,391					4,650
Administrative expenses		(124,605	)				(119,038	)				(111,817	)
Insurance underwriting income		359,430					367,899					355,571
Excess investment income (tax equivalent basis)		294,999					255,545					226,986
Corporate expense		(10,523	)				(10,104	)				(9,369	)
Tax equivalency adjustment		(3,701	)				(4,377	)				(8,655	)
Pretax operating income*		640,205					608,963					564,533
Income tax (applicable to pretax operating income)		(216,596	)				(204,378	)				(187,166	)
Net operating income	$	423,609				$	404,585				$	377,367
Net operating income per diluted share	$	3.51				$	3.21				$	2.94

* Aggregate measure of segment profitability.

On a per share basis, Torchmark’s net operating income grew 9% in both 2002 and 2001, to $3.51 in 2002 and $3.21 in 2001. Torchmark’s net operating income rose 5% in 2002 to $424 million and 7% in 2001 to $405 million. Per share growth exceeded growth in total net operating income for both periods as a result of share buybacks. Insurance underwriting income grew 3% in 2001 to $368 million but declined 2% to $359 million in 2002. A complete discussion of Torchmark’s insurance operations is found in the discussions of insurance segments beginning on page 19 of this report. Excess investment income grew in both periods. The 13% increase in 2001 excess investment income was due primarily to the decrease in financing costs resulting from the lower interest rate environment in 2001 and debt refinancings during the year. Excess investment income rose an additional 15% in 2002 as a result of the continued benefit from the lower-interest environment and its favorable impact on financing costs from Torchmark’s interest rate swaps. Refer to the discussion of Investments on page 28 and Capital Resources on page 34 of this report.

Torchmark’s total revenues were $2.74 billion in 2002, a 1% increase over 2001 revenues of $2.71 billion. Revenues rose 8% in 2001 over 2000 revenues of $2.52 billion. After adjustment for realized investment losses in each year, revenues grew 3% to $2.80 billion in 2002 from $2.71 billion in 2001. They increased 7% in 2001 over the prior year. Total premium rose 3% to $2.28 billion in 2002. Total premium increased 8% in 2001 to $2.22 billion. Life insurance premium grew 7% in 2002 to $1.22 billion, an increase of $76 million. Health premium in 2002 rose 1% to $1.02 billion. Net investment income increased $27 million, or 5%, in 2002 to $519 million. Life premium increased 6% to $1.14 billion and health premium grew 11% to $1.01 billion in 2001. Net investment income rose 4% in 2001 to $492 million.

Other operating expenses were $135 million in 2002, compared with $129 million in 2001 and $121 million in 2000. These expenses as a percentage of revenues, excluding realized losses, were 4.8% in each of the years 2002, 2001 and 2000. The largest component of other operating expenses, insurance administrative expenses, were $125 million in 2002, increasing 5% over 2001 expenses of

18

$119 million. Insurance administrative expenses rose 6% in 2001. As a percentage of premium, administrative expense has been stable in each of the past three years at 5.5%, 5.4%, and 5.5% in 2002, 2001, and 2000, respectively. The components of Torchmark’s revenues and operations are described in more detail in the following discussion of Insurance and Investment segments.

Life insurance.    Life insurance is Torchmark’s largest segment. In 2002, life premium represented 54% of total premium, and life underwriting income before other income and administrative expense represented 62% of the total.

Life insurance premium rose 7% in 2002 to $1.22 billion from $1.14 billion in 2001. Life premium increased 6% in 2001 from $1.08 billion. Sales of life insurance, in terms of annualized premium, were $334 million in 2002, increasing 13% over 2001 sales of $295 million. This compares with 1% growth in 2001 sales over 2000 sales of $291 million. Annualized life premium in force is often indicative of future premium income over the near term. Annualized life premium in force was $1.34 billion at December 31, 2002, compared with $1.26 billion at 2001 year end, an increase of 7%. Annualized life premium in force grew 5% in 2001 from $1.20 billion at year-end 2000. Annualized life premium in force and issued data includes amounts collected on certain interest-sensitive life products which are not recorded as premium income but excludes single-premium income and policy account charges.

Life insurance products are marketed through several distribution channels. Life insurance premium by distribution method during each of the last three years is as follows.

LIFE INSURANCE

Premium by Distribution Method

(Dollar amounts in thousands)

	2002				2001				2000
	Amount		% of Total		Amount		% of Total		Amount		% of Total
Direct Response	$	315,651	25.9	%	$	289,097	25.3	%	$	267,899	24.7	%
Liberty National Exclusive Agency		301,715	24.7			297,223	26.0			294,197	27.2
American Income Exclusive Agency		277,181	22.7			246,690	21.5			231,149	21.4
Military Agency		148,709	12.2			133,378	11.7			118,512	11.0
United American Independent Agency		50,424	4.1			47,415	4.1			42,305	3.9
United American Branch Office Agency		19,515	1.6			19,255	1.7			19,393	1.8
Other		107,493	8.8			111,441	9.7			108,670	10.0
	$	1,220,688	100.0	%	$	1,144,499	100.0	%	$	1,082,125	100.0	%

The table below sets forth annualized life insurance premium issued and in force information for each of the last three years.

LIFE INSURANCE

Annualized Premium Data by Distribution Method

(Dollar amounts in thousands)

	Annualized Premium Issued For the year ended December 31,						Annualized Premium In Force At December 31,
	2002		2001		2000		2002		2001		2000
Direct Response	$	123,260	$	112,041	$	112,918	$	357,393	$	326,111	$	306,162
Liberty National Exclusive Agency		56,341		54,853		53,608		318,613		314,676		312,173
American Income Exclusive Agency		91,882		66,421		56,560		302,064		265,912		245,433
Military Agency		23,479		21,182		19,863		158,840		141,565		125,920
United American Branch Office Agency		5,643		4,913		4,730		21,286		21,158		21,362
United American Independent Agency		25,675		24,453		25,708		58,087		54,143		53,269
Other Agencies		7,766		10,769		17,356		126,873		133,848		135,825
	$	334,046	$	294,632	$	290,743	$	1,343,156	$	1,257,413	$	1,200,144

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Direct Response marketing is conducted primarily through direct mail, but also through co-op mailings, television and consumer magazine advertising, and direct mail solicitations endorsed by groups, unions and associations. Direct Response markets a line of life products primarily to juveniles, their parents, and other adults over age 50. The Direct Response operation accounted for almost 26% of Torchmark’s life insurance premium during 2002. Direct Response life premium rose 9% in 2002 to $316 million. Direct Response life premium was $289 million in 2001, increasing 8% over 2000 premium of $268 million.

Direct Response annualized life premium in force rose 10% to $357 million at December 31, 2002 from $326 million a year earlier. At December 31, 2002, Direct Response life annualized premium in force was 27% of Torchmark’s total, the largest of any component distribution group. Direct Response life insurance annualized premium in force grew 7% in 2001 from $306 million.

Sales of life insurance in terms of annualized premium issued by Direct Response were $123 million in 2002, an increase of 10%. Sales declined slightly in 2001 to $112 million from $113 million in 2000. In early 2001, Torchmark discontinued certain products in the Direct Response market in order to focus on sales of more profitable business. The discontinuance of sales of these products resulted in the flattening of 2001 sales. The annualized life premium issued by Direct Response represented 37% of Torchmark’s total life sales in 2002.

The Liberty National Exclusive Agency distribution system markets primarily to middle-income markets in several Southeastern states. Liberty’s life premium rose 2% in 2002 to $302 million, representing 25% of Torchmark’s total life premium. Life premium in 2001 was $297 million, an increase of 1% over the prior year. The annualized life premium in force at the Liberty Agency was $319 million at year-end 2002, compared with $315 million and $312 million at year-ends 2001 and 2000, respectively. Liberty represented 24% of Torchmark’s total life annualized premium in force at December 31, 2002, compared with 25% a year earlier. Life premium sales for this agency, in terms of annualized premium issued, grew 3% during 2002 to $56 million, compared with 2% growth in 2001. Sales growth in the Liberty Agency is largely attributable to growth in the number of agents. Liberty’s agent count rose 2% to 2,203 at year-end 2002, after having increased 6% in 2001 to 2,162. Management believes that the continued recruiting of new agents and the retention of productive agents are critical to the continued growth of sales in controlled agency distribution systems.

The American Income Exclusive Agency focuses on members of labor unions, credit unions, and other associations for its life insurance sales. It is a high profit margin business characterized by lower policy obligation ratios. This agency was Torchmark’s fastest growing agency during both 2002 and 2001, accounting for the largest growth in both life sales and annualized life premium in force. Annualized life premium in force was $302 million at year-end 2002, an increase of 14% over 2001 premium in force of $266 million. Annualized life premium in force rose 8% in 2001. Sales, in terms of annualized premium issued, rose 38% in 2002 to $92 million, compared with an increase of 17% in 2001 to $66 million. The rapid growth in sales for this agency over the last three years was a result of the growth in the number of agents. This agency has grown steadily since 1999. The agent count rose 13% in 2000 to 1,352 agents at year end, grew 31% in 2001 to 1,768 agents, and further grew to 1,975 agents at year-end 2002. American Income’s marketing organization continues to implement efforts to improve agent recruiting, retention, and productivity in order to increase the size of this agency. At December 31, 2002 American Income’s annualized life premium in force was 22% of Torchmark’s total, compared with 21% at the end of the previous year. The American Income Agency contributed $277 million of life insurance premium income during 2002, an increase of 12% over 2001 premium of $247 million. Life premium rose 7% in 2001 over the prior year.

Torchmark’s Military Agency consists of a nationwide independent agency whose sales force is comprised of former commissioned and noncommissioned military officers who sell exclusively to commissioned and noncommissioned military officers and their families. This business consists of whole- life products with term insurance riders and is characterized by low lapse rates. The Military Agency represented approximately 12% of Torchmark’s life premium in 2002 and life premium in force at December 31, 2002. Premium rose 11% in 2002 to $149 million, after an increase of 13% to $133 million in 2001. Annualized premium in force grew 12% to $159 million at year-end 2002, compared to an increase of 12% in the prior year. A major factor in the growth of premium income and premium in force in the Military Agency is the high persistency associated with military business. Annualized premium issued increased 11% to $23 million in 2002, after having advanced 7% to $21 million in 2001.

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The United American Independent and Branch Office Agencies together represented about 6% of Torchmark’s total life annualized premium in force in 2002. On a combined basis, life premium income rose 5% to $70 million in 2002. Life premium rose 8% in 2001 to $67 million from $62 million. Annualized life premium issued in 2002 was $31 million, compared with $29 million in 2001 and $30 million in 2000. Annualized life premium in force rose 5% in 2002 to $79 million, but was flat in 2001 with the prior year at $75 million.

Torchmark’s Other life insurance distribution system consists of the United Investors Agency and other small miscellaneous sales agencies. The United Investors Agency is comprised of several independent agencies. Prior to 2001, United Investors’ distribution was primarily through the sales representatives of a former Torchmark subsidiary, Waddell & Reed. Torchmark spun off Waddell & Reed in 1998, and United Investors terminated the Waddell & Reed agency contract in 2001. Life premium income from the Other distribution category declined 4% to $107 million in 2002, but increased 3% to $111 million in 2001. Life premium income from the Other distribution group accounted for less than 9% of Torchmark’s total life insurance premium income in the year 2002. Annualized life premium in force declined 5% in 2002 to $127 million, after having declined 1% to $134 million in 2001. Annualized premium sold during 2002 in the Other distribution category was $8 million, a drop of 28% in 2002. Sales by this agency also declined in 2001 by 38% from $17 million in 2000 to $11 million.

In addition to life insurance sales, this distribution system has also engaged in the production of variable life collections. In 2002, collections were $30 million, compared with 2001 collections of $34 million, a decline of 11%. In 2001, these collections had previously declined 18% from the prior year. Although variable life collections are not included in premium in force data, they are included in the variable life account balance. Indirectly, they add to premium revenue through charges to the variable life account balance for insurance coverage and administration. The account balance is affected by fluctuations in financial markets. Because equity markets were weak in 2002 and 2001, the variable life account balance was negatively impacted in both periods. At December 31, 2002, the variable life account balance was $119 million, declining 19% from the prior-year balance of $147 million. The following table summarizes selected variable life insurance information.

	Selected Variable Life Data
	2002		2001		2000
	(Dollar amounts in thousands)
Variable life collections during the year	$	30,063	$	33,961	$	41,465
Variable life deposit balance at year end		118,639		146,547		157,800

21

LIFE INSURANCE

Summary of Results

(Dollar amounts in thousands)

	2002					2001					2000
	Amount			% of Premium		Amount			% of Premium		Amount			% of Premium
Premium and policy charges	$	1,220,688		100.0	%	$	1,144,499		100.0	%	$	1,082,125		100.0	%
Policy obligations		815,356		66.8			754,193		65.9			711,833		65.8
Required interest on reserves		(279,309	)	(22.9	)		(263,748	)	(23.0	)		(246,989	)	(22.8	)
Net policy obligations		536,047		43.9			490,445		42.9			464,844		43.0
Commissions and premium taxes		68,622		5.6			63,949		5.5			59,754		5.5
Amortization of acquisition costs		206,424		16.9			201,322		17.6			188,268		17.4
Required interest on deferred acquisition costs		111,587		9.2			105,391		9.2			98,596		9.1
Total expense		922,680		75.6			861,107		75.2			811,462		75.0
Insurance underwriting income before other income and administrative expenses	$	298,008		24.4	%	$	283,392		24.8	%	$	270,663		25.0	%

Gross margins, as indicated by insurance underwriting income before other income and administrative expense, rose 5% in both 2002 and 2001 over the respective prior year. Margins grew from $271 million in 2000 to $283 million in 2001 and to $298 million in 2002. As a percentage of life insurance premium, life insurance gross margins were 25% in both 2001 and 2000, but declined slightly to 24.4% in 2002. There was a slight increase in mortality in 2002 compared with the previous two years.

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Health Insurance.    Torchmark markets its supplemental health insurance products through a number of distribution channels. The following table indicates health insurance premium income by distribution method during each of the last three years.

HEALTH INSURANCE

Premium by Distribution Method

(Dollar amounts in thousands)

	2002				2001				2000
	Amount		% of Total		Amount		% of Total		Amount		% of Total
United American Independent Agency	$	467,017	45.8	%	$	464,100	45.9	%	$	442,370	48.6	%
United American Branch Office Agency		318,508	31.3			323,159	32.0			254,267	27.9
Liberty National Exclusive Agency		159,720	15.7			155,886	15.4			151,363	16.6
American Income Exclusive Agency		52,080	5.1			49,835	4.9			48,296	5.3
Direct Response		21,795	2.1			17,773	1.8			14,860	1.6
	$	1,019,120	100.0	%	$	1,010,753	100.0	%	$	911,156	100.0	%

The following table presents annualized health premium issued and in force by distribution method for the last three years.

HEALTH INSURANCE

Annualized Premium Data by Distribution Method

(Dollar amounts in thousands)

	Annualized Premium Issued For the year ended December 31,						Annualized Premium In Force At December 31,
	2002		2001		2000		2002		2001		2000
United American Independent Agency	$	96,052	$	73,539	$	85,115	$	473,520	$	474,816	$	466,560
United American Branch Office Agency		75,383		115,684		145,089		316,337		337,026		310,526
Liberty National Exclusive Agency		12,157		10,747		10,081		165,394		162,724		163,387
American Income Exclusive Agency		11,438		10,019		8,615		51,299		49,260		47,659
Direct Response		6,752		3,295		3,572		23,932		18,817		16,167
	$	201,782	$	213,284	$	252,472	$	1,030,482	$	1,042,643	$	1,004,299

Health products sold by Torchmark insurance companies include Medicare Supplement, cancer, long-term care, and other under-age-65 limited-benefit supplemental medical and hospitalization products. As a percentage of annualized health premium in force at December 31, 2002, Medicare Supplement accounted for 69% and cancer 17%. The table below presents Torchmark’s health insurance annualized premium in force by major product category at December 31, 2002 and for the two preceding years.

HEALTH INSURANCE

Annualized Premium in Force by Product

(Dollar amounts in thousands)

	December 31,
	2002				2001				2000
	Amount		% of Total		Amount		% of Total		Amount		% of Total
Medicare Supplement	$	714,112	69.3	%	$	760,848	73.0	%	$	728,918	72.6	%
Cancer		172,830	16.8			169,341	16.2			169,013	16.8
Other		143,540	13.9			112,454	10.8			106,368	10.6
Total	$	1,030,482	100.0	%	$	1,042,643	100.0	%	$	1,004,299	100.0	%

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Premium for the health insurance segment increased 1% to $1.02 billion in 2002. It rose 11% to $1.01 billion in 2001 and 10% to $911 million in 2000. Annualized health premium in force declined 1% to $1.03 billion at December 31, 2002 over the previous year-end balance of $1.04 billion. Health premium in force rose 4% in 2001 and 14% during 2000. Sales of health insurance, in terms of annualized premium issued, declined 5% in 2002 to $202 million. In 2001, health sales declined 16% from $252 million to $213 million. The declines in health sales were attributable to declines in Medicare Supplement sales in both periods.

Medicare Supplement sales, in terms of annualized premium issued, fell 37% in 2002 to $99 million from $159 million in 2001. In 2001, Medicare Supplement sales were down 21% from $201 million the prior year. There were three major factors which contributed to these declines. First, sales in recent years prior to 2001 were positively affected by the involuntary terminations of Medicare HMO members, which resulted in the disenrollees returning to traditional Medicare and Medicare Supplements. In 2000, the number of disenrollees reached an unprecedented level. In 2001, however, these terminations were approximately half of those of the prior year. In 2002, terminations continued to decline. The second factor was that Medicare Supplement sales faced increased premium rate pressure from competition in some markets. Torchmark implemented premium rate increases on its Medicare Supplement policies on a more timely basis than some competitors during these periods. Management believes that these competitive pressures will subside as competitors obtain necessary rate increases. Torchmark plans to seek lower rate increases in 2003 than in recent years on this business which may improve its competitive position. Third, in addition to the increased competition, the number of producing agents at the United American Branch Office Agency declined in 2001 as agents in some markets left for easier sales at those competitors whose Medicare Supplement products were priced lower than Torchmark’s. Prior to 2001, this agency had experienced rapid growth in appointed agents, which contributed greatly to the growth in sales in these periods.

Medicare Supplement policies are highly regulated at both the federal and state levels with standardized benefit plans, limits on first year agent compensation, and mandated minimum loss ratios. However, they remain a popular supplemental health policy with the country’s large and growing group of Medicare beneficiaries. About 85% of all Medicare beneficiaries have Medicare Supplements to cover at least some portion of the deductibles and coinsurance for which the federal Medicare program does not pay. Because of loss ratio regulation, underwriting margins on Medicare Supplements are lower than those on Torchmark’s life business. However, due to United American’s low cost, service-oriented customer service and claims administration, as well as its economies of scale, it is a profitable line of business.

Other regulatory issues continue to affect the Medicare Supplement market. Medical cost inflation and changes to the Medicare program necessitate annual rate increases, which generally require state insurance department approval. In addition, Congress and the Executive Branch have begun studying ways to restructure the Medicare program. Therefore, it is likely that changes will be made to the Medicare program at sometime in the future. However, it appears that there will continue to be an important role for private insurers in helping senior citizens cover their healthcare costs. As a result, Medicare Supplements should continue as a popular product for senior-age consumers.

Medicare Supplement insurance is sold primarily by the United American Branch Office Agency and the United American Independent Agency. Medicare Supplement sales in both agencies have declined in both 2001 and 2002 as a result of the decline in HMO disenrollees, the increased competition, and the loss in the number of agents. At the end of 2001, the number of producing agents was 1,644 and declined to 1,280 at year-end 2002. In terms of annualized health premium issued, health sales for the Branch Office Agency were $75 million in 2002, declining 35% from sales of $116 million in 2001. Health sales in 2001 declined 20% from sales of $145 million in 2000. The Independent Agency sold $85 million, $74 million, and $96 million in each of the years 2000, 2001, and 2002, respectively. This represents a decline of 14% in 2001 but an increase of 31% in 2002. While Medicare Supplement sales in this agency declined in 2002, increases in sales of other limited-benefit health products, as discussed below, have more than offset the declines.

24

Cancer insurance premium in force rose 2% in 2002 to $173 million. It was flat in 2001 with premium in force of $169 million in both 2001 and 2000. Sales of this product were up 9% in 2002 to $12 million. Sales rose 7% in 2001 to $11 million from $10 million. A portion of the growth in cancer annualized premium in force has been attributable to premium rate increases to offset increased health care costs. Cancer insurance products are sold primarily by the Liberty National Exclusive Agency. This agency represented 85% of Torchmark’s total cancer annualized premium in force at December 31, 2002.

Sales of other limited-benefit health products more than doubled in 2002, increasing from $44 million in 2001 to $91 million in 2002. Sales of these products previously increased 7% in 2001 over the prior year. Annualized premium in force for other health products grew 28% in 2002 to $144 million, after rising 6% in 2001 to $112 million. The United American agencies have offered limited benefit plans for many years. The majority of the recent increases in sales were written by the United American Independent Agency. Most of the plans being written are limited benefit hospital and surgical plans that are lower cost alternatives to individual major medical plans, or that are bought to supplement employer-sponsored group health plans. Increased demand for these plans is the result of the growing unavailability of individual major medical plans and decreased coverage offered by employers. Because of the limits on maximum benefits and other limits, these type plans are less subject to high rate increases that have been experienced in major medical type plans. From a regulatory standpoint, these type plans generally require lower minimum loss ratios than Medicare Supplements, but they do experience slightly higher lapse rates.

HEALTH INSURANCE

Summary of Results

(Dollar amounts in thousands)

	2002					2001					2000
	Amount			% of Premium		Amount			% of Premium		Amount			% of Premium
Premium	$	1,019,120		100.0	%	$	1,010,753		100.0	%	$	911,156		100.0	%
Policy obligations		673,890		66.1			663,908		65.7			591,022		64.9
Required interest on reserves		(15,330	)	(1.5	)		(14,911	)	(1.5	)		(15,736	)	(1.7	)
Net policy obligations		658,560		64.6			648,997		64.2			575,286		63.2
Commissions and premium taxes		101,164		10.0			99,047		9.8			91,069		10.0
Amortization of acquisition costs		72,643		7.1			71,913		7.1			68,778		7.5
Required interest on deferred acquisition costs		19,266		1.9			17,338		1.7			14,907		1.6
Total expense		851,633		83.6			837,295		82.8			750,040		82.3
Insurance underwriting income before other income and administrative expenses	$	167,487		16.4	%	$	173,458		17.2	%	$	161,116		17.7	%

Health insurance underwriting income before other income and administrative expense declined 3% in 2002 from $173 million to $167 million. In 2001, health underwriting income rose 8% from $161 million in 2000. As a percentage of premium, underwriting income before other income and administrative expense declined in both 2002 and 2001 from their respective prior years. The decreases in margins were caused primarily by increased policy obligations in a closed block of cancer policies and slightly higher acquisition costs in the United American agencies.

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Annuities.    Annuities are sold on both a fixed and variable basis. Fixed annuity deposits are held and invested by Torchmark and are obligations of the company. Variable annuity deposits are invested at the policyholder’s direction into his choice among a variety of mutual funds, which vary in degree of investment risk and return. A fixed annuity investment account is also available as a variable annuity investment option. Investments pertaining to variable annuity deposits are reported as “Separate Account Assets” and the corresponding deposit balances for variable annuities are reported as “Separate Account Liabilities.”

Annuity products are marketed by Torchmark to service a variety of needs, including retirement income and long-term, tax-deferred growth opportunities. Prior to 2001, Torchmark’s annuities were sold primarily by the Waddell & Reed sales force, which marketed United Investors’ products under a marketing agreement. In 2000, this sales force collected 96% of Torchmark’s total annuity collections. Effective April 30, 2001, Torchmark terminated the marketing agreement providing for the sale of Torchmark’s variable annuities by the Waddell & Reed sales force. Waddell & Reed was a former subsidiary of Torchmark which was spun off in 1998 but is no longer affiliated. In addition to no longer marketing United Investors’ products, Waddell & Reed has been replacing United Investors’ products with those of another carrier. As a result, Torchmark has experienced declines in annuity sales and deposit balances.

On March 19, 2002, an Alabama jury awarded United Investors $50 million in compensatory damages against Waddell & Reed. The dispute resulting in the litigation arose regarding certain compensation on United Investors’ in-force block of variable annuities and alleged a scheme by Waddell & Reed to improperly replace United Investors’ variable annuities with those of another company. On June 25, 2002, an order was issued by the Jefferson County Alabama Circuit Court entering the jury verdict. Interest on the $50 million award will accrue at an annual rate of 12% from June 25, 2002 until the date paid. Waddell & Reed has appealed the Circuit Court’s decision to the Alabama Supreme Court. In October, 2002, the Alabama Supreme Court affirmed the dismissal of counterclaims against Torchmark and an individual defendant but Waddell & Reed’s appeal from the jury verdict and trial court judgment remains pending. United Investors will not record the award or the related accrued interest as income until it is received, which will not occur until all appeals are completed. In addition, United Investors’ request for injunctive relief to prohibit future improper policy replacements by Waddell & Reed was denied by the Circuit Court, which specified that United Investors has the right to bring additional litigation against Waddell & Reed.

Torchmark is now marketing the variable annuities of United Investors through other broker-dealers. In addition, a small amount of fixed annuities are sold by the United American Independent Agency and the Liberty National Agency. While Torchmark continues to sell annuity products, it does not expect to emphasize this product line in the future.

Annuity premium is added to the annuity account balance as a deposit and is not reflected in income. Revenues on both fixed and variable annuities are derived from charges to the annuity account balances for insurance risk, administration, and surrender, depending on the structure of the contract. Variable accounts are also charged an investment fee and a sales charge. Torchmark benefits to the extent these policy charges exceed actual costs and, on fixed annuity policies, to the extent actual investment income exceeds the investment income which is credited to the policy.

The following table presents the annuity account balance at each year end and the annuity collections for each year for both fixed and variable annuities.

	Annuity Deposit Balances						Annuity Collections
	(Dollar amounts in millions)						(Dollar amounts in thousands)
	2002		2001		2000		2002		2001		2000
Fixed	$	628.1	$	609.6	$	661.6	$	64,814	$	33,461	$	41,617
Variable		1,538.2		2,355.7		3,583.6		25,766		111,768		608,251
Total	$	2,166.3	$	2,965.3	$	4,245.2	$	90,580	$	145,229	$	649,868

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Collections of fixed annuity premium almost doubled in 2002 at $65 million, compared with $33 million in 2001. Fixed annuity premium collections declined 20% in 2001 from $42 million in 2000. The fixed annuity deposit balance rose 3% to $628 million at year-end 2002 from $610 million at year-end 2001. This increase reversed the decline of 8% in 2001 to $610 million at year end from $662 million at year-end 2000. During 2000 and 2001, Torchmark had experienced weaker sales as a result of the reduced sales force and its reduced emphasis of annuity products. In 2002, weaker financial markets caused increased customer interest in fixed annuities and resulted in some transfers of variable annuity customers to fixed products.

Variable annuity collections declined 77% in 2002 to $26 million from $112 million in 2001. Variable collections had previously declined 82% from $608 million in 2000. The variable annuity account balance declined 35% in 2002 to $1.5 billion at December 31, 2002 from $2.4 billion at December 31, 2001. It declined 34% in 2001 from $3.6 billion at December 31, 2000. The loss of the Waddell & Reed sales force, the replacement activity by Waddell & Reed, and the weaker financial markets have been major factors in the declines in variable annuity sales and the variable annuity deposit balance in both 2002 and 2001. Variable accounts are valued based on the market values of the underlying securities.

ANNUITIES

Summary of Results

(Dollar amounts in thousands)

	2002			2001			2000
Policy charges	$	39,225		$	59,917		$	52,929
Policy obligations		34,828			36,535			36,627
Required interest on reserves		(37,119	)		(42,604	)		(42,688	)
Net policy obligations		(2,291	)		(6,069	)		(6,061	)
Commissions and premium taxes		341			2,381			2,116
Amortization of acquisition costs		18,443			28,558			17,791
Required interest on deferred acquisition costs		8,098			9,351			8,124
Total expense		24,591			34,221			21,970
Insurance underwriting income before other income and administrative expenses	$	14,634		$	25,696		$	30,959

        Annuity underwriting income before other income and administrative expense declined from $26 million in 2001 to $15 million in 2002. It declined 17% from $31 million in 2000. The declines in annuity underwriting income resulted from the declines in the annuity account balance in each period. Policy charges rose 13% in 2001 to $60 million before dropping 35% in 2002 to $39 million. Policy charges are generally based on the size of the annuity account balance. In 2001, policy charges increased despite declining account balances because of surrender charges generated by the Waddell & Reed replacement activity. However, the replacements caused an increase in the amortization of deferred acquisition costs which reduced 2001 underwriting income. The reduced variable annuity sales and replacement activity continued in 2002 and, along with the weaker financial markets, resulted in the lower variable annuity account size and overall lower annuity underwriting income.

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Investments.    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)

	2002			2001			2000
Net investment income	$	518,618		$	491,830		$	472,426
Tax equivalency adjustment		3,701			4,377			8,655
Tax equivalent investment income		522,319			496,207			481,081
Required interest on net insurance policy liabilities:
Interest on reserves		(331,758	)		(321,263	)		(305,413	)
Interest on deferred acquisition costs		138,951			132,080			121,627
Net required		(192,807	)		(189,183	)		(183,786	)
Financing costs		(34,513	)		(51,479	)		(70,309	)
Excess investment income	$	294,999		$	255,545		$	226,986
Excess investment income per diluted share	$	2.44		$	2.03		$	1.77
Mean invested assets (at amortized cost)	$	7,297,834		$	6,921,118		$	6,581,601
Average net insurance policy liabilities		3,420,952			3,228,005			3,129,892
Average debt and preferred securities (at amortized cost)		882,267			849,162			924,729

Excess investment income represents the profit margin attributable to investment operations and cash flow management. It is the measure that management uses to evaluate the performance of the investment segment. It is defined as net investment income on a tax-equivalent basis reduced by the interest cost credited to net policy liabilities and the interest cost associated with capital funding or “financing costs.”

Net investment income rose 5% to $519 million in 2002. In 2001, net investment income increased 4% to $492 million after having increased 6% in 2000. On a tax-equivalent basis, in which the yield on tax-exempt securities is adjusted to produce a yield equivalent to the pretax yield on taxable securities, investment income rose 5% in 2002. Tax-equivalent investment income rose 3% in 2001 and increased 5% in 2000. The increase in both 2002 and 2001 was caused by the growth in mean invested assets, which rose 5% during each year to $6.9 billion in 2001 and $7.3 billion in 2002. Mean invested assets are computed on the basis of book value. The average tax-equivalent yield on the portfolio stabilized in 2002 at 7.16%. The average yield declined approximately 14 basis points during 2001 to 7.17% from 7.31%, since rates have generally declined on investments acquired during this period. This decline in yield partially offset the benefit to net investment income from the larger asset base in 2001. The growth in mean invested assets was achieved in both 2002 and 2001 even though $182 million and $159 million were used to buy back Torchmark stock under its ongoing share repurchase program in 2002 and 2001, respectively.

New cash flow was invested primarily in taxable fixed-maturity securities in both 2002 and 2001. These securities consisted primarily of investment-grade corporate bonds and trust preferred securities. As a result, the mean taxable fixed-maturity balance has grown in each year, rising 8% in 2001 to $6.1 billion and 7% in 2002 to $6.6 billion.

Excess investment income grew 15% in 2002 to $295 million. It previously increased 13% in 2001 and 5% in 2000. Because excess investment income is a measure of the efficient use of cash flow, and cash has been used for share purchases, excess investment income should be viewed on a per share basis. Excess investment income per diluted share increased 20% in 2002 to $2.44 per share. It increased 15% in 2001 and 10% in 2000. The growth in excess investment income in both 2002 and 2001 resulted in large part from the reductions in financing costs through the lower interest rate environment and the redemption of the MIPS during 2001. In 2002, Torchmark reduced financing costs by $23 million through the swap agreements on its debt and preferred security instruments, accounting for the majority of the growth in excess investment income. These agreements reduced financing costs by $8 million in 2001.

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It is Torchmark’s investment strategy to maintain a positive spread between yields on new investments and the company’s required yield on policy and financing costs. To accomplish this, the company invests new cash primarily in corporate investment-grade quality fixed-maturity bonds. In periods of lower than historically normal interest rates, such as experienced in recent years, Torchmark maintained its yield spread by purchasing longer maturities. Because the majority of Torchmark’s liabilities are its policy liabilities, which have fixed interest rates and are very long-term, Torchmark does not experience negative asset and liability matching by extending investment maturities. Torchmark’s 2002 investment results indicate this strategy is effective even in periods of low rates, but the company expects to benefit as rates eventually rebound. Funds generated annually from insurance operations as well as those from the investment portfolio exceed the total of floating rate liabilities, and reinvestment at higher rates should result in a positive benefit to excess investment income.

In 2002, new investments in fixed maturities totaled $1.2 billion, compared with $1.5 billion in 2001 and $1.1 billion in 2000. While principal and interest available for commitment are rather stable, investments from year to year can fluctuate due to the extent of tax driven sales or, infrequently, from portfolio restructurings. Acquisitions in 2002 were made at an effective compounded yield of 7.53%, compared with an effective compounded yield of 7.49% in 2001 and 8.07% in 2000. These yields equate to nominal yields on acquisition of 7.39%, 7.35%, and 7.87% in those years, respectively. Acquisitions in 2002 had an average life of 13.7 years, little changed from 11.4 years in 2001 and higher than 7.6 years in 2000.

At the close of 2002, the fixed-maturity portfolio had a tax-equivalent book yield of 7.43%, virtually the same as the 7.44% portfolio yield of the previous year and slightly less than 7.50% at the end of 2000. The portfolio average life increased to 9.6 years at year-end 2002, compared with 9.4 years at the end of 2001. Both yield and average life calculations are based on the maturity date, or for callable bonds, the call or the maturity date whichever produces the lowest yield (yield to worst).

At December 31, 2002, approximately 92% of invested assets were held in fixed-maturity securities. The major rating agencies considered approximately 92% of the portfolio to be investment grade. The average quality of the portfolio continues to be “A-.” The investment strategy of the company is to purchase only investment-grade obligations. The increase in below investment-grade issues were the result of ratings downgrades of existing holdings.

During 2002, Torchmark wrote down several individual holdings to estimated fair value as a result of other-than-temporary impairment. The impaired securities met some or all of Torchmark’s criteria for other-than-temporary impairment as discussed in its Critical Accounting Policies on page 41 of this report. In total, eleven individual issues with combined book values of $121 million were written down to $32 million, creating a pre-tax charge of $89 million. Bonds of eight of the issuers were held at year end. Five of these issuers were delinquent in interest payments. The writedown was partially offset by net realized gains of $13 million on other investments. An analysis of the 2002 writedowns by industry sector at the date of writedown is as follows:

	(Amounts in millions)
Sector	Estimated Fair Value		Amortized Cost		Pretax Impairment Loss
Communications	$	8.2	$	56.6	$	48.4
Measuring Instruments, Photo		14.2		37.1		22.9
Media		2.7		8.9		6.2
Electric, Gas, Sanitation		2.4		8.4		6.0
Air Transportation		4.0		9.8		5.8
Total	$	31.5	$	120.8	$	89.3

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At the end of 2002, the fixed-maturity portfolio had a book value of $6.9 billion and fair market value of $7.2 billion, for an unrealized gain of $306 million. This compares with an unrealized loss of $1.8 million at the end of 2001. The increase in unrealized gain in 2002 resulted primarily from the decline in rates in financial markets. However, gross unrealized losses on fixed maturities were $177 million at December 31, 2002, compared with $195 million a year earlier. The following tables disclose selected information about the gross unrealized losses of Torchmark’s fixed maturities at December 31, 2002.

	(Amounts in millions)
	Fair value greater than 75% of par		Fair value less than 75% of par for less than six months		Fair value less than 75% of par for more than six months		Total
Investment grade securities:
Corporates	$	70.6	$	0.8			$	71.4
Non-investment grade securities:
Corporates		51.0		22.7	$	30.5		104.2
Municipals						1.6		1.6
	$	121.6	$	23.5	$	32.1	$	177.2
Maturity distribution:
Less than 1 year	$	1.4					$	1.4
From 1 to 5 years		25.8			$	1.1		26.9
From 5 to 10 years		32.5	$	8.5		23.4		64.4
From 10 to 20 years		27.7		1.7		2.1		31.5
More than 20 years		34.2		13.3		5.5		53.0
	$	121.6	$	23.5	$	32.1	$	177.2
Major sectors:
Electric, Gas, Sanitation	$	32.9	$	2.5	$	12.9	$	48.3
Insurance Carriers		24.0		12.6		0.1		36.7
Communications		14.5				0.5		15.0
Petroleum Refining & Related		2.7		5.9		0.8		9.4
General Merchandise Stores		6.3						6.3
Stone, Clay, Glass, Concrete		6.0						6.0
Textile Mill Products						5.6		5.6
Auto Repair, Services		5.7						5.7
Rubber & Plastics Products		4.2						4.2
Nondepository Credit Institutions		4.2						4.2
Electrical, Other Electrical Equip		0.6				3.6		4.2
Media						3.8		3.8
Industrial, Commercial Machinery		1.9		1.7				3.6
Metal Mining						1.9		1.9
Municipals						1.6		1.6
Other		18.6		0.8		1.3		20.7
	$	121.6	$	23.5	$	32.1	$	177.2

The distribution of expected maturities at December 31 of the indicated year is as follows:

	2002		2001
Short terms and under 1 year	4.5	%	4.2	%
2-5 years	28.6		20.4
6-10 years	34.8		46.5
11-15 years	12.8		12.7
16-20 years	5.2		5.6
Over 20 years	14.1		10.6
	100.0	%	100.0	%

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With emphasis on bond investments over investments in equities, mortgages, or real estate, the relative percentage of Torchmark’s investments by type continues to vary from industry data. The following table presents Torchmark’s components of invested assets at amortized cost as of December 31, 2002 with the latest industry data.

	Torchmark				Industry % (1)
	Amount (in thousands)		%
Bonds	$	6,888,830	92.2	%	72.9	%
Equities		24,260	0.3		5.2
Mortgage loans		121,805	1.6		10.5
Real estate		9,351	0.1		1.0
Policy loans		279,429	3.7		4.5
Other invested assets		80,863	1.1		3.1
Short terms		72,812	1.0		2.8
	$	7,477,350	100.0	%	100.0	%

(1) Latest data available from the American Council of Life Insurance.

During 2001, Torchmark adopted a new accounting principle, Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interest in Securitized Financial Assets (EITF 99-20), which changed the method of accounting for certain of its asset-backed securities. As a result of the requirements of the new principle, Torchmark wrote these investments down $41 million, or $27 million net of tax, which has been reported as a change in accounting principle. Subsequent to adoption, impairments of these assets have been and will be reported as realized investment losses. In 2001, after the adoption of the new rule, an additional impairment loss of $1.6 million after tax was recorded. Additionally, certain of the asset-based securities were sold during both 2002 and 2001. These sales resulted in proceeds of $40 million at an after-tax loss of $170 thousand in 2001, and proceeds of $13 million at an after-tax loss of $3 million in 2002. At year-end 2002, Torchmark held less than $300 thousand at fair value of asset-backed securities considered impaired by EITF 99-20. For more information on the effects of this accounting rule, see Note 11—Change in Accounting Principle in the Notes to Consolidated Financial Statements on page 65 of this report.

Credit Risk Sensitivity.    Credit risk is the level of certainty that a security’s issuer will maintain its ability to honor the terms of that security until maturity. In the past two years, due to the economic downturn and other factors, the securities of many industry sectors especially affected have suffered increased credit risk. As a result, many securities have been downgraded by credit-rating agencies to below-investment grade status. Thus, the likelihood the issuers will honor their securities’ terms has been reduced and the securities’ market values have been impaired. As Torchmark continues to invest in corporate bonds with relatively long maturities, credit risk is a concern. Torchmark mitigates this ongoing risk, in part, by only acquiring investment-grade bonds, and also by investigating the financial fundamentals of each prospective issuer. The table below demonstrates the credit rankings of Torchmark’s fixed income portfolio.

Rating	Amount (in thousands)		%
AAA	$	481,051	6.7	%
AA		356,109	4.9
A		3,420,983	47.6
BBB		2,374,271	33.0
BB		325,730	4.5
B		148,435	2.1
Less than B		77,752	1.1
Not rated		10,061	0.1
	$	7,194,392	100.0	%

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Torchmark reduces credit risk by maintaining investments in a wide range of industry sectors. The following table presents the highest ten percentage holdings of Torchmark’s corporate fixed maturities by industry sector at December 31, 2002.

Industry	%
Depository Institutions	16.5%
Electric, Gas, Sanitation Services	15.8
Insurance Carriers	11.5
Nondepository Credit Institutions (Finance)	6.1
Communications	5.0
Chemicals & Allied Products	3.6
Food & Kindred Products	3.3
Transportation Equipment	2.6
Industrial, Commercial Machinery, Computer Equipment	2.0
Rubber & Miscellaneous Plastics Products	1.9

Otherwise, no individual industry represented 1.9% or more of Torchmark’s corporate fixed maturities.

Market Risk Sensitivity.    Market risk is the risk that the value of a security will change because of a change in market conditions. Torchmark’s primary exposure to market risk is interest rate risk, which is the risk that a change in a security’s value could occur because of a change in interest rates. This risk is significant to Torchmark’s investment portfolio because its fixed-maturity holdings amount to 92% of total investments. The effects of interest rate fluctuations on fixed investments are reflected on an after-tax basis in Torchmark’s shareholders’ equity because these investments are marked to market value under SFAS 115.

The actual interest rate risk to Torchmark is reduced because the effect that changes in rates have on assets is offset by the effect they have on insurance liabilities and on debt. Interest assumptions are used to compute the majority of Torchmark’s insurance liabilities. These insurance liabilities, net of deferred acquisition costs, were $3.8 billion and debt and preferred securities were $.9 billion at December 31, 2002, compared with fixed-maturity investments of $6.9 billion at amortized cost at the same date. Because of the long-term nature of insurance liabilities, temporary changes in value caused by rate fluctuations have little bearing on ultimate obligations. In accordance with GAAP, insurance liabilities and debt are generally not marked to market.

Market risk is managed in a manner consistent with Torchmark’s investment objectives. Torchmark seeks to maintain a portfolio of high-quality fixed-maturity assets that may be sold in response to changing market conditions. However, it is Torchmark’s primary objective to hold securities to maturity. Torchmark’s strong operating cash flow and stable, long-term policy liabilities decrease the likelihood of needing to sell fixed investments for operating liquidity. Some sales may be made to preserve capital due to changes in credit quality of individual securities or for tax purposes. Potential volatility in the value of Torchmark’s longer-term fixed-maturity holdings is reduced by the Company’s practice of holding securities to maturity, which has resulted in 33% of the fixed portfolio being expected to repay within five years and 68% within ten years. Also, the portfolio and market conditions are constantly evaluated for appropriate action.

No derivative instruments are used to manage Torchmark’s exposure to market risk in the investment portfolio. Interest-rate swap instruments have been entered into by Torchmark in connection with its preferred stock and certain debt issues as discussed in the Notes to the Consolidated Financial Statements on page 70 of this report and in Capital Resources beginning on page 34 of this report.

The liability for Torchmark’s insurance policy obligations is computed using interest assumptions, some of which are contractually guaranteed. A reduction in market interest rates of a permanent nature could cause investment return to fall below guaranteed amounts. Torchmark’s insurance companies participate in the cash flow testing procedures imposed by statutory insurance regulations, the purpose of which is to insure that such liabilities are adequate to meet the company’s obligations under a variety of

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interest rate scenarios. Those procedures indicate that Torchmark’s insurance policy liabilities, when considered in light of the assets held with respect to such liabilities and the investment income expected to be received on such assets, are adequate to meet the obligations and expenses of Torchmark’s insurance activities in all but the most extreme circumstances.

The following table illustrates the market risk sensitivity of Torchmark’s interest-rate sensitive fixed-maturity portfolio at December 31, 2002, 2001, and 2000. This table measures the effect of a change in interest rates (as represented by the U.S. Treasury curve) on the fair value of Torchmark’s fixed-maturity portfolio. The data is prepared through a model which incorporates various assumptions and estimates to measure the change in fair value arising from an immediate and sustained change in interest rates in increments of 100 basis points. It takes into account the effect that special option features such as call options, put options, and unscheduled repayments could have on the portfolio, given the changes in rates. The valuation of these option features is dependent upon assumptions about future interest rate volatility that are based on past performance.

	Market Value of Fixed-Maturity Portfolio ($ millions)
Change in Interest Rates (in basis points)	At December 31, 2002		At December 31, 2001
-200	$	8,213	$	7,432
-100		7,702		6,971
0		7,194		6,526
100		6,744		6,128
200		6,302		5,748

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FINANCIAL CONDITION

Liquidity.    Liquidity provides an institution such as Torchmark with the ability to meet on demand the cash commitments required by its business operations and financial obligations. Torchmark’s liquidity is derived from three sources: positive cash flow from operations, portfolio of marketable securities, and a line of credit facility.

Torchmark’s insurance operations have historically generated positive cash flows in excess of its immediate needs. Cash flows provided from operations increased in each of the three years ended December 31, 2002 over their respective prior year. They were $651 million in 2002, compared with $618 million in 2001 and $523 million in 2000. In addition to operating cash flows, Torchmark received $304 million in investment maturities and repayments during 2002, adding to available cash flows. Such repayments were $263 million in 2001 and $226 million in 2000. Cash flows in excess of immediate requirements are used to build an investment base to fund future requirements. Available cash flows are also used to repay debt, to buy back Torchmark shares, to pay shareholder dividends, and for other corporate uses. While Torchmark’s cash flows have historically been positive and very strong, a reduction in cash flow could negatively affect its liquidity.

Torchmark’s cash and short-term investments were $80 million at year-end 2002 and $138 million at year-end 2001. In addition to these highly liquid assets, Torchmark has a portfolio of marketable fixed and equity securities that are available for sale should the need arise. These securities had a value of $7.2 billion at December 31, 2002.

Torchmark has in place a line of credit facility with a group of lenders which allows unsecured borrowings and stand-by letters of credit up to $625 million. The facility is split into two parts: a $325 million 364-day tranche maturing November 27, 2003, and a $300 million five-year tranche maturing November 30, 2006. The company has the ability to request up to $200 million in letters of credit to be issued against the $300 million five-year tranche. Under either tranche, interest is charged at variable rates. The line of credit is further designated as a back-up credit line for a commercial paper program not to exceed $600 million, whereby Torchmark may borrow from either the credit line or issue commercial paper at any time. Commercial paper borrowings and letters of credit on a combined basis may not exceed $625 million. At December 31, 2002, $202 million face amount of commercial paper was outstanding, $170 million letters of credit were issued, and there were no borrowings under the line of credit. A facility fee is charged on the entire $625 million facility. The facility does not contain any ratings-based acceleration triggers which would require early repayment. In accordance with the agreements, Torchmark is subject to certain covenants regarding capitalization and earnings. At December 31, 2002, Torchmark was in full compliance with these covenants.

Liquidity of the parent company is affected by the ability of the subsidiaries to pay dividends. The parent receives dividends from subsidiaries in order to meet dividend payments on common and preferred stock, interest and principal repayment requirements on parent-company debt, and operating expenses of the parent company. Dividends from insurance subsidiaries of Torchmark are limited to the greater of statutory net gain from operations, excluding capital gains and losses, on an annual noncumulative basis, or 10% of surplus, in the absence of special approval. Distributions are not permitted in excess of statutory net worth. Subsidiaries are also subject to certain minimum capital requirements. Although these restrictions exist, dividend availability from subsidiaries historically has been and is expected to be more than adequate to meet the cash flow needs for parent company operations. During the year 2003, a maximum amount of $283 million is expected to be available to Torchmark from insurance subsidiaries without regulatory approval.

Capital Resources.    In the use of financial measures and ratios to evaluate its use of capital resources, Torchmark’s management adjusts shareholders’ equity to remove the effect caused by changes in the interest rates in the financial markets. Torchmark has a large available-for-sale fixed- maturity portfolio and is required by an accounting rule (SFAS 115) to revalue the portfolio to fair market value at the end of each accounting period. These changes in value, net of tax, are reflected directly in shareholders’ equity. Because the size of Torchmark’s fixed maturity portfolio is very large relative to shareholders’ equity, and because small changes in interest rates can cause huge swings in market value, Torchmark’s shareholders’ equity as reported in accordance with GAAP can be volatile. This volatility can distort the measure of Torchmark’s capital structure, as the short-term changes in the value of its fixed-maturity investment portfolio have little bearing on its long-term ongoing insurance business. For this reason, this interest-based market adjustment is removed from shareholders’ equity and related

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ratios to provide management and investors a clearer picture of Torchmark’s shareholders’ equity. A reconciliation of shareholders’ equity excluding SFAS 115 with shareholders’ equity is as follows:

	(Amounts in millions)
	2002		2001			2000
Shareholders’ equity excluding SFAS 115	$	2,664.3	$	2,497.4		$	2,341.6
SFAS 115 adjustment		187.2		(.3	)		(139.2	)
Shareholders’ equity (most directly comparable GAAP financial measure)	$	2,851.5	$	2,497.1		$	2,202.4

Torchmark’s capital structure consists of long and short-term debt, preferred securities, and shareholders’ equity. Torchmark’s debt consists of its funded debt and its commercial paper facility. An analysis of Torchmark’s funded debt outstanding at year-ends 2002 and 2001 at par value is as follows:

Instrument	Year Due	Rate	2002		2001
			Principal Amount ($ thousands)		Principal Amount ($ thousands)
Senior Debentures	2009	8 1/4	$	99,450	$	99,450
Notes	2023	7 7/8		168,912		168,987
Notes	2013	7 3/8		94,050		94,050
Senior Notes	2006	6 1/4		180,000		180,000
Total funded debt			$	542,412	$	542,487

The carrying value of the funded debt was $552 million at December 31, 2002, compared with $536 million a year earlier. In accordance with accounting rules, Torchmark carries the 2006 Senior Notes at fair value since they are backed by derivatives that qualify as a hedge. This market value increase accounted for $15 million of the 2002 increase in the carrying value of total funded debt.

Torchmark issued $180 million principal amount of 6 ¹/4% Senior Notes in December, 2001. These notes will mature on December 15, 2006 and may not be redeemed prior to maturity. There is no sinking fund requirement. Interest is payable semi-annually on June 15 and December 15. These notes are unsecured and rank equally with Torchmark’s other unsecured indebtedness. Proceeds from the issuance, after underwriters’ discount and expenses of the offering, were approximately $178 million. Proceeds were used initially to pay down short-term debt.

In connection with this issuance, Torchmark entered into a five-year swap agreement with an unaffiliated party to swap the 6 ¹/4% fixed rate payment obligation for a floating rate obligation. The floating rate is based on the six-month LIBOR and resets every six months. At December 31, 2002, the floating rate was 2.63%. The swap arrangement added $3.6 million net of tax to Torchmark’s 2002 net operating income. This swap derivative qualifies as a hedge under accounting rules. Therefore, changes in its market value are substantially offset by changes in the value of the debt security. Torchmark’s derivative instruments are classified as Other Invested Assets.

In 2002, Torchmark acquired $75 thousand principal amount of its 7 ⁷/8% Notes due 2023 at a cost of $76 thousand, resulting in a $2 thousand loss on debt redemption after tax. In 2001, $8.1 million par value of the 7 ⁷/8% Notes was acquired by Torchmark at a cost of $8.3 million, resulting in an after-tax loss of $277 thousand. In 2000, $4.6 million principal amount of Torchmark 7 ⁷/8% Notes and $2.0 million principal amount of the 7 ³/8% Notes were acquired at a cost of $4.2 million and $1.9 million, respectively. The redemption of this debt in 2000 resulted in an after-tax gain of $202 thousand.

In November, 2001, Torchmark established two Capital Trusts which in turn sold trust preferred securities in a public offering. Capital Trust I sold 5 million shares and Capital Trust II sold 1 million shares. The trust preferreds sold in the two offerings have identical terms. Each offering consisted of 7 ³/4% trust preferreds at a liquidation amount of $25 per security, resulting in an aggregate liquidation amount of $150 million. They are redeemable at Torchmark’s option in part or whole at any time on or

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after November 2, 2006. They are subject to a mandatory redemption on November 1, 2041. Distributions are cumulative and are paid quarterly at an annual rate of 7 ³/4%, or at a rate of $1.9375 per share. All payments by the Trusts regarding the trust preferreds are guaranteed by Torchmark. The Capital Trusts are wholly-owned consolidated subsidiaries of Torchmark.

The two offerings resulted in proceeds to the Capital Trusts of $145 million, after underwriters’ discount and issue expenses. The Capital Trusts used the proceeds to buy 7 ³/4% Junior Subordinated Debentures from Torchmark in like amount. Torchmark used these proceeds to redeem the remaining $110 million of outstanding 9.18% MIPS and to pay down short-term debt.

In conjunction with the offering of the trust preferred securities, Torchmark entered into a ten-year swap agreement to replace the 7 ³/4% fixed-distribution obligation with a floating rate payment. The floating rate is based on the three-month LIBOR and resets each quarter when the distributions are made. The trust preferred swap rate is set in arrears each quarter. Therefore it is estimated at the end of each accounting period. At December 31, 2002, the variable rate was 3.6%. This swap derivative does not qualify as a hedge for accounting purposes and is carried on the consolidated balance sheet at fair market value. At December 31, 2002, this swap was valued at a gain of $16 million before tax. Torchmark’s net operating income was increased $3.7 million in 2002 as a result of the swap.

The MIPS were originally issued in 1994 at a redemption amount of $200 million with a monthly dividend based on an annual rate of 9.18%. The MIPS were redeemable at Torchmark’s option at any time after September 30, 1999 at the full redemption amount of $25 per share. Torchmark elected to redeem the MIPS in full during 2001 in three transactions which resulted in an after-tax loss on redemption of $4.3 million. Funds to repay $110 million of the principal amount were derived from the issuance of the trust preferred securities in November, 2001, while the remaining $90 million balance was redeemed using corporate cash flow or by short-term borrowings earlier in the year.

Torchmark has a swap agreement, originally entered into when the MIPS were issued, to exchange a monthly fixed payment based on an annual rate of 9.18% for a floating rate based on the one-month LIBOR rate on a notional amount of $200 million. While the MIPS have been redeemed, the swap is still in place and does not expire until September 30, 2004. At December 31, 2002, Torchmark was obligated to pay at a floating rate of 2.83% on this agreement, while collecting at a rate of 9.18%. Torchmark’s net operating income benefited $7.7 million in 2002, $4.6 million in 2001, and $1.6 million in 2000 because of this swap agreement. At December 31, 2002, this swap was carried at its fair market value of $21 million.

Short-term debt consists of Torchmark’s commercial paper outstanding. The commercial paper balance outstanding at December 31, 2002 was $201 million at carrying value, compared with a balance of $204 million a year earlier. The commercial paper borrowing balance fluctuates based on Torchmark’s current needs.

The following table presents information about Torchmark’s debt-to-capitalization. As discussed on page 34 , Torchmark removes the effect of fluctuations in shareholders’ equity resulting from changes in interest rates caused by accounting rule SFAS 115. Management believes the debt-to-capitalization ratio excluding SFAS 115 provides a more meaningful presentation of Torchmark’s capitalization. In addition, lending banks require that the capitalization ratios specified in the debt covenants concerning Torchmark’s short-term debt agreements be computed on the basis excluding SFAS 115. Debt-to-capitalization is also presented whereby preferred securities are included as either equity or debt.

	At December 31,
	2002		2001
Debt to total capitalization, (most directly comparable     GAAP financial measure)	20.1	%	21.9	%
Debt to total capitalization, excluding SFAS 115	21.1		21.9
Debt to total capitalization, excluding SFAS 115,     counting preferred securities as debt	25.2		26.2

Torchmark’s ratio of earnings before interest, taxes and discontinued operations to interest requirements was 21.4 times in 2002, compared with 14.5 times in 2001 and 11.3 times in 2000. If realized

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investment losses were excluded, this coverage ratio would have been 23.6 in 2002 and 14.6 in 2001. Torchmark’s interest expense declined 36% in 2002 to $29 million and 18% to $44.5 million in 2001. The 2002 decline in interest expense was caused primarily by the lower rates in financial markets that resulted in a benefit from the three interest rate swaps and in reduced interest cost on short-term debt. The 2001 decline also resulted from much lower interest rates in financial markets and a reduction in average debt outstanding.

Under its share repurchase program, Torchmark continues to make share purchases in the open market when market conditions are favorable. In 2002, Torchmark acquired 4.8 million shares at a cost of $182 million. Purchases of 7.8 million shares at a cost of $303 million were made in 2001 and 6.1 million shares were acquired at a cost of $147 million in 2000. Torchmark plans to continue to make share purchases when prices are attractive.

In each of the years 2001 and 2000, Torchmark executed stock option exercise and restoration programs whereby Torchmark employees and directors exercised vested stock options and received a reduced number of new options at the current market price. While these programs resulted in the issuance of new shares, a substantial portion of the new shares were sold immediately by the participants in the open market to cover the cost of the purchased shares and the related minimum taxes. As a result of these restoration programs, management’s ownership interest increased, and Torchmark received a current tax benefit from the exercise of the options. The following table presents key information about the programs.

Exercise date	August 9, 2001	December 20, 2000
Number of participants	122	2
Shares issued (thousands)	3,976	433
Shares sold (thousands)	3,347	283
New options (thousands)	3,305	263

The following table presents book value per share information on a basis in which the effect of accounting rule SFAS 115 has been removed from common shareholder’s equity, which is the numerator in this ratio. As discussed on page 34, the removal of SFAS 115 eliminates the volatility in book value caused by interest rate fluctuations in financial markets that have little bearing on Torchmark’s ongoing operations. The increases in book value excluding SFAS 115 and book value per diluted share excluding SFAS 115 in each period resulted primarily from the addition of earnings and were achieved in spite of the Torchmark share purchases of $303 million in 2001 and $182 million in 2002.

	At December 31,
	2002		2001		2000
Book value per diluted share, (most directly comparable GAAP financial measure)	$	24.04	$	20.24	$	17.30
Book value per diluted share, excluding SFAS 115 (Torchmark’s preferred measure)		22.46		20.25		18.39

The following table displays Torchmark’s return on average equity excluding the effect of SFAS 115. Additionally, Torchmark management prefers to use net operating income as defined on pages 16-18 as the numerator of this ratio.

	For the year ended December 31,
	2002		2001		2000
Return on average equity:
Net income as a percentage of shareholders’ equity (most directly comparable GAAP financial measure)	14.6	%	14.9	%	17.5	%
Net operating income as a percentage of shareholders’ equity excluding SFAS 115 (Torchmark’s preferred measure)	16.5		16.6		16.9

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Credit Ratings.    The credit quality of Torchmark’s debt instruments and capital securities are by various rating agencies. The chart below presents selected ratings as of December 31, 2002.

	Standard & Poors	Fitch	Moody’s	A.M. Best
Commercial Paper	A-1	F-1	P-2	AMB-1
Funded Debt	A	A	A3	a
Preferred Stock	BBB+	A-	baa1	a-

The financial strength of Torchmark’s major insurance subsidiaries are also rated by Standard & Poor’s and A.M. Best. The following chart presents these ratings for Torchmark’s five largest insurance subsidiaries at December 31, 2002.

	Standard & Poors	A.M. Best
Liberty	AA	A+ (Superior)
Globe	AA	A+ (Superior)
United Investors	AA	A+ (Superior)
United American	AA	A+ (Superior)
American Income	AA	A    (Excellent)

A.M. Best states that it assigns A+ (Superior) ratings to those companies which, in its opinion, have demonstrated superior overall performance when compared to the norms of the life/health insurance industry. A+ (Superior) companies have a superior ability to meet their obligations to policyholders over a long period of time. A.M. Best states that it assigns A (Excellent) ratings to those companies which, in its opinion, have demonstrated excellent overall performance when compared to the norms of the life/health insurance industry. A (Excellent) companies have an excellent ability to meet their obligations to policyholders over a long period of time.

The AA rating is assigned by Standard & Poor’s Corporation to those companies who offer excellent financial security on an absolute and relative basis and whose capacity to meet policyholders’ obligations is overwhelming under a variety of economic and underwriting conditions.

Contractual Commitments.    A schedule of Torchmark’s scheduled contractual commitments for the next five years at December 31, 2002 is as follows.

	($ millions)
	2003		2004		2005		2006		2007		Thereafter
Short-term debt	$	201.5		—		—		—		—		—
Long-term debt		—		—		—	$	180.0		—	$	362.4
Preferred stock		—		—		—		—		—		150.0
Operating lease obligations		2.1		1.4		1.0		.7		.6		1.4
Total	$	203.6	$	1.4	$	1.0	$	180.7	$	.6	$	513.8

OTHER ITEMS

Litigation.    Torchmark and its subsidiaries continue to be named as parties to pending or threatened litigation, much of which involves punitive damage claims based upon allegations of agent misconduct at Liberty in Alabama. Such punitive damage claims are tried in Alabama state courts where any punitive damage litigation may have the potential for significant adverse results since punitive damages in Alabama are based upon the compensatory damages (including mental anguish) awarded and the discretion of the jury in awarding compensatory damages is not precisely defined. Additionally, it should be noted that Torchmark subsidiaries actively market insurance in the State of Mississippi, a jurisdiction which is nationally recognized for large punitive damage verdicts. Bespeaking caution is the fact that it is impossible to predict the likelihood or extent of punitive damages that may be awarded if liability is found in any given case. It is thus difficult to predict with certainty the liability of Torchmark or its subsidiaries in any given case because of the unpredictable nature of this type of litigation. 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

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considered by management to be material. For more information concerning litigation, please refer to Note 18—Commitments and Contingencies in the Notes to Consolidated Financial Statements beginning on page 75.

TRANSACTIONS WITH RELATED PARTIES

First Command.    Lamar C. Smith, a director of Torchmark, is an officer and director of First Command Financial Services, Inc. (First Command), a corporation 100% owned by the First Command Employee Stock Ownership Plan (First Command ESOP). Mr. Smith is a beneficiary of the First Command ESOP although he has no ability to vote the stock of First Command that is held by the First Command ESOP. First Command, with 545 home office agency employees and more than 1,000 appointed agents both inside and outside the United States, receives commissions as the Military Agency distribution system for selling certain life insurance products offered by Torchmark’s insurance subsidiaries. These commissions were $52.6 million in 2002, $48.2 million in 2001, and $43.5 million in 2000.

During 2001, Torchmark entered into a coinsurance agreement with First Command’s life subsidiary whereby Torchmark cedes back to First Command approximately 5% of the new life insurance business sold by First Command on behalf of Torchmark’s insurance subsidiaries. Under the terms of this agreement, First Command pays Torchmark a maintenance expense allowance equal to 5.5% of all premium collected and an issue allowance of 2.9% of first year premium collected. Torchmark is also reimbursed for actual commissions, premium taxes, and claims paid on the business ceded to First Command. Also under the agreement, Torchmark provides First Command certain administrative, accounting, and investment management services. Premium ceded in 2002 was $780 thousand and in 2001 was $108 thousand. At December 31, 2002, life insurance ceded was $139 million and annualized ceded premium was $1.2 million.

Torchmark has entered into two loan agreements with First Command, a construction loan agreement and a collateral loan agreement. The construction loan was entered into in 2001 and had an outstanding balance of $19.4 million at December 31, 2002. The loan was made at a rate of 7.55% and is collateralized by a four-story building in Fort Worth, Texas. In addition to the office building as collateral, in the event of default, Torchmark has the right of offset to any commission due First Command. The maximum amount of borrowing allowed on this loan is $22.5 million. Interest is added to the loan balance until the building is completed. The agreement calls for Torchmark to permanently finance the building with a fifteen-year mortgage at a rate of 2.25% over the ten-year treasury rate at inception, but not less than 7%.

The collateral loan agreement was entered into in 1998 with an initial loan of $7 million. An additional $15 million was loaned in 2001. The loan bears interest at a rate of 7%. Initially, it was collateralized by a group of mutual funds in which the loan balance could never exceed 90% of the value of the collateral. In 2002, real estate owned by First Command was pledged as additional collateral due to weak financial markets. The collateral agreement was modified so that the loan balance is not to exceed the sum of 90% of the mutual funds pledged plus 75% of the appraised value of the real estate pledged. The real estate appraisal was performed by an independent firm. The loan accumulated interest until December 31, 2001, after which time First Command began making fixed monthly payments that will amortize the loan over fifteen years. The outstanding loan balance at December 31, 2001 was $22.9 million and was $22.0 million at December 31, 2002. Also at December 31, 2002, the appraised value of the collateral real estate was $17.6 million and the market value of the mutual funds pledged was $12.6 million.

Real Estate.    Torchmark sold the majority of its investment real estate properties in two transactions in 1999. One of these transactions involved Elgin Development Company, of which R. K. Richey, the Chairman of the Executive Committee of Torchmark, was an investor. This transaction involved the sale of properties to an investor group of which Elgin Development Company was a 30% investor. Total consideration for the transaction was $97.4 million of which $85 million was cash and the balance was in a ten year collateralized 8% note from Elgin Development Company. Torchmark’s loss associated with this transaction was $10 million after tax. At the time of the transaction, Mr. Richey was a one-third investor in Elgin Development Company, with a total investment in Elgin Development of approximately $1.5 million. The outstanding balance of the collateralized note with Elgin Development Company, which is included in fixed maturities, was $10.1 million at December 31, 2002 and $10.5 million at December 31, 2001.

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At the present time, Mr. Richey is a 25% investor in Stonegate Realty Company, LLC, the parent company of Elgin Development Company. He is also a one-third investor in Stonegate Management Company, LLC, which, in turn, is a 50% owner of Commercial Real Estate Services. Commercial Real Estate Services manages certain of Torchmark’s company-occupied and investment real estate properties along with those of other clients. Fees paid by Torchmark subsidiaries for these management and maintenance services were $750 thousand in 2002, $757 thousand in 2001, and $750 thousand in 2000. Lease rentals paid by Torchmark subsidiaries were $260 thousand, $261 thousand, and $260 thousand in 2002, 2001, and 2000, respectively.

MidFirst Bank.    Torchmark has engaged MidFirst Bank as the servicing agent for a portion of Torchmark’s subsidiaries’ commercial mortgages portfolios. George J. Records, a Torchmark director, is an officer, director, and 38.3% beneficial owner of Midland Financial Co., the parent corporation of MidFirst Bank. Fees paid for these services were $118 thousand in 2002, $109 thousand in 2001, and $106 thousand in 2000.

Baxley.    William J. Baxley is a partner in the law firm of Baxley, Dillard, Dauphin & McKnight which performs legal services for Torchmark and certain of its subsidiaries. In 1997, Mr. Baxley was loaned $668 thousand on an unsecured basis at a rate of 6.02%. Repayments are made in the form of legal services at customary rates and are applied against the outstanding balance, amortizing the loan with interest over its remaining term. In October, 2001, the terms of the loan were revised and an additional amount of $395 thousand was loaned to Baxley. The interest rate was revised to 5.6% and the term of the loan was extended until July, 2013. The loan is being repaid in accordance with its amortization schedule and all payments are current. At December 31, 2002 and 2001, the outstanding balance of this loan was $743 thousand and $788 thousand, respectively.

Additionally, Liberty loaned Mr. Baxley’s wife $883 thousand secured by a mortgage on a building sold to her in 1997. Interest is charged at a rate of 7.7%. Scheduled cash payments are made to amortize the loan over thirty years. However, there is a balloon payment due at the end of ten years (2007) in the amount of $712 thousand less a credit of $18 thousand if all payments are made timely. To date, all payments have been timely. During 2002, Liberty sold the loan to Torchmark. At December 31, 2002 and 2001, the outstanding balance of this loan was $809 thousand and $824 thousand, respectively.

Torchmark customarily grants options to certain consultants for their services in addition to their fees. Mr. Baxley has received Torchmark options in the past.

NEW ACCOUNTING RULES

Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections (FASB Statement No. 145) is effective for fiscal years beginning after May 15, 2002. This Statement supersedes previous accounting rules regarding debt extinguishments and certain lease modifications. It prohibits reporting gains and losses from debt extinguishments as extraordinary on the income statement unless it is material, infrequent, and unusual. It requires reclassification of such amounts previously classified as extraordinary into continuing operations. As a result, Torchmark’s gains and losses from the purchase of its debt and preferred securities will be included upon adoption as a component of realized gains and losses on the income statement, with prior periods reclassified. Torchmark had pretax losses of $425 thousand on debt redemptions and $6.6 million from the redemption of its MIPS in 2001. In 2002, the loss from debt redemptions was $2.6 thousand pretax. The provisions regarding leases are immaterial to Torchmark.

Accounting for Costs Associated with Exit or Disposal Activities (FASB Statement No. 146) is effective for exit or disposal activities initiated after December 31, 2002, with early application encouraged. Statement 146 amends previous accounting standards to require the recognition of a liability for the cost associated with an exit or disposal activity at the time the liability is incurred. Previously, this liability was recognized at the time of commitment to an exit plan. The provisions of this Statement should have no material impact on Torchmark.

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CRITICAL ACCOUNTING POLICIES

Future Policy Benefits.    Because of the long-term nature of insurance contracts, Torchmark’s insurance companies are liable for policy benefit payments that will be made in the future. The liability for future policy benefits represents estimates of the present value of Torchmark’s insurance subsidiaries’ expected benefit payments, net of the related present value of future net premium collections. It is determined by standard actuarial procedures common to the life insurance industry, using assumptions as to mortality (life expectancy), morbidity (health expectancy), persistency, and interest rates, which are based on Torchmark’s previous experience with similar products. For the majority of Torchmark’s insurance products, the assumptions used were those considered to be appropriate at the time the policies were issued. An additional provision is made on most products to allow for possible adverse deviation from the assumptions assumed. For insurance products considered to be interest-sensitive or deposit-balance type products, the assumptions are monitored on a regular basis and modified when it is determined that actual experience is different from that previously assumed. While management and company actuaries have used their best judgment in determining the assumptions and in calculating the liability for future policy benefits, there is no assurance that the estimate of the liabilities reflected in the financial statements represents Torchmark’s ultimate obligation. Additionally, significantly different assumptions could result in materially different reported amounts. A complete list of the assumptions used to calculate the liability for future policy benefits is reported in Note 7—Future Policy Benefits Reserves in the Notes to Consolidated Financial Statements found on page 62 of this report.

Deferred Acquisition Costs and Value of Insurance Purchased.    The costs of acquiring new business are generally deferred and recorded as an asset on the balance sheet. Deferred acquisition costs consist primarily of sales commissions and other underwriting costs of new insurance sales. Additionally, the costs of acquiring blocks of insurance from other companies or through the acquisition of other companies are also deferred and recorded as assets under the caption “Value of Insurance Purchased.” Deferred acquisition costs are amortized in a systematic manner which matches these costs with the associated revenues. 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. Deferred acquisition costs are subject to periodic recoverability and loss recognition testing. These tests ensure that 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, this deficiency would be charged to expense as a component of amortization and the asset balance is reduced by a like amount. Different assumptions with regard to deferred acquisition costs could produce materially different amounts of amortization. For more information about accounting for deferred acquisition costs see Note 1—Significant Accounting Policies and Note 5—Deferred Acquisition Costs and Value of Insurance Purchased in the Notes to Consolidated Financial Statements on pages 53 and 61 of this report, respectively.

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 the company. The estimate of unreported claims is based on prior experience. Torchmark management makes an estimate after careful evaluation of all information available to the company. 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.

Revenue Recognition.    Premium income for Torchmark’s subsidiaries’ insurance contracts is generally recognized as the premium is collected. However, in accordance with GAAP, revenue on limited-payment contracts and universal life-type contracts (deposit balance products) are recognized differently. Revenues on limited-payment contracts are recognized over the contract period. Premium for deposit balance products, such as Torchmark’s annuity and interest-sensitive life policies, is added to the policy account value. The policy account value (or deposit balance) is a Torchmark liability. This deposit balance is then charged a fee for the cost of insurance, administration, surrender, and certain other charges which are recognized as revenue in the period the fees are charged to the policyholder. In each

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case, benefits and expenses are matched with revenues in a manner by which they are incurred as the revenues are earned.

Investment income is reported as revenue by Torchmark when it is earned less investment expenses. The investment activities of Torchmark are integral to its insurance operations. Because life and health insurance claims and benefits may not be paid until many years into the future, the accumulation of cash flows from premium receipts are invested. Anticipated yields earned on investments are reflected in premium rates, contract liabilities, and other product contract features. These yield assumptions are implied in the interest required on Torchmark’s net insurance liabilities (future policy benefits less deferred acquisition costs) and contractual interest obligations in its insurance and annuity products. Torchmark benefits to the extent actual net investment income exceeds the required interest on net insurance liabilities and the interest on its debt. During 2002, the yield on the investment portfolio exceeded the weighted-average contractual interest requirement by 187 basis points. Regardless of the level of investment yield, it is Torchmark’s responsibility to provide for all future contractual obligations. For more information concerning revenue recognition, investment accounting, and interest sensitivity, please refer to Note 1—Significant Accounting Policies on page 53, Note 3—Investments beginning on page 59 in the Notes to Consolidated Financial Statements and discussions under the captions Annuities on page 26, Investments on page 28, and Market Risk Sensitivity on page 32 of this report.

Impairment of Investments.    Torchmark continually monitors its investment portfolio for investments that have become impaired in value. While the values of the investments in Torchmark’s portfolio constantly fluctuate due to market conditions, an investment is considered to be impaired only when it has experienced a decline in fair market value which is deemed other than temporary (“permanent”). In accordance with GAAP, a permanently impaired investment is written down to fair value.

The determination that a security is permanently impaired is highly subjective. Many factors are taken into account including:

• Default on a payment

• Issuer has declared bankruptcy

• Severe deterioration in market value

• Deterioration in credit quality as indicated by credit ratings

• Issuer having serious financial difficulties as reported in the media

These and other factors are analyzed, and if a security is considered to be permanently impaired, it is written down to the fair value. The writedown is recognized as a realized investment loss. While every effort is made to make the best estimate of status and value with the information available, it is difficult to predict the ultimate recoverable amount of a distressed or impaired security.

Defined benefit pension plans.    Torchmark maintains funded defined benefit plans covering most full-time employees. It also has unfunded nonqualified defined benefit plans covering certain key and other employees. Torchmark’s 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 by the growth in value of the assets in the funded plans. Torchmark’s pension cost for the defined benefit plans was $2.3 million, $2.5 million, and $2.6 million in each of the years 2002, 2001, and 2000, respectively.

The actuarial assumptions used in determining Torchmark’s 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 Torchmark’s pension obligation. A decrease in projected salary increases will cause a decrease in this obligation. These assumptions are subjective in many cases and small changes

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in certain assumptions may cause material differences in reported results. While management has used its best efforts to determine the most reliable assumptions, given the information available from company experience, economic data, independent consultants and other sources, no assurance can be given that actual results will be the same as expected. Torchmark’s discount rate, rate of return on assets, and projected salary increase assumptions are disclosed in Note 12—Postretirement Benefits in the Notes to Consolidated Financial Statements on page 66 of this report.

In order to remove volatility in the changes in the market values of plan investments from year to year, GAAP permits and Torchmark utilizes a “market-related value” whereby changes in the market values of investments are recognized systematically over a moving five-year period. Additionally, the difference in the pension obligation arising from actual results versus the expected results using actuarial assumptions is generally not recognized in the current period. Pension cost in future periods is affected by the amount of unrecognized gain or loss in market value and actuarial estimates. An unrecognized gain will reduce future cost and an unrecognized loss will increase future costs. At December 31, 2002, Torchmark had an unrecognized actuarial loss of $3 million.

Torchmark makes cash contributions to the funded plans from time to time subject to mandatory required minimums and Internal Revenue Service allowed maximums for tax deductibility. These contributions were $7.2 million, $1.0 million, and $.6 million in each of the years 2002, 2001, and 2000, respectively. Assets in the funded plans are placed in a diversified mix of investments. At December 31, 2002 the composition of investments at fair value was as follows:

	Amount		%
Corporate Debt	$	41,278	31.1	%
Other Fixed Maturities		23,563	17.8
Equity Securities		33,959	25.6
Securities of Torchmark		12,682	9.6
Short Terms		16,886	12.7
Annuity Contract Issued by Torchmark		3,278	2.5
Other		949	.7
Total	$	132,595	100.0	%

At December 31, 2002 Torchmark’s qualified pension plans were under-funded by $8.2 million. An analysis of the funded status of Torchmark’s pension plans is also disclosed in the above-mentioned Postretirement Benefits Note.

Item 7A.    Quantitative and Qualitative Disclosures about Market Risk

Information required by this item is found under the heading Market Risk Sensitivity found in Item 7 beginning on page 32 of this report.

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Item 8. Financial Statements and Supplementary Data

	Page
Independent Auditors’ Report	45
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 2002 and 2001	46
Consolidated Statements of Operations for each of the three years in the period ended December 31, 2002	47
Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31, 2002	49
Consolidated Statements of Shareholders’ Equity for each of the three years in the period ended December 31, 2002	50
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2002	51
Notes to Consolidated Financial Statements	53

44

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Shareholders of

Torchmark Corporation

Birmingham, Alabama

We have audited the accompanying consolidated balance sheets of Torchmark Corporation and subsidiaries as of December 31, 2002 and 2001, 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, 2002. 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 auditing standards generally accepted in the United States of America. 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, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 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.

As discussed in Note 1 to the consolidated financial statements, Torchmark Corporation and subsidiaries changed its method of accounting for goodwill in 2002, in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. 

DELOITTE & TOUCHE LLP

Dallas, Texas

February 28, 2003

45

TORCHMARK CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands except per share data)

	December 31,
	2002			2001
Assets:
Investments:
Fixed maturities—available for sale, at fair value (amortized cost: 2002—$6,888,830; 2001— $6,528,244)	$	7,194,392		$	6,526,429
Equity securities, at fair value (cost: 2002—$24,260; 2001—$666)		24,457			571
Mortgage loans on real estate, at cost (estimated fair value: 2002—$122,368; 2001—$111,047)		121,805			112,135
Investment real estate, at cost (less allowance for depreciation: 2002—$20,236; 2001—$19,669)		9,351			14,133
Policy loans		279,429			266,979
Other long-term investments		81,505			49,971
Short-term investments		72,812			134,156
Total investments		7,783,751			7,104,374
Cash		7,181			3,714
Accrued investment income		132,984			125,210
Other receivables		70,419			67,549
Deferred acquisition costs		2,184,134			2,066,423
Value of insurance purchased		102,091			115,939
Property and equipment, net of accumulated depreciation		33,431			36,137
Goodwill		378,436			378,436
Other assets		11,500			28,087
Separate account assets		1,656,795			2,502,284
Total assets	$	12,360,722		$	12,428,153
Liabilities:
Future policy benefits	$	5,709,623		$	5,348,929
Unearned and advance premiums		95,243			93,624
Policy claims and other benefits payable		242,661			248,333
Other policyholders’ funds		83,427			80,929
Total policy liabilities		6,130,954			5,771,815
Deferred and accrued income taxes		720,176			580,287
Other liabilities		103,874			191,894
Short-term debt		201,479			204,037
Long-term debt (estimated fair value: 2002—$612,172; 2001—$543,275)		551,564			536,152
Separate account liabilities		1,656,795			2,502,284
Total liabilities		9,364,842			9,786,469
Trust preferred securities (redemption amount —$150,000, estimated fair value: 2002—$157,200; 2001—$150,660)		144,427			144,557
Shareholders’ equity:
Preferred stock, par value $1 per share—Authorized 5,000,000 shares; outstanding: -0- in 2002 and in 2001		-0-			-0-
Common stock, par value $1 per share—Authorized 320,000,000 shares; outstanding: (2002—126,800,908 issued, less 8,533,456 held in treasury and 2001—126,800,908 issued, less 3,913,142 held in treasury)		126,801			126,801
Additional paid-in capital		554,768			552,634
Accumulated other comprehensive income (loss)		176,622			(12,314	)
Retained earnings		2,316,868			1,978,903
Treasury stock		(323,606	)		(148,897	)
Total shareholders’ equity		2,851,453			2,497,127
Total liabilities and shareholders’ equity	$	12,360,722		$	12,428,153

See accompanying Notes to Consolidated Financial Statements.

46

TORCHMARK CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands except per share data)

	Year Ended December 31,
	2002			2001			2000
Revenue:
Life premium	$	1,220,688		$	1,144,499		$	1,082,125
Health premium		1,019,120			1,010,753			911,156
Other premium		39,225			59,917			52,929
Total premium		2,279,033			2,215,169			2,046,210
Net investment income		518,618			491,830			472,426
Realized investment losses		(61,805	)		(2,432	)		(5,322	)
Other income		2,120			2,475			2,580
Total revenue		2,737,966			2,707,042			2,515,894
Benefits and expenses:
Life policyholder benefits		815,356			754,193			711,833
Health policyholder benefits		673,890			663,908			591,022
Other policyholder benefits		34,828			36,535			36,627
Total policyholder benefits		1,524,074			1,454,636			1,339,482
Amortization of deferred acquisition costs		297,510			301,793			274,837
Commissions and premium taxes		168,341			163,461			150,869
Other operating expense		135,128			129,142			121,186
Amortization of goodwill		-0-			12,075			12,075
Interest expense		28,593			44,506			54,487
Total benefits and expenses		2,153,646			2,105,613			1,952,936
Income from continuing operations before income taxes and preferred securities dividends		584,320			601,429			562,958
Income taxes		(197,037	)		(205,967	)		(190,841	)
Preferred securities dividends (net of tax)		(3,848	)		(4,532	)		(10,284	)
Net income from continuing operations		383,435			390,930			361,833
Discontinued operations:
Loss on disposal of energy operations (less applicable income tax benefit of $1,766 in 2001)		-0-			(3,280	)		-0-
Net income before extraordinary item and cumulative effect of change in accounting principle		383,435			387,650			361,833
Gain (loss) on redemption of debt (less applicable income tax benefit of $1 and $148 in 2002 and 2001, respectively, and net of income tax expense of $109 in 2000)		(2	)		(277	)		202
Loss on redemption of monthly income preferred securities (less applicable income tax benefit of $2,303 in 2001)		-0-			(4,276	)		-0-
Net income before cumulative effect of change in accounting principle		383,433			383,097			362,035
Cumulative effect of change in accounting principle (less applicable income tax benefit of $14,314 in 2001)		-0-			(26,584	)		-0-
Net income	$	383,433		$	356,513		$	362,035

(Continued)

See accompanying Notes to Consolidated Financial Statements.

47

TORCHMARK CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS—(Continued)

(Amounts in thousands except per share data)

	Year Ended December 31,
	2002		2001			2000
Basic net income per share:
Continuing operations	$	3.19	$	3.12		$	2.83
Discontinued operations:
Loss on disposal (net of tax)		-0-		(.02	)		-0-
Net income before extraordinary item and cumulative effect of change in accounting principle		3.19		3.10			2.83
Loss on redemption of monthly income preferred securities (net of tax)		-0-		(.04	)		-0-
Net income before cumulative effect of change in accounting principle		3.19		3.06			2.83
Cumulative effect of change in accounting principle (net of tax)		-0-		(.21	)		-0-
Net income	$	3.19	$	2.85		$	2.83
Diluted net income per share:
Continuing operations	$	3.18	$	3.11		$	2.82
Discontinued operations:
Loss on disposal (net of tax)		-0-		(.03	)		-0-
Net income before extraordinary item and cumulative effect of change in accounting principle		3.18		3.08			2.82
Loss on redemption of monthly income preferred securities (net of tax)		-0-		(.04	)		-0-
Net income before cumulative effect of change in accounting principle		3.18		3.04			2.82
Cumulative effect of change in accounting principle (net of tax)		-0-		(.21	)		-0-
Net income	$	3.18	$	2.83		$	2.82

See accompanying Notes to Consolidated Financial Statements.

48

TORCHMARK CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

	Year Ended December 31,
	2002			2001			2000
Net income	$	383,433		$	356,513		$	362,035
Other comprehensive income:
Unrealized investment gains (losses):
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period		236,876			190,627			36,875
Reclassification adjustment for (gains) losses on securities included in net income		76,335			6,941			12,089
Reclassification adjustment for change in accounting principle		-0-			40,899			-0-
Reclassification adjustment for amortization of (discount) and premium		(4,714	)		(6,988	)		(3,710	)
Foreign exchange adjustment on securities marked to market		(828	)		2,525			1,333
Unrealized gains (losses) on securities		307,669			234,004			46,587
Unrealized gains (losses) on other investments		339			(360	)		922
Unrealized gains (losses), adjustment to deferred acquisition costs		(18,956	)		(20,444	)		(5,340	)
Total unrealized investment gains (losses)		289,052			213,200			42,169
Applicable tax		(101,165	)		(74,621	)		(14,764	)
Unrealized investment gains (losses), net of tax		187,887			138,579			27,405
Foreign exchange translation adjustments, other than securities		1,049			(2,487	)		(1,589	)
Applicable tax		-0-			-0-			-0-
Foreign exchange translation adjustments, net of tax		1,049			(2,487	)		(1,589	)
Other comprehensive income (loss)		188,936			136,092			25,816
Comprehensive income (loss)	$	572,369		$	492,605		$	387,851

See accompanying Notes to Consolidated Financial Statements.

49

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, 2000
Balance at January 1, 2000	$	-0-	$	147,801		$	622,318		$	(174,222	)	$	1,910,487		$	(513,047	)	$	1,993,337
Comprehensive income										25,816			362,035						387,851
Common dividends declared ($0.36 a share)													(45,917	)					(45,917	)
Acquisition of treasury stock— common																(147,008	)		(147,008	)
Grant of deferred stock options							374												374
Value of restricted stock grants and options							675												675
Exercise of stock options							3,163						(5,934	)		15,819			13,048
Balance at December 31, 2000		-0-		147,801			626,530			(148,406	)		2,220,671			(644,236	)		2,202,360
Year Ended December 31, 2001
Comprehensive income										136,092			356,513						492,605
Common dividends declared ($0.36 a share)													(44,873	)					(44,873	)
Acquisition of treasury stock— common																(303,085	)		(303,085	)
Grant of deferred stock options							526												526
Value of restricted stock grants and options							701												701
Exercise of stock options							13,958						(26,355	)		161,290			148,893
Retirement of treasury stock				(21,000	)		(89,081	)					(527,053	)		637,134			-0-
Balance at December 31, 2001		-0-		126,801			552,634			(12,314	)		1,978,903			(148,897	)		2,497,127
Year Ended December 31, 2002
Comprehensive income										188,936			383,433						572,369
Common dividends declared ($0.36 a share)													(43,086	)					(43,086	)
Acquisition of treasury stock— common																(182,188	)		(182,188	)
Grant of deferred stock options							485												485
Value of restricted stock grants and options							740												740
Exercise of stock options							909						(2,382	)		7,479			6,006
Balance at December 31, 2002	$	-0-	$	126,801		$	554,768		$	176,622		$	2,316,868		$	(323,606	)	$	2,851,453

See accompanying Notes to Consolidated Financial Statements.

50

TORCHMARK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

	Year Ended December 31,
	2002			2001			2000
Net income	$	383,433		$	356,513		$	362,035
Adjustments to reconcile net income to cash provided from operations:
Increase in future policy benefits		316,262			263,837			231,973
Increase (decrease) in other policy benefits		(1,555	)		11,600			28,100
Deferral of policy acquisition costs		(420,329	)		(429,280	)		(462,174	)
Amortization of deferred policy acquisition costs		297,510			301,793			274,837
Change in deferred and accrued income taxes		38,696			82,141			98,028
Tax benefit of stock option exercises		909			13,890			3,163
Depreciation		5,218			5,822			6,859
Realized losses on sale of investments and properties		61,805			2,432			5,322
Change in accounts payable and other liabilities		(22,474	)		(49,654	)		(4,912	)
Change in receivables		(3,523	)		9,319			(18,333	)
Changes in other accruals and adjustments		(5,140	)		8,375			(2,242	)
Change in accounting principle		-0-			40,899			-0-
Cash provided from operations	$	650,812		$	617,687		$	522,656

(Continued)

See accompanying Notes to Consolidated Financial Statements.

51

TORCHMARK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)

(Amounts in thousands)

	Year Ended December 31,
	2002			2001			2000
Cash provided from operations	$	650,812		$	617,687		$	522,656
Cash provided from (used for) investment activities:
Investments sold or matured:
Fixed maturities available for sale—sold		423,683			925,655			639,229
Fixed maturities available for sale—matured, called, and repaid		303,743			263,295			226,314
Equity securities		-0-			-0-			39,693
Mortgage loans		3,677			12,240			1,347
Real estate		1,067			731			2,471
Other long-term investments		1,312			1,996			109
Total investments sold or matured		733,482			1,203,917			909,163
Acquisition of investments:
Fixed maturities—available for sale		(1,211,115	)		(1,532,344	)		(1,099,179	)
Equity securities		(23,486	)		-0-			-0-
Mortgage loans		(13,327	)		(6,181	)		(25,372	)
Real estate		(755	)		(464	)		(1,398	)
Net increase in policy loans		(12,450	)		(11,659	)		(10,713	)
Other long-term investments		-0-			(15,180	)		(547	)
Total investments acquired		(1,261,133	)		(1,565,828	)		(1,137,209	)
Net (increase) decrease in short-term investments		61,344			(33,581	)		(302	)
Dispositions of properties		197			1,159			1,266
Additions to properties		(2,442	)		(3,692	)		(6,508	)
Cash provided from (used for) investment activities		(468,552	)		(398,025	)		(233,590	)
Cash provided from (used for) financing activities:
Issuance of common stock		5,097			135,003			9,886
Issuance of 6.25% senior notes		-0-			177,771			-0-
Cash dividends paid to shareholders		(43,501	)		(45,188	)		(46,422	)
Repayments of debt		(2,633	)		(133,454	)		(95,390	)
Acquisition of treasury stock		(182,188	)		(303,085	)		(147,008	)
Redemption of monthly income preferred securities		-0-			(200,000	)		-0-
Issuance of trust preferred securities		-0-			144,554			-0-
Net receipts (payments) from deposit product operations		44,432			(26,638	)		10,516
Cash provided from (used for) financing activities		(178,793	)		(251,037	)		(268,418	)
Increase (decrease) in cash		3,467			(31,375	)		20,648
Cash at beginning of year		3,714			35,089			14,441
Cash at end of year	$	7,181		$	3,714		$	35,089

See accompanying Notes to Consolidated Financial Statements.

52

TORCHMARK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands except per share data)

Note 1—Significant Accounting Policies

Business: Torchmark Corporation (Torchmark) through its subsidiaries provides a variety of life and health insurance products and annuities to a broad base of customers.

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). 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 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 significant intercompany accounts and transactions have been eliminated in consolidation.

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. 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. Policy loans are carried at unpaid principal balances. Mortgage loans are carried at amortized cost. Investments in real estate are reported at cost less allowances for depreciation, which are calculated on the straight line method. Short-term investments include investments in certificates of deposit and other interest-bearing time deposits with original maturities within twelve months. If a decline in the fair market value of an investment is deemed other than temporary, such impairment is treated as a realized loss and the investment’s cost basis is adjusted to fair market value.

Gains and losses realized on the disposition of investments are determined on a specific identification basis. Realized investment gains and losses and investment income attributable to separate accounts are credited to the separate accounts and have no effect on Torchmark’s net income. Investment income attributable to all other insurance policies and products is included in Torchmark’s net investment income. Net investment income for the years ended December 31, 2002, 2001, and 2000, included $332 million, $321 million, and $305 million, respectively, which was allocable to policyholder reserves or accounts. Realized investment gains and losses are not allocated to insurance policyholders’ liabilities.

Derivatives: Effective January 1, 2001, Torchmark adopted Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, and accounts for all derivative instruments in accordance with that Statement. At December 31, 2002 and 2001, Torchmark had three swap contracts in place, which were carried at fair market value in the consolidated financial statements. Fluctuations in these values adjust realized investment gains and losses. If a derivative qualifies as a fair value hedge under SFAS No. 133, gains and losses in the derivative are substantially offset by changes in the underlying hedged instrument.

Determination of Fair Values of Financial Instruments: Fair value for cash, short-term investments, short-term debt, receivables and payables approximates carrying value. Fair values for investment securities are based on quoted market prices, where available. Otherwise, fair values are based on quoted market prices of comparable instruments. Mortgages are valued using discounted cash flows. Substantially all of Torchmark’s long-term debt, along with the trust preferred securities, is valued based on quoted market prices. Interest rate swaps are valued using discounted anticipated cash flows.

Cash: Cash consists of balances on hand and on deposit in banks and financial institutions. Overdrafts arising from the overnight investment of funds offset cash balances on hand and on deposit.

53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 1—Significant Accounting Policies (continued)

Recognition of Premium Revenue and Related Expenses: Premiums for insurance contracts which are not defined as universal life-type according to SFAS No. 97 are recognized as revenue over the premium-paying period of the policy. Profits for limited-payment life insurance contracts as defined by SFAS 97 are recognized over the contract period. 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). Variable annuity products are also assessed an investment management fee and a sales charge. Life premium includes policy charges of $69.0 million, $71.3 million, and $71.4 million for the years ended December 31, 2002, 2001, and 2000, respectively. Other premium includes annuity policy charges for the years ended December 31, 2002, 2001, and 2000, of $39.0 million, $59.5 million, and $52.2 million, respectively. Profits are also earned to the extent that investment income exceeds policy requirements. 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 same period.

Future Policy Benefits: The liability for future policy benefits for universal life-type products according to SFAS 97 is represented by policy account value. The liability for future policy benefits for all other life and health products is provided on the net level premium method based on estimated investment yields, mortality, morbidity, persistency and other assumptions which were appropriate at the time the policies were issued. Assumptions used are based on Torchmark’s experience as adjusted to provide for possible adverse deviation. These estimates are periodically reviewed and compared with actual experience. If it is determined future experience will probably differ significantly from that previously assumed, the estimates are revised.

Deferred Acquisition Costs and Value of Insurance Purchased: The costs of acquiring new insurance business are deferred. Such costs consist of sales commissions, underwriting expenses, and certain other selling expenses. The costs of acquiring new business through the purchase of other companies and blocks of insurance business are also deferred.

Deferred acquisition costs, including the value of life insurance purchased, for 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. For limited-payment contracts, acquisition costs are amortized over the contract period. For universal life-type policies, acquisition costs are amortized with interest in proportion to estimated gross profits. The assumptions used as to interest, persistency, morbidity and mortality are consistent with those used in computing the liability for future policy benefits and expenses. If it is determined that future experience will probably differ significantly from that previously assumed, the estimates are revised. Deferred acquisition costs are adjusted to reflect the amounts associated with realized and unrealized investment gains and losses pertaining to universal life-type products.

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. The estimate of unreported claims is based on prior experience. Torchmark makes an estimate after careful evaluation of all information available to the company. 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.

Separate Accounts:    Separate accounts have been established in connection with Torchmark’s variable life and annuity businesses. The investments held for the benefit of contractholders (stated at fair value) are reported as “Separate Account Assets” and the corresponding deposit balance liabilities are reported as “Separate Account Liabilities.” The separate account investment portfolios and liabilities are segregated from Torchmark’s other assets and liabilities. Deposit collections, investment income, and realized and unrealized gains and losses on separate accounts accrue directly to the contractholders. Therefore, these items are added to the separate account balance and are not reflected in income. Fees are charged to the deposit balance for insurance risk, administration, and surrender. There is also a sales charge and an investment management fee. These fees and charges are included in premium revenues.

54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 1—Significant Accounting Policies (continued)

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.

Property and Equipment: Property and equipment 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 two 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 accounted for in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

Goodwill: The excess cost of businesses acquired over the fair value of their net assets is reported as goodwill. Effective January 1, 2002, Torchmark adopted SFAS No. 142, Goodwill and Other Intangible Assets. SFAS 142 changed the accounting for goodwill from an amortization method to an impairment method. Accordingly, Torchmark ceased amortizing goodwill in 2002, and continues to carry it at the December 31, 2001 balance of $378 million. Restatement of prior year results to exclude the amortization of goodwill is not permitted. Goodwill amortization was $12.1 million in both 2001 and 2000. Goodwill is subject to impairment testing upon implementation and annually thereafter based on the procedures outlined in SFAS 142.

In accordance with SFAS 142, Torchmark has tested goodwill as of December 31, 2001 for impairment. The test involved dividing the Company’s operations into “reporting units” as defined by the Statement. For Torchmark, these reporting units are subdivisions of Torchmark’s operating segments. Assets and liabilities were then assigned to these units. Each of these units was then valued under the procedures outlined in the Statement. The resulting “fair market values” for each unit were then compared with the underlying carrying values of the net assets assigned to that unit (including goodwill). Because the fair value of each unit exceeded the carrying values assigned to those units, there was no goodwill impairment.

55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 1—Significant Accounting Policies (continued)

The pro forma effect of the adoption of SFAS 142 on reported earnings is as follows:

	(Amounts in thousands, except for per share data) For the Year Ended December 31,
	2002		2001		2000
Reported income before extraordinary items	$	383,435	$	387,650	$	361,833
Add back: Goodwill amortization		0		12,075		12,075
Adjusted net income before extraordinary items	$	383,435	$	399,725	$	373,908
Basic earnings per share:
Reported income before extraordinary items	$	3.19	$	3.10	$	2.82
Add back: Goodwill amortization		0.00		0.09		0.10
Adjusted net income before extraordinary items	$	3.19	$	3.19	$	2.92
Diluted earnings per share:
Reported income before extraordinary items	$	3.18	$	3.08	$	2.82
Add back: Goodwill amortization		0.00		0.10		0.09
Adjusted net income before extraordinary items	$	3.18	$	3.18	$	2.91
Reported net income	$	383,433	$	356,513	$	362,035
Add back: Goodwill amortization		0		12,075		12,075
Adjusted net income	$	383,433	$	368,588	$	374,110
Basic earnings per share:
Reported net income	$	3.19	$	2.85	$	2.83
Add back: Goodwill amortization		0.00		0.10		0.09
Adjusted net income	$	3.19	$	2.95	$	2.92
Diluted earnings per share:
Reported net income	$	3.18	$	2.83	$	2.82
Add back: Goodwill amortization		0.00		0.10		0.09
Adjusted net income	$	3.18	$	2.93	$	2.91

SFAS No. 142 also requires that goodwill be tested annually for impairment. Torchmark again tested its goodwill for impairment as of June 30, 2002 following similar procedures and determined there was no goodwill impairment.

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.

Reclassifications: Certain amounts in the consolidated financial statements presented have been reclassified from amounts previously reported in order to be comparable between years. These reclassifications have no effect on previously reported shareholders’ equity or net income for the periods involved.

Litigation: As described in Note 18, Torchmark and its subsidiaries continue to be named as parties to legal proceedings. Because much of Torchmark’s litigation is brought in Alabama, a jurisdiction known for large punitive damage verdicts bearing little or no relationship to actual damages, the ultimate outcome of any particular action cannot be predicted. It is reasonably possible that changes in the expected outcome of these matters could occur in the near term, but such changes should not be material to Torchmark’s reported results or financial condition.

Earnings Per Share: Torchmark presents basic and diluted earnings per share (EPS) on the face of the income statement and a reconciliation of basic EPS to diluted EPS. Basic EPS is computed by dividing income available to common stockholders by the weighted average common shares outstanding for the period. Weighted average common shares outstanding for each period are as follows: 2002—120,258,685, 2001—125,134,535, and 2000—128,089,235. Diluted EPS is calculated by adding to shares outstanding the additional net effect of potentially dilutive securities or contracts, such as stock

56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 1—Significant Accounting Policies (continued)

options, which could be exercised or converted into common shares. Weighted average diluted shares outstanding for each period are as follows: 2002—120,669,115, 2001—125,860,869, and 2000—128,353,404. For more information on earnings per share, see Note 16—Shareholders’ Equity. 

Stock Options: Torchmark accounts for its employee stock options in accordance with SFAS 123—Accounting for Stock-Based Compensation as amended by SFAS 148—Accounting for Stock-Based Compensation—Transition which defines a “fair value method” of measuring and accounting for compensation expense from employee stock options. This standard also allows accounting for such options under the “intrinsic value method” in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations. If a company elects to use the intrinsic value method, then pro forma disclosures of earnings and earnings per share are required as if the fair value method of accounting was applied.

Torchmark has elected to account for its stock options under the intrinsic value method as outlined in APB 25, and has therefore computed the required pro forma earnings disclosures utilizing the fair value method. The fair value method requires the use of an option valuation model, such as the Black-Scholes option valuation model, to value employee stock options. Compensation expense is based on these values. The expense is then charged to pro forma earnings over the option vesting period. Under the intrinsic value method, compensation expense for Torchmark’s option grants is only recognized if the exercise price of the employee stock option is less than the market price of the underlying stock on the date of grant.

Torchmark’s pro forma earnings information is presented in the following table. The effects of applying SFAS 123 in the pro forma disclosures are not necessarily indicative of future amounts.

	For the Year Ended December 31,
	2002			2001			2000
Net income as reported	$	383,433		$	356,513		$	362,035
After tax stock-based compensation, as reported		450			423			278
After tax effect of stock-based compensation, fair value method*		(8,514	)		(36,436	)		(7,687	)
Pro forma net income		375,369		$	320,500		$	354,626
Earnings per share:
Basic—as reported	$	3.19		$	2.85		$	2.83
Basic—pro forma	$	3.12		$	2.56		$	2.77
Diluted—as reported	$	3.18		$	2.83		$	2.82
Diluted—pro forma	$	3.12		$	2.55		$	2.77

* In 2001 and 2000, $29.4 million and $2.4 million, respectively, were related to the restoration grants as discussed in Note 17 — Employee Stock Options.

Note 2—Statutory Accounting

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 on a statutory basis for the insurance subsidiaries were as follows:

	Net Income Year Ended December 31,						Shareholders’ Equity At December 31,
	2002		2001		2000		2002		2001		2000
Life insurance subsidiaries	$	235,300	$	243,325	$	239,804	$	858,193	$	766,328	$	717,554

57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 2—Statutory Accounting (continued)

In 2001, Liberty National Life Insurance Company (Liberty) paid $40 million in extraordinary dividends to Torchmark. Extraordinary dividends require regulatory approval.

The excess, if any, of shareholders’ equity of the insurance subsidiaries on a GAAP basis over that determined on a statutory basis is not available for distribution to Torchmark without regulatory approval.

A reconciliation of Torchmark’s life insurance subsidiaries’ statutory net income to Torchmark’s consolidated GAAP net income is as follows:

	Year Ended December 31,
	2002			2001			2000
Statutory net income	$	235,300		$	243,325		$	239,804
Deferral of acquisition costs		420,329			429,280			462,174
Amortization of acquisition costs		(297,510	)		(301,793	)		(274,837	)
Differences in insurance policy liabilities		65,483			86,133			37,771
Deferred income taxes		(80,777	)		(87,093	)		(84,585	)
Income of parent company and noninsurance affiliates		(68,979	)		(73,235	)		(53,631	)
Other		109,587			59,896			35,339
GAAP net income	$	383,433		$	356,513		$	362,035

A reconciliation of Torchmark’s insurance subsidiaries’ statutory shareholders’ equity to Torchmark’s consolidated GAAP shareholders’ equity is as follows:

	Year Ended December 31,
	2002			2001
Statutory shareholders’ equity	$	858,193		$	766,328
Differences in insurance policy liabilities		797,625			741,253
Deferred acquisition costs		2,184,134			2,066,423
Value of insurance purchased		102,091			115,939
Deferred income taxes		(843,818	)		(638,052	)
Debt of parent company		(753,043	)		(740,189	)
Preferred securities		(144,427	)		(144,557	)
Asset valuation reserves		29,884			61,183
Other nonadmitted assets		39,809			35,137
Goodwill		378,436			378,436
Fair market value adjustment on fixed maturities		219,912			(28,470	)
Other		(17,343	)		(116,304	)
GAAP shareholders’ equity	$	2,851,453		$	2,497,127

58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 3—Investments

	Year Ended December 31,
	2002			2001			2000
Net investment income is summarized as follows:
Fixed maturities	$	497,183		$	468,357		$	445,146
Equity securities		613			33			378
Mortgage loans on real estate		8,304			9,196			9,281
Investment real estate		2,234			2,233			2,693
Policy loans		19,307			18,225			16,981
Other long-term investments		4,756			4,895			7,637
Short-term investments		1,434			6,582			5,728
		533,831			509,521			487,844
Less investment expense		(15,213	)		(17,691	)		(15,418	)
Net investment income	$	518,618		$	491,830		$	472,426
An analysis of realized gains (losses) from investments is as follows:
Realized investment gains (losses):
Fixed maturities	$	(76,009	)	$	(7,429	)	$	(15,328	)
Equity securities		-0-			-0-			3,239
Other		14,204			4,997			6,767
		(61,805	)		(2,432	)		(5,322	)
Applicable tax		21,632			851			1,863
Realized gains (losses) from investments, net of tax	$	(40,173	)	$	(1,581	)	$	(3,459	)
An analysis of the net change in unrealized investment gains (losses) is as follows:
Equity securities	$	292		$	28		$	7,803
Fixed maturities available for sale		307,377			233,976			38,784
Unrealized gains (losses) on securities	$	307,669		$	234,004		$	46,587

A summary of fixed maturities available for sale and equity securities by cost or amortized cost and estimated fair value at December 31, 2002 and 2001 is as follows:

	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amount per the Balance Sheet		% of Total Fixed Maturities
2002:
Fixed maturities available for sale:
Bonds:
U.S. Government direct obligations and agencies	$	97,995	$	6,585	$	-0-		$	104,580	$	104,580	1.5	%
GNMAs		115,606		11,458		-0-			127,064		127,064	1.8
Mortgage-backed securities, GNMA collateral		-0-		-0-		-0-			-0-		-0-	0.0
Other mortgage-backed securities		108,628		8,683		-0-			117,311		117,311	1.6
State, municipalities and political subdivisions		152,088		11,272		(1,644	)		161,716		161,716	2.2
Foreign governments		18,602		1,612		(52	)		20,162		20,162	0.3
Public utilities		1,006,733		60,447		(42,666	)		1,024,514		1,024,514	14.2
Industrial and miscellaneous		5,350,891		379,211		(132,712	)		5,597,390		5,597,390	77.8
Asset-backed securities		38,287		3,490		(122	)		41,655		41,655	0.6
Redeemable preferred stocks		-0-		-0-		-0-			-0-		-0-	0.0
Total fixed maturities		6,888,830		482,758		(177,196	)		7,194,392		7,194,392	100	%
Equity securities:
Common stocks:
Banks and insurance companies		427		103		0			530		530
Industrial and all others		348		17		(238	)		127		127
Non-redeemable preferred stocks		23,485		315		0			23,800		23,800
Total equity securities		24,260		435		(238	)		24,457		24,457
Total fixed maturities and equity securities	$	6,913,090	$	483,193	$	(177,434	)	$	7,218,849	$	7,218,849

59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 3—Investments (continued)

	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amount per the Balance Sheet		% of Total Fixed Maturities
2001:
Fixed maturities available for sale:
Bonds:
U.S. Government direct obligations and agencies	$	60,010	$	2,877	$	(12	)	$	62,875	$	62,875	1.0	%
GNMAs		192,540		12,740		-0-			205,280		205,280	3.1
Mortgage-backed securities, GNMA collateral		1,604		7		-0-			1,611		1,611	0.0
Other mortgage-backed securities		259,922		14,541		(14	)		274,449		274,449	4.2
State, municipalities and political subdivisions		177,343		10,345		(1,891	)		185,797		185,797	2.8
Foreign governments		46,786		3,551		(156	)		50,181		50,181	0.8
Public utilities		900,116		19,250		(28,136	)		891,230		891,230	13.7
Industrial and miscellaneous		4,832,766		128,508		(163,444	)		4,797,830		4,797,830	73.5
Asset-backed securities		57,157		1,651		(1,632	)		57,176		57,176	0.9
Redeemable preferred stocks		-0-		-0-		-0-			-0-		-0-	0.0
Total fixed maturities		6,528,244		193,470		(195,285	)		6,526,429		6,526,429	100	%
Equity securities:
Common stocks:
Banks and insurance companies		427		88		(5	)		510		510
Industrial and all others		239		-0-		(178	)		61		61
Total equity securities		666		88		(183	)		571		571
Total fixed maturities and equity securities	$	6,528,910	$	193,558	$	(195,468	)	$	6,527,000	$	6,527,000

A schedule of fixed maturities by contractual maturity at December 31, 2002 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	$	95,894	$	98,180
Due from one to five years		1,184,707		1,266,715
Due from five to ten years		2,003,535		2,144,031
Due after ten years		3,342,173		3,399,436
		6,626,309		6,908,362
Mortgage-backed and asset- backed securities		262,521		286,030
	$	6,888,830	$	7,194,392

Proceeds from sales of fixed maturities available for sale were $424 million in 2002, $881 million in 2001, and $629 million in 2000. Gross gains realized on those sales were $25.4 million in 2002, $20.6 million in 2001, and $8.2 million in 2000. Gross losses were $14.7 million in 2002, $21.4 million in 2001, and $10.7 million in 2000. There were no sales of equity securities available for sale during 2002 or 2001. Proceeds from sales of equity securities available for sale were $39.7 million in 2000. In 2000, gross gains realized on those sales were $6.5 million while gross realized losses were $3.2 million.

Torchmark had $2.2 million in investment real estate at December 31, 2002, which was nonincome producing during the previous twelve months. These properties consisted primarily of undeveloped land. Torchmark had $10.8 million in nonincome producing mortgages as of December 31, 2002. Torchmark had $473 thousand in nonincome producing fixed maturities during the twelve months ended December 31, 2002. There were no other long-term investments which were nonincome producing at December 31, 2002.

60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 3—Investments (continued)

During 2002, Torchmark wrote down a portion of its investment real estate portfolio to net realizable value. The write down resulted in a pretax loss of $3.6 million, or $2.4 million after tax. At December 31, 2002, Torchmark owned $9.4 million in investment real estate, of which $7.0 million was included with properties partially occupied by Torchmark subsidiaries.

Note 4—Property and Equipment

A summary of property and equipment used in the business is as follows:

	December 31, 2002				December 31, 2001
	Cost		Accumulated Depreciation		Cost		Accumulated Depreciation
Company occupied real estate	$	61,713	$	33,909	$	61,159	$	32,324
Data processing equipment		23,132		21,810		23,131		21,440
Transportation equipment		5,561		2,339		6,920		3,029
Furniture and office equipment		20,205		19,122		19,941		18,221
	$	110,611	$	77,180	$	111,151	$	75,014

Depreciation expense on property and equipment used in the business was $4.5 million, $5.2 million, and $6.3 million in each of the years 2002, 2001, and 2000, respectively.

Note 5—Deferred Acquisition Costs and Value of Insurance Purchased

An analysis of deferred acquisition costs and the value of insurance purchased is as follows:

	2002						2001						2000
	Deferred Acquisition Costs			Value of Insurance Purchased			Deferred Acquisition Costs			Value of Insurance Purchased			Deferred Acquisition Costs			Value of Insurance Purchased
Balance at beginning of year	$	2,066,423		$	115,939		$	1,942,161		$	133,158		$	1,741,570		$	151,752
Additions:
Deferred during period:
Commissions		264,565			-0-			265,116			-0-			290,597			-0-
Other expenses		155,764			-0-			164,164			-0-			171,577			-0-
Total deferred		420,329			-0-			429,280			-0-			462,174			-0-
Total additions		420,329			-0-			429,280			-0-			462,174			-0-
Deductions:
Amortized during period		(283,662	)		(13,848	)		(284,574	)		(17,219	)		(256,243	)		(18,594	)
Adjustment attributable to unrealized investment gains(1)		(18,956	)		-0-			(20,444	)		-0-			(5,340	)		-0-
Total deductions		(302,618	)		(13,848	)		(305,018	)		(17,219	)		(261,583	)		(18,594	)
Balance at end of year	$	2,184,134		$	102,091		$	2,066,423		$	115,939		$	1,942,161		$	133,158

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

The amount of interest accrued on the unamortized balance of value of insurance purchased was $6.6 million, $7.7 million, and $9.1 million, for the years ended December 31, 2002, 2001, and 2000, respectively. The average interest rates used for the years ended December 31, 2002, 2001, and 2000, were 6.1%, 6.2%, and 6.4%, respectively. The estimated amortization, net of interest accrued, on the unamortized balance at December 31, 2002 during each of the next five years is: 2003, $11.0 million; 2004, $9.5 million; 2005, $8.2 million; 2006, $7.1 million; and 2007, $6.2 million.

In the event of lapses or early withdrawals in excess of those assumed, deferred acquisition costs and the value of insurance purchased may not be recoverable.

61

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 6—Discontinued Operations

        Energy.    In 1996, Torchmark divested itself of the majority of its energy operations, which was accounted for as the disposal of a segment. At the time of the disposition, there was pending litigation in which Torchmark was named as a party. This litigation was settled in 2001, resulting in an after-tax charge of $3.3 million which is reflected in discontinued operations.

Note 7—Future Policy Benefit Reserves

A summary of the assumptions used in determining the liability for future policy benefits at December 31, 2002 is as follows:

Individual Life Insurance

Interest assumptions:

Years of Issue	Interest Rates	Percent of Liability
1917-2002	3.0% to 4.0%	15	%
1970-1980	5.5% graded to 4.0%	3
1970-2002	5.5%	1
1929-2002	6.0%	23
1986-1994	7.0% graded to 6.0%	12
1954-2000	8.0% graded to 6.0%	13
1951-1985	8.5% graded to 6.0%	7
2000-2002	7.0%	3
1984-2002	Interest Sensitive	23
		100	%

Mortality assumptions:

For individual life, the mortality tables used are various statutory mortality tables and modifications of:

1950-54 Select and Ultimate Table

1954-58 Industrial Experience Table

1955-60 Ordinary Experience Table

1965-70 Select and Ultimate Table

1955-60 Inter-Company Table

1970        United States Life Table

1975-80 Select and Ultimate Table

X-18        Ultimate Table

Withdrawal assumptions:

Withdrawal assumptions are based on Torchmark’s experience.

Individual Health Insurance

Interest assumptions:

Years of Issue	Interest Rates	Percent of Liability
1962-2002	3.0% to 4.5%	5	%
1993-2002	6.0%	36
1986-1992	7.0% graded to 6.0%	36
1955-2000	8.0% graded to 6.0%	19
1951-1986	8.5% graded to 6.0%	3
2001-2002	7.0%	1
		100	%

62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 7—Future Policy Benefit Reserves (continued)

Morbidity assumptions:

For individual health, the morbidity assumptions are based on either Torchmark’s experience or the assumptions used in calculating statutory reserves.

Termination assumptions:

Termination assumptions are based on Torchmark’s experience.

Overall Interest Assumptions

The overall average interest assumption for determining the liability for future life and health insurance benefits in 2002 was 6.0%.

Note 8—Liability for Unpaid Health Claims

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

	Year ended December 31,
	2002			2001		2000
Balance at beginning of year:	$	185,056		$	183,147	$	162,137
Incurred related to:
Current year		656,743			664,876		603,641
Prior year		(11,235	)		2,363		6,365
Total incurred		645,508			667,239		610,006
Paid related to:
Current year		497,452			501,977		440,370
Prior year		159,496			163,353		148,626
Total paid		656,948			665,330		588,996
Balance at end of year	$	173,616		$	185,056	$	183,147

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. This estimate is based on historical trends. The difference between the estimate made at the end of each prior period and the actual experience is reflected above under the caption “Incurred related to: Prior year.”

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

Note 9—Supplemental Disclosures of Cash Flows Information

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

	Year Ended December 31,
	2002		2001		2000
Paid-in capital from tax benefit for stock option exercises	$	909	$	13,890	$	3,163
Deferred option grants		485		526		374

The following table summarizes certain amounts paid during the period:

	Year Ended December 31,
	2002		2001		2000
Interest paid	$	26,522	$	45,650	$	54,748
Income taxes paid		151,355		89,675		79,241

63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 10—Income Taxes

Torchmark and its subsidiaries file a life-nonlife consolidated federal income tax return.

Total income taxes were allocated as follows:

	Year Ended December 31,
	2002			2001			2000
Income from continuing operations	$	197,037		$	205,967		$	190,841
Discontinued operations		-0-			(1,766	)		-0-
Preferred securities dividends		(2,072	)		(2,441	)		(5,538	)
Change in accounting principle		-0-			(14,315	)		-0-
Shareholders’ equity:
Unrealized gains (losses)		101,053			74,689			14,807
Tax basis compensation expense (from the exercise of stock options) in excess of amounts recognized for financial reporting purposes		(909	)		(13,958	)		(3,164	)
Other		(3,865	)		(3,428	)		(3,803	)
	$	291,244		$	244,748		$	193,143

Income tax expense attributable to income from continuing operations consists of:

	Year Ended December 31,
	2002		2001		2000
Current income tax expense	$	151,757	$	146,407	$	116,773
Deferred income tax expense		45,280		59,560		74,068
	$	197,037	$	205,967	$	190,841

In 2002, 2001, and 2000, deferred income tax expense was incurred because of certain differences between net income from continuing operations before income taxes as reported on the consolidated statement of operations and taxable income as reported on Torchmark’s income tax returns. As explained in Note 1, 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,
	2002			%		2001			%		2000			%
Expected income taxes	$	204,512		35	%	$	210,500		35	%	$	197,035		35	%
Increase (reduction) in income taxes resulting from:
Tax-exempt investment income		(6,146	)	(1	)		(7,754	)	(1	)		(9,546	)	(2	)
Other		(1,329	)	—			3,221		—			3,352		1
Income taxes	$	197,037		34	%	$	205,967		34	%	$	190,841		34	%

64

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 10—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,
	2002		2001
Deferred tax assets:
Present value of future policy surrender charges	$	24,704	$	32,821
Carryover of nonlife net operating losses		14,499		20,783
Other assets and other liabilities, principally due to the current nondeductibility of certain accrued expenses for tax purposes		23,120		31,273
Total gross deferred tax assets		62,323		84,877
Deferred tax liabilities:
Unrealized investment gains		101,116		63
Deferred acquisition costs		527,355		509,734
Future policy benefits, unearned and advance premiums, and policy claims		134,625		128,742
Other		8,529		8,944
Total gross deferred tax liabilities		771,625		647,483
Net deferred tax liability	$	709,302	$	562,606

Torchmark has not recognized a deferred tax liability for the undistributed earnings of its wholly-owned subsidiaries because such earnings are remitted to Torchmark on a tax-free basis. A deferred tax liability will be recognized in the future if the remittance of such earnings becomes taxable to Torchmark. In addition, Torchmark has not recognized a deferred tax liability of approximately $10 million that arose prior to 1984 on temporary differences related to the policyholders’ surplus accounts in the life insurance subsidiaries. A current tax expense will be recognized in the future if and when these amounts are distributed.

Torchmark has net operating loss carryforwards of approximately $41.4 million at December 31, 2002 of which $.4 million expire in 2007; $4.2 million expire in 2018; $6.8 million expire in 2019; $25.3 million expire in 2020; and $4.7 million expire in 2021. No valuation allowance is required to be recorded with respect to these net operating losses.

Note 11—Change in Accounting Principle

Asset-Backed Securities.    Torchmark adopted new accounting guidance Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets (EITF 99-20) effective April 1, 2001. EITF 99-20 changed the method of accounting for most of Torchmark’s asset-backed securities, and also set forth specific new rules regarding the impairment of asset-backed securities. Future impairments, if any, are to be recognized as a component of realized investment losses. On initial application of this standard, impairments were recognized as a change in accounting principle. Reversals of impairment charges recognized subsequent to adoption of EITF 99-20 are prohibited.

In accordance with this guidance, in 2001, Torchmark evaluated the expected cash flows on its asset-backed securities under the new rules. As a result, Torchmark determined that these assets were impaired by $41 million, or $27 million after tax, resulting in a remaining balance at fair value of $63 million. This impairment charge was recorded as a cumulative effect of a change in accounting principle in the second quarter of 2001. Also, during 2001, Torchmark sold an additional $40 million of these securities after adjustment for the impairment at no gain or loss. An additional impairment of $2.5 million was recognized in the fourth quarter of 2001 and was included in realized investment losses. Torchmark’s total investment at fair market value in asset-backed securities considered impaired according to the accounting guidance at December 31, 2001 was approximately $19 million. During 2002, all of these securities were sold for proceeds of $13 million, at a loss of $6 million.

65

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 12—Postretirement Benefits

Pension Plans: Torchmark has noncontributory retirement benefit plans and contributory savings plans which cover substantially all employees. There is also a nonqualified noncontributory excess benefit pension plan which covers certain employees. The total cost of these retirement plans charged to operations was as follows:

Year Ended December 31,	Defined Contribution Plans		Defined Benefit Pension Plans
2002	$	3,247	$	2,330
2001		3,283		2,535
2000		3,097		2,610

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.

Cost for the defined benefit pension plans has been calculated on the projected unit credit actuarial cost method. Contributions are made to the pension plans subject to minimums required by regulation and maximums allowed for tax purposes. The plans covering the majority of employees are organized as trust funds whose assets consist primarily of investments in marketable long-term fixed maturities and equity securities which are valued at fair market value.

The excess benefit pension plan provides the benefits that an employee would have otherwise received from a defined benefit pension plan in the absence of the Internal Revenue Code’s limitation on benefits payable under a qualified plan. Although this plan is unfunded, pension cost is determined in a similar manner as for the funded plans. Liability for the excess benefit plan was $5.4 million at both December 31, 2002 and 2001.

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

	Year Ended December 31,
	2002			2001			2000
Service cost—benefits earned during the period	$	5,112		$	5,195		$	5,142
Interest cost on projected benefit obligation		9,670			9,077			8,763
Expected return on assets		(11,688	)		(11,212	)		(10,639	)
Amortization of prior service cost		(10	)		(82	)		78
Recognition of net actuarial (gain)/loss		(754	)		(443	)		(734	)
Net periodic pension cost	$	2,330		$	2,535		$	2,610

66

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 12—Postretirement Benefits (continued)

In accordance with SFAS No. 132, Employers’ Disclosures about Pensions and Other Postretirement Benefits, the following table presents a reconciliation from the beginning to the end of the year of the benefit obligation and plan assets. This table also presents a reconciliation of the plans’ funded status with the amounts recognized on Torchmark’s consolidated balance sheet.

	Pension Benefits For the year ended December 31,
	2002			2001
Changes in benefit obligation:
Obligation at beginning of year	$	128,646		$	114,222
Service cost		5,112			5,195
Interest cost		9,670			9,077
Actuarial loss (gain)		11,485			8,559
Benefits paid		(9,618	)		(8,407	)
Plan amendments		904			-0-
Obligation at end of year		146,199			128,646
Changes in plan assets:
Fair value at beginning of year		133,809			139,318
Return on assets		1,191			1,875
Contributions		7,213			1,023
Benefits paid		(9,618	)		(8,407	)
Fair value at end of year		132,595			133,809
Funded status at year end		(13,604	)		5,163
Unrecognized amounts at year end:
Unrecognized actuarial loss (gain)		2,550			(20,645	)
Unrecognized prior service cost		787			(126	)
Unrecognized transition obligation		(61	)		(68	)
Net amount recognized at year end	$	(10,328	)	$	(15,676	)
Amounts recognized consist of:
Prepaid benefit cost	$	-0-		$	328
Accrued benefit liability		(10,328	)		(16,004	)
Intangible asset		-0-			-0-
Net amount recognized at year end	$	(10,328	)	$	(15,676	)
Included in the fair value of plan assets are the following amounts.
	December 31,
	2002			2001
Torchmark common stock	$	2,062		$	-0-
Torchmark preferred securities		10,620			9,950
Annuity contract issued by Torchmark insurance subsidiary		3,278			2,701
	$	15,960		$	12,651

The weighted average assumed discount rates used in determining the actuarial benefit obligations were 6.75%, 7.25%, and 7.50% in 2002, 2001, and 2000, respectively. The rate of assumed compensation increase was 4.50% in each of the years 2000 through 2002 and the expected long-term rate of return on plan assets was 9.25% in each of the same years. 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.

67

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 12—Postretirement Benefits (continued)

Postretirement Benefit Plans Other Than Pensions: Torchmark provides postretirement life insurance benefits 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.

For retired employees over age sixty-five, Torchmark does not provide postretirement benefits other than pensions. Torchmark does provide a portion of the cost for health insurance benefits for certain employees who retired before February 1, 1993 and for certain employees that retired before age sixty-five, covering them until they reach age sixty-five. Eligibility for this benefit was generally achieved at age fifty-five with at least fifteen years of service. This subsidy is minimal to retired employees who did not retire before February 1, 1993. This plan is unfunded.

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

	Year Ended December 31,
	2002			2001			2000
Service cost	$	506		$	647		$	692
Interest cost on accumulated postretirement benefit obligation		861			1,323			1,262
Expected return on plan assets		-0-			-0-			-0-
Amortization of prior service cost		-0-			(5,145	)		(161	)
Recognition of net actuarial (gain)/loss		(598	)		(2,426	)		(39	)
Net periodic postretirement benefit cost	$	769		$	(5,601	)	$	1,754

The following table presents a reconciliation of the benefit obligation and plan assets from the beginning to the end of the year and a reconciliation of the funded status to the accrued benefit liability:

	Benefits Other Than Pensions For the year ended December 31,
	2002			2001
Changes in benefit obligation:
Obligation at beginning of year	$	11,959		$	18,008
Service cost		506			647
Interest cost		861			1,323
Amendments		-0-			(5,016	)
Actuarial loss (gain)		(598	)		(1,896	)
Benefits paid		(776	)		(1,107	)
Obligation at end of year		11,952			11,959
Changes in plan assets:
Fair value at beginning of year		-0-			-0-
Return on assets		-0-			-0-
Contributions		776			1,107
Benefits paid		(776	)		(1,107	)
Fair value at end of year		-0-			-0-
Funded status at year end		(11,952	)		(11,959	)
Unrecognized amounts at year end:
Unrecognized actuarial loss (gain)		-0-			-0-
Unrecognized prior service cost		-0-			-0-
Net amount recognized at year end as accrued benefit     liability	$	(11,952	)	$	(11,959	)

During 2001, Torchmark amended the terms of its post-retirement health benefit plan to revise the premium structure for participants. This amendment reduced the benefit liability by $5 million.

68

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 12—Postretirement Benefits (continued)

For measurement purposes, a 7.5% annual rate of increase in per capita cost of covered healthcare benefits was assumed for the years 2000 through 2002. Torchmark has assumed that the health care cost trend rate will remain stable at 7.5% in future periods. This trend rate assumption has a significant effect on the amounts reported, as illustrated in the following table which presents the effect of a one percentage point increase and decrease on the service and interest cost components and the benefit obligation:

	Change in Trend Rate
Effect on:	1% Increase		1% Decrease
Service and interest cost components	$	3	$	(3	)
Benefit obligation		42		(39	)

The weighted average discount rate used in determining the accumulated postretirement benefit obligation for plans other than pensions was 7.59% in 2002, 7.58% in 2001, and 7.55% in 2000.

Note 13—Debt

An analysis of debt at carrying value is as follows:

	December 31,
	2002				2001
	Short-term Debt		Long-term Debt		Short-term Debt		Long-term Debt
Senior Debentures, due 2009			$	99,450			$	99,450
Notes, due 2023				165,803				165,819
Notes, due 2013				92,986				92,923
Senior Notes, due 2006				193,325				177,960
Commercial paper	$	201,479			$	204,037
	$	201,479	$	551,564	$	204,037	$	536,152

The amount of debt that becomes due during each of the next five years is: 2003—$201,479, 2004—$0, 2005—$0, 2006—$180,000, 2007—$0, and thereafter—$362,412.

The Senior Debentures, remaining principal amount of $99 million, are due August 15, 2009. They bear interest at a rate of 8 ¹/4%, with interest payable on February 15 and August 15 of each year. The Senior Debentures are not redeemable at the option of Torchmark prior to maturity and have equal priority with other Torchmark unsecured indebtedness.

The Notes, due May 15, 2023, were issued in May, 1993 in the principal amount of $200 million. Interest is payable on May 15 and November 15 of each year at a rate of 7 ⁷/8%. In 2002, 2001, and 2000, Torchmark purchased principal amounts of $75 thousand, $8.1 million, and $4.6 million in the open market at a cost of $76 thousand, $8.3 million, and $4.2 million, respectively. After-tax losses on the redemption of debt of $2 thousand and $277 thousand were recorded during 2002 and 2001, respectively. An after-tax gain on the redemption of debt of $166 thousand was recorded in 2000. These notes are not callable prior to maturity and have equal priority with other Torchmark unsecured indebtedness.

The Notes, due August 1, 2013, were issued in July, 1993 in the principal amount of $100 million. Interest is payable on February 1 and August 1 of each year at a rate of 7 ³/8%. In 2000, Torchmark purchased $2.0 million principal amount in the open market at a cost of $1.9 million. An after-tax gain on the redemption of debt of $36 thousand was recorded in 2000. These notes are not callable prior to maturity and have equal priority with other Torchmark unsecured indebtedness.

The Senior Notes, due December 16, 2006, were issued in December, 2001 in the principal amount of $180 million for net proceeds of $178 million. Interest is payable on June 15 and December 15 of each

69

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 13—Debt (continued)

year at a rate of 6 ¹/4%. The notes are unsecured, may not be redeemed prior to maturity, and have no sinking fund requirement. These notes have equal priority with other Torchmark unsecured indebtedness.

In connection with the issuance of the Senior Notes, Torchmark entered into a five-year swap agreement with an unaffiliated party to swap the 6 ¹/4% fixed rate payment obligation for a floating rate obligation. The floating rate is based on the six-month LIBOR plus 120.5 basis points and resets every six months. At December 31, 2002, this rate was 2.63%. This swap derivative qualifies as a hedge under accounting rules. Therefore, both the swap and the Senior Notes are carried at fair value. Changes in the swap’s fair market value will be substantially offset by changes in the fair market value of the debt security. Torchmark’s derivative instruments are classified as Other Invested Assets.

Torchmark has in place a line of credit facility with a group of lenders, which allows unsecured borrowings and stand-by letters of credit up to $625 million. The facility includes a $325 million 364-day tranche, which matures November 27, 2003 and a $300 million five-year tranche that matures November 30, 2006. Interest is charged at variable rates for each tranche. In addition, Torchmark can request up to $200 million letters of credit to be issued against the $300 million five-year tranche. The line of credit is further designated as a back-up credit line for a commercial paper program, which cannot exceed $600 million. Torchmark may borrow from the credit facility or issue commercial paper, with total commercial paper outstanding not to exceed $600 million. At December 31, 2002, Torchmark had $202 million face amount of commercial paper outstanding, $170 million of letters of credit issued, and no borrowings under the line of credit. During 2002, the short term borrowings under the combined facilities averaged approximately $192 million, and were made at an average yield of 1.9%. The facility does not have a ratings-based acceleration trigger which would require early payment. A facility fee is charged for the entire $625 million facility, at a rate of 8 basis points for the 364-day tranche and 10 basis points for the five-year tranche. For letters of credit issued, there is an issuance fee of 25 basis points and a fronting fee of 5 basis points. Additionally, if borrowings on both the line of credit and letters of credit exceed 33% of the total $625 million facility, there is a usage fee of 10 basis points. During 2002, Torchmark’s usage of the facility was below this threshold and no usage fee was required. Torchmark is subject to certain covenants for the agreements regarding capitalization and earnings, with which it was in compliance at December 31, 2002.

There was no capitalized interest in 2002, 2001, or 2000.

Note 14—Trust Preferred Securities

In November 2001, Torchmark established two Capital Trusts, which, in turn, sold trust preferred securities (trust preferreds) in separate public offerings. Capital Trust I sold 5 million shares while Capital Trust II sold 1 million shares at a combined face amount of $150 million. Both trust preferreds pay a quarterly dividend at an annual 7 ³/4% rate which is equivalent to an annual rate of $1.9375 per share. All dividends are cumulative. The trust preferreds are subject to a mandatory redemption on November 2, 2041, but Torchmark has the option to redeem in part or whole the securities on or after November 2, 2006. All payments by the Capital Trusts regarding the trust preferreds are guaranteed by Torchmark. The Capital Trusts are wholly-owned consolidated subsidiaries of Torchmark. The two offerings resulted in net proceeds of $145 million to the Capital Trusts. The Capital Trusts in turn used the proceeds to buy 7 ³/4% Junior Subordinated Debentures from Torchmark in like amount. Torchmark used these proceeds to redeem its outstanding 9.18% monthly income preferred securities (MIPS) in 2001 in the approximate amount of $110 million, with the remaining proceeds used to pay down short-term debt. In a related transaction, Torchmark entered into a ten year swap agreement to exchange a variable rate payment for the 7 ³/4% fixed dividend obligation. The variable rate is based on the three-month LIBOR plus 221 basis points and resets each quarter in arrears when payments are made. The variable rate was projected to be 3.60% at December 31, 2002. The swap derivative does not qualify as a hedge for accounting purposes and is carried on the balance sheet at fair market value. The fair market value of the swap agreement was a benefit of $16.2 million at December 31, 2002 and zero at December 31, 2001.

70

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 15—Monthly Income Preferred Securities

During 2001, Torchmark used funds received from short-term borrowings and the issuance of the trust preferreds to redeem its 8 million shares of 9.18% MIPS for a total cost of $200 million plus accrued dividends. Torchmark recognized an after-tax loss of approximately $4.3 million during 2001 as a result of the redemption.

When the MIPS were originally issued in 1994, Torchmark entered into a ten-year swap agreement with an unrelated party which remains in effect. The agreement provides for Torchmark to pay a variable rate based on the one-month LIBOR plus 139 basis points, while collecting at a rate of 9.18% on a notional amount of $200 million. The swap expires on September 30, 2004. The rate resets each month. At December 31, 2002, the variable rate was 2.83%. The swap is accounted for as a free standing derivative and is marked to fair market value at the end of each accounting period. The fair market value of the swap agreement was a benefit of $20.8 million and $19.2 million at December 31, 2002 and 2001, respectively.

Note 16—Shareholders’ Equity

Share Data: A summary of preferred and common share activity is as follows:

	Preferred Stock		Common Stock
	Issued	Treasury Stock	Issued		Treasury Stock
2000:
Balance at January 1, 2000	-0-	-0-	147,800,908		(15,804,640	)
Issuance of common stock due to exercise of stock options					523,742
Treasury stock acquired					(6,131,000	)
Balance at December 31, 2000	-0-	-0-	147,800,908		(21,411,898	)
2001:
Issuance of common stock due to exercise of stock options					4,255,646
Treasury stock acquired					(7,756,890	)
Retirement of treasury stock			(21,000,000	)	21,000,000
Balance at December 31, 2001	-0-	-0-	126,800,908		(3,913,142	)
2002:
Issuance of common stock due to exercise of stock options			-0-		196,381
Treasury stock acquired			-0-		(4,816,695	)
	-0-	-0-	126,800,908		(8,533,456	)

	At December 31, 2001				At December 31, 2000
	Preferred Stock		Common Stock		Preferred Stock		Common Stock
Par value per share	$	1.00	$	1.00	$	1.00	$	1.00
Authorized shares		5,000,000		320,000,000		5,000,000		320,000,000

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 funds and for future employee stock option exercises. Share repurchases under this program were 4.8 million shares at a cost of $182 million in 2002, 7.8 million shares at a cost of $303 million in 2001, and 6.1 million shares at a cost of $147 million in 2000.

Retirement of Treasury Stock:    On May 11, 2001, Torchmark retired 21 million shares of its treasury stock. The retirement resulted in a decrease in common stock of $21 million, decrease in additional paid-in capital of $89 million, decrease in retained earnings of $527 million, and a decrease in treasury stock of $637 million.

71

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 16—Shareholders’ Equity (continued)

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. These restrictions generally limit the payment of dividends by insurance subsidiaries to statutory net gain from operations before realized capital gains or losses on an annual noncumulative basis in the absence of special approval. Additionally, insurance companies are generally not permitted to distribute the excess of shareholders’ equity as determined on a GAAP basis over that determined on a statutory basis. In 2003, $283 million will be available to Torchmark for dividends from insurance subsidiaries in compliance with statutory regulations without prior regulatory approval.

Earnings Per Share: A reconciliation of basic and diluted weighted-average shares outstanding is as follows:

	2002	2001	2000
Basic weighted average shares outstanding	120,258,685	125,134,535	128,089,235
Weighted average dilutive options outstanding	410,430	726,334	264,169
Diluted weighted average shares outstanding	120,669,115	125,860,869	128,353,404

Stock options to purchase 5,551,271, 3,305,025, and 7,497,546 as of December 31, 2002, 2001, and 2000, respectively, are considered to be anti-dilutive and are excluded from the calculation of diluted earnings per share. Income available to common shareholders for basic earnings per share is equivalent to income available to common shareholders for diluted earnings per share.

Note 17—Employee Stock Options

Certain employees, directors, and consultants have been granted options to buy shares of Torchmark stock, generally at the market value of the stock on the date of grant, under the provisions of the various Torchmark stock option plans. The options are exercisable during the period commencing from the date they vest until expiring ten years and two days or eleven years after grant. Employee and consultant stock options generally vest one-half in two years and one-half in three years. Formula-based director grants generally vest in six months. A grant in August, 2001 vested immediately for all optionees other than those subject to SEC Section 16(a) reporting, whose options vest in six months. A grant in December, 2000 vested in six months. Stock options awarded in connection with compensation deferrals by certain directors and executives vest over ten years. Torchmark generally issues shares for the exercise of stock options out of treasury stock.

An analysis of shares available for grant is as follows:

	Available for Grant
	2002		2001		2000
Balance at January 1	5,024,187		9,476,067		10,869,220
Expired during year	2,477		35,573		1,100
Granted during year	(1,166,324	)	(4,487,453	)	(1,394,253	)
Balance at December 31	3,860,340		5,024,187		9,476,067

As previously stated in Note 1—Significant Accounting Policies, Torchmark accounts for its employee stock options in accordance with SFAS 123, Accounting for Stock-Based Compensation as amended by SFAS 148, and has elected to account for its stock options under the intrinsic value method as outlined in APB 25 and permitted by SFAS 123. The fair value method requires the use of an option valuation model, such as the Black-Scholes option valuation model, to value employee stock options, upon which compensation expense is based. The estimated fair value of the options is then amortized to expense over the options’ vesting period. The Black-Scholes option valuation model was not developed for use in valuing employee stock options. Instead, this model was developed for use in estimating the fair value of

72

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 17—Employee Stock Options (continued)

traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because Torchmark’s employee stock options have characteristics significantly different from those of traded options, changes in the subjective input assumptions can materially affect the fair value estimate of its employee stock options. Under the intrinsic value method, compensation expense for Torchmark’s option grants is only recognized if the exercise price of the employee stock option is less than the market price of the underlying stock on the date of grant.

As required by SFAS 148, Accounting for Stock-Based Compensation—Transition and Disclosure, the pro forma earnings giving effect to the fair value method of option accounting has been reported in Note 1—Significant Accounting Policies. The fair value for Torchmark’s employee stock options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 2002, 2001, and 2000:

	2002		2001		2000
Risk-free interest rate	3.1	%	4.5	%	5.1	%
Dividend yield	1.0	%	0.9	%	1.0	%
Volatility factor	30.1		31.7		32.5
Weighted average expected life (in years)	4.51		4.75		4.77

Torchmark executed a stock option exercise and restoration program on August 9, 2001 through which 122 Torchmark directors and employees exercised vested stock options. These participants were granted a reduced number of new options at the current market price. The August 9, 2001 program resulted in the issuance of 4.0 million shares of which 3.5 million shares were immediately sold by the directors and employees through the open market to cover the cost of the purchased shares and related taxes. Another small restoration program was effected on December 20, 2000 involving two employees who were not able to participate in an earlier 1999 restoration program. They exercised vested options resulting in the issuance of 433 thousand shares, of which 283 thousand shares were sold by the employees to pay the exercise price and minimum withholding taxes. As a result of these restoration programs, management’s ownership interest increased, and Torchmark received a significant current tax benefit from the exercise of the options.

A summary of Torchmark’s stock option activity and related information for the years ended December 31, 2002, 2001, and 2000 follows:

	2002				2001				2000
	Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Outstanding-beginning of year	8,727,432		$	36.28	8,531,198		$	31.85	7,661,787		$	30.14
Granted	1,166,324			37.55	4,487,453			40.40	1,394,253			36.37
Exercised	(196,381	)		25.96	(4,255,646	)		31.62	(523,742	)		18.89
Expired	(2,477	)		34.32	(35,573	)		36.82	(1,100	)		28.84
Outstanding-end of year	9,694,898		$	36.64	8,727,432		$	36.28	8,531,198		$	31.85
Exercisable at end of year	6,748,645		$	36.59	5,802,358		$	37.02	5,345,265		$	31.54

The weighted average fair value of options granted during the years ended December 31, 2002, 2001, and 2000 were $10.33, $13.00, and $12.05, respectively.

73

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 17—Employee Stock Options (continued)

The following table summarizes information about stock options outstanding at December 31, 2002:

Exercise Price	Grant Date	Number Outstanding	Number Exercisable	Original Contract Termination Date
14.92781	January 3, 1995	7,010	7,010	January 5, 2005
15.94885*	December 18, 1996	36,000	12,000	December 18, 2007
18.57937-18.58078	December 20, 1995	33,400	33,400	December 22, 2005
18.618	December 14, 1993	25,702	25,702	December 16, 2003
19.26091	January 2, 1996	7,010	7,010	January 4, 2006
19.26091-19.276	January 3, 1994	13,010	13,010	January 5, 2004
19.8125	February 29, 2000	7,691	7,691	February 28, 2011
21.29257-21.30859	December 16, 1996	85,262	85,262	December 18, 2006
21.50770	January 2, 1997	7,010	7,010	January 4, 2007
21.52056	January 2, 1997	10,900	1,816	January 2, 2008
22.14864-22.16198	January 31, 1997	94,051	18,121	January 31, 2008
24.7174	January 4, 1993	7,010	7,010	January 6, 2003
25.75	January 18, 2000	5,678	5,678	January 18, 2011
27.325	January 17, 2000	5,410	5,410	January 17, 2011
27.75	January 4, 2000	17,164	17,164	January 4, 2011
27.8125	December 21, 1999	1,014,250	1,014,250	December 23, 2009
27.8125	December 21, 1999	68,421	15,456	December 21, 2010
28.3125	January 3, 2000	10,184	5,708	January 3, 2011
33.27631-33.28237	December 24, 1997	34,469	34,469	December 26, 2007
33.4375	December 16, 1998	331,250	331,250	December 18, 2008
33.4375	December 16, 1998	97,838	28,486	December 16, 2009
33.4905-33.49377	September 25, 1997	174,508	174,508	September 27, 2007
33.54382	January 9, 1998	9,089	1,298	January 9, 2009
33.9375	January 11, 1999	40,820	40,820	January 11, 2010
34	January 5, 2001	4,663	466	January 15, 2012
34.5	November 15, 1999	532,774	532,774	November 17, 2009
34.5	January 8, 2001	30,701	30,701	January 8, 2012
34.75	December 30, 1998	31,727	7,931	December 30, 2009
34.875	January 23, 2001	5,025	5,025	January 23, 2012
35.63037	February 16, 1998	8,439	1,205	February 16, 2009
35.95	March 15, 2001	4,617	4,617	March 15, 2012
36.11175-36.11284	January 2, 1998	116,709	116,709	January 4, 2008
36.37928	February 10, 1998	7,950	1,135	February 10, 2009
36.43278	February 4, 1998	7,989	1,141	February 4, 2009
36.57	May 14, 2001	4,740	4,740	May 14, 2012
37.375	December 20, 2000	1,187,252	725,152	December 22, 2010
37.375	December 20, 2000	53,994	10,799	December 20, 2011
37.44	December 16, 2002	1,034,700	0	December 18, 2012
37.44	December 16, 2002	38,431	0	December 16, 2013
37.625	January 3, 2001	4,210	4,210	January 3, 2012
38.2	December 13, 2001	1,029,150	0	December 15, 2011
38.2	December 13, 2001	51,322	5,133	December 13, 2012
38.42	January 7, 2002	4,125	4,125	January 7, 2013
38.6	January 3, 2002	32,070	32,070	January 3, 2013
38.79	January 2, 2002	48,000	48,000	January 4, 2012
38.79	January 2, 2002	8,998	8,998	January 2, 2013
41.26	August 9, 2001	3,304,175	3,304,175	August 11, 2011
		9,694,898	6,748,645

*  Issued when the market price was $24.8125. Option price at that time (prior to the Waddell & Reed spin-off adjustment) was $18.61.

74

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 18—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 $2.5 million per life. Life insurance ceded represents 1.2% of total life insurance in force at December 31, 2002. Insurance ceded on life and accident and health products represents .5% of premium income for 2002. 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 represents 1.9% of life insurance in force at December 31, 2002 and reinsurance assumed on life and accident and health products represents .9% of premium income for 2002.

Leases: Torchmark leases office space and office equipment under a variety of operating lease arrangements. These leases contain various renewal options, purchase options, and escalation clauses. Rental expense for operating leases was $3.4 million in 2002, $3.2 million in 2001, and $3.3 million in 2000. Future minimum rental commitments required under operating leases having remaining noncancelable lease terms in excess of one year at December 31, 2002 are as follows: 2003, $2.1 million; 2004, $1.4 million; 2005, $962 thousand; 2006, $731 thousand; 2007, $614 thousand and in the aggregate, $7.2 million.

Concentrations of Credit Risk: Torchmark maintains a highly diversified investment portfolio with limited concentration in any given region, industry, or economic characteristic. At December 31, 2002, the investment portfolio consisted of the following:

Investment-grade corporate securities	78	%
Non-investment-grade securities	7
Policy loans, which are secured by the underlying insurance policy values	4
Securities of the U.S. government or U.S. government-backed securities	3
Non-government-guaranteed mortgage-backed securities	2
Securities of state and municipal governments	2
Mortgages	2
Short-term investments, which generally mature within one month	1
Securities of foreign governments, equity securities, real estate, and other long-term investments	1

Investments in municipal governments and corporations are made throughout the U.S. with no concentration in any given state. Most of the investments in foreign government securities are in Canadian government obligations. Corporate debt and equity investments are made in a wide range of industries. At December 31, 2002, 2% or more of the portfolio was invested in the following industries:

Depository institutions	15	%
Electric, gas, and sanitation services	15
Insurance carriers	11
Nondepository credit institutions	6
Communications	5
Chemicals and allied products	3
Food and kindred products	3
Transportation equipment	2

Otherwise, no individual industry represented 2% or more of Torchmark’s investments. At year-end 2002, 7% of invested assets was represented by fixed maturities rated below investment grade (BB or lower as rated by the Bloomberg Composite or the equivalent NAIC designation). Par value of these

75

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 18—Commitments and Contingencies (continued)

investments was $704 million, amortized cost was $657 million, and fair market value was $562 million. While these investments could be subject to additional credit risk, such risk should generally be reflected in market value.

Collateral Requirements: Torchmark requires collateral for investments in instruments where collateral is available and is typically required because of the nature of the investment. Since the majority of Torchmark’s investments is in government, government-secured, or corporate securities, the requirement for collateral is rare. Torchmark’s mortgages are secured by the underlying real estate.

Guarantees: Torchmark has in place three guarantee agreements, all of which are 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, 2002, Torchmark had no liability with respect to these guarantees.

Trust Preferred Securities: A performance guarantee for the obligations of the Torchmark Capital Trusts I and II. The guarantee was entered into when the trust preferred securities were issued by those trusts. It guarantees payment of distributions and the redemption price of the securities until the securities are redeemed in full, or all obligations have been satisfied should one or both of the Capital Trusts default on an obligation. The total redemption price of the trust preferred securities is $150 million.

Letters of Credit: Torchmark has guaranteed letters of credit in connection with its credit facility with a group of banks. 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 is a one-year renewable contract expiring in 2006. The maximum amount of letters of credit available is $200 million. Torchmark (parent company) would be liable to the extent that TMK Re, Ltd. does not pay the reinsured party. At December 31, 2002, $161 million of letters of credit were outstanding.

Agent Receivables: Torchmark issued a guarantee to an unaffiliated third party, which has purchased certain agents’ receivables of Torchmark’s wholly-owned subsidiary American Income. The guarantee covers all obligations and recovery of capital to the third party under the receivables purchase agreement up to a maximum amount of $100 million. Under the terms of the revolving purchase arrangement, the third party has purchased the agents’ receivables and receives the earned commissions as they are applied to the balance. The term of the guarantee corresponds with the purchase arrangement, which is annually renewable. Torchmark would be liable to the extent that future commission collections were insufficient to repay the purchased amount. As of December 31, 2002, the present value of future commissions substantially exceeded the purchased balance.

Litigation: Torchmark and its subsidiaries continue to be named as parties to pending or threatened legal proceedings. These lawsuits involve 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. Many of these lawsuits involve claims for punitive damages in state courts of Alabama, a jurisdiction particularly recognized for its large punitive damage verdicts. A number of such actions involving Liberty also name Torchmark as a defendant. In 1999, Alabama enacted legislation limiting punitive damages in non-physical injury cases to the greater of $500,000 or three times compensatory damages. Since this legislation has not undergone scrutiny by appellate courts regarding its constitutionality and a jury’s discretion regarding the amount of compensatory damages (including mental anguish) awarded in any given case is not precisely defined,

76

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 18—Commitments and Contingencies (continued)

the effect of this legislation on Torchmark’s litigation remains unclear. Additionally, it should be noted that Torchmark subsidiaries actively market insurance in the State of Mississippi, a jurisdiction which is recognized nationally for large punitive damage verdicts. Bespeaking caution is the fact that the likelihood or extent of a punitive damage award in any given case is currently impossible to predict. As of December 31, 2002, Liberty was a party to approximately 93 active lawsuits (including 9 employment related cases and excluding interpleaders and stayed cases), 69 of which were Alabama proceedings and 9 of which were Mississippi proceedings in which punitive damages were sought. Liberty faces trial settings in these cases on an on-going basis.

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 management to be material. It should be noted, however, that large punitive damage awards bearing little or no relation to actual damages awarded by juries in jurisdictions in which Torchmark has substantial business, particularly Alabama and Mississippi, continue to occur, creating the potential for unpredictable material adverse judgments in any given punitive damage suit.

As previously reported, Liberty was served on October 28, 1999 with a subpoena from the Florida Department of Insurance in connection with that Department’s investigation into Liberty’s sales practices and disclosures in the State of Florida regarding industrial life insurance and low coverage life insurance policies. Liberty has also received similar subpoenas from the Alabama, Georgia, Kentucky, Texas, South Carolina and Minnesota Insurance Departments regarding its industrial life insurance and other low face-amount life insurance policies sold in those states. Specific inquiry is made into the historical use of race-distinct mortality in the design or pricing of industrial insurance, a practice believed to be actuarially sound, but nevertheless discontinued by Liberty many years ago. In 1988, Liberty endeavored to convert to paid-up status those policies utilizing race-distinct mortality that remained in premium-paying status at that time. Liberty has been and continues responding to these subpoenas in a timely fashion. In July 2000, the Florida and Georgia Insurance Departments issued cease and desist orders to all companies reporting premium income from industrial life insurance, including Liberty, stating that, to the extent that any company is currently collecting any race-distinct insurance premiums from Florida and Georgia residents, respectively, it immediately cease and desist from collecting any premium differential based on the race of the policyholders. Upon receiving the Georgia order, Liberty informed the Georgia Insurance Department that Liberty did not interpret the Georgia Department’s directive as a cease and desist order since it did not afford Liberty the opportunity for a mandatory or voluntarily requested hearing thereunder. On August 22, 2000, the Florida District Court of Appeals issued an order staying the Florida Insurance Department’s immediate final cease and desist order, pending appeals to the Florida Supreme Court. The Florida Supreme Court subsequently reversed and rendered the District Court of Appeals’ order, and thus declared the cease and desist order null and void. Liberty, as an Alabama domestic company, was examined by representatives of the Alabama Department of Insurance with regard to issues parallel to those raised by the State of Florida. By order dated January 28, 2002, the Alabama Department finalized a report of its examination of Liberty. The report has now been turned over to the Alabama Department’s Legal Division for further consideration.

On December 8, 1999, purported class action litigation was filed against Liberty in the United States District Court for the Northern District of Alabama (Moore v. Liberty National Life Insurance Company, Case No. CV-99-BU-3262-S), on behalf of all African-Americans who have or have had at the time of policy termination an ownership interest in certain life insurance policies ($25,000 face amount or less) marketed by Liberty and certain of its former subsidiaries. The alleged class period covers virtually the entire twentieth century. Plaintiffs allege racial discrimination in Liberty’s premium rates in violation of 42 U.S.C. § 1981, breach of fiduciary duty in sales and administrative practices, receipt of excessive and unreasonable premium payments by Liberty, improper hiring, supervision, retention and failure to monitor actions of officers, agents and employees, breach of contract in dismantling the debit premium collection system, fraudulent inducement and negligent misrepresentation. Unspecified compensatory and punitive damages are sought together with a declaratory judgment and equitable and/or injunctive relief, including establishment of a constructive trust for the benefit of class members. Defendants filed a motion for

77

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 18—Commitments and Contingencies (continued)

judgment on the pleadings or in the alternative for summary judgment on January 27, 2000. On April 7, 2000, the District Court entered an order granting Liberty’s motion for judgment on the pleadings and dismissing plaintiffs’ claims under 42 U.S.C. § 1981 with prejudice as time-barred and dismissing their state law claims without prejudice to re-file in state court if desired. Plaintiffs subsequently filed motions with the District Court to reconsider its April 7, 2000 order and for permission to file an amended complaint adding similar claims under 24 U.S.C. § 1982. Liberty opposed this motion. On June 22, 2000, purported class action litigation with allegations comparable to those in the Moore case was filed against Liberty in the Circuit Court of Jefferson County, Alabama (Baldwin v. Liberty National Life Insurance Company, Case No. CV 00-684). The Baldwin case is currently stayed pending disposition of the Moore case.

On July 3, 2000, the District Court issued an order in the Moore case granting in part and denying in part the plaintiffs’ motions. The District Court ordered the Moore plaintiffs to file an amended complaint setting forth their claims under 28 U.S.C. §§ 1981 and 1982 and, if such claims are timely, any state law claims for breach of contract related to the discontinuance of debit collections, and dismissed with prejudice all remaining state law claims of the plaintiffs as time-barred by the common law rule of repose. On July 14, 2000, plaintiffs filed their amended complaint with the District Court and Liberty filed a motion to alter or amend the District Court’s July order or, in the alternative, requested that the District Court certify for purposes of appeal the issue whether the state law doctrine of repose should be applied to and bar plaintiffs’ actions under 28 U.S.C. §§ 1981 and 1982. The District Court entered such an order on July 21, 2000 and stayed proceedings in Moore pending resolution of Liberty’s petition to the U.S. Circuit Court of Appeals for the Eleventh Circuit. Liberty filed a petition on July 30, 2000 with the Eleventh Circuit seeking that Court’s permission to appeal the portions of the District Court’s July order in Moore granting the plaintiffs the right to file the amended complaint. The Eleventh Circuit Court granted Liberty’s motion and agreed to consider Liberty’s arguments regarding the applicability of the state law of repose to actions under 28 U.S.C. §§ 1981 and 1982. Oral arguments were heard by the Eleventh Circuit Court on July 20, 2001. On September 28, 2001, the Eleventh Circuit Court ruled that the rule of repose was not a bar to the Moore claims in federal court and that there is no reverse pre-emption under the McCarrin Ferguson Act. Liberty filed a petition seeking an en banc rehearing in the Eleventh Circuit Court, which was subsequently denied. Liberty filed a petition for a writ of certiorari with the U.S. Supreme Court on February 21, 2002, which has been denied. The plaintiffs filed their motion for class certification in Moore with the District Court on December 20, 2002 and Liberty filed its opposition to this motion on February 3, 2003.                                 .

Four individual cases with similar allegations to those in the Moore case which were filed against Liberty in various state Circuit Courts in Alabama remain pending and have been removed and/or transferred to the U.S. District Court for the Northern District of Alabama. The Moore case and all cases transferred to the Northern District of Alabama have been assigned to Judge U.W. Clemon, a noted former civil rights attorney. In the earliest filed of the individual state court actions, Walter Moore v. Liberty National Life Insurance Company (Circuit Court of Dallas County, Alabama, CV 00-306) the Court entered an order granting summary judgment in favor of Liberty based upon the doctrine of repose and has subsequently denied a motion to reconsider its dismissal of this case.

Hudson v. Liberty National Life Insurance Company, one of the four individual cases referenced above, was filed in the Circuit Court of Bullock County, Alabama on February 28, 2001 (Case No. CV 2001-25) and contains similar allegations to those in Moore. After denials by the Bullock Circuit Court of Liberty’s motion to dismiss and request that certain questions arising in the litigation be certified to the Alabama Supreme Court, Liberty sought a writ of mandamus on the certified questions issue from the Alabama Supreme Court. The Alabama Supreme Court agreed to hear Liberty’s petition for writ of mandamus seeking to have the Supreme Court direct the trial court to grant Liberty’s motion to dismiss or for a summary judgment or to certify for interlocutory appeal the Circuit Court’s denial of such motion. On January 18, 2002, the Alabama Supreme Court denied Liberty’s request for the writ of mandamus but noted that Liberty’s motion for summary judgment based on the rule of repose remained pending in the trial court and was ripe for adjudication. Upon remand, plaintiff amended his complaint to add causes of action under federal law and this case has been removed to federal court as discussed above.

78

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 18—Commitments and Contingencies (continued)

In the fifth individual state court action, (Edwards v. Liberty National Life Insurance Company, Case No. CV 0005872), the trial court denied Liberty’s motion seeking a summary judgment based upon the rule of repose but indicated that it would reconsider that motion after discovery. Liberty filed a motion to alter or amend the trial court’s order, or in the alternative, for an interlocutory appeal. In September 2001, the trial court in that case vacated its earlier order and stayed the litigation pending resolution of the Hudson case, which is discussed above. On February 22, 2002, the trial court held a hearing regarding the stay in Edwards. The trial court permitted the plaintiffs very limited discovery.

On March 15, 2001, purported class action litigation was filed against Liberty in the United States District Court for the District of South Carolina (Hinton v. Liberty National Life Insurance Company, Civil Action No. 3-01-68078 19), containing allegations largely similar to the Moore case filed in the Federal District Court for the Northern District of Alabama. Liberty was described in the suit as successor in interest of New South Life Insurance Company (New South), an insurer acquired out of receivership by an entity which was subsequently acquired by Peninsular Life Insurance Company (Peninsular). In 1985, Liberty reinsured a block of insurance business from Peninsular, including business formerly written by New South. Liberty has requested indemnification in the Hinton litigation from Peninsular and its successors in interest. Liberty sought a writ of mandamus in Hinton from the Fourth Circuit Court of Appeals as well as a change of venue to consolidate the Hinton case with the Moore case currently pending in Federal District Court in Alabama. Both the change in venue and the writ of mandamus were denied. However, the South Carolina District Court issued an order inviting the parties to resubmit a motion for change of venue. Liberty National filed such a motion to transfer the case to the U.S. District Court for the Northern District of Alabama, which was granted by the South Carolina District Court on February 12, 2002.

Another action with similar allegations to Moore, which also includes claims for race discrimination under 24 U.S.C. §§1981 and 1982, was filed against Liberty in U.S. District Court for the Northern District of Alabama on January 28, 2002 (Hull v. Liberty National Life Insurance Company, Civil Action No. CV-02-C-0219-W).

There are a total of 16 race-distinct mortality cases pending in the U.S. District Court for the Northern District of Alabama (with two of such cases having been originally filed in the U.S. District Court for the Northern District of Georgia), including Sunday v. Liberty National Life Insurance Company, Case No. CV02-BE-0639-S), in which approximately 460 individuals assert that they had discriminatory insurance policies with Liberty. The Baldwin and Edwards cases remain pending in Alabama Circuit Courts. Plaintiffs’ attorneys have actively advertised for additional plaintiffs to join these suits or file additional suits.

On December 23, 2002, seventy individual plaintiffs filed an action against Liberty and certain of its sales agents in the Circuit Court of Holmes County, Mississippi (Thurmond v. Liberty National Life Insurance Company, Cause No.: 2002-517). The plaintiffs, all African Americans, assert claims of fraudulent and reckless misrepresentation, innocent misrepresentation, fraudulent concealment and suppression, breach of contract in the dismantling of Liberty’s debit collection system and racial discrimination under various sections of the Mississippi Code Annotated in connection with the marketing, sale and administration by Liberty of plaintiffs’ industrial low value whole life, accident and/or burial insurance policies. Actual and punitive damages in an unspecified amount, interest and costs are sought.

On December 27, 2002, individual litigation involving 120 separate plaintiffs with substantially similar allegations, was filed against Liberty in the Circuit Courts of Holmes County, Mississippi (Billingsley v. Liberty National Life Insurance Company, Civil Action No.: 2002-532), of Bolivar County, Mississippi (Hudson v. Liberty National Life Insurance Company, Civil Action No.: 2002-170) and of Leflore County, Mississippi (Teague v. Liberty National Life Insurance Company, Civil Action No.: 2002-0218-CICI). Plaintiffs in each action assert that Liberty and its sales agents marketed small value debit insurance policies at racially discriminatory rates to African Americans using racially discriminatory sales and administrative practices and collected premium payments which are alleged to be excessive and

79

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 18—Commitments and Contingencies (continued) 

unconscionable in that such premiums exceeded the face amount of insurance issued. Unspecified actual and punitive damages, attorneys fees, costs and interest, as well as the imposition of a constructive trust or disgorgement are sought for claims of fraud and fraudulent inducement, breach of the duty of good faith and fair dealing, tortuous breach of contract, breach of fiduciary duty, money had and received, unjust enrichment, negligence and/or gross negligence, violations of the Mississippi Consumer Protection Act, conversion and violations of Mississippi Code Ann. § 83-7-3 (prohibiting discrimination by life insurers in the assessment of premiums to policyholders).

On July 26, 2001, litigation was filed against Torchmark and three current members of Torchmark’s Board of Directors in the United States District Court for the District of Kansas (Waddell & Reed Financial, Inc. v. Torchmark Corporation, Civil Action No. 01-2372-KHV). Plaintiffs assert that defendants engaged in a scheme to control and injure Waddell & Reed Financial, Inc. (Waddell & Reed) after it was spun-off by Torchmark in November 1998, to interfere with the business relationship between a Waddell & Reed subsidiary, Waddell & Reed, Inc. (W&R) and a Torchmark subsidiary, United Investors, and to injure Waddell & Reed as well as asserting that one of the individual defendants sought to interfere with Waddell & Reed’s relationship with the United Group of Mutual Funds. The litigation alleges RICO violations, breaches of fiduciary duty by the three individual defendants, knowing participation in such breaches of fiduciary duty by Torchmark and intentional interference with prospective business relations in connection with the relationship between W&R and United Investors. Plaintiffs seek actual, punitive and treble damages, interest, fees and costs under RICO of $29 million, $13.4 million plus punitive damages, interest and costs on the intentional interference allegations and a total of $58 million on the remaining two counts.

Defendants filed a motion to abstain or, in the alternative, to dismiss the Kansas District Court litigation on August 22, 2001, citing pending litigation filed in Jefferson County Alabama state circuit court by Torchmark and its subsidiary, United Investors against Waddell & Reed and W&R (United Investors Life Insurance Company v. Waddell & Reed Financial, Inc., et al, Case No. CV 00-2720), involving an alleged agreement dealing with existing in-force United Investors variable annuity business marketed by W&R as well as the prior dismissal by the Kansas District Court of litigation originally filed by W&R against United Investors in Kansas state court involving such variable annuity business. Defendant’s motion was denied but the Kansas District Court ruled that a judgment in the prior Alabama litigation would likely be res judicata as to the claims against Torchmark and one of the individual defendants in the current Kansas litigation. Trial of the Alabama state court litigation began February 19, 2002.

On March 19, 2002, a Jefferson County, Alabama Circuit Court jury awarded $50 million compensatory damages to Torchmark’s subsidiary United Investors in the Alabama state court litigation. United Investor’s claims in this litigation for additional injunctive relief prohibiting unlawful future policy replacements by W&R remained to be decided by the Circuit Court. Based upon the Alabama jury verdict, Torchmark filed a motion for summary judgment in the Kansas District Court.

On June 25, 2002, the Jefferson County Circuit Court entered an order in United Investor’s Alabama state court litigation granting a declaratory judgment for United Investors against W&R. The Circuit Court refused to set aside or reduce the $50,000,000 compensatory damage verdict awarded against W&R by the trial jury in the original litigation. The Circuit Court’s order stated that there was no valid and binding contractual or other obligation requiring United Investors to pay certain additional compensation that W&R had sought in connection with United Investor’s in-force block of variable annuity business for which W&R had formerly been the distributor. Escrowed funds for the commissions owed by W&R to United Investors were ordered to be released to United Investors. The Circuit Court also denied W&R’s motions to set aside the jury’s verdict or to order a new trial and denied United Investor’s motion for additional injunctive relief to prohibit future replacements of United Investors policies by W&R since United Investors has an adequate remedy at law through additional litigation against W&R.

On July 25, 2002, W&R filed notice of appeal to the Alabama Supreme Court of the Jefferson County Circuit Court’s order, which notice of appeal was supplemented on July 31, 2002 and the record of the same was certified to the Alabama Supreme Court in September, 2002. On October 25, 2002, the

80

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 18—Commitments and Contingencies (continued)

Alabama Supreme Court affirmed the trial court’s judgment dismissing with prejudice all of W&R’s third party counterclaims against Torchmark and R.K. Richey. Oral arguments were heard by the Alabama Supreme Court on February 19, 2003 in W&R’s appeal from the jury verdict and trial court judgment against W&R on United Investors’ claims.

On February 4, 2003, an order was entered in the Kansas District Court litigation granting that portion of the defendants’ judgment as regarded claims against Torchmark and one individual defendant by Waddell & Reed and W&R. Other portions of the defendants’ motion were denied so that Waddell & Reed and W&R’s claims against the other two individuals defendants as well as all claims of Waddell & Reed Investment Management Company, another Waddell & Reed subsidiary, remain pending. The order also lifted the discovery stay.

On September 28, 2001, a shareholder derivative action was filed in the Circuit Court of Jefferson County, Alabama against Torchmark, two unaffiliated limited liability companies, and three individual defendants (Bomar v. Torchmark Corporation, Case No. CV 0105981). The derivative action arises from an October 1, 1999 transaction in which the three individual defendants (one of whom is a director and former Chairman of Torchmark and a second of whom is a former officer of a former real estate subsidiary of Torchmark) acting through two unaffiliated limited liability companies acquired the majority of the investment real estate of Torchmark together with other properties. Plaintiff alleges that, despite review and approval of the transaction by all independent and disinterested members of the Torchmark Board of Directors, the transaction was procedurally and substantively unfair to Torchmark and resulted from the breach of fiduciary duties of loyalty owed to Torchmark by two of the above described individual defendants and the knowing participation of the third individual defendant in the alleged breach of fiduciary duty. Establishment of a constructive trust for such assets for the benefit of Torchmark and its shareholders, an accounting for profits and unspecified compensatory and punitive damages were sought. The request for establishment of a constructive trust was subsequently deleted by the plaintiff.

On October 16, 2001, defendant Torchmark filed a motion to dismiss and to stay discovery in the Bomar action, asserting plaintiff’s lack of standing, failure to make a legally-required demand on the Board of Directors of Torchmark and failure to comply with certain Alabama Rules of Civil Procedure. On October 17, 2001, the Board of Directors created a special litigation committee comprised of two independent, disinterested directors to review and make determinations and a report with regard to the transactions involved in such suit. Defendant Torchmark’s motion was amended on October 19, 2001 to include as further grounds for dismissal and stay the creation of that special litigation committee and the delegation of complete authority to said committee to review the transaction and determine whether prosecution of the Bomar action was in the interests of Torchmark and its shareholders and what action Torchmark should take with regard to the Bomar action. The committee, through its separately retained counsel, advised the Court that it concurred in Torchmark’s motions. A hearing on Torchmark’s amended motion to dismiss and stay discovery was held November 13, 2001 and on November 26, 2001, the Circuit Court issued an order staying all proceedings in Bomar for 150 days during which the special litigation committee was charged with investigating, reviewing and analyzing the asserted claims, completing its written report and filing the same with the Circuit Court. The special litigation committee began its interview process in February, 2002. On April 24, 2002, the plaintiff filed a motion to modify the stay so as to permit the filing of a second amended complaint, which sought to assert that the transaction violated a 1982 Torchmark Board of Directors resolution relating to conflicts of interest as well as the Alabama Insurance Holding Company System Regulatory Act; that the consideration received by Torchmark was unfairly low and was the result of two of the defendants’ violations of their fiduciary duty of loyalty to Torchmark; and that defendants concealed and suppressed material facts intentionally, knowingly and wantonly. The Circuit Court, on May 6, 2002, ordered the special litigation committee to also consider the allegations made in plaintiff’s second amended complaint (although the same was never formally filed with the Court). The Circuit Court granted the Committee extensions of time for the filing of its report until August 1, 2002. On July 31, 2002, the special litigation committee released and filed its written report with the Circuit Court.

81

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 18—Commitments and Contingencies (continued)

On October 3, 2002, the Circuit Court entered an order granting motions for summary judgment in favor of all defendants in Bomar. The Circuit Court stated in its order that demand on the Torchmark Board of Directors by the plaintiff was not excused, that a majority of the Board and all members of the special litigation committee were independent and disinterested, that the special litigation committee conducted its investigation thoroughly and in good faith, that the special litigation committee’s findings and conclusion that the Bomar action should be dismissed and that the real estate transaction in question was well within the scope of the business judgment rule was correct and such findings were adopted by the Circuit Court and that the special litigation committee’s conclusion that the transaction “was entirely fair to Torchmark” was fully supported by the record and the law. On November 13, 2002, the plaintiff filed a notice of appeal to the Alabama Supreme Court of the Circuit Court’s order.

On September 12, 2002, a trial court jury in Chambers County, Alabama Circuit Court returned a $3.2 million verdict against Liberty in Ingram v. Liberty National Life Insurance Company (Civil Action No. CV-96-62). This case, originally filed in March 1996, alleged that the plaintiff purchased an interest-sensitive life insurance policy from Liberty based upon agent representations that premiums on the policy would be due for ten years and thereafter it would have paid-up policy status. Plaintiff asserted fraud, misrepresentation of material facts, suppression, deceit, fraudulent deceit, wanton or intentional conduct, civil conspiracy, wanton hiring, retention, supervision of agents, bad faith, and conversion since the policy did not reach paid-up status at the end of the ten years of premium payments. The plaintiff had sought a declaratory judgment and compensatory and punitive damages in the Circuit Court. Liberty has pursued all available post judgment motions and will pursue appellate relief. On January 29, 2003 the Circuit Court denied Liberty’s motion for a new trial and ordered the $3.2 million verdict reduced to $240,000.

On January 30, 2003, purported class action litigation was filed against Liberty in the Circuit Court of Lowndes County, Alabama (Gordon v. Liberty National Life Insurance Company, Civil Action No. CV03-13). Plaintiffs assert state law claims that Liberty breached the insurance contracts with them, engaged in intentional, willful and/or negligent conduct and was unjustly enriched when Liberty allowed them to pay premiums on insurance policies that exceeded the “face value” and/or “amount of insurance” of the insurance policies. Unspecified monetary damages, injunctive relief and return of all proceeds is sought.

Note 19—Business Segments

Torchmark’s 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 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 management evaluates 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 products are generally guaranteed-renewable and include Medicare Supplement, cancer, accident, long-term care, and limited hospital and surgical coverages. Annuities include both fixed-benefit and variable contracts. Variable contracts allow policyholders to choose from a variety of mutual funds in which to direct their deposits.

82

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 19—Business Segments (continued)

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 By Distribution Channel

	For the Year 2002
	Life				Health				Annuity				Total
Distribution Channel	Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total
United American Independent	$	50,424	4.1	%	$	467,017	45.8	%	$	252	0.7	%	$	517,693	22.7	%
Liberty National Exclusive		301,715	24.7			159,720	15.7			55	0.1			461,490	20.3
American Income Exclusive		277,181	22.7			52,080	5.1							329,261	14.5
Direct Response		315,651	25.9			21,795	2.1							337,446	14.8
United American Branch Office		19,515	1.6			318,508	31.3							338,023	14.8
Military		148,709	12.2											148,709	6.5
Other		107,493	8.8							38,918	99.2			146,411	6.4
	$	1,220,688	100.0	%	$	1,019,120	100.0	%	$	39,225	100.0	%	$	2,279,033	100.0	%
	For the Year 2001
	Life				Health				Annuity				Total
Distribution Channel	Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total
United American Independent	$	47,415	4.1	%	$	464,100	45.9	%	$	393	0.7	%	$	511,908	23.1	%
Liberty National Exclusive		297,223	26.0			155,886	15.4			63	0.1			453,172	20.5
American Income Exclusive		246,690	21.5			49,835	4.9							296,525	13.4
Direct Response		289,097	25.3			17,773	1.8							306,870	13.8
United American Branch Office		19,255	1.7			323,159	32.0							342,414	15.5
Military		133,378	11.7											133,378	6.0
Other		111,441	9.7							59,461	99.2			170,902	7.7
	$	1,144,499	100.0	%	$	1,010,753	100.0	%	$	59,917	100.0	%	$	2,215,169	100.0	%
	For the Year 2000
	Life				Health				Annuity				Total
Distribution Channel	Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total
United American Independent	$	42,305	3.9	%	$	442,370	48.6	%	$	700	1.3	%	$	485,375	23.7	%
Liberty National Exclusive		294,197	27.2			151,363	16.6			79	0.2			445,639	21.8
American Income Exclusive		231,149	21.4			48,296	5.3							279,445	13.7
Direct Response		267,899	24.7			14,860	1.6							282,759	13.8
United American Branch Office		19,393	1.8			254,267	27.9							273,660	13.4
Military		118,512	11.0											118,512	5.8
Other		108,670	10.0							52,150	98.5			160,820	7.8
	$	1,082,125	100.0	%	$	911,156	100.0	%	$	52,929	100.0	%	$	2,046,210	100.0	%

Because of the nature of the 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, primarily in the Southeastern and Southwestern regions.

The measure of profitability established by management for insurance segments is underwriting income 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. It differs from GAAP pretax operating income before other income and administrative expense because interest credited to net policy liabilities (reserves less deferred acquisition costs and value of insurance purchased) 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.

83

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 19—Business Segments (continued)

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 debt and Torchmark’s preferred securities. The investment segment is measured on a tax-equivalent basis, equating the return on tax-exempt investments to the pretax return on taxable investments. Other than the above-mentioned interest allocations, there are no other intersegment revenues or expenses. Expenses directly attributable to corporate operations are included in the “Corporate” category. All other unallocated revenues and expenses on a pretax basis, including insurance administrative expense, are included in the “Other” segment category. The table below sets forth a reconciliation of Torchmark’s revenues and operations by segment to its major income statement line items.

	For the year 2002
	Life			Health			Annuity			Investment			Other			Corporate			Adjustments			Consolidated
Revenue:
Premium	$	1,220,688		$	1,019,120		$	39,225														$	2,279,033
Net Investment income										$	522,319								$	(3,701	)*		518,618
Other income													$	3,906						(1,786	)		2,120
Total revenue		1,220,688			1,019,120			39,225			522,319			3,906			-0-			(5,487	)		2,799,771
Expenses:
Policy benefits		815,356			673,890			34,828															1,524,074
Required interest on reserves		(279,309	)		(15,330	)		(37,119	)		331,758												-0-
Amortization of acquisition costs		206,424			72,643			18,443															297,510
Commissions and premium tax		68,622			101,164			341												(1,786	)		168,341
Required interest on acquisition costs		111,587			19,266			8,098			(138,951	)											-0-
Insurance administrative expense**														124,605									124,605
Parent expense																$	10,523						10,523
Financing costs—debt											28,593												28,593
Financing costs—preferred securities***											5,920												5,920
Total expenses		922,680			851,633			24,591			227,320			124,605			10,523			(1,786	)		2,159,566
Measure of segment profitability (pretax operating income)	$	298,008		$	167,487		$	14,634		$	294,999		$	(120,699	)	$	(10,523	)	$	(3,701	)*		640,205
Add financing costs—preferred securities dividends (reported on income statement after tax)																							5,920
Deduct realized investment losses																							(61,805	)
Pretax income per income statement																						$	584,320

* Tax equivalency adjustment.

** Administrative expense is not allocated to insurance segments.

*** Investment segment includes preferred dividends, net of swap benefit, on a pretax basis.

84

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 19—Business Segments (continued)

	For the year 2001
	Life			Health			Annuity			Investment			Other			Corporate			Adjustments			Consolidated
Revenue:
Premium	$	1,144,499		$	1,010,753		$	59,917														$	2,215,169
Net Investment income										$	496,207								$	(4,377	)*		491,830
Other income													$	4,391						(1,916	)		2,475
Total revenue		1,144,499			1,010,753			59,917			496,207			4,391			-0-			(6,293	)		2,709,474
Expenses:
Policy benefits		754,193			663,908			36,535															1,454,636
Required interest on reserves		(263,748	)		(14,911	)		(42,604	)		321,263												-0-
Amortization of acquisition costs		201,322			71,913			28,558															301,793
Commissions and premium tax		63,949			99,047			2,381												(1,916	)		163,461
Required interest on acquisition costs		105,391			17,338			9,351			(132,080	)											-0-
Insurance administrative expense**														119,038									119,038
Parent expense																$	10,104						10,104
Financing costs—debt											44,506												44,506
Financing costs—preferred securities***											6,973												6,973
Total expenses		861,107			837,295			34,221			240,662			119,038			10,104			(1,916	)		2,100,511
Measure of segment profitability (pretax operating income)	$	283,392		$	173,458		$	25,696		$	255,545		$	(114,647	)	$	(10,104	)	$	(4,377	)*		608,963
Add financing costs—preferred securities dividends (reported on income statement after tax)																							6,973
Deduct goodwill amortization																							(12,075	)
Deduct realized investment losses																							(2,432	)
Pretax income																						$	601,429

* Tax equivalency adjustment.

** Administrative expense is not allocated to insurance segments

*** Investment segment includes preferred dividends, meet of swap benefit, on pretax basis.

85

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 19—Business Segments (continued)

	For the year 2000
	Life			Health			Annuity			Investment			Other			Corporate			Adjustments			Consolidated
Revenue:
Premium	$	1,082,125		$	911,156		$	52,929														$	2,046,210
Net Investment income										$	481,081								$	(8,655	)*		472,426
Other income													$	4,650						(2,070	)		2,580
Total revenue		1,082,125			911,156			52,929			481,081			4,650			-0-			(10,725	)		2,521,216
Expenses:
Policy benefits		711,833			591,022			36,627															1,339,482
Required interest on reserves		(246,989	)		(15,736	)		(42,688	)		305,413												-0-
Amortization of acquisition costs		188,268			68,778			17,791															274,837
Commissions and premium tax		59,754			91,069			2,116												(2,070	)		150,869
Required interest on acquisition costs		98,596			14,907			8,124			(121,627	)											-0-
Insurance administrative expense**														111,817									111,817
Parent expense																$	9,369						9,369
Financing costs—debt											54,487												54,487
Financing costs—preferred securities***											15,822												15,822
Total expenses		811,462			750,040			21,970			254,095			111,817			9,369			(2,070	)		1,956,683
Measure of segment profitability (pretax operating income)	$	270,663		$	161,116		$	30,959		$	226,986		$	(107,167	)	$	(9,369	)	$	(8,655	)*		564,533
Add financing costs—preferred securities dividends (reported on income statement after tax)																							15,822
Deduct goodwill amortization																							(12,075	)
Deduct realized investment losses																							(5,322	)
Pretax income																						$	562,958

* Tax equivalency adjustment

** Administrative expense is not allocated to insurance segments

*** Investment segment includes preferred dividends, net of swap benefit, on a pretax basis

86

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 19—Business Segments (continued)

Assets for each segment are reported based on a specific identification basis. The insurance segments’ assets contain deferred acquisition costs, value of insurance purchased, and separate account assets. The investment segment includes the investment portfolio, cash, and accrued investment income. Goodwill is assigned to corporate operations. All other assets, representing less than 2% of total assets, are included in the other category. The table below reconciles segment assets to total assets as reported in the consolidated financial statements.

Torchmark Corporation

Assets By Segment

	At December 31, 2002
	Life		Health		Annuity		Investment		Other		Corporate		Consolidated
Cash and invested assets							$	7,790,932					$	7,790,932
Accrued investment income								132,984						132,984
Deferred acquisition costs	$	1,812,542	$	336,089	$	137,594								2,286,225
Goodwill											$	378,436		378,436
Separate account assets						1,656,795								1,656,795
Other assets									$	115,350				115,350
Total assets	$	1,812,542	$	336,089	$	1,794,389	$	7,923,916	$	115,350	$	378,436	$	12,360,722

	At December 31, 2001
	Life		Health		Annuity		Investment		Other		Corporate		Consolidated
Cash and invested assets							$	7,108,088					$	7,108,088
Accrued investment income								125,210						125,210
Deferred acquisition costs	$	1,734,683	$	309,966	$	137,713								2,182,362
Goodwill											$	378,436		378,436
Separate account assets						2,502,284								2,502,284
Other assets									$	131,773				131,773
Total assets	$	1,734,683	$	309,966	$	2,639,997	$	7,233,298	$	131,773	$	378,436	$	12,428,153

Note 20—Related Party Transactions

First Command.    Lamar C. Smith, a director of Torchmark, is an officer and director of First Command Financial Services, Inc. (First Command), a corporation 100% owned by the First Command Employee Stock Ownership Plan (First Command ESOP). Mr. Smith is a beneficiary of the First Command ESOP although he has no ability to vote the stock of First Command that is held by the First Command ESOP. First Command, with 545 home office agency employees and more than 1,000 appointed agents both inside and outside the United States, receives commissions as the Military Agency distribution system for selling certain life insurance products offered by Torchmark’s insurance subsidiaries. These commissions were $52.6 million in 2002, $48.2 million in 2001, and $43.5 million in 2000.

During 2001, Torchmark entered into a coinsurance agreement with First Command’s life subsidiary whereby Torchmark cedes back to First Command approximately 5% of the new life insurance business sold by First Command on behalf of Torchmark’s insurance subsidiaries. Under the terms of this agreement, First Command pays Torchmark a maintenance expense allowance equal to 5.5% of all premium collected and an issue allowance of 2.9% of first year premium collected. Torchmark is also reimbursed for actual commissions, premium taxes, and claims paid on the business ceded to First Command. Also under the agreement, Torchmark provides First Command certain administrative, accounting, and investment management services. Premium ceded in 2002 was $780 thousand and in 2001 was $108 thousand. At December 31, 2002, life insurance ceded was $139 million and annualized ceded premium was $1.2 million.

Torchmark has entered into two loan agreements with First Command, a construction loan agreement and a collateral loan agreement. The construction loan was entered into in 2001 and had an

87

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 20—Related Party Transactions (continued)

outstanding balance of $19.4 million at December 31, 2002. The loan was made at a rate of 7.55% and is collateralized by a four-story building in Fort Worth, Texas. In addition to the office building as collateral, in the event of default, Torchmark has the right of offset to any commission due First Command. The maximum amount of borrowing allowed on this loan is $22.5 million. Interest is added to the loan balance until the building is completed. The agreement calls for Torchmark to permanently finance the building with a fifteen-year mortgage at a rate of 2.25% over the ten-year treasury rate at inception, but not less than 7%.

The collateral loan agreement was entered into in 1998 with an initial loan of $7 million. An additional $15 million was loaned in 2001. The loan bears interest at a rate of 7%. Initially, it was collateralized by a group of mutual funds in which the loan balance could never exceed 90% of the value of the collateral. In 2002, real estate owned by First Command was pledged as additional collateral due to weak financial markets. The collateral agreement was modified so that the loan balance is not to exceed the sum of 90% of the mutual funds pledged plus 75% of the appraised value of the real estate pledged. The real estate appraisal was performed by an independent firm. The loan accumulated interest until December 31, 2001, after which time First Command began making fixed monthly payments that will amortize the loan over fifteen years. The outstanding loan balance at December 31, 2001 was $22.9 million and was $22.0 million at December 31, 2002. Also at December 31, 2002, the appraised value of the collateral real estate was $17.6 million and the market value of the mutual funds pledged was $12.6 million.

Real Estate.    Torchmark sold the majority of its investment real estate properties in two transactions in 1999. One of these transactions involved Elgin Development Company, of which R. K. Richey, the Chairman of the Executive Committee of Torchmark, was an investor. This transaction involved the sale of properties to an investor group of which Elgin Development Company was a 30% investor. Total consideration for the transaction was $97.4 million of which $85 million was cash and the balance was in a ten year collateralized 8% note from Elgin Development Company. Torchmark’s loss associated with this transaction was $10 million after tax. At the time of the transaction, Mr. Richey was a one-third investor in Elgin Development Company, with a total investment in Elgin Development of approximately $1.5 million. The outstanding balance of the collateralized note with Elgin Development Company, which is included in fixed maturities, was $10.1 million at December 31, 2002 and $10.5 million at December 31, 2001.

At the present time, Mr. Richey is a 25% investor in Stonegate Realty Company, LLC, the parent company of Elgin Development Company. He is also a one-third investor in Stonegate Management Company, LLC, which, in turn, is a 50% owner of Commercial Real Estate Services. Commercial Real Estate Services manages certain of Torchmark’s company-occupied and investment real estate properties along with those of other clients. Fees paid by Torchmark subsidiaries for these management and maintenance services were $750 thousand in 2002, $757 thousand in 2001, and $750 thousand in 2000. Lease rentals paid by Torchmark subsidiaries were $260 thousand, $261 thousand, and $260 thousand in 2002, 2001, and 2000, respectively.

MidFirst Bank.    Torchmark has engaged MidFirst Bank as the servicing agent for a portion of Torchmark’s subsidiaries’ commercial mortgages portfolios. George J. Records, a Torchmark director, is an officer, director, and 38.3% beneficial owner of Midland Financial Co., the parent corporation of MidFirst Bank. Fees paid for these services were $118 thousand in 2002, $109 thousand in 2001, and $106 thousand in 2000.

Baxley.    William J. Baxley is a partner in the law firm of Baxley, Dillard, Dauphin & McKnight which performs legal services for Torchmark and certain of its subsidiaries. In 1997, Mr. Baxley was loaned $668 thousand on an unsecured basis at a rate of 6.02%. Repayments are made in the form of legal services at customary rates and are applied against the outstanding balance, amortizing the loan with interest over its remaining term. In October, 2001, the terms of the loan were revised and an additional amount of $395 thousand was loaned to Baxley. The interest rate was revised to 5.6% and the term of the loan was extended until July, 2013. The loan is being repaid in accordance with its amortization schedule and all payments are current. At December 31, 2002 and 2001, the outstanding balance of this loan was $743 thousand and $788 thousand, respectively.

88

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 20—Related Party Transactions (continued)

Additionally, Liberty loaned Mr. Baxley’s wife $883 thousand secured by a mortgage on a building sold to her in 1997. Interest is charged at a rate of 7.7%. Scheduled cash payments are made to amortize the loan over thirty years. However, there is a balloon payment due at the end of ten years (2007) in the amount of $712 thousand less a credit of $18 thousand if all payments are made timely. To date, all payments have been timely. During 2002, Liberty sold the loan to Torchmark. At December 31, 2002 and 2001, the outstanding balance of this loan was $809 thousand and $824 thousand, respectively.

Torchmark customarily grants options to certain consultants for their services in addition to their fees. Mr. Baxley has received Torchmark options in the past.

89

Note 21—Selected Quarterly Data (Unaudited)

The following is a summary of quarterly results for the two years ended December 31, 2002. The information is unaudited but 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,
2002:
Premium and policy charges	$	571,241		$	571,536		$	567,642	$	568,614
Net investment income		128,203			128,075			130,581		131,759
Realized investment gains/(losses)		(10,249	)		(66,704	)		16,911		(1,763	)
Total revenues		689,674			633,480			715,825		698,987
Policy benefits		380,879			382,090			377,635		383,470
Amortization of acquisition expenses		75,026			75,174			75,993		71,317
Pretax income from continuing operations		149,329			94,932			179,320		160,739
Net income		98,154			62,712			117,375		105,192
Basic net income per common share from continuing operations		.80			.52			.98		.89
Basic net income per common share		.80			.52			.98		.89
Diluted net income per common share from continuing operations		.80			.52			.98		.89
Diluted net income per common share		.80			.52			.98		.89
Diluted net operating income per common share*		.85			.87			.89		.90
2001:
Premium and policy charges	$	546,866		$	561,218		$	554,041	$	553,044
Net investment income		120,687			122,864			123,422		124,857
Realized investment gains/(losses)		6,544			4,288			8,567		(21,831	)
Total revenues		674,766			689,030			686,690		656,556
Policy benefits		358,879			366,807			363,036		365,914
Amortization of acquisition expenses		72,445			79,054			77,227		73,067
Pretax income from continuing operations		155,278			155,725			160,666		129,760
Income (loss) from discontinued operations**		(3,280	)		-0-			-0-		-0-
Net income		96,398			73,174			103,815		83,126
Basic net income per common share from continuing operations		.79			.81			.84		.69
Basic net income per common share		.76			.58			.83		.67
Diluted net income per common share from continuing operations		.79			.80			.83		.69
Diluted net income per common share		.76			.58			.82		.67
Diluted net operating income per common share*		.75			.78			.79		.80

  *Net operating income is defined on pages 16-18 of this report.

**See Note 6—Discontinued Operations.

90

Item 9. Disagreements 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.

PART III

Item 10. Directors and Executive Officers of Registrant

Information required by this item is incorporated by reference from the sections entitled “Election of Directors,” “Profiles of Directors and Nominees,” “Executive Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance” of the Securities Exchange Act in the Proxy Statement for the Annual Meeting of Stockholders to be held April 24, 2003 (the Proxy Statement), which is to be filed with the Securities and Exchange Commission.

Item 11. Executive Compensation

Information required by this item is incorporated by reference from the section entitled Compensation and Other Transactions with Executive Officers and Directors in the Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners of Management

(a)                                           Equity Compensation Plan Information

As of December 31, 2002

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	9,694,898	$	36.64	3,860,340
Equity compensation plans not approved by security holders	0		0	0
Total	9,694,898	$	36.64	3,860,340

(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.

(c) Security ownership of management:

Information required by this item is incorporated by reference from the section entitled “Stock Ownership” in the Proxy Statement.

(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

Information required by this item is incorporated by reference from the section entitled Compensation and Other Transactions with Executive Officers and Directors in the Proxy Statement.

91

Item 14. Controls and Procedures

Torchmark, under the direction of the Chairman and Chief Executive Officer 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 Chairman and Chief Executive Officer and the Executive Vice President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

Within 90 days prior to the filing of this Form 10-K, an evaluation was performed under the supervision and with the participation of Torchmark management, including the Chairman and Chief Executive Officer and the Executive Vice President and Chief Financial Officer, of Torchmark’s disclosure controls and procedures (as those terms are defined in Rule 13a-14(c) under the Securities Exchange Act of 1934). Based upon their evaluation, the Chairman and Chief Executive Officer 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 in this Form 10-K.

As of the date of this Form 10-K, there have not been any significant changes in Torchmark’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. No significant deficiencies or material weaknesses in such internal controls were identified in the evaluation and as a consequence, no corrective action was required to be taken.

PART IV

Item 15. Exhibits, Financial Statements Schedules, and Reports on Form 8-K

(a)  Index of documents filed as a part of this report:

	Page of this report
Financial Statements:
Torchmark Corporation and Subsidiaries:
Independent Auditors’ Report	45
Consolidated Balance Sheets at December 31, 2002 and 2001	46
Consolidated Statements of Operations for each of the three years in the period ended December 31, 2002	47
Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31, 2002	49
Consolidated Statements of Shareholders’ Equity for each of the three years in the period ended December 31, 2002	50
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2002	51
Notes to Consolidated Financial Statements	53
Schedules Supporting Financial Statements for each of the three years in the period ended December 31, 2002:
II.Condensed Financial Information of Registrant (Parent Company)	99
IV.Reinsurance (Consolidated)	102

Schedules not referred to have been omitted as inapplicable or not required by Regulation S-X.

(b)  Reports on Form 8-K.

There were no Forms 8-K filed by the registrant during the fourth quarter of 2002.

(c)  Exhibits

92

EXHIBITS

		Page of this Report
(3)(i)	Restated Certificate of Incorporation of Torchmark Corporation, as amended (incorporated by reference from Exhibit 3(i) to Form 10-K for the fiscal year ended December 31, 2000)
(ii)	By-Laws of Torchmark Corporation, as amended (incorporated by reference from Exhibit 3(ii) to Form 10-K for the fiscal year ended December 31, 2001)
(4)(a)	Specimen Common Stock Certificate (incorporated by reference from Exhibit 4(a) to Form 10-K for the fiscal year ended December 31, 1989)
(b)	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))
(c)	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)
(d)	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)
(10)(a)	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)
(b)	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)
(c)	Torchmark Corporation Supplementary Retirement Plan (incorporated by reference from Exhibit 10(c) to Form 10-K for the fiscal year ended December 31, 1992)
(d)	364-Day $300,000,000 Credit Agreement dated as of November 28, 2002 among Torchmark Corporation, the Lenders, BankOne, NA, as Administrative Agent, Bank of America, N.A., as Syndication Agent and Fleet National Bank and AmSouth Bank, as Documentation Agents and Commitment Addition Agreement thereto dated as of December 10, 2002 among Torchmark Corporation, Bank One, NA, as Agent and Regions Bank
(e)	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)
(f)	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)
(g)	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)

93

		Page of this Report
(h)	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)

(i)	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)
(j)	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)
(k)	Torchmark Corporation Supplemental Savings and Investment Plan (incorporated by reference from Exhibit 10(m) to Form 10-K for the fiscal year ended December 31, 1992)
(l)	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)
(m)	The Torchmark Corporation Pension Plan (incorporated by reference from Exhibit 10(o) to Form 10-K for the fiscal year ended December 31, 1992)
(n)	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)
(o)	The Torchmark Corporation Savings and Investment Plan (incorporated by reference from Exhibit 10(s) to Form 10-K for the fiscal year ended December 31, 1992)
(p)	Five Year $300,000,000 Credit Agreement dated as of November 30, 2001 among Torchmark Corporation, TMK Re, Ltd., the Lenders, BankOne, NA, as Administrative Agent, Bank of America, N.A., as Syndication Agent, and Fleet National Bank and AmSouth Bank, as Documentation Agents (incorporated by reference from Exhibit 10(q) to Form 10-K for the fiscal year ended December 31, 2001)
(q)	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)
(r)	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)
(s)	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)

94

		Page of this Report
(t)	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)
(u)	The Liberty National Life Insurance Company Pension Plan for Non-Commissioned Employees (incorporated by reference from Exhibit 10(v) to Form 10-K for the fiscal year ended December 31, 1999)
(v)	Receivables Purchase Agreement dated as of December 21, 1999, as Amended and Restated as of March 31, 2000 among AILIC Receivables Corporation, American Income Life Insurance Company, Preferred Receivables Funding Corporation and Bank One, NA (incorporated by reference from Exhibit 10(x) to Form 10-K for the fiscal year ended December 31, 2000)
(x)	Amendment dated as of August 31, 2001 to Receivables Purchase Agreement dated as of December 21, 1999 among AILIC Receivables Corporation, American Income Life Insurance Company, Preferred Receivables Funding Corporation and BankOne, N.A. (incorporated by reference from Exhibit 10(y) to Form 10-K for the fiscal year ended December 31, 2001)
(y)	Amendment No. 2 dated as of August 30, 2002 to Receivables Purchase Agreement dated as of December 21, 1999 among AILIC Receivables Corporation, American Income Life Insurance Company Preferred Receivables Funding Corporation and Bank One, N.A.
(z)	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)
(aa)	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)
(11)	Statement re computation of per share earnings	97
(20)	Proxy Statement for Annual Meeting of Stockholders to be held April 24, 2003
(21)	Subsidiaries of the registrant	98
(23)(a)	Consent of Deloitte & Touche LLP to incorporation by reference of their audit report dated March 24, 2003, into Form S-8 of The Torchmark Corporation Savings and Investment Plan (Registration No. 2-76378)
(b)	Consent of Deloitte & Touche LLP to incorporation by reference of their audit report dated March 24, 2003, into Form S-8 and the accompanying Form S-3 Prospectus of the Torchmark Corporation 1996 Non-Employee Director Stock Option Plan (Registration No. 2-93760)
(c)	Consent of Deloitte & Touche LLP to incorporation by reference of their audit report dated March 24, 2003, into Form S-8 and the accompanying Form S-3 Prospectus of the Torchmark Corporation 1987 Stock Incentive Plan (Registration No. 33-23580)
(d)	Consent of Deloitte & Touche LLP to incorporation by reference of their audit report dated March 24, 2003, into Form S-8 and the accompanying Form S-3 Prospectus of The Capital Accumulation and Bonus Plan of Torchmark Corporation (Registration No. 33-1032)
(e)	Consent of Deloitte & Touche LLP to incorporation by reference of their audit report dated March 24, 2003, into Form S-8 of the Liberty National Life Insurance Company 401(k) Plan (Registration No. 33-65507)

95

		Page of this Report
(f)	Consent of Deloitte & Touche LLP to incorporation by reference of their audit report dated March 24, 2003, into Form S-8 and accompanying Form S-3 Prospectus of the Torchmark Corporation 1996 Executive Deferred Compensation Stock Option Plan (Registration No. 333-27111)
(g)	Consent of Deloitte & Touche LLP to incorporation by reference of their audit report dated March 24, 2003 into Form S-8 of the Profit Sharing and Retirement Plan of Liberty National Life Insurance Company (Registration No. 333-83317)
(h)	Consent of Deloitte & Touche, LLP to incorporation by reference of their audit report dated March 24, 2003 into Form S-8 and the accompanying Form S-3 Prospectus of the Torchmark Corporation 1998 Stock Incentive Plan (Registration No. 333-40604)
(24)	Powers of attorney
(99)(a)	Certification of Periodic Report by C.B. Hudson
(b)	Certification of Periodic Report by Gary L. Coleman

96

TORCHMARK CORPORATION  (PARENT COMPANY)

SCHEDULE II. CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CONDENSED BALANCE SHEETS

(Amounts in thousands)

	December 31,
	2002			2001
Assets:
Investments:
Long-term investments	$	63,768		$	30,726
Short-term investments		9,050			18,506
Total investments		72,818			49,232
Investment in affiliates		3,683,877			3,338,818
Accrued investment income		11			28
Taxes receivable		1,879			12,985
Other assets		45,647			40,586
Total assets	$	3,804,232		$	3,441,649
Liabilities and shareholders’ equity:
Liabilities:
Short-term debt	$	201,479		$	204,037
Long-term debt		551,564			536,152
Due to affiliates		23,906			13,698
Other liabilities		31,403			46,078
Total liabilities		808,352			799,965
Trust preferred securities		144,427			144,557
Shareholders’ equity:
Preferred stock		351			351
Common stock		126,801			126,801
Additional paid-in capital		905,279			903,145
Accumulated other comprehensive income		176,622			(12,314	)
Retained earnings		2,316,868			1,978,903
Treasury stock		(674,468	)		(499,759	)
Total shareholders’ equity		2,851,453			2,497,127
Total liabilities and shareholders’ equity	$	3,804,232		$	3,441,649

See Notes to Condensed Financial Statements and accompanying Independent Auditors’ Report.

99

TORCHMARK CORPORATION

(PARENT COMPANY)

SCHEDULE II. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)

CONDENSED STATEMENTS OF OPERATIONS

(Amounts in thousands)

	Year Ended December 31,
	2002			2001			2000
Net investment income	$	11,682		$	13,510		$	11,073
Realized investment gains (losses)		17,776			4,898			(81,724	)
Total revenue		29,458			18,408			(70,651	)
General operating expenses		10,215			11,735			9,296
Reimbursements from affiliates		(10,872	)		(9,900	)		(9,576	)
Interest expense		28,591			44,606			58,734
Total expenses		27,934			46,441			58,454
Operating income (loss) before income taxes and equity in earnings of affiliates		1,524			(28,033	)		(129,105	)
Income taxes		941			10,937			46,874
Net operating loss before equity in earnings of affiliates		2,465			(17,096	)		(82,231	)
Equity in earnings of affiliates		384,818			412,558			454,348
Preferred securities dividends (net of tax)		(3,848	)		(4,532	)		(10,284	)
Net income from continuing operations		383,435			390,930			361,833
Discontinued operations:
Loss on disposal		-0-			(3,280	)		-0-
Net income before extraordinary item and cumulative effect of change in accounting principle		383,435			387,650			361,833
Gain (loss) on redemption of debt (net of tax)		(2	)		(4,553	)		202
Net income before cumulative effect of change in accounting principle		383,433			383,097			362,035
Cumulative effect of change in accounting principle		-0-			(26,584	)		-0-
Net Income	$	383,433		$	356,513		$	362,035

See Notes to Condensed Financial Statements and accompanying Independent Auditors’ Report.

100

TORCHMARK CORPORATION

(PARENT COMPANY)

SCHEDULE II. CONDENSED FINANCIAL INFORMATION OF REGISTRANT—(continued)

CONDENSED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

	Year Ended December 31,
	2002			2001			2000
Cash used in operations before dividends from subsidiaries	$	(24,120	)	$	(3,274	)	$	(35,627	)
Cash dividends from subsidiaries		262,139			273,466			220,542
Cash provided from operations		238,019			270,192			184,915
Cash provided from (used for) investing activities:
Disposition of investments		467			1,874			119,021
Acquisition of investments		(811	)		(10,407	)		-0-
Investment in subsidiaries		(10,000	)		-0-			(1,000	)
Loans to subsidiaries		(49,800	)		(1,000	)		(35,500	)
Repayments on loans to subsidiaries		49,800			1,000			35,500
Net decrease (increase) in temporary investments		9,456			(13,287	)		(2,320	)
Additions to properties		(29	)		(155	)		(53	)
Disposition of properties		2			78			18
Cash used for investing activities		(915	)		(21,897	)		115,666
Cash provided from (used for) financing activities:
Issuance of 6.25% senior notes		-0-			177,771			-0-
Issuance of trust preferred securities		-0-			144,554			-0-
Repayments of debt		(2,633	)		(133,454	)		(95,390	)
Issuance of stock		4,188			120,977			6,723
Redemption of monthly income preferred securities		-0-			(200,000	)		-0-
Acquisitions of treasury stock		(182,188	)		(303,085	)		(147,008	)
Borrowed from subsidiaries		94,100			100,100			85,450
Repayment on borrowings from subsidiaries		(83,800	)		(86,700	)		(85,450	)
Payment of dividends		(66,771	)		(68,458	)		(65,965	)
Cash provided from (used for) financing activities		(237,104	)		(248,295	)		(301,640	)
Net decrease in cash		-0-			-0-			(1,059	)
Cash balance at beginning of period		-0-			-0-			1,059
Cash balance at end of period	$	-0-		$	-0-		$	-0-

TORCHMARK CORPORATION

(PARENT COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Amounts in thousands)

Note A—Dividends from Subsidiaries

Cash dividends paid to Torchmark from the consolidated subsidiaries were as follows:

	2002		2001		2000
Consolidated subsidiaries	$	262,139	$	273,466	$	220,542

Note B—Exchange of Preferred Stock for Debt

During 2000, Torchmark exchanged 71,369 shares of its preferred stock with two Torchmark subsidiary companies for $22.3 million principal amount of Torchmark notes, valued at $20.3 million, and $51 million of intercompany debt.

See accompanying Independent Auditors’ Report.

101

TORCHMARK CORPORATION

SCHEDULE IV. REINSURANCE (CONSOLIDATED)

(Amounts in thousands)

	Gross Amount		Ceded to Other Companies		Assumed from Other Companies		Net Amount		Percentage of Amount Assumed to Net
For the Year Ended December 31, 2002:
Life insurance in force	$	116,411,367	$	1,404,403	$	2,248,382	$	117,255,346	1.9	%
Premiums:*
Life insurance	$	1,137,511	$	5,939	$	20,363	$	1,151,935	1.8	%
Health insurance		1,024,166		5,046		-0-		1,019,120	0	%
Total premiums	$	2,161,677	$	10,985	$	20,363	$	2,171,055	0.9	%
For the Year Ended December 31, 2001:
Life insurance in force	$	110,766,526	$	1,345,925	$	2,288,493	$	111,709,094	2.1	%
Premiums:*
Life insurance	$	1,059,484	$	6,296	$	20,445	$	1,073,633	1.9	%
Health insurance		1,016,336		5,621		38		1,010,753	0	%
Total premiums	$	2,075,820	$	11,917	$	20,483	$	2,084,386	1.0	%
For the Year Ended December 31, 2000:
Life insurance in force	$	105,989,502	$	974,566	$	2,329,488	$	107,344,424	2.2	%
Premiums:*
Life insurance	$	984,506	$	6,266	$	33,153	$	1,011,393	3.3	%
Health insurance		917,552		6,397		-0-		911,155		0%
Total premiums	$	1,902,058	$	12,663	$	33,153	$	1,922,548	1.7	%

* Excludes policy charges

See accompanying Independent Auditors’ Report.

102

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.

TORCHMARK CORPORATION

/s/     C. B. HUDSON

By:                                                                                                  

C. B. Hudson, Chairman,  Chief Executive Officer and Director

/s/    GARY L. COLEMAN

By:                                                                                                  

Gary L. Coleman, Executive Vice President  and Chief Financial Officer

(Principal Accounting Officer)

Date:  March 19, 2003

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.

/S/    DAVID L. BOREN    * By:                                                                                                   David L. Boren
Director /S/    JOSEPH M. FARLEY    * By:                                                                                                   Joseph M. Farley
Director /S/    LOUIS T. HAGOPIAN    * By:                                                                                                   Louis T. Hagopian
Director /S/    JOSEPH L. LANIER, JR.    * By:                                                                                                   Joseph L. Lanier, Jr.
Director /S/    LAMAR C. SMITH    * By:                                                                                                   Lamar C. Smith
Director



/s/    MARK S. MCANDREW    * By:                                                                                                   Mark S. McAndrew
Director /s/    HAROLD T. MCCORMICK    * By:                                                                                                   Harold T. McCormick
Director /S/    GEORGE J. RECORDS    * By:                                                                                                   George J. Records
Director /S/    R.K. RICHEY    * By:                                                                                                   R.K. Richey
Director /S/    JOSEPH W. MORRIS    * By:                                                                                                   Joseph W. Morris
Director /S/    PAUL J. ZUCCONI    * By:                                                                                                   Paul J. Zucconi
Director

Date:  March 19, 2003

*By:	/s/    GARY L. COLEMAN
	Gary L. Coleman Attorney-in-fact

103

CERTIFICATIONS

I, C. B. Hudson, Chairman and Chief Executive Officer of Torchmark Corporation, certify that:

1. I have reviewed this annual report on Form 10-K of Torchmark Corporation;

2. Based on my knowledge, this annual 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 annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures 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 annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date” ); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, 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 in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 19, 2003	/s/    C.B. HUDSON
	CB Hudson Chairman and Chief Executive Officer

104

CERTIFICATIONS

I, Gary L. Coleman, Executive Vice President and Chief Executive Officer of Torchmark Corporation, certify that:

1. I have reviewed this annual report on Form 10-K of Torchmark Corporation;

2. Based on my knowledge, this annual 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 annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures 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 annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date” ); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, 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 in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 19, 2003	/s/    GARY L. COLEMAN
	Gary L. Coleman Executive Vice President and Chief Financial Officer

105

EX-10.(D)

EXHIBIT 10(d)

364-DAY $300,000,000 CREDIT AGREEMENT

DATED AS OF NOVEMBER 28, 2002

AMONG

TORCHMARK CORPORATION,

THE LENDERS,

BANK ONE, NA,

AS ADMINISTRATIVE AGENT,

BANK OF AMERICA, N.A.,

AS SYNDICATION AGENT,

FLEET NATIONAL BANK,

AS DOCUMENTATION AGENT

AND

AMSOUTH BANK,

AS DOCUMENTATION AGENT

BANC ONE CAPITAL MARKETS, INC.

JOINT LEAD ARRANGER AND JOINT BOOK MANAGER

BANC OF AMERICA SECURITIES LLC

JOINT LEAD ARRANGER AND JOINT BOOK MANAGER

TABLE OF CONTENTS

		Page
ARTICLE I	DEFINITIONS	1
ARTICLE II	THE CREDITS	12
2.1	Commitment	12
2.2	Required Payments; Termination	13
2.3	Ratable Loans	13
2.4	Types of Advances	13
2.5	Facility Fee; Utilization Fee; Term Out Fees; Reductions and Increases in Aggregate Commitment	13
2.6	Minimum Amount of Each Advance	14
2.7	Optional Principal Payments	14
2.8	Method of Selecting Types and Interest Periods for New Advances	14
2.9	Conversion and Continuation of Outstanding Advances	15
2.10	Changes in Interest Rate, etc	15
2.11	Rates Applicable After Default	16
2.12	Method of Payment	16
2.13	Noteless Agreement; Evidence of Indebtedness	16
2.14	Telephonic Notices	17
2.15	Interest Payment Dates; Interest and Fee Basis	17
2.16	Notification of Advances, Interest Rates, Prepayments and Commitment Reductions	18
2.17	Lending Installations	18
2.18	Non–Receipt of Funds by the Agent	18
2.19	Replacement of Lender	18
ARTICLE III	YIELD PROTECTION; TAXES	19
3.1	Yield Protection	19
3.2	Changes in Capital Adequacy Regulations	20
3.3	Availability of Types of Advances	20
3.4	Funding Indemnification	20
3.5	Taxes	20
3.6	Lender Statements; Survival of Indemnity	22
ARTICLE IV	CONDITIONS PRECEDENT	23
4.1	Initial Advance	23
4.2	Each Advance	24
ARTICLE V	REPRESENTATIONS AND WARRANTIES	24
5.1	Corporate Existence and Standing	24

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TABLE OF CONTENTS

		Page
5.2	Authorization and Validity	24
5.3	No Conflict; Government Consent	25
5.4	Financial Statements	25
5.5	Material Adverse Change	25
5.6	Taxes	25
5.7	Litigation and Contingent Obligations	25
5.8	Subsidiaries	26
5.9	ERISA	26
5.10	Accuracy of Information	26
5.11	Regulation U	26
5.12	Material Agreements	26
5.13	Compliance With Laws	27
5.14	Ownership of Properties	27
5.15	Investment Company Act	27
5.16	Public Utility Holding Company Act	27
5.17	Insurance Licenses	27
5.18	Defaults	27
ARTICLE VI	COVENANTS	28
6.1	Financial Reporting	28
6.2	Use of Proceeds	29
6.3	Certain Notices	30
6.4	Conduct of Business	30
6.5	Taxes	30
6.6	Insurance	30
6.7	Compliance with Laws	31
6.8	Maintenance of Properties	31
6.9	Inspection	31
6.10	Merger	31
6.11	Sale of Assets	31
6.12	Sale and Leaseback	31
6.13	Investments and Acquisitions	31
6.14	Liens	31
6.15	Consolidated Net Worth	31
6.16	Ratio of Consolidated Indebtedness to Consolidated Capitalization	32
6.17	Ratio of Consolidated Adjusted Net Income to Consolidated Interest Expense	32
6.18	Affiliates	32
6.19	Preferred Securities	32
ARTICLE VII	DEFAULTS	32
7.1	Representations	32

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TABLE OF CONTENTS

		Page
7.2	Non-Payment	32
7.3	Specific Defaults	32
7.4	Other Defaults	33
7.5	Cross-Default	33
7.6	Insolvency; Voluntary Proceedings	33
7.7	Involuntary Proceedings	33
7.8	Condemnation	33
7.9	Judgment	33
7.10	Unfunded Liabilities	34
7.11	Withdrawal Liability	34
7.12	Environmental	34
7.13	Change in Control	34
7.14	Licenses	34
ARTICLE VIII	ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES	34
8.1	Acceleration	34
8.2	Amendments	35
8.3	Preservation of Rights	35
ARTICLE IX	GENERAL PROVISIONS	36
9.1	Survival of Representations	36
9.2	Governmental Regulation	36
9.3	Headings	36
9.4	Entire Agreement	36
9.5	Several Obligations; Benefits of this Agreement	36
9.6	Expenses; Indemnification	36
9.7	Numbers of Documents	37
9.8	Accounting	37
9.9	Severability of Provisions	37
9.10	Nonliability of Lenders	37
9.11	Confidentiality	38
9.12	Nonreliance	38
9.13	Disclosure	38
ARTICLE X	THE AGENT	38
10.1	Appointment; Nature of Relationship	38
10.2	Powers	38
10.3	General Immunity	39
10.4	No Responsibility for Loans, Recitals, etc	39
10.5	Action on Instructions of Lenders	39

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TABLE OF CONTENTS

		Page
10.6	Employment of Agents and Counsel	39
10.7	Reliance on Documents; Counsel	40
10.8	Agent’s Reimbursement and Indemnification	40
10.9	Notice of Default	40
10.10	Rights as a Lender	40
10.11	Lender Credit Decision	41
10.12	Successor Agent	41
10.13	Agent and Arranger Fees	41
10.14	Delegation to Affiliates	42
10.15	Documentation Agents, Syndication Agent, etc	42
ARTICLE XI	SETOFF; RATABLE PAYMENTS	42
11.1	Setoff	42
11.2	Ratable Payments	42
ARTICLE XII	BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS	42
12.1	Successors and Assigns	42
12.2	Participations.	43
	12.2.1    Permitted Participants; Effect	43
	12.2.2    Voting Rights	43
	12.2.3    Benefit of Certain Provisions	44
12.3	Assignments.	44
	12.3.1    Permitted Assignments	44
	12.3.2    Effect; Effective Date	45
	12.3.3    Register	45
12.4	Dissemination of Information	45
12.5	Tax Treatment	46
ARTICLE XIII	NOTICES	46
13.1	Notices	46
13.2	Change of Address	46
ARTICLE XIV	COUNTERPARTS	46
ARTICLE XV	CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL	46
15.1	CHOICE OF LAW	46
15.2	CONSENT TO JURISDICTION	47
15.3	WAIVER OF JURY TRIAL	47

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TABLE OF CONTENTS

		Page
Schedules
Pricing Schedule
Commitment Schedule
Schedule 1	Significant Subsidiaries
Schedule 2	Insurance Licenses
Exhibits
Exhibit A	Note
Exhibit B	Compliance Certificate
Exhibit C	Assignment and Assumption Agreement
Exhibit D	Money Transfer Instructions

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364-DAY CREDIT AGREEMENT

This Agreement, dated as of November 28, 2002, is among Torchmark Corporation, the Lenders and Bank One, NA, a national banking association having its principal office in Chicago, Illinois, as Agent. The parties hereto agree as follows:

RECITALS

A. The Borrower has requested the Lenders to make financial accommodations to it in the aggregate principal amount of up to $300,000,000, the proceeds of which will be used for the general corporate purposes of the Borrower and its Subsidiaries (including repayment of maturing commercial paper Indebtedness); and

B. The Lenders are willing to extend such financial accommodations on the terms and conditions set forth herein.

ARTICLE I

DEFINITIONS

As used in this Agreement:

“Acquisition” means any transaction, or any series of related transactions, consummated on or after the date of this Agreement, by which the Borrower or any of its Subsidiaries (i) acquires any going business or all or substantially all of the assets of any firm, corporation or division thereof, whether through purchase of assets, merger or otherwise or (ii) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) or a majority (by percentage or voting power) of the outstanding partnership interests of a partnership.

“Advance” means a borrowing hereunder, (i) made by the Lenders on the same Borrowing Date, or (ii) converted or continued by the Lenders on the same date of conversion or continuation, consisting, in either case, of the aggregate amount of the several Loans of the same Type and, in the case of Eurodollar Loans, for the same Interest Period.

“Affiliate” of any Person means any other Person directly or indirectly controlling, controlled by or under common control with such Person. A Person shall be deemed to control another Person if the controlling Person owns 10% or more of any class of voting securities (or other ownership interests) of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock, by contract or otherwise.

“Agent” means Bank One in its capacity as contractual representative of the Lenders pursuant to Article X, and not in its individual capacity as a Lender, and any successor Agent appointed pursuant to Article X.

“Agent Balance Transaction” means one or more receivables sales transactions with respect to receivables arising out of advances made by AIL to insurance agents in connection with life insurance policies underwritten by AIL.

“Aggregate Commitment” means the aggregate of the Commitments of all the Lenders, as reduced or increased from time to time pursuant to the terms hereof.

“Agreement” means this credit agreement, as it may be amended or modified and in effect from time to time.

“Agreement Accounting Principles” means generally accepted accounting principles as in effect from time to time, applied in a manner consistent with that used in preparing the financial statements referred to in Section 5.4.

“AIL” means American Income Life Insurance Company, an Indiana insurance company.

“Alternate Base Rate” means, for any day, a rate of interest per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of the Federal Funds Effective Rate for such day plus 1/2% per annum.

“Annual Statement” means the annual statutory financial statement of any Insurance Subsidiary required to be filed with the insurance commissioner (or similar authority) of its jurisdiction of incorporation, which statement shall be in the form required by such Insurance Subsidiary’s jurisdiction of incorporation or, if no specific form is so required, in the form of financial statements recommended by the NAIC to be used for filing annual statutory financial statements and shall contain the type of information recommended by the NAIC to be disclosed therein, together with all exhibits or schedules filed therewith.

“Applicable Facility Fee Rate” means, at any time, the percentage determined in accordance with the Pricing Schedule at such time. The Applicable Facility Fee Rate shall change as and when the Borrower Debt Rating changes. The initial Applicable Facility Fee Rate shall be .08%.

“Applicable Margin” means, with respect to Advances of any Type at any time, the percentage rate per annum which is applicable at such time with respect to Advances of such Type as set forth in the Pricing Schedule.

“Applicable Term Out Premium Rate” means, at any time, the percentage determined in accordance with the Pricing Schedule at such time. The Applicable Term Out Premium Rate shall change as and when the Borrower Debt Rating changes.

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“Applicable Utilization Fee Rate” means, at any time, the percentage determined in accordance with the Pricing Schedule at such time. The Applicable Utilization Fee Rate shall change as and when the Borrower Debt Rating changes.

“Approved Fund” means any Fund that is administered or managed by (i) a Lender, (ii) an Affiliate of a Lender or (iii) an entity or an Affiliate of an entity that administers or manages a Lender.

“Arrangers” means (i) Banc One Capital Markets, Inc., a Delaware corporation, and its successors, in its capacity as Joint Lead Arranger and Joint Book Manager and (ii) Banc of America Securities LLC, a Delaware corporation, and its successors, in its capacity as Joint Lead Arranger and Joint Book Manager.

“Article” means an article of this Agreement unless another document is specifically referenced.

“Authorized Officer” means any of the Chairman, Vice Chairman, President, Chief Financial Officer, Chief Accounting Officer, Treasurer, any Vice President or any Assistant Treasurer of the Borrower, acting singly.

“Bank One” means Bank One, NA, a national banking association having its principal office in Chicago, Illinois, in its individual capacity, and its successors.

“Borrower” means Torchmark Corporation, a Delaware corporation, and its successors and assigns.

“Borrower Debt Rating” means the senior unsecured long term debt (without third party credit enhancement) rating of the Borrower as determined by a rating agency identified on the Pricing Schedule.

“Borrowing Date” means a date on which an Advance is made hereunder.

“Borrowing Notice” is defined in Section 2.8.

“Business Day” means (i) with respect to any borrowing, payment or rate selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago and New York for the conduct of substantially all of their commercial lending activities, interbank wire transfers can be made on the Fedwire system and dealings in United States dollars are carried on in the London interbank market and (ii) for all other purposes, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago for the conduct of substantially all of their commercial lending activities and interbank wire transfers can be made on the Fedwire system.

“Capitalized Lease” of a Person means any lease of Property by such Person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles.

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“Capitalized Lease Obligations” of a Person means the amount of the obligations of such Person under Capitalized Leases which would be shown as a liability on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles.

“Change in Control” means the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 20% or more of the outstanding shares of voting stock of the Borrower.

“Code” means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time.

“Commitment” means, for each Lender, the obligation of such Lender to make Loans not exceeding the amount set forth opposite its name on the Commitment Schedule hereto, as it may be modified as a result of any assignment that has become effective pursuant to Section 12.3.2 or as otherwise modified from time to time pursuant to the terms hereof.

“Commitment Schedule” means the Schedule attached hereto identified as such.

“Condemnation” is defined in Section 7.8.

“Consolidated Adjusted Net Income” means, for any period of calculation, Consolidated Net Income plus (to the extent deducted in determining Consolidated Net Income) (i) the provision for taxes in respect of, or measured by, income or excess profits and (ii) Consolidated Interest Expense, in each case calculated for such period for the Borrower and its Subsidiaries on a consolidated basis in accordance with Agreement Accounting Principles.

“Consolidated Capitalization” means, at any date of determination, the sum of (i) Consolidated Net Worth as at such date plus (ii) Consolidated Indebtedness as at such date.

“Consolidated Indebtedness” means the Indebtedness of the Borrower and its Subsidiaries determined on a consolidated basis in accordance with Agreement Accounting Principles.

“Consolidated Interest Expense” means, for any period of calculation, interest expense, whether paid or accrued, of the Borrower and its Subsidiaries calculated on a consolidated basis in accordance with Agreement Accounting Principles.

“Consolidated Net Income” means, for any period of calculation, the net income of the Borrower and its Subsidiaries calculated on a consolidated basis in accordance with Agreement Accounting Principles consistently applied.

“Consolidated Net Worth” means, at any date of determination, the amount of consolidated common and preferred shareholders’ equity of the Borrower and its Subsidiaries (including, without limitation, the Preferred Securities), determined as at such date in accordance

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with Agreement Accounting Principles; provided, however, that the effect of the application of FAS 115 shall be excluded when computing Consolidated Net Worth.

“Contingent Obligation” of a Person means any agreement, undertaking or arrangement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon, the obligation or liability of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor of such other Person against loss, including, without limitation, any comfort letter, operating agreement, take-or-pay contract or application for a Letter of Credit, but excluding (i) the endorsement of instruments for deposit or collection in the ordinary course of business, (ii) the Payment and Guarantee Agreements and (iii) obligations arising in connection with the Agent Balance Transaction.

“Controlled Group” means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any of its Subsidiaries, are treated as a single employer under Section 414 of the Code.

“Conversion/Continuation Notice” is defined in Section 2.9.

“Debenture Purchase Agreement” means the Debenture Purchase Agreement dated as of December 13, 2001 between the Borrower and Torchmark Capital Trust II entered into in connection with the Trust Preferred Securities II, as in effect on December 13, 2001.

“Default” means an event described in Article VII.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any rule or regulation issued thereunder.

“Eurodollar Advance” means an Advance which, except as otherwise provided in Section 2.11, bears interest at the applicable Eurodollar Rate.

“Eurodollar Base Rate” means, with respect to a Eurodollar Advance for the relevant Interest Period, the applicable British Bankers’ Association Interest Settlement Rate for deposits in U.S. dollars appearing on Reuters Screen FRBD as of 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, and having a maturity equal to such Interest Period, provided that, (i) if Reuters Screen FRBD is not available to the Agent for any reason, the applicable Eurodollar Base Rate for the relevant Interest Period shall instead be the applicable British Bankers’ Association Interest Settlement Rate for deposits in U.S. dollars as reported by any other generally recognized financial information service as of 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, and having a maturity equal to such Interest Period, and (ii) if no such British Bankers’ Association Interest Settlement Rate is available to the Agent, the applicable Eurodollar Base Rate for the relevant Interest Period shall instead be the rate determined by the Agent to be the rate at which Bank One or one of its Affiliate banks offers to place deposits in U.S. dollars with first-class banks in the London interbank market at approximately 11:00 a.m. (London time) two Business Days

5

prior to the first day of such Interest Period, in the approximate amount of Bank One’s relevant Eurodollar Loan and having a maturity equal to such Interest Period.

“Eurodollar Loan” means a Loan which, except as otherwise provided in Section 2.11, bears interest at the applicable Eurodollar Rate.

“Eurodollar Rate” means, with respect to a Eurodollar Advance for the relevant Interest Period, the sum of (i) the quotient of (a) the Eurodollar Base Rate applicable to such Interest Period, divided by (b) one minus the Reserve Requirement (expressed as a decimal) applicable to such Interest Period, plus (ii) the Applicable Margin.

“Excluded Taxes” means, in the case of each Lender or applicable Lending Installation and the Agent, taxes imposed on its overall net income, and franchise taxes imposed on it, by (i) the jurisdiction under the laws of which such Lender or the Agent is incorporated or organized or (ii) the jurisdiction in which the Agent’s or such Lender’s principal executive office or such Lender’s applicable Lending Installation is located.

“Exhibit” refers to an exhibit to this Agreement, unless another document is specifically referenced.

“Existing Credit Agreement” means that certain $325,000,000 364-Day Credit Agreement dated as of November 30, 2001 among the Borrower, Bank One, as agent, and the lenders named therein, as amended, restated, supplemented or otherwise modified from time to time.

“Facility Termination Date” means November 26, 2004 or any earlier date on which the Aggregate Commitment is reduced to zero or otherwise terminated pursuant to the terms hereof.

“Federal Funds Effective Rate” means, for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 10:00 a.m. (Chicago time) on such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by the Agent in its sole discretion.

“Five Year Agreement” means that certain Five Year Credit Agreement dated as November 30, 2001 among the Borrower, TMK Re, Bank One, as agent, and the lenders party thereto, as from time to time amended, restated or modified.

“Floating Rate” means, for any day, a rate per annum equal to (i) the Alternate Base Rate for such day plus (ii) the Applicable Margin, in each case changing when and as the Alternate Base Rate changes.

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“Floating Rate Advance” means an Advance which, except as otherwise provided in Section 2.11, bears interest at the Floating Rate.

“Floating Rate Loan” means a Loan which, except as otherwise provided in Section 2.11, bears interest at the Floating Rate.

“Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.

“Governmental Authority” means the federal government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government including, without limitation, any board of insurance, insurance department or insurance commissioner.

“Indebtedness” of a Person means, without duplication, such Person’s (i) obligations for borrowed money, (ii) obligations representing the deferred purchase price of Property or services (excluding accounts payable arising in the ordinary course of such Person’s business payable on terms customary in the trade and obligations of Insurance Subsidiaries arising under insurance or annuity products), (iii) obligations, whether or not assumed, secured by Liens or payable out of the proceeds or production from property now or hereafter owned or acquired by such Person, (iv) obligations which are evidenced by notes, acceptances, or similar instruments, (v) Capitalized Lease Obligations, (vi) net liabilities under interest rate swap, exchange or cap agreements, (vii) obligations for which such Person is obligated, contingently or otherwise, pursuant to or in respect of any Letter of Credit (including any unreimbursed amount in respect thereof) and (viii) Contingent Obligations, but excluding any indebtedness of the Borrower arising under or in connection with the Junior Subordinated Debenture Purchase Agreement or the Debenture Purchase Agreement.

“Insurance Subsidiary” means any Subsidiary of the Borrower which is engaged in the life, health or accident insurance business.

“Interest Period” means, with respect to a Eurodollar Advance, a period of one, two, three or six months commencing on a Business Day selected by the Borrower pursuant to this Agreement. Such Interest Period shall end on the day which corresponds numerically to such date one, two, three or six months thereafter, provided, however, that if there is no such numerically corresponding day in such next, second, third or sixth succeeding month, such Interest Period shall end on the last Business Day of such next, second, third or sixth succeeding month. If an Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next succeeding Business Day, provided, however, that if said next succeeding Business Day falls in a new calendar month, such Interest Period shall end on the immediately preceding Business Day.

“Investment” of a Person means any loan, advance (other than commission, travel and similar advances to officers and employees made in the ordinary course of business), extension

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of credit (other than accounts receivable arising in the ordinary course of business on terms customary in the trade), deposit account or contribution of capital by such Person to any other Person or any investment in, or purchase or other acquisition of, the stock, partnership interests, notes, debentures or other securities of any other Person made by such Person.

“Junior Subordinated Debenture Purchase Agreement” means the Junior Subordinated Debenture Purchase Agreement dated as of November 2, 2001 between the Borrower and Torchmark Capital Trust I entered into in connection with the Trust Preferred Securities I, as in effect on November 2, 2001.

“Lenders” means the lending institutions listed on the signature pages of this Agreement and their respective successors and assigns.

“Lending Installation” means, with respect to a Lender or the Agent, the office, branch, subsidiary or affiliate of such Lender or the Agent listed on the signature pages hereof or on a Schedule or otherwise selected by such Lender or the Agent pursuant to Section 2.17.

“Letter of Credit” of a Person means a letter of credit or similar instrument which is issued upon the application of such Person or upon which such Person is an account party or for which such Person is in any way liable.

“License” means any license, certificate of authority, permit or other authorization which is required to be obtained from a Governmental Authority in connection with the operation, ownership or transaction of insurance business.

“Lien” means any lien (statutory or other), security interest, mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, the interest of a vendor or lessor under any conditional sale, Capitalized Lease or other title retention agreement but excluding rights in agent balances which are sold in an Agent Balance Transaction).

“Loan” means, with respect to a Lender, such Lender’s loan made pursuant to Article II (or any conversion or continuation thereof).

“Loan Documents” means this Agreement, any Notes issued hereunder and the other documents, certificates and agreements contemplated hereby and executed by the Borrower in favor of the Agent or any Lender.

“Material Adverse Effect” means a material adverse effect on (i) the business, Property, condition (financial or otherwise), results of operations, or prospects of the Borrower and its Subsidiaries taken as a whole, (ii) the ability of the Borrower to perform its obligations under the Loan Documents, or (iii) the validity or enforceability of any of the Loan Documents or the rights or remedies of the Agent or the Lenders thereunder.

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“Modified Required Lenders” means Lenders in the aggregate having at least 75% of the Aggregate Commitment or, if the Aggregate Commitment has been terminated, Lenders in the aggregate holding at least 75% of the aggregate unpaid principal amount of the outstanding Advances.

“Multiemployer Plan” means a Plan maintained pursuant to a collective bargaining agreement or any other arrangement to which the Borrower or any member of the Controlled Group is a party to which more than one employer is obligated to make contributions.

“NAIC” means the National Association of Insurance Commissioners or any successor thereto, or in lieu thereof, any other association, agency or other organization performing advisory, coordination or other like functions among insurance departments, insurance commissions and similar Governmental Authorities of the various states of the United States of America toward the promotion of uniformity in the practices of such Governmental Authorities.

“Non-U.S. Lender” is defined in Section 3.5(iv).

“Note” is defined in Section 2.13(iv).

“Obligations” means all unpaid principal of and accrued and unpaid interest on the Loans, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations of the Borrower to the Lenders or to any Lender, the Agent or any indemnified party arising under the Loan Documents.

“Other Taxes” is defined in Section 3.5(ii).

“Participants” is defined in Section 12.2.1.

“Payment and Guarantee Agreements” means, to the extent outstanding, collectively, (i) the Preferred Securities Guarantee Agreement dated November 2, 2001, issued by the Borrower for the benefit of the holders of the Trust Preferred Securities I, without giving effect to any amendments thereto and (ii) the Preferred Securities Guarantee Agreement dated December 13, 2001, issued by the Borrower for the benefit of the holders of the Trust Preferred Securities II, without giving effect to any amendments thereto.

“Payment Date” means the last day of each March, June, September and December.

“PBGC” means the Pension Benefit Guaranty Corporation, or any successor thereto.

“Permitted Acquisition” means the Acquisition of any Person which has been approved and recommended by the board of directors (or the functional equivalent thereof) of the Person being acquired.

“Person” means any natural person, corporation, firm, joint venture, partnership, limited liability company, association, enterprise, trust or other entity or organization, or any government or political subdivision or any agency, department or instrumentality thereof.

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“Plan” means an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code as to which the Borrower or any member of the Controlled Group may have any liability.

“Preferred Securities” means, to the extent outstanding, collectively, the Trust Preferred Securities I and the Trust Preferred Securities II.

“Pricing Schedule” means the Schedule attached hereto identified as such.

“Prime Rate” means a rate per annum equal to the prime rate of interest announced from time to time by Bank One or its parent (which is not necessarily the lowest rate charged to any customer), changing when and as said prime rate changes.

“Property” of a Person means any and all property, whether real, personal, tangible, intangible, or mixed, of such Person, or other assets owned, leased or operated by such Person.

“Purchasers” is defined in Section 12.3.1.

“Regulation D” means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor thereto or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System.

“Regulation U” means Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System.

“Reportable Event” means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC has by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within thirty (30) days of the occurrence of such event; provided, however, that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code.

“Required Lenders” means Lenders in the aggregate having at least 51% of the Aggregate Commitment or, if the Aggregate Commitment has been terminated, Lenders in the aggregate holding at least 51% of the aggregate unpaid principal amount of the outstanding Advances.

“Reserve Requirement” means, with respect to an Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D on Eurocurrency liabilities.

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“Revolving Credit Termination Balance” means the aggregate principal amount of Advances outstanding on the Revolving Credit Termination Date after giving effect to any Advances made or repaid on such date.

“Revolving Credit Termination Date” means November 26, 2003 or any earlier date on which the Aggregate Commitment is reduced to zero or otherwise terminated pursuant to the terms hereof.

“SAP” means, with respect to any Insurance Subsidiary, the statutory accounting practices prescribed or permitted by the insurance commissioner (or other similar authority) as of the Closing Date in the jurisdiction of incorporation of such Insurance Subsidiary for the preparation of annual statements and other financial reports by insurance companies of the same type as such Insurance Subsidiary.

“Schedule” refers to a specific schedule to this Agreement, unless another document is specifically referenced.

“Section” means a numbered section of this Agreement, unless another document is specifically referenced.

“Significant Insurance Subsidiary” means any Significant Subsidiary which is an Insurance Subsidiary.

“Significant Subsidiary” of a Person means a “significant subsidiary” as defined in Rule 1-02(v) of Regulation S-X of the Securities and Exchange Commission (17 CFR Part 210). Unless otherwise expressly provided, all references herein to a “Significant Subsidiary” shall mean a Significant Subsidiary of the Borrower.

“Single Employer Plan” means a Plan maintained by the Borrower or any member of the Controlled Group for employees of the Borrower or any member of the Controlled Group.

“Subsidiary” of a Person means (i) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any partnership, association, joint venture, limited liability company or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a “Subsidiary” shall mean a Subsidiary of the Borrower.

“Substantial Portion” means, with respect to the Property of the Borrower and its Subsidiaries, Property which (i) represents more than 10% of the consolidated assets of the Borrower and its Subsidiaries as would be shown in the consolidated financial statements of the Borrower and its Subsidiaries as at the beginning of the twelve-month period ending with the month in which such determination is made, or (ii) is responsible for more than 10% of the

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consolidated net sales or of the consolidated net income of the Borrower and its Subsidiaries as reflected in the financial statements referred to in clause (i) above.

“Taxes” means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and any and all liabilities with respect to the foregoing, but excluding Excluded Taxes and Other Taxes.

“TMK Re” means TMK Re, Ltd., a Bermuda reinsurance corporation and Wholly Owned Subsidiary of the Borrower.

“Transferee” is defined in Section 12.4.

“Trust Preferred Securities I” means the 7 3/4% Trust Preferred Securities issued by Torchmark Capital Trust I on November 2, 2001.

“Trust Preferred Securities II” means the 7 3/4% Trust Preferred Securities issued by Torchmark Capital Trust II on December 13, 2001.

“Type” means, with respect to any Advance, its nature as a Floating Rate Advance or a Eurodollar Advance.

“Unfunded Liabilities” means the amount (if any) by which the present value of all vested nonforfeitable benefits under all Single Employer Plans exceeds the fair market value of all such Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plans.

“Unmatured Default” means an event which but for the lapse of time or the giving of notice, or both, would constitute a Default.

“Wholly-Owned Subsidiary” of a Person means (i) any Subsidiary all of the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of such Person, or (ii) any partnership, association, joint venture, limited liability company or similar business organization 100% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a “Wholly-Owned Subsidiary” shall mean a Wholly-Owned Subsidiary of the Borrower.

The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms.

ARTICLE II

THE CREDITS

2.1 Commitment. From and including the date of this Agreement and prior to the Revolving Credit Termination Date, each Lender severally agrees, on the terms and conditions

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set forth in this Agreement, to make Loans to the Borrower from time to time in amounts not to exceed in the aggregate at any one time outstanding the amount of its Commitment. Subject to the terms of this Agreement, the Borrower may borrow, repay and reborrow at any time prior to the Revolving Credit Termination Date. The Commitments to lend hereunder shall expire on the Revolving Credit Termination Date. Principal payments made after the Revolving Credit Termination Date may not be reborrowed.

2.2 Required Payments; Termination. The Revolving Credit Termination Balance, any outstanding Advances and all other unpaid Obligations shall be paid in full by the Borrower on the Facility Termination Date.

2.3 Ratable Loans. Each Advance hereunder shall consist of Loans made from the several Lenders ratably in proportion to the ratio that their respective Commitments bear to the Aggregate Commitment.

2.4 Types of Advances. The Advances may be Floating Rate Advances or Eurodollar Advances, or a combination thereof, selected by the Borrower in accordance with Sections 2.8 and 2.9.

2.5 Facility Fee; Utilization Fee; Term Out Fees; Reductions and Increases in Aggregate Commitment. (a) The Borrower agrees to pay to the Agent for the account of each Lender a facility fee at a per annum rate equal to the Applicable Facility Fee Rate on such Lender’s Commitment (or, after the Revolving Credit Termination Date, on the principal amount of such Lender’s Loans) from the date hereof to and including the Facility Termination Date, payable on each Payment Date hereafter and on the Facility Termination Date. The Borrower also agrees to pay to the Agent for the account of each Lender a term out fee at a per annum rate equal to the Applicable Term Out Premium Rate on the principal amount of such Lender’s Loans from the Revolving Credit Termination Date to and including the Facility Termination Date, payable on each Payment Date after the Revolving Credit Termination Date and on the Facility Termination Date. The Borrower also agrees to pay to the Agent for the ratable (based on Commitment (or after termination of the Commitments, outstanding Loan) amounts) account of the Lenders a utilization fee for each day from the date hereof to and including the later of the Facility Termination Date and the date all Loans are paid in full and all Commitments are terminated, such utilization fee to be equal to the Applicable Utilization Fee Rate for such day multiplied by the outstanding principal amount of the Loans on such day, payable on each Payment Date and on the Facility Termination Date. The Borrower may permanently reduce the Aggregate Commitment in whole, or in part ratably among the Lenders in integral multiples of $10,000,000, upon at least three Business Days’ written notice to the Agent, which notice shall specify the amount of any such reduction, provided, however, that the amount of the Aggregate Commitment may not be reduced below the aggregate principal amount of the outstanding Advances. All accrued facility, utilization and term out fees shall be payable on the effective date of any termination of the obligations of the Lenders to make Loans hereunder.

(b) The Borrower may, at its option, on up to two occasions, seek to increase the Aggregate Commitment by up to an aggregate amount of $100,000,000 (resulting in a

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maximum Aggregate Commitment of $400,000,000) upon at least three (3) Business Days’ prior written notice to the Agent, which notice shall specify the amount of any such increase and shall be delivered at a time when no Default or Unmatured Default has occurred and is continuing. The Borrower may, after giving such notice, offer the increase (which may be declined by any Lender in its sole discretion) in the Aggregate Commitment on either a ratable basis to the Lenders or on a non pro-rata basis to one or more Lenders and/or to other Lenders or entities reasonably acceptable to the Agent. No increase in the Aggregate Commitment shall become effective until the existing or new Lenders extending such incremental Commitment amount and the Borrower shall have delivered to the Agent a document in form reasonably satisfactory to the Agent pursuant to which any such existing Lender states the amount of its Commitment increase, any such new Lender states its Commitment amount and agrees to assume and accept the obligations and rights of a Lender hereunder and the Borrower accepts such incremental Commitments. The Lenders (new or existing) shall accept an assignment from the existing Lenders, and the existing Lenders shall make an assignment to the new or existing Lender accepting a new or increased Commitment, of an interest in each then outstanding Advance such that, after giving effect thereto, all Advances are held ratably by the Lenders in proportion to their respective Commitments. Assignments pursuant to the preceding sentence shall be made in exchange for the principal amount assigned plus accrued and unpaid interest, facility fees, utilization fees and term out fees. The Borrower shall make any payments under Section 3.4 resulting from such assignments. Any such increase of the Aggregate Commitment shall be subject to receipt by the Agent from the Borrower of such supplemental opinions, resolutions, certificates and other documents as the Agent may reasonably request.

2.6 Minimum Amount of Each Advance. Each Advance shall be in the minimum amount of $5,000,000 (and in multiples of $1,000,000 if in excess thereof); provided, however, that any Floating Rate Advance may be in the amount of the unused Aggregate Commitment.

2.7 Optional Principal Payments. The Borrower may from time to time pay, without penalty or premium, all outstanding Floating Rate Advances, or, in a minimum aggregate amount of $5,000,000 or any integral multiple of $1,000,000 in excess thereof, any portion of the outstanding Floating Rate Advances upon one Business Day’s prior notice to the Agent. The Borrower may from time to time pay, subject to the payment of any funding indemnification amounts required by Section 3.4 but without penalty or premium, all outstanding Eurodollar Advances, or, in a minimum aggregate amount of $5,000,000 or any integral multiple of $1,000,000 in excess thereof, any portion of the outstanding Eurodollar Advances upon three Business Days’ prior notice to the Agent.

2.8 Method of Selecting Types and Interest Periods for New Advances. The Borrower shall select the Type of Advance and, in the case of each Eurodollar Advance, the Interest Period applicable thereto from time to time. The Borrower shall give the Agent irrevocable notice (a “Borrowing Notice”) not later than 10:00 a.m. (Chicago time) at least one Business Day before the Borrowing Date of each Floating Rate Advance and three Business Days before the Borrowing Date for each Eurodollar Advance, specifying:

(i) the Borrowing Date, which shall be a Business Day, of such Advance,

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(ii) the aggregate amount of such Advance,

(iii) the Type of Advance selected, and

(iv) in the case of each Eurodollar Advance, the Interest Period applicable thereto.

Not later than noon (Chicago time) on each Borrowing Date, each Lender shall make available its Loan or Loans in funds immediately available in Chicago to the Agent at its address specified pursuant to Article XIII. The Agent will make the funds so received from the Lenders available to the Borrower at the Agent’s aforesaid address.

2.9 Conversion and Continuation of Outstanding Advances. Floating Rate Advances shall continue as Floating Rate Advances unless and until such Floating Rate Advances are converted into Eurodollar Advances pursuant to this Section 2.9 or are repaid in accordance with Section 2.7. Each Eurodollar Advance shall continue as a Eurodollar Advance until the end of the then applicable Interest Period therefor, at which time such Eurodollar Advance shall be automatically converted into a Floating Rate Advance unless (x) such Eurodollar Advance is or was repaid in accordance with Section 2.7 or (y) the Borrower shall have given the Agent a Conversion/Continuation Notice (as defined below) requesting that, at the end of such Interest Period, such Eurodollar Advance continue as a Eurodollar Advance for the same or another Interest Period. Subject to the terms of Section 2.6, the Borrower may elect from time to time to convert all or any part of a Floating Rate Advance into a Eurodollar Advance. The Borrower shall give the Agent irrevocable notice (a “Conversion/Continuation Notice”) of each conversion of a Floating Rate Advance into a Eurodollar Advance or continuation of a Eurodollar Advance not later than 10:00 a.m. (Chicago time) at least three Business Days prior to the date of the requested conversion or continuation, specifying:

(i) the requested date, which shall be a Business Day, of such conversion or continuation,

(ii) the aggregate amount and Type of the Advance which is to be converted or continued, and

(iii) the amount of such Advance which is to be converted into or continued as a Eurodollar Advance and the duration of the Interest Period applicable thereto.

2.10 Changes in Interest Rate, etc. Each Floating Rate Advance shall bear interest on the outstanding principal amount thereof, for each day from and including the date such Advance is made or is automatically converted from a Eurodollar Advance into a Floating Rate Advance pursuant to Section 2.9, to but excluding the date it is paid or is converted into a Eurodollar Advance pursuant to Section 2.9 hereof, at a rate per annum equal to the Floating Rate for such day. Changes in the rate of interest on that portion of any Advance maintained as a Floating Rate Advance will take effect simultaneously with each change in the Alternate Base Rate. Each Eurodollar Advance shall bear interest on the outstanding principal amount thereof from and including the first day of the Interest Period applicable thereto to (but not including) the last day

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of such Interest Period at the Eurodollar Rate determined by the Agent as applicable to such Eurodollar Advance based upon the Borrower’s selections under Sections 2.8 and 2.9 and otherwise in accordance with the terms hereof. No Interest Period may end after the Facility Termination Date. The Borrower shall select Interest Periods so that it is not necessary to repay any portion of a Eurodollar Advance prior to the last day of the applicable Interest Period in order to make a mandatory repayment required pursuant to Section 2.2.

2.11 Rates Applicable After Default. Notwithstanding anything to the contrary contained in Section 2.8 or 2.9, during the continuance of a Default or Unmatured Default no Advance may be made as, converted into or continued as a Eurodollar Advance. During the continuance of a Default the Required Lenders may, at their option, by notice to the Borrower (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 8.2 requiring unanimous consent of the Lenders to changes in interest rates), declare that (i) each Eurodollar Advance shall bear interest for the remainder of the applicable Interest Period at the Eurodollar Rate otherwise applicable to such Interest Period plus 2% per annum and (ii) each Floating Rate Advance shall bear interest at a rate per annum equal to the Floating Rate in effect from time to time plus 2% per annum, provided that, during the continuance of a Default under Section 7.6 or 7.7, the interest rates set forth in clauses (i) and (ii) above shall be applicable to all Advances without any election or action on the part of the Agent or any Lender.

2.12 Method of Payment. All payments of the Obligations hereunder shall be made, without setoff, deduction, or counterclaim, in immediately available funds to the Agent at the Agent’s address specified pursuant to Article XIII, or at any other Lending Installation of the Agent specified in writing by the Agent to the Borrower, by noon (local time) on the date when due and shall be applied ratably by the Agent among the Lenders. Each payment delivered to the Agent for the account of any Lender shall be delivered promptly by the Agent to such Lender in the same type of funds that the Agent received at its address specified pursuant to Article XIII or at any Lending Installation specified in a notice received by the Agent from such Lender. The Agent is hereby authorized to charge the account of the Borrower maintained with Bank One for each payment of principal, interest and fees as it becomes due hereunder.

2.13 Noteless Agreement; Evidence of Indebtedness. (i) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.

(ii) The Agent shall also maintain accounts in which it will record (a) the amount of each Loan made hereunder, the Type thereof and the Interest Period with respect thereto, (b) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (c) the amount of any sum received by the Agent hereunder from the Borrower and each Lender’s share thereof.

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(iii) The entries maintained in the accounts maintained pursuant to paragraphs (i) and (ii) above shall be prima facie evidence of the existence and amounts of the Obligations therein recorded; provided, however, that the failure of the Agent or any Lender to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Obligations in accordance with their terms.

(iv) Any Lender may request that its Loans be evidenced by a promissory note in substantially the form of Exhibit A (including any amendment, modification, renewal or replacement thereof, a “Note”). In such event, the Borrower shall prepare, execute and deliver to such Lender such Note payable to the order of such Lender. Thereafter, the Loans evidenced by such Note and interest thereon shall at all times (including after any assignment pursuant to Section 12.3) be represented by one or more Notes payable to the order of the payee named therein or any assignee pursuant to Section 12.3, except to the extent that any such Lender or assignee subsequently returns any such Note for cancellation and requests that such Loans once again be evidenced as described in paragraphs (i) and (ii) above. Upon receipt of an affidavit of an officer of any Lender as to the loss, theft, destruction or mutilation of such Lender’s Note, and, in the case of any such loss, theft, destruction or mutilation, upon cancellation of such Note, the Borrower will issue, in lieu thereof, a replacement Note in the same principal amount thereof and otherwise of like tenor.

2.14 Telephonic Notices. The Borrower hereby authorizes the Lenders and the Agent to extend, convert or continue Advances, effect selections of Types of Advances and to transfer funds based on telephonic notices made by any person or persons the Agent or any Lender in good faith believes to be acting on behalf of the Borrower, it being understood that the foregoing authorization is specifically intended to allow Borrowing Notices and Conversion/Continuation Notices to be given telephonically. The Borrower agrees to deliver promptly to the Agent a written confirmation, if such confirmation is requested by the Agent or any Lender, of each telephonic notice signed by an Authorized Officer. If the written confirmation differs in any material respect from the action taken by the Agent and the Lenders, the records of the Agent and the Lenders shall govern absent manifest error.

2.15 Interest Payment Dates; Interest and Fee Basis. Interest accrued on each Floating Rate Advance shall be payable on each Payment Date, commencing with the first such date to occur after the date hereof, on any date on which the Floating Rate Advance is prepaid, whether due to acceleration or otherwise, and at maturity. Interest accrued on that portion of the outstanding principal amount of any Floating Rate Advance converted into a Eurodollar Advance on a day other than a Payment Date shall be payable on the date of conversion. Interest accrued on each Eurodollar Advance shall be payable on the last day of its applicable Interest Period, on any date on which the Eurodollar Advance is prepaid, whether by acceleration or otherwise, and at maturity. Interest accrued on each Eurodollar Advance having an Interest Period longer than three months shall also be payable on the last day of each three-month interval during such Interest Period. Interest, facility fees, utilization fees and term out fees shall be calculated for actual days elapsed on the basis of a 360-day year. Interest shall be payable for the day an Advance is made but not for the day of any payment on the amount paid if payment is received

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prior to noon (local time) at the place of payment. If any payment of principal of or interest on an Advance shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment.

2.16 Notification of Advances, Interest Rates, Prepayments and Commitment Reductions. Promptly after receipt thereof, the Agent will notify each Lender of the contents of each Aggregate Commitment reduction notice, Borrowing Notice, Conversion/Continuation Notice, and repayment notice received by it hereunder. The Agent will notify each Lender of the Eurodollar Rate applicable to each Eurodollar Advance promptly upon determination of such interest rate and will give each Lender prompt notice of each change in the Alternate Base Rate.

2.17 Lending Installations. Each Lender may book its Loans at any Lending Installation selected by such Lender and may change its Lending Installation from time to time. All terms of this Agreement shall apply to any such Lending Installation and the Loans and any Notes issued hereunder shall be deemed held by each Lender for the benefit of any such Lending Installation. Each Lender may, by written notice to the Agent and the Borrower in accordance with Article XIII, designate replacement or additional Lending Installations through which Loans will be made by it and for whose account Loan payments are to be made.

2.18 Non-Receipt of Funds by the Agent. Unless the Borrower or a Lender, as the case may be, notifies the Agent prior to the date on which it is scheduled to make payment to the Agent of (i) in the case of a Lender, the proceeds of a Loan or (ii) in the case of the Borrower, a payment of principal, interest or fees to the Agent for the account of the Lenders, that it does not intend to make such payment, the Agent may assume that such payment has been made. The Agent may, but shall not be obligated to, make the amount of such payment available to the intended recipient in reliance upon such assumption. If such Lender or the Borrower, as the case may be, has not in fact made such payment to the Agent, the recipient of such payment shall, on demand by the Agent, repay to the Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to (x) in the case of payment by a Lender, the Federal Funds Effective Rate for such day for the first three days and, thereafter, the interest rate applicable to the relevant Loan or (y) in the case of payment by the Borrower, the interest rate applicable to the relevant Loan.

2.19 Replacement of Lender. If the Borrower is required pursuant to Section 3.1, 3.2 or 3.5 to make any additional payment to any Lender or if any Lender’s obligation to make or continue, or to convert Floating Rate Advances into, Eurodollar Advances shall be suspended pursuant to Section 3.3 (any Lender so affected an “Affected Lender”), the Borrower may elect, if such amounts continue to be charged or such suspension is still effective, to replace such Affected Lender as a Lender party to this Agreement, provided that no Default or Unmatured Default shall have occurred and be continuing at the time of such replacement, and provided further that, concurrently with such replacement, (i) another bank or other entity which is reasonably satisfactory to the Borrower and the Agent shall agree, as of such date, to purchase for cash the Advances and other Obligations due to the Affected Lender pursuant to an

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assignment substantially in the form of Exhibit C and to become a Lender for all purposes under this Agreement and to assume all obligations of the Affected Lender to be terminated as of such date and to comply with the requirements of Section 12.3 applicable to assignments, and (ii) the Borrower shall pay to such Affected Lender in same day funds on the day of such replacement (A) all interest, fees and other amounts then accrued but unpaid to such Affected Lender by the Borrower hereunder to and including the date of termination, including without limitation payments due to such Affected Lender under Sections 3.1, 3.2 and 3.5, and (B) an amount, if any, equal to the payment which would have been due to such Lender on the day of such replacement under Section 3.4 had the Loans of such Affected Lender been prepaid on such date rather than sold to the replacement Lender.

ARTICLE III

YIELD PROTECTION; TAXES

3.1 Yield Protection. If, on or after the date of this Agreement, the adoption of any law or any governmental or quasi-governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any change in the interpretation or administration thereof by any governmental or quasi-governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender or applicable Lending Installation with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency:

(i) subjects any Lender or any applicable Lending Installation to any Taxes, or changes the basis of taxation of payments (other than with respect to Excluded Taxes) to any Lender in respect of its Eurodollar Loans, or

(ii) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or any applicable Lending Installation (other than reserves and assessments taken into account in determining the interest rate applicable to Eurodollar Advances), or

(iii) imposes any other condition the result of which is to increase the cost to any Lender or any applicable Lending Installation of making, funding or maintaining its Eurodollar Loans or reduces any amount receivable by any Lender or any applicable Lending Installation in connection with its Eurodollar Loans, or requires any Lender or any applicable Lending Installation to make any payment calculated by reference to the amount of Eurodollar Loans held or interest received by it, by an amount deemed material by such Lender,

and the result of any of the foregoing is to increase the cost to such Lender or applicable Lending Installation of making or maintaining its Eurodollar Loans or Commitment or to reduce the return received by such Lender or applicable Lending Installation in connection with such Eurodollar Loans or Commitment, then, within 15 days of demand by such Lender, the Borrower

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shall pay such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduction in amount received.

3.2 Changes in Capital Adequacy Regulations. If a Lender determines the amount of capital required or expected to be maintained by such Lender, any Lending Installation of such Lender or any corporation controlling such Lender is increased as a result of a Change, then, within 15 days of demand by such Lender, the Borrower shall pay such Lender the amount necessary to compensate for any shortfall in the rate of return on the portion of such increased capital which such Lender determines is attributable to this Agreement, its Loans or its Commitment to make Loans hereunder (after taking into account such Lender’s policies as to capital adequacy). “Change” means (i) any change after the date of this Agreement in the Risk-Based Capital Guidelines or (ii) any adoption of or change in any other law, governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) after the date of this Agreement which affects the amount of capital required or expected to be maintained by any Lender or any Lending Installation or any corporation controlling any Lender. “Risk-Based Capital Guidelines” means (i) the risk-based capital guidelines in effect in the United States on the date of this Agreement, including transition rules, and (ii) the corresponding capital regulations promulgated by regulatory authorities outside the United States implementing the July 1988 report of the Basle Committee on Banking Regulation and Supervisory Practices Entitled “International Convergence of Capital Measurements and Capital Standards,” including transition rules, and any amendments to such regulations adopted prior to the date of this Agreement.

3.3 Availability of Types of Advances. If any Lender determines that maintenance of its Eurodollar Loans at a suitable Lending Installation would violate any applicable law, rule, regulation, or directive, whether or not having the force of law, or if the Required Lenders determine that (i) deposits of a type and maturity appropriate to match fund Eurodollar Advances are not available or (ii) the interest rate applicable to Eurodollar Advances does not accurately reflect the cost of making or maintaining Eurodollar Advances, then the Agent shall suspend the availability of Eurodollar Advances and require any affected Eurodollar Advances to be repaid or converted to Floating Rate Advances, subject to the payment of any funding indemnification amounts required by Section 3.4.

3.4 Funding Indemnification. If any payment of a Eurodollar Advance occurs on a date which is not the last day of the applicable Interest Period, whether because of acceleration, prepayment or otherwise, or a Eurodollar Advance is not made on the date specified by the Borrower for any reason other than default by the Lenders, the Borrower will indemnify each Lender for any loss or cost incurred by it resulting therefrom, including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain such Eurodollar Advance.

3.5 Taxes. 3.5.1 (i) All payments by the Borrower to or for the account of any Lender or the Agent hereunder or under any Note shall be made free and clear of and without deduction for any and all Taxes. If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to any Lender or the Agent, (a) the sum payable

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shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.5) such Lender or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (b) the Borrower shall make such deductions, (c) the Borrower shall pay the full amount deducted to the relevant authority in accordance with applicable law and (d) the Borrower shall furnish to the Agent the original copy of a receipt evidencing payment thereof within 30 days after such payment is made.

(ii) In addition, the Borrower hereby agrees to pay any present or future stamp or documentary taxes and any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note (“Other Taxes”).

(iii) The Borrower hereby agrees to indemnify the Agent and each Lender for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed on amounts payable under this Section 3.5) paid by the Agent or such Lender and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. Payments due under this indemnification shall be made within 30 days of the date the Agent or such Lender makes demand therefor pursuant to Section 3.6.

(iv) Each Lender that is not incorporated under the laws of the United States of America or a state thereof (each a “Non-U.S. Lender”) agrees that it will, not more than ten Business Days after the date of this Agreement, (i) deliver to each of the Borrower and the Agent two duly completed copies of United States Internal Revenue Service Form W-8BEN or W-8ECI, certifying in either case that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, and (ii) deliver to each of the Borrower and the Agent a United States Internal Revenue Form W-8 or W-9, as the case may be, and certify that it is entitled to an exemption from United States backup withholding tax. Each Non-U.S. Lender further undertakes to deliver to each of the Borrower and the Agent (x) renewals or additional copies of such form (or any successor form) on or before the date that such form expires or becomes obsolete, and (y) after the occurrence of any event requiring a change in the most recent forms so delivered by it, such additional forms or amendments thereto as may be reasonably requested by the Borrower or the Agent. All forms or amendments described in the preceding sentence shall certify that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form or amendment with respect to it and such Lender advises the Borrower and the Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax.

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(v) For any period during which a Non-U.S. Lender has failed to provide the Borrower with an appropriate form pursuant to clause (iv), above (unless such failure is due to a change in treaty, law or regulation, or any change in the interpretation or administration thereof by any governmental authority, occurring subsequent to the date on which a form originally was required to be provided), such Non-U.S. Lender shall not be entitled to indemnification under this Section 3.5 with respect to Taxes imposed by the United States; provided that, should a Non-U.S. Lender which is otherwise exempt from or subject to a reduced rate of withholding tax become subject to Taxes because of its failure to deliver a form required under clause (iv), above, the Borrower shall take such steps as such Non-U.S. Lender shall reasonably request to assist such Non-U.S. Lender to recover such Taxes.

(vi) Any Lender that is entitled to an exemption from or reduction of withholding tax with respect to payments under this Agreement or any Note pursuant to the law of any relevant jurisdiction or any treaty shall deliver to the Borrower (with a copy to the Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate.

(vii) If the U.S. Internal Revenue Service or any other governmental authority of the United States or any other country or any political subdivision thereof asserts a claim that the Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered or properly completed, because such Lender failed to notify the Agent of a change in circumstances which rendered its exemption from withholding ineffective, or for any other reason), such Lender shall indemnify the Agent fully for all amounts paid, directly or indirectly, by the Agent as tax, withholding therefor, or otherwise, including penalties and interest, and including taxes imposed by any jurisdiction on amounts payable to the Agent under this subsection, together with all reasonable costs and expenses related thereto (including reasonable attorneys fees and reasonable time charges of attorneys for the Agent, which attorneys may be employees of the Agent). The obligations of the Lenders under this Section 3.5(vii) shall survive the payment of the Obligations and termination of this Agreement.

3.6 Lender Statements; Survival of Indemnity. To the extent reasonably possible, each Lender shall designate an alternate Lending Installation with respect to its Eurodollar Loans to reduce any liability of the Borrower to such Lender under Sections 3.1, 3.2 and 3.5 or to avoid the unavailability of Eurodollar Advances under Section 3.3, so long as such designation is not, in the judgment of such Lender, disadvantageous to such Lender. Each Lender shall deliver a written statement of such Lender to the Borrower (with a copy to the Agent) as to the amount due, if any, under Section 3.1, 3.2, 3.4 or 3.5. Such written statement shall set forth in reasonable detail the calculations upon which such Lender determined such amount and shall be final, conclusive and binding on the Borrower in the absence of manifest error. Determination of amounts payable under such Sections in connection with a Eurodollar Loan shall be calculated as though each Lender funded its Eurodollar Loan through the purchase of a deposit of the type and

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maturity corresponding to the deposit used as a reference in determining the Eurodollar Rate applicable to such Loan, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the written statement of any Lender shall be payable on demand after receipt by the Borrower of such written statement. The obligations of the Borrower under Sections 3.1, 3.2, 3.4 and 3.5 shall survive payment of the Obligations and termination of this Agreement.

ARTICLE IV

CONDITIONS PRECEDENT

4.1 Initial Advance. The Lenders shall not be required to make the initial Advance hereunder unless the Borrower has furnished to the Agent with sufficient copies for the Lenders:

(i) Copies of the restated certificate of incorporation of the Borrower certified by the Secretary or an Assistant Secretary of the Borrower, together with good standing certificates issued as of a recent date by the Secretaries of State of Delaware and Alabama.

(ii) Copies, certified by the Secretary or an Assistant Secretary of the Borrower, of its by-laws and Board of Directors’ resolutions authorizing the execution of the Loan Documents.

(iii) An incumbency certificate, executed by the Secretary or an Assistant Secretary of the Borrower, which shall identify by name and title and bear the signature of the officers of the Borrower authorized to sign the Loan Documents and to make borrowings hereunder, upon which certificate the Agent and the Lenders shall be entitled to rely until informed of any change in writing by the Borrower.

(iv) A certificate, signed by the Chief Financial Officer or the Treasurer of the Borrower, stating that on the date hereof (a) no Default or Unmatured Default has occurred and is continuing and (b) each of the representations and warranties set forth in Article V of this Agreement is true and correct as of such date.

(v) A written opinion of Larry M. Hutchison, Executive Vice President and General Counsel of the Borrower, addressed to the Agent and the Lenders in form and substance reasonably satisfactory to the Agent and its counsel.

(vi) Notes payable to the order of each of the Lenders requesting the same.

(vii) Written money transfer instructions, in substantially the form of Exhibit “D” hereto, addressed to the Agent and signed by an Authorized Officer, together with such other related money transfer authorizations as the Agent may have reasonably requested.

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(viii) The Existing Credit Agreement shall have been terminated and all amounts owing thereunder (including principal, interest and accrued fees) shall have been paid (or shall contemporaneously be paid) in full.

(ix) Such other documents as any Lender or its counsel may have reasonably requested.

4.2 Each Advance. The Lenders shall not be required to make any Advance unless on the applicable Borrowing Date:

(i) There exists no Default or Unmatured Default.

(ii) The representations and warranties contained in Article V are true and correct as of such Borrowing Date (excluding the representation in Section 5.5) except to the extent any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty shall have been true and correct on and as of such earlier date.

(iii) All legal matters incident to the making of such Advance shall be satisfactory to the Lenders and their counsel.

Each Borrowing Notice with respect to each such Advance shall constitute a representation and warranty by the Borrower that the conditions contained in Sections 4.2(i) and (ii) have been satisfied. Any Lender may require a duly completed compliance certificate in substantially the form of Exhibit B as a condition to making an Advance.

ARTICLE V

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Lenders that:

5.1 Corporate Existence and Standing. Each of the Borrower and its Significant Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all requisite authority to conduct its business in each jurisdiction in which its business is conducted.

5.2 Authorization and Validity. The Borrower has the corporate power and authority and legal right to execute and deliver the Loan Documents and to perform its obligations thereunder. The execution and delivery by the Borrower of the Loan Documents and the performance of its obligations thereunder have been duly authorized by proper corporate proceedings, and the Loan Documents constitute legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally.

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5.3 No Conflict; Government Consent. Neither the execution and delivery by the Borrower of the Loan Documents, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof will violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on the Borrower or any of its Subsidiaries or the Borrower’s or any of its Subsidiaries’ articles of incorporation or by-laws or the provisions of any indenture, instrument or agreement to which the Borrower or any of its Subsidiaries is a party or is subject, or by which it, or its Property, is bound, or conflict with or constitute a default thereunder, or result in the creation or imposition of any Lien in, of or on the Property of the Borrower or any of its Subsidiaries pursuant to the terms of any such indenture, instrument or agreement, other than such violations, conflicts or defaults which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. No order, consent, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with the execution, delivery and performance of, or the legality, validity, binding effect or enforceability of, any of the Loan Documents.

5.4 Financial Statements. The December 31, 2001 audited consolidated financial statements of the Borrower and its Subsidiaries and the September 30, 2002 unaudited consolidated financial statements of the Borrower and its Subsidiaries heretofore delivered to the Lenders (the “Financial Statements”) were prepared in accordance with generally accepted accounting principles in effect on the date such statements were prepared and fairly present the consolidated financial condition and operations of the Borrower and its Subsidiaries at such dates and the consolidated results of their operations for the periods then ended.

5.5 Material Adverse Change. As of the date hereof, since December 31, 2001, there has been no change in the business, Property, prospects, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries which could reasonably be expected to have a Material Adverse Effect.

5.6 Taxes. The Borrower and its Subsidiaries have filed all United States federal tax returns and all other tax returns which are required to be filed and have paid all taxes due pursuant to said returns or pursuant to any assessment received by the Borrower or any of its Subsidiaries, except such taxes, if any, as are being contested in good faith and as to which, in the good faith judgment of the Borrower, adequate reserves have been provided. The United States income tax returns of the Borrower and its Subsidiaries have been audited by the Internal Revenue Service through the fiscal year ended December 31, 1995. No tax liens have been filed and no claims against the Borrower or its Subsidiaries are being asserted with respect to any such taxes except claims being contested in good faith and as to which, in the good faith judgment of the Borrower, adequate reserves have been provided. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of any taxes or other governmental charges are adequate in the good faith judgment of the Borrower.

5.7 Litigation and Contingent Obligations. There is no litigation, arbitration, governmental investigation, proceeding or inquiry pending or, to the knowledge of any of their

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officers, threatened against or affecting the Borrower or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect (after giving effect to reserves which have been provided with respect thereto on the books of the Borrower and its Subsidiaries). As of the date hereof, the Borrower has no material Contingent Obligations not provided for or disclosed in the Financial Statements. Solely for purposes of any reaffirmation of the foregoing representations pursuant to Section 4.2(ii) in connection with any Loans the proceeds of which are used to repay maturing commercial paper Indebtedness, such representations shall not extend to any proceeding in which a punitive damages judgment has been entered against the Borrower or any Subsidiary, such judgment has been stayed on appeal or the time for appeal from such judgment has not expired and such judgment could not reasonably be expected to have a Material Adverse Effect on the ability of the Borrower to perform its obligations under the Loan Documents.

5.8 Subsidiaries. Schedule “1” hereto contains an accurate list of all of the Significant Subsidiaries of the Borrower in existence on the date of this Agreement, setting forth their respective jurisdictions of incorporation and the percentage of their respective capital stock owned by the Borrower or other Subsidiaries. All of the issued and outstanding shares of capital stock of such Subsidiaries have been duly authorized and issued and are fully paid and non-assessable.

5.9 ERISA. The Unfunded Liabilities of all Single Employer Plans do not in the aggregate exceed $10,000,000. Each Plan complies in all material respects with all applicable requirements of law and regulations. No Reportable Event has occurred with respect to any Plan and neither the Borrower nor any other members of the Controlled Group has withdrawn from any Plan or initiated steps to do so, which occurrence or withdrawal could result in a Material Adverse Effect. No steps have been taken to terminate any Plan which has Unfunded Liabilities.

5.10 Accuracy of Information. No information, exhibit or report furnished by the Borrower or any of its Subsidiaries to the Agent or to any Lender in connection with the negotiation of, or compliance with, the Loan Documents contained any material misstatement of fact, omitted to state a material fact or omitted to state any fact necessary to make the statements contained therein not misleading in any material respect.

5.11 Regulation U. Margin stock (as defined in Regulation U) constitutes less than 25% of those assets of the Borrower and its Subsidiaries which are subject to any limitation on sale, pledge or other restriction hereunder.

5.12 Material Agreements. Neither the Borrower nor any Subsidiary is a party to any agreement or instrument or subject to any charter or other corporate restriction which could reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any Subsidiary is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement to which it is a party, which default could reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any Significant Subsidiary is in default in the performance, observance or fulfillment of any of the

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obligations, covenants or conditions contained in any agreement or instrument evidencing or governing Indebtedness.

5.13 Compliance With Laws. The Borrower and its Subsidiaries have complied with all applicable statutes, rules, regulations, orders and restrictions of any domestic or foreign government or any instrumentality or agency thereof, having jurisdiction over the conduct of their respective businesses or the ownership of their respective Property, except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any Subsidiary has received any notice to the effect that its operations are not in material compliance with any of the requirements of applicable federal, state and local environmental, health and safety statutes and regulations or the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, which non-compliance or remedial action could reasonably be expected to have a Material Adverse Effect.

5.14 Ownership of Properties. Except for Liens permitted by Section 6.14, on the date of this Agreement the Borrower and its Subsidiaries have good title to all of the Property and assets reflected in the Financial Statements as owned by it, free of all Liens other than those permitted by this Agreement, except for assets sold, transferred or otherwise disposed of in the ordinary course of business since the date of such Financial Statements.

5.15 Investment Company Act. Neither the Borrower nor any Subsidiary thereof is an “investment company” or a company “controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940, as amended.

5.16 Public Utility Holding Company Act. Neither the Borrower nor any Subsidiary is a “holding company” or a “subsidiary company” of a “holding company”, or an “affiliate” of a “holding company” or of a “subsidiary company” of a “holding company”, within the meaning of the Public Utility Holding Company Act of 1935, as amended.

5.17 Insurance Licenses. Schedule “2” attached hereto (as said Schedule “2” shall be revised or supplemented from time to time to reflect withdrawals or changes in jurisdictions permitted by Section 6.4 or additional jurisdictions set forth in the Annual Statements furnished pursuant to Section 6.1(vii)) lists all of the jurisdictions in which any Significant Insurance Subsidiary holds active Licenses and is authorized to transact insurance business. No such License is the subject of a proceeding for suspension or revocation, there is no sustainable basis for such suspension or revocation, and to the Borrower’s best knowledge, no such suspension or revocation has been threatened by any Governmental Authority. Schedule “2” also indicates the type or types of insurance in which each such Insurance Subsidiary is permitted to engage with respect to each License therein listed. None of the Insurance Subsidiaries transacts any insurance business, directly or indirectly, in any state other than those enumerated in Schedule “2”.

5.18 Defaults. No Default or Unmatured Default has occurred and is continuing.

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ARTICLE VI

COVENANTS

During the term of this Agreement, unless the Required Lenders shall otherwise consent in writing:

6.1 Financial Reporting. The Borrower will maintain, for itself and each Subsidiary, a system of accounting established and administered in accordance with generally accepted accounting principles, and furnish to the Lenders:

(i) Within 90 days after the close of each of its fiscal years, an unqualified audit report certified by independent certified public accountants, acceptable to the Lenders, prepared in accordance with Agreement Accounting Principles on a consolidated and consolidating basis (consolidating statements need not be certified by such accountants) for itself and its Subsidiaries, including balance sheets as of the end of such period, related profit and loss and reconciliation of surplus statements, and a statement of cash flows, accompanied by a certificate of said accountants that, in the course of their examination necessary for their certification of the foregoing, they have obtained no knowledge of any Default or Unmatured Default, or if, in the opinion of such accountants, any Default or Unmatured Default shall exist, stating the nature and status thereof.

(ii) Within 45 days after the close of the first three quarterly periods of each of its fiscal years, for itself and its Subsidiaries, consolidated and consolidating unaudited balance sheets as at the close of each such period and consolidated and consolidating profit and loss statements and a statement of cash flows for the period from the beginning of such fiscal year to the end of such quarter, all certified by its Chief Financial Officer, Chief Accounting Officer or Treasurer.

(iii) Together with the financial statements required hereunder, a compliance certificate in substantially the form of Exhibit “B” hereto signed by the Chief Financial Officer, Chief Accounting Officer or Treasurer of the Borrower showing the calculations necessary to determine compliance with this Agreement and stating that no Default or Unmatured Default exists, or if any Default or Unmatured Default exists, stating the nature and status thereof.

(iv) Within 330 days after the close of each fiscal year, a statement of the Unfunded Liabilities of each Single Employer Plan, certified as correct by an actuary enrolled under ERISA.

(v) As soon as possible and in any event within 10 days after the Borrower knows that any Reportable Event has occurred with respect to any Plan, a statement, signed by the Chief Financial Officer, Chief Accounting Officer, Treasurer or Vice President of the Borrower, describing said Reportable Event and the action which the Borrower proposes to take with respect thereto.

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(vi) As soon as possible and in any event within 10 days after receipt by the Borrower, a copy of (a) any notice or claim to the effect that the Borrower or any of its Subsidiaries is or may be liable to any Person as a result of the release by the Borrower, any of its Subsidiaries, or any other Person of any toxic or hazardous waste or substance into the environment, and (b) any notice alleging any violation of any federal, state or local environmental, health or safety law or regulation by the Borrower or any of its Subsidiaries, which, in the case of either (a) or (b) above, could reasonably be expected to have a Material Adverse Effect.

(vii) Within 75 days after the close of each fiscal year of each Insurance Subsidiary, copies of the Annual Statement of each of the Insurance Subsidiaries, as certified by the president, secretary and treasurer of and the actuary for each such Insurance Subsidiary and prepared on the NAIC annual statement blanks (or such other form as shall be required by the jurisdiction of incorporation of each such Insurance Subsidiary), all such statements to be prepared in accordance with SAP consistently applied throughout the periods reflected therein and to be certified by independent certified public accountants reasonably acceptable to the Agent if so required by any Governmental Authority.

(viii) Promptly upon the filing thereof, copies of all Forms 10-Q, 10-K and 8-K which the Borrower or any Subsidiary files with the Securities and Exchange Commission and, together with copies of each Form 10-K so furnished, a list of such revisions to Schedule “1”, if any, as shall be necessary to cause Schedule “1” to accurately set forth all then existing Significant Subsidiaries of the Borrower, their respective jurisdictions of incorporation and the percentage of their respective capital stock owned by the Borrower or other Subsidiaries.

(ix) Promptly upon the Borrower’s receipt thereof, copies of reports or valuations prepared by any Governmental Authority or actuary in respect of any action or event which has resulted in the reduction by 5% or more in the capital and surplus of any Insurance Subsidiary.

(x) Promptly and in any event within ten days after learning thereof, notification of any decrease after the Closing Date in the rating given by A.M. Best & Co. in respect of any Insurance Subsidiary.

(xi) Such other information (including, without limitation, non-financial information) as the Agent or any Lender may from time to time reasonably request.

6.2 Use of Proceeds. The Borrower will, and will cause each Subsidiary to, use the proceeds of the Advances (i) for general corporate purposes, including, without limitation, the repayment of maturing commercial paper Indebtedness and (ii) to finance Permitted Acquisitions. The Borrower will not, nor will it permit any Subsidiary to, use any of the proceeds of the Advances to purchase or carry any “margin stock” (as defined in Regulation U).

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6.3 Certain Notices. The Borrower will give prompt notice in writing to the Agent and the Lenders of (i) the occurrence of any Default or Unmatured Default and of any other development, financial or otherwise, relating specifically to the Borrower which could reasonably be expected to have a Material Adverse Effect, (ii) the receipt of any notice from any Governmental Authority of the expiration without renewal, revocation or suspension of, or the institution of any proceedings to revoke or suspend, any License now or hereafter held by any Insurance Subsidiary which is required to conduct insurance business in compliance with all applicable laws and regulations, other than such expiration, revocation or suspension which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, (iii) the receipt of any notice from any Governmental Authority of the institution of any disciplinary proceedings against or in respect of any Insurance Subsidiary, or the issuance of any order, the taking of any action or any request for an extraordinary audit for cause by any Governmental Authority which, if adversely determined, could reasonably be expected to have a Material Adverse Effect or (iv) any judicial or administrative order limiting or controlling the insurance business of any Insurance Subsidiary (and not the insurance industry generally) which has been issued or adopted and which could reasonably be expected to have a Material Adverse Effect. Any such notice shall state that it is given pursuant to this Section 6.3.

6.4 Conduct of Business. The Borrower will, and will cause each Significant Subsidiary to, do all things necessary to remain duly incorporated, validly existing and in good standing as a domestic corporation in its jurisdiction of incorporation and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted. The Borrower will cause each Significant Insurance Subsidiary to (i) carry on or otherwise be associated with the business of a licensed insurance carrier and (ii) do all things necessary to renew, extend and continue in effect all Licenses which may at any time and from time to time be necessary for such Significant Insurance Subsidiary to operate its insurance business in compliance with all applicable laws and regulations; provided, however, that any such Significant Insurance Subsidiary may withdraw from one or more states as an admitted insurer or change the state of its domicile, if such withdrawal or change is in the best interests of the Borrower and such Significant Insurance Subsidiary and could not reasonably be expected to have a Material Adverse Effect.

6.5 Taxes. The Borrower will, and will cause each Subsidiary to, pay when due all taxes, assessments and governmental charges and levies upon it or its income, profits or Property, except those which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been set aside.

6.6 Insurance. The Borrower will, and will cause each Subsidiary to, maintain with financially sound and reputable insurance companies insurance on all or substantially all of its Property, or shall maintain self-insurance, in such amounts and covering such risks as is consistent with sound business practice for Persons in substantially the same industry as the Borrower or such Subsidiary, and the Borrower will furnish to any Lender upon request full information as to the insurance carried.

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6.7 Compliance with Laws. The Borrower will, and will cause each Subsidiary to, comply with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject, except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect.

6.8 Maintenance of Properties. The Borrower will, and will cause each Subsidiary to, do all things necessary to maintain, preserve, protect and keep its Property in good repair, working order and condition, and make all necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times, except where the failure to so maintain, preserve, protect and repair could not reasonably be expected to have a Material Adverse Effect.

6.9 Inspection. The Borrower will, and will cause each Subsidiary to, permit the Agent and the Lenders, by their respective representatives and agents, to inspect any of the Property, corporate books and financial records of the Borrower and each Subsidiary, to examine and make copies of the books of accounts and other financial records of the Borrower and each Subsidiary, and to discuss the affairs, finances and accounts of the Borrower and each Subsidiary with, and to be advised as to the same by, their respective officers upon reasonable notice and at such reasonable times and intervals as the Lenders may designate.

6.10 Merger. The Borrower will not, nor will it permit any Subsidiary to, merge or consolidate with or into any other Person, except that (i) a Subsidiary may merge with the Borrower or a Wholly-Owned Subsidiary and (ii) the Borrower and any Subsidiary may merge or consolidate with or into any other Person provided that the Borrower or such Subsidiary shall be the continuing or surviving corporation and, after giving effect to such merger or consolidation, no Default or Unmatured Default shall exist.

6.11 Sale of Assets. The Borrower will not, nor will it permit any Subsidiary to, lease, sell or otherwise dispose of all or a Substantial Portion of its Property (exclusive of Investments sold in the ordinary course of business) to any other Person(s) in any calendar year.

6.12 Sale and Leaseback. The Borrower will not, nor will it permit any Subsidiary to, sell or transfer a Substantial Portion of its Property in order to concurrently or subsequently lease as lessee such or similar Property.

6.13 Investments and Acquisitions. The Borrower will not make, and will not permit any Subsidiary to make, any Acquisitions except Permitted Acquisitions.

6.14 Liens. The Borrower will not, nor will it permit any Subsidiary to, create, incur, or suffer to exist any Lien in, of or on its Property other than Liens securing in the aggregate not more than $100,000,000 of Indebtedness.

6.15 Consolidated Net Worth. The Borrower will maintain at all times Consolidated Net Worth equal to not less than the sum of (i) $2,216,253,000 plus (ii) 25% of the Borrower’s Consolidated Net Income, if positive, for each fiscal quarter ending after September 30, 2001.

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6.16 Ratio of Consolidated Indebtedness to Consolidated Capitalization. The Borrower will maintain at all times a ratio of Consolidated Indebtedness to Consolidated Capitalization of not greater than .4 to 1.0.

6.17 Ratio of Consolidated Adjusted Net Income to Consolidated Interest Expense. The Borrower will maintain, as at the last day of each fiscal quarter, a ratio of (i) Consolidated Adjusted Net Income to (ii) Consolidated Interest Expense, in each case calculated for the four fiscal quarters then ending, of not less than 3.0 to 1.0.

6.18 Affiliates. The Borrower will not, and will not permit any Subsidiary to, enter into any transaction (including, without limitation, the purchase or sale of any Property or service) with, or make any payment or transfer to, any Affiliate (other than a Wholly-Owned Subsidiary) except (i) any such transactions, payments or transfers with or to such Affiliates as are made in the ordinary course of business and pursuant to the reasonable requirements of the Borrower’s or such Subsidiary’s business and upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary than the Borrower or such Subsidiary would obtain in a comparable arms-length transaction and (ii) any such other transactions, payments or transfers with or to such Affiliates as could not reasonably be expected to have a Material Adverse Effect.

6.19 Preferred Securities. The Borrower will not, and will not permit Torchmark Capital Trust I or Torchmark Capital Trust II to, declare or pay dividends or distributions on, or redeem, purchase or otherwise acquire, any Preferred Securities or any portion thereof if, after giving effect thereto, a Default or Unmatured Default would exist.

ARTICLE VII

DEFAULTS

The occurrence of any one or more of the following events shall constitute a Default:

7.1 Representations. Any representation or warranty made or deemed made by or on behalf of the Borrower or any of its Subsidiaries to the Lenders or the Agent under or in connection with this Agreement, any Loan, or any certificate or information delivered in connection with this Agreement or any other Loan Document shall be materially false or misleading on the date as of which made.

7.2 Non-Payment. Nonpayment of any principal of any Loan when due, or nonpayment of any interest upon any Loan or of any facility fee, utilization fee, term out fee or other obligations under any of the Loan Documents within five days after the same becomes due.

7.3 Specific Defaults. The breach by the Borrower of any of the terms or provisions of Section 6.2, 6.3, 6.10, 6.11, 6.12, 6.13, 6.15, 6.16, 6.17 or 6.19; or the breach by the Borrower of any of the terms or provisions of Section 6.14 or 6.18 which is not remedied within ten days after the Borrower learns thereof.

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7.4 Other Defaults. The breach by the Borrower (other than a breach which constitutes a Default under Section 7.1, 7.2 or 7.3) of any of the terms or provisions of this Agreement which is not remedied within twenty days after written notice from the Agent or any Lender.

7.5 Cross-Default. Failure of the Borrower or any of its Subsidiaries to pay when due any Indebtedness in excess of, singly or in the aggregate for all such Subsidiaries, $10,000,000; or the default by the Borrower or any of its Subsidiaries in the performance of any term, provision or condition contained in any agreement under which any such Indebtedness was created or is governed, or any other event shall occur or condition exist, the effect of which is to cause, or to permit the holder or holders of such Indebtedness to cause, such Indebtedness to become due prior to its stated maturity; or any such Indebtedness of the Borrower or any Subsidiary shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled payment) prior to the stated maturity thereof.

7.6 Insolvency; Voluntary Proceedings. The Borrower or any of its Subsidiaries shall (i) have an order for relief entered with respect to it under the Federal bankruptcy laws as now or hereafter in effect, (ii) make an assignment for the benefit of creditors, (iii) apply for, seek, consent to, or acquiesce in, the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it or any Substantial Portion of its Property, (iv) institute any proceeding seeking an order for relief under the Federal bankruptcy laws as now or hereafter in effect or seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, (v) take any corporate action to authorize or effect any of the foregoing actions set forth in this Section 7.6, (vi) fail to contest in good faith any appointment or proceeding described in Section 7.7 or not pay, or admit in writing its inability to pay, its debts generally as they become due.

7.7 Involuntary Proceedings. Without the application, approval or consent of the Borrower or any of its Subsidiaries, a receiver, trustee, examiner, liquidator or similar official shall be appointed for the Borrower or any of its Subsidiaries or any Substantial Portion of its Property, or a proceeding described in Section 7.6(iv) shall be instituted against the Borrower or any of its Subsidiaries and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of 30 consecutive days.

7.8 Condemnation. Any court, government or governmental agency shall condemn, seize or otherwise appropriate, or take custody or control of (each a “Condemnation”), all or any portion of the Property of the Borrower or any of its Subsidiaries which, when taken together with all other Property of the Borrower and its Subsidiaries so condemned, seized, appropriated, or taken custody or control of, during the twelve-month period ending with the month in which any such Condemnation occurs, constitutes a Substantial Portion of its Property.

7.9 Judgment. The Borrower or any of its Subsidiaries shall fail within 45 days to pay, bond or otherwise discharge any judgment or order for the payment of money, either singly

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or in the aggregate, in excess of $10,000,000, which is not stayed on appeal or otherwise being appropriately contested in good faith.

7.10 Unfunded Liabilities. The Unfunded Liabilities of all Single Employer Plans shall exceed in the aggregate $10,000,000 or any Reportable Event shall occur in connection with any Plan.

7.11 Withdrawal Liability. The Borrower or any other member of the Controlled Group shall have been notified by the sponsor of a Multiemployer Plan that it has incurred withdrawal liability to such Multiemployer Plan in an amount which, when aggregated with all other amounts required to be paid to Multiemployer Plans by the Borrower or any other member of the Controlled Group as withdrawal liability (determined as of the date of such notification), exceeds $5,000,000 or requires payments exceeding $500,000 per annum.

7.12 Environmental. The Borrower or any of its Subsidiaries shall be the subject of any proceeding or investigation pertaining to the release by the Borrower or any of its Subsidiaries or any other person of any toxic or hazardous waste or substance into the environment, or any violation of any federal, state or local environmental, health or safety law or regulation, which, in either case, could reasonably be expected to have a Material Adverse Effect.

7.13 Change in Control. Any Change in Control shall occur.

7.14 Licenses. Any License of any Insurance Subsidiary held by such Insurance Subsidiary on the Closing Date or acquired by such Insurance Subsidiary thereafter, the loss of which would have, in the reasonable judgment of the Lenders, a Material Adverse Effect, (i) shall be revoked by a final non-appealable order by the state which shall have issued such License, or any action (whether administrative or judicial) to revoke such License shall have been commenced against such Insurance Subsidiary which shall not have been dismissed or contested in good faith within 30 days of the commencement thereof, (ii) shall be suspended by such state for a period in excess of 30 days or (iii) shall not be reissued or renewed by such state upon the expiration thereof following application for such reissuance or renewal by such Insurance Subsidiary.

ARTICLE VIII

ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES

8.1 Acceleration. If any Default described in Section 7.6 or 7.7 occurs with respect to the Borrower, the obligations of the Lenders to make Loans hereunder shall automatically terminate and the Obligations shall immediately become due and payable without any election or action on the part of the Agent or any Lender. If any other Default occurs, the Required Lenders (or the Agent with the consent of the Required Lenders) may terminate or suspend the obligations of the Lenders to make Loans hereunder, or declare the Obligations to be due and payable, or both, whereupon the Obligations shall become immediately due and payable, without

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presentment, demand, protest or notice of any kind, all of which the Borrower hereby expressly waives.

If, before any judgment or decree for the payment of the Obligations due shall have been obtained or entered, the Modified Required Lenders (or, in the case of an automatic termination upon the occurrence of a Default under Section 7.6 or 7.7, all the Lenders), in their sole discretion, shall so direct, the Agent shall, by notice to the Borrower, rescind and annul such acceleration and/or termination.

8.2 Amendments. Subject to the provisions of this Article VIII, the Required Lenders (or the Agent with the consent in writing of the Required Lenders) and the Borrower may enter into agreements supplemental hereto for the purpose of adding or modifying any provisions to the Loan Documents or changing in any manner the rights of the Lenders or the Borrower hereunder or thereunder or waiving any Default hereunder or thereunder; provided, however, that no such supplemental agreement shall, without the consent of each Lender:

(i) Extend the Facility Termination Date or the Revolving Credit Termination Date, compromise or forgive the principal amount of any Loan, or reduce the rate of interest or compromise or forgive payment of interest on any Loan, or reduce the amount of any fee or cost payable hereunder.

(ii) Reduce the percentage specified in the definition of Required Lenders or Modified Required Lenders.

(iii) Increase the amount of the Commitment of any Lender hereunder (except pursuant to Section 2.5(b)), or permit the Borrower to assign its rights under this Agreement.

(iv) Amend this Section 8.2.

No amendment of any provision of this Agreement relating to the Agent shall be effective without the written consent of the Agent. The Agent may waive payment of the fee required under Section 12.3.2 without obtaining the consent of any other party to this Agreement.

Notwithstanding the foregoing, upon the execution and delivery of all documentation required by Section 2.5(b) to be delivered in connection with an increase to the Aggregate Commitment, the Agent, the Borrower and the new or existing Lenders whose Commitments have been affected may and shall enter into an amendment hereof (which shall be binding on all parties hereto) solely for the purpose of reflecting any new Lenders and their new Commitments and any increase in the Commitment of any existing Lender.

8.3 Preservation of Rights. No delay or omission of the Lenders or the Agent to exercise any right under the Loan Documents shall impair such right or be construed to be a waiver of any Default or an acquiescence therein, and the making of a Loan notwithstanding the existence of a Default or the inability of the Borrower to satisfy the conditions precedent to such Loan shall not constitute any waiver or acquiescence. Any single or partial exercise of any such

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right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation of the terms, conditions or provisions of the Loan Documents whatsoever shall be valid unless in writing signed by the Lenders required pursuant to Section 8.2, and then only to the extent in such writing specifically set forth. All remedies contained in the Loan Documents or by law afforded shall be cumulative and all shall be available to the Agent and the Lenders until the Obligations have been paid in full.

ARTICLE IX

GENERAL PROVISIONS

9.1 Survival of Representations. All representations and warranties of the Borrower contained in this Agreement shall survive the making of the Loans herein contemplated.

9.2 Governmental Regulation. Anything contained in this Agreement to the contrary notwithstanding, no Lender shall be obligated to extend credit to the Borrower in violation of any limitation or prohibition provided by any applicable statute or regulation.

9.3 Headings. Section headings in the Loan Documents are for convenience of reference only, and shall not govern the interpretation of any of the provisions of the Loan Documents.

9.4 Entire Agreement. The Loan Documents embody the entire agreement and understanding among the Borrower, the Agent and the Lenders and supersede all prior agreements and understandings among the Borrower, the Agent and the Lenders relating to the subject matter thereof other than the fee letter described in Section 10.13.

9.5 Several Obligations; Benefits of this Agreement. The respective obligations of the Lenders hereunder are several and not joint and no Lender shall be the partner or agent of any other (except to the extent to which the Agent is authorized to act as such). The failure of any Lender to perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns, provided, however, that the parties hereto expressly agree that the Arrangers shall enjoy the benefits of the provisions of Sections 9.6, 9.10 and 10.11 to the extent specifically set forth therein and shall have the right to enforce such provisions on its own behalf and in its own name to the same extent as if it were a party to this Agreement.

9.6 Expenses; Indemnification. The Borrower shall reimburse the Agent for any costs, internal charges and out-of-pocket expenses (including reasonable attorneys’ fees and time charges of attorneys for the Agent, which attorneys may be employees of the Agent) paid or incurred by the Agent in connection with the preparation, negotiation, execution, delivery, review, amendment, modification, and administration of the Loan Documents. The Borrower also agrees to reimburse the Agent, the Arrangers and the Lenders for any costs, internal charges and out-of-pocket expenses (including attorneys’ fees and time charges of attorneys for the Agent, the Arrangers and the Lenders, which attorneys may be employees of the Agent, the

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Arrangers or the Lenders) paid or incurred by the Agent, any Arranger or any Lender in connection with the collection of the Obligations or the enforcement of the Loan Documents. The Borrower further agrees to indemnify the Agent, the Arrangers and each Lender, its directors, officers and employees against all losses, claims, damages, penalties, judgments, liabilities and expenses (collectively, the “indemnified obligations”) (including, without limitation, all expenses of litigation or preparation therefor whether or not the Agent, any Arranger or any Lender is a party thereto, but excluding those indemnified obligations arising solely from any Lender’s failure to perform its obligations under this Agreement) which any of them may pay or incur arising out of or relating to this Agreement, the other Loan Documents, the transactions contemplated hereby or the direct or indirect application or proposed application of the proceeds of any Loan hereunder, except that no indemnified party shall be indemnified for any indemnified obligations arising from its own gross negligence or willful misconduct as finally determined by a court of competent jurisdiction. The obligations of the Borrower under this Section 9.6 shall survive the termination of this Agreement.

9.7 Numbers of Documents. All statements, notices, closing documents, and requests hereunder shall be furnished to the Agent with sufficient counterparts so that the Agent may furnish one to each of the Lenders.

9.8 Accounting. Except as provided to the contrary herein, all accounting terms used herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with Agreement Accounting Principles.

9.9 Severability of Provisions. Any provision in any Loan Document that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable.

9.10 Nonliability of Lenders. The relationship between the Borrower on the one hand and the Lenders and the Agent on the other hand shall be solely that of borrower and lender. Neither the Agent, any Arranger nor any Lender shall have any fiduciary responsibilities to the Borrower. Neither the Agent, any Arranger nor any Lender undertakes any responsibility to the Borrower to review or inform the Borrower of any matter in connection with any phase of the Borrower’s business or operations. The Borrower agrees that neither the Agent, any Arranger nor any Lender shall have liability to the Borrower (whether sounding in tort, contract or otherwise) for losses suffered by the Borrower in connection with, arising out of, or in any way related to, the transactions contemplated and the relationship established by the Loan Documents, or any act, omission or event occurring in connection therewith, unless it is determined in a final non-appealable judgment by a court of competent jurisdiction that such losses resulted from the gross negligence or willful misconduct of the party from which recovery is sought. Neither the Agent, any Arranger nor any Lender shall have any liability with respect to, and the Borrower hereby waives, releases and agrees not to sue for, any special, indirect, consequential or punitive damages suffered by the Borrower in connection with, arising out of, or in any way related to the Loan Documents or the transactions contemplated thereby.

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9.11 Confidentiality. Each Lender agrees to hold any confidential information which it may receive from the Borrower pursuant to this Agreement in confidence, except for disclosure (i) to its Affiliates and to other Lenders and their respective Affiliates, (ii) to legal counsel, accountants, and other professional advisors to such Lender or to a Transferee, (iii) to regulatory officials, (iv) to any Person as requested pursuant to or as required by law, regulation, or legal process, (v) to any Person in connection with any legal proceeding to which such Lender is a party, (vi) to such Lender’s direct or indirect contractual counterparties in swap agreements or to legal counsel, accountants and other professional advisors to such counterparties, and (vii) permitted by Section 12.4.

9.12 Nonreliance. Each Lender hereby represents that it is not relying on or looking to any margin stock (as defined in Regulation U) for the repayment of the Loans provided for herein.

9.13 Disclosure. The Borrower and each Lender hereby acknowledge and agree that Bank One and/or its Affiliates from time to time may hold investments in, make other loans to or have other relationships with the Borrower and its Affiliates.

ARTICLE X

THE AGENT

10.1 Appointment; Nature of Relationship. Bank One, NA is hereby appointed by each of the Lenders as its contractual representative (herein referred to as the “Agent”) hereunder and under each other Loan Document, and each of the Lenders irrevocably authorizes the Agent to act as the contractual representative of such Lender with the rights and duties expressly set forth herein and in the other Loan Documents. The Agent agrees to act as such contractual representative upon the express conditions contained in this Article X. Notwithstanding the use of the defined term “Agent,” it is expressly understood and agreed that the Agent shall not have any fiduciary responsibilities to any Lender by reason of this Agreement or any other Loan Document and that the Agent is merely acting as the contractual representative of the Lenders with only those duties as are expressly set forth in this Agreement and the other Loan Documents. In its capacity as the Lenders’ contractual representative, the Agent (i) does not hereby assume any fiduciary duties to any of the Lenders, (ii) is a “representative” of the Lenders within the meaning of Section 1-201 of the Uniform Commercial Code and (iii) is acting as an independent contractor, the rights and duties of which are limited to those expressly set forth in this Agreement and the other Loan Documents. Each of the Lenders hereby agrees to assert no claim against the Agent on any agency theory or any other theory of liability for breach of fiduciary duty, all of which claims each Lender hereby waives.

10.2 Powers. The Agent shall have and may exercise such powers under the Loan Documents as are specifically delegated to the Agent by the terms of each thereof, together with such powers as are reasonably incidental thereto. The Agent shall have no implied duties to the Lenders, or any obligation to the Lenders to take any action thereunder except any action specifically provided by the Loan Documents to be taken by the Agent.

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10.3 General Immunity. Neither the Agent nor any of its directors, officers, agents or employees shall be liable to the Borrower, the Lenders or any Lender for any action taken or omitted to be taken by it or them hereunder or under any other Loan Document or in connection herewith or therewith except to the extent such action or inaction is determined in a final non-appealable judgment by a court of competent jurisdiction to have arisen from the gross negligence or willful misconduct of such Person.

10.4 No Responsibility for Loans, Recitals, etc. Neither the Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into, or verify (a) any statement, warranty or representation made in connection with any Loan Document or any borrowing hereunder; (b) the performance or observance of any of the covenants or agreements of any obligor under any Loan Document, including, without limitation, any agreement by an obligor to furnish information directly to each Lender; (c) the satisfaction of any condition specified in Article IV, except receipt of items required to be delivered solely to the Agent; (d) the existence or possible existence of any Default or Unmatured Default; (e) the validity, enforceability, effectiveness, sufficiency or genuineness of any Loan Document or any other instrument or writing furnished in connection therewith; (f) the value, sufficiency, creation, perfection or priority of any Lien in any collateral security; or (g) the financial condition of the Borrower or any guarantor of any of the Obligations or of any of the Borrower’s or any such guarantor’s respective Subsidiaries. The Agent shall have no duty to disclose to the Lenders information that is not required to be furnished by the Borrower to the Agent at such time, but is voluntarily furnished by the Borrower to the Agent (either in its capacity as Agent or in its individual capacity).

10.5 Action on Instructions of Lenders. The Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and under any other Loan Document in accordance with written instructions signed by the Required Lenders, and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. The Lenders hereby acknowledge that the Agent shall be under no duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement or any other Loan Document unless it shall be requested in writing to do so by the Required Lenders. The Agent shall be fully justified in failing or refusing to take any action hereunder and under any other Loan Document unless it shall first be indemnified to its satisfaction by the Lenders pro rata against any and all liability, cost and expense that it may incur by reason of taking or continuing to take any such action.

10.6 Employment of Agents and Counsel. The Agent may execute any of its duties as Agent hereunder and under any other Loan Document by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Lenders, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. The Agent shall be entitled to advice of counsel concerning the contractual arrangement between the Agent and the Lenders and all matters pertaining to the Agent’s duties hereunder and under any other Loan Document.

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10.7 Reliance on Documents; Counsel. The Agent shall be entitled to rely upon any Note, notice, consent, certificate, affidavit, letter, telegram, statement, paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to legal matters, upon the opinion of counsel selected by the Agent, which counsel may be employees of the Agent.

10.8 Agent’s Reimbursement and Indemnification. The Lenders agree to reimburse and indemnify the Agent ratably in proportion to their respective Commitments (or, if the Commitments have been terminated, in proportion to their Commitments immediately prior to such termination) (i) for any amounts not reimbursed by the Borrower for which the Agent is entitled to reimbursement by the Borrower under the Loan Documents, (ii) for any other expenses incurred by the Agent on behalf of the Lenders, in connection with the preparation, execution, delivery, administration and enforcement of the Loan Documents (including, without limitation, for any expenses incurred by the Agent in connection with any dispute between the Agent and any Lender or between two or more of the Lenders) and (iii) for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of the Loan Documents or any other document delivered in connection therewith or the transactions contemplated thereby (including, without limitation, for any such amounts incurred by or asserted against the Agent in connection with any dispute between the Agent and any Lender or between two or more of the Lenders), or the enforcement of any of the terms of the Loan Documents or of any such other documents, provided that (i) no Lender shall be liable for any of the foregoing to the extent any of the foregoing is found in a final non-appealable judgment by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Agent and (ii) any indemnification required pursuant to Section 3.5(vii) shall, notwithstanding the provisions of this Section 10.8, be paid by the relevant Lender in accordance with the provisions thereof. The obligations of the Lenders under this Section 10.8 shall survive payment of the Obligations and termination of this Agreement.

10.9 Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Unmatured Default hereunder unless the Agent has received written notice from a Lender or the Borrower referring to this Agreement describing such Default or Unmatured Default and stating that such notice is a “notice of default”. In the event that the Agent receives such a notice, the Agent shall give prompt notice thereof to the Lenders.

10.10 Rights as a Lender. In the event the Agent is a Lender, the Agent shall have the same rights and powers hereunder and under any other Loan Document with respect to its Commitment and its Loans as any Lender and may exercise the same as though it were not the Agent, and the term “Lender” or “Lenders” shall, at any time when the Agent is a Lender, unless the context otherwise indicates, include the Agent in its individual capacity. The Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of trust, debt, equity or other transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Borrower or any of its Subsidiaries in which the Borrower or

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such Subsidiary is not restricted hereby from engaging with any other Person. The Agent, in its individual capacity, is not obligated to remain a Lender.

10.11 Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Agent, the Arrangers or any other Lender and based on the financial statements prepared by the Borrower and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and without reliance upon the Agent, the Arrangers or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents.

10.12 Successor Agent. The Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower, such resignation to be effective upon the appointment of a successor Agent or, if no successor Agent has been appointed, forty-five days after the retiring Agent gives notice of its intention to resign. The Agent may be removed at any time with or without cause by written notice received by the Agent from the Required Lenders, such removal to be effective on the date specified by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint, on behalf of the Borrower and the Lenders, a successor Agent. If no successor Agent shall have been so appointed by the Required Lenders within thirty days after the resigning Agent’s giving notice of its intention to resign, then the resigning Agent may appoint, on behalf of the Borrower and the Lenders, a successor Agent. Notwithstanding the previous sentence, the Agent may at any time without the consent of the Borrower or any Lender, appoint any of its Affiliates which is a commercial bank as a successor Agent hereunder. If the Agent has resigned or been removed and no successor Agent has been appointed, the Lenders may perform all the duties of the Agent hereunder and the Borrower shall make all payments in respect of the Obligations to the applicable Lender and for all other purposes shall deal directly with the Lenders. No successor Agent shall be deemed to be appointed hereunder until such successor Agent has accepted the appointment. Any such successor Agent shall be a commercial bank having capital and retained earnings of at least $100,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the resigning or removed Agent. Upon the effectiveness of the resignation or removal of the Agent, the resigning or removed Agent shall be discharged from its duties and obligations hereunder and under the Loan Documents. After the effectiveness of the resignation or removal of an Agent, the provisions of this Article X shall continue in effect for the benefit of such Agent in respect of any actions taken or omitted to be taken by it while it was acting as the Agent hereunder and under the other Loan Documents. In the event that there is a successor to the Agent by merger, or the Agent assigns its duties and obligations to an Affiliate pursuant to this Section 10.12, then the term “Prime Rate” as used in this Agreement shall mean the prime rate, base rate or other analogous rate of the new Agent.

10.13 Agent and Arranger Fees. The Borrower agrees to pay to the Agent and Banc One Capital Markets, Inc., for their respective accounts, the fees agreed to by the Borrower, the

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Agent and Banc One Capital Markets, Inc. pursuant to that certain letter agreement dated October 21, 2002, or as otherwise agreed from time to time.

10.14 Delegation to Affiliates. The Borrower and the Lenders agree that the Agent may delegate any of its duties under this Agreement to any of its Affiliates. Any such Affiliate (and such Affiliate’s directors, officers, agents and employees) which performs duties in connection with this Agreement shall be entitled to the same benefits of the indemnification, waiver and other protective provisions to which the Agent is entitled under Articles IX and X.

10.15 Documentation Agents, Syndication Agent, etc. None of the Lenders identified in this Agreement as the “Documentation Agents”, the “Syndication Agent” or “Joint Lead Arranger and Joint Book Manager” shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Lenders as such. Without limiting the foregoing, none of such Lenders shall have or be deemed to have a fiduciary relationship with any Lender. Each Lender hereby makes the same acknowledgments with respect to such Lenders as it makes with respect to the Agent in Section 10.11.

ARTICLE XI

SETOFF; RATABLE PAYMENTS

11.1 Setoff. In addition to, and without limitation of, any rights of the Lenders under applicable law, if the Borrower becomes insolvent, however evidenced, or any Default occurs, any and all deposits (including all account balances, whether provisional or final and whether or not collected or available) and any other Indebtedness at any time held or owing by any Lender or any Affiliate of any Lender to or for the credit or account of the Borrower may be offset and applied toward the payment of the Obligations owing to such Lender, whether or not the Obligations, or any part thereof, shall then be due.

11.2 Ratable Payments. If any Lender, whether by setoff or otherwise, has payment made to it upon its Loans (other than payments received pursuant to Section 3.1, 3.2, 3.4 or 3.5) in a greater proportion than that received by any other Lender, such Lender agrees, promptly upon demand, to purchase a portion of the Loans held by the other Lenders so that after such purchase each Lender will hold its ratable proportion of Loans. If any Lender, whether in connection with setoff or amounts which might be subject to setoff or otherwise, receives collateral or other protection for its Obligations or such amounts which may be subject to setoff, such Lender agrees, promptly upon demand, to take such action necessary such that all Lenders share in the benefits of such collateral ratably in proportion to their Loans. In case any such payment is disturbed by legal process, or otherwise, appropriate further adjustments shall be made.

ARTICLE XII

BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS

12.1 Successors and Assigns. The terms and provisions of the Loan Documents shall be binding upon and inure to the benefit of the Borrower and the Lenders and their respective

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successors and assigns permitted hereby, except that (i) the Borrower shall not have the right to assign its rights or obligations under the Loan Documents, (ii) any assignment by any Lender must be made in compliance with Section 12.3 and (iii) any transfer by participation must be made in compliance with Section 12.2. Any attempted assignment or transfer by any party not made in compliance with this Section 12.1 shall be null and void, unless such attempted assignment or transfer is treated as a participation in accordance with Section 12.3.2. The parties to this Agreement acknowledge that clause (ii) of this Section 12.1 relates only to absolute assignments and this Section 12.1 does not prohibit assignments creating security interests, including, without limitation, (x) any pledge or assignment by any Lender of all or any portion of its rights under this Agreement and any Note to a Federal Reserve Bank or (y) in the case of a Lender which is a Fund, any pledge or assignment of all or any portion of its rights under this Agreement and any Note to its trustee in support of its obligations to its trustee; provided, however, that no such pledge or assignment creating a security interest shall release the transferor Lender from its obligations hereunder unless and until the parties thereto have complied with the provisions of Section 12.3. The Agent may treat the Person which made any Loan or which holds any Note as the owner thereof for all purposes hereof unless and until such Person complies with Section 12.3; provided, however, that the Agent may in its discretion (but shall not be required to) follow instructions from the Person which made any Loan or which holds any Note to direct payments relating to such Loan or Note to another Person. Any assignee of the rights to any Loan or any Note agrees by acceptance of such assignment to be bound by all the terms and provisions of the Loan Documents. Any request, authority or consent of any Person, who at the time of making such request or giving such authority or consent is the owner of the rights to any Loan (whether or not a Note has been issued in evidence thereof), shall be conclusive and binding on any subsequent holder or assignee of the rights to such Loan.

12.2 Participations.

12.2.1 Permitted Participants; Effect. Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more banks or other entities (“Participants”) participating interests in any Loan owing to such Lender, any Note held by such Lender, any Commitment of such Lender or any other interest of such Lender under the Loan Documents. In the event of any such sale by a Lender of participating interests to a Participant, such Lender’s obligations under the Loan Documents shall remain unchanged, such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, such Lender shall remain the owner of its Loans and the holder of any Note issued to it in evidence thereof for all purposes under the Loan Documents, all amounts payable by the Borrower under this Agreement shall be determined as if such Lender had not sold such participating interests, and the Borrower and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under the Loan Documents.

12.2.2 Voting Rights. Each Lender shall retain the sole right to approve, without the consent of any Participant, any amendment, modification or waiver of any provision of the Loan Documents other than any amendment, modification or waiver with respect

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to any Loan or Commitment in which such Participant has an interest which would require consent of all of the Lenders pursuant to the terms of Section 8.2 or of any other Loan Document.

12.2.3 Benefit of Certain Provisions. The Borrower agrees that each Participant shall be deemed to have the right of setoff provided in Section 11.1 in respect of its participating interest in amounts owing under the Loan Documents to the same extent as if the amount of its participating interest were owing directly to it as a Lender under the Loan Documents, provided that each Lender shall retain the right of setoff provided in Section 11.1 with respect to the amount of participating interests sold to each Participant. The Lenders agree to share with each Participant, and each Participant, by exercising the right of setoff provided in Section 11.1, agrees to share with each Lender, any amount received pursuant to the exercise of its right of setoff, such amounts to be shared in accordance with Section 11.2 as if each Participant were a Lender. The Borrower further agrees that each Participant shall be entitled to the benefits of Sections 3.1, 3.2, 3.4 and 3.5 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 12.3, provided that (i) a Participant shall not be entitled to receive any greater payment under Section 3.1, 3.2 or 3.5 than the Lender who sold the participating interest to such Participant would have received had it retained such interest for its own account, unless the sale of such interest to such Participant is made with the prior written consent of the Borrower, and (ii) any Participant not incorporated under the laws of the United States of America or any State thereof agrees to comply with the provisions of Section 3.5 to the same extent as if it were a Lender.

12.3 Assignments.

12.3.1 Permitted Assignments. Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time assign to one or more banks or other entities (“Purchasers”) all or any part of its rights and obligations under the Loan Documents. Such assignment shall be substantially in the form of Exhibit C or in such other form as may be agreed to by the parties thereto. The consent of the Borrower and the Agent shall be required prior to an assignment becoming effective with respect to a Purchaser which is not a Lender, an Affiliate of a Lender or an Approved Fund; provided, however, that if a Default has occurred and is continuing, the consent of the Borrower shall not be required. Such consent shall not be unreasonably withheld or delayed. Each such assignment with respect to a Purchaser which is not a Lender, an Affiliate of a Lender or an Approved Fund shall (unless each of the Borrower and the Agent otherwise consents) be in an amount not less than the lesser of (i) $5,000,000 or (ii) the remaining amount of the assigning Lender’s Commitment or outstanding Loans (if the applicable Commitment has been terminated). The amount of the assignment shall be based on the Commitment or outstanding Loans (if the applicable Commitment has been terminated) subject to the assignment, determined as of the date of such assignment or as of the “Trade Date,” if the “Trade Date” is specified in the assignment.

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12.3.2 Effect; Effective Date. Upon (i) delivery to the Agent of an assignment, together with any consents required by Section 12.3.1, and (ii) payment of a $4,000 fee to the Agent for processing such assignment, such assignment shall become effective on the effective date specified in such assignment. The assignment shall contain a representation by the Purchaser to the effect that none of the consideration used to make the purchase of the Commitment and Loans under the applicable assignment agreement constitutes “plan assets” as defined under ERISA and that the rights and interests of the Purchaser in and under the Loan Documents will not be “plan assets” under ERISA. On and after the effective date of such assignment, such Purchaser shall for all purposes be a Lender party to this Agreement and any other Loan Document executed by or on behalf of the Lenders and shall have all the rights and obligations of a Lender under the Loan Documents, to the same extent as if it were an original party hereto, and no further consent or action by the Borrower, the Lenders or the Agent shall be required to release the transferor Lender with respect to the percentage of the Aggregate Commitment and Loans assigned to such Purchaser. In the case of an assignment covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a Lender hereunder but shall continue to be entitled to the benefits of, and subject to, those provisions of this Agreement and the other Loan Documents which survive payment of the Obligations and termination of the applicable agreement. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 12.3 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 12.2. Upon the consummation of any assignment to a Purchaser pursuant to this Section 12.3.2, the transferor Lender, the Agent and the Borrower shall, if the transferor Lender or the Purchaser desires that its Loans be evidenced by Notes, make appropriate arrangements so that new Notes or, as appropriate, replacement Notes are issued to such transferor Lender and new Notes or, as appropriate, replacement Notes, are issued to such Purchaser, in each case in principal amounts reflecting their respective Commitments, as adjusted pursuant to such assignment.

12.3.3 Register. The Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at one of its offices in Chicago, Illinois a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, and the Borrower, the Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

12.4 Dissemination of Information. The Borrower authorizes each Lender to disclose to any Participant or Purchaser or any other Person acquiring an interest in the Loan Documents by operation of law (each a “Transferee”) and any prospective Transferee any and all

45

information in such Lender’s possession concerning the creditworthiness of the Borrower and its Subsidiaries, including without limitation any information contained in any Reports; provided that each Transferee and prospective Transferee agrees to be bound by Section 9.11 of this Agreement.

12.5 Tax Treatment. If any interest in any Loan Document is transferred to any Transferee which is not incorporated under the laws of the United States or any State thereof, the transferor Lender shall cause such Transferee, concurrently with the effectiveness of such transfer, to comply with the provisions of Section 3.5(iv).

ARTICLE XIII

NOTICES

13.1 Notices. Except as otherwise permitted by Section 2.14 with respect to borrowing notices, all notices, requests and other communications to any party hereunder shall be in writing (including electronic transmission, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Borrower or the Agent, at its address or facsimile number set forth on the signature pages hereof, (y) in the case of any Lender, at its address or facsimile number set forth below its signature hereto or (z) in the case of any party, at such other address or facsimile number as such party may hereafter specify for the purpose by notice to the Agent and the Borrower in accordance with the provisions of this Section 13.1. Each such notice, request or other communication shall be effective (i) if given by facsimile transmission, when transmitted to the facsimile number specified in this Section and confirmation of receipt is received, (ii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid, or (iii) if given by any other means, when delivered (or, in the case of electronic transmission, received) at the address specified in this Section; provided that notices to the Agent under Article II shall not be effective until received.

13.2 Change of Address. The Borrower, the Agent and any Lender may each change the address for service of notice upon it by a notice in writing to the other parties hereto.

ARTICLE XIV

COUNTERPARTS

This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. This Agreement shall be effective when it has been executed by the Borrower, the Agent and the Lenders and each party has notified the Agent by facsimile transmission or telephone that it has taken such action.

ARTICLE XV

CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL

15.1 CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (INCLUDING,

46

WITHOUT LIMITATION, 735 ILCS SECTION 105/5-1 ET SEQ, BUT OTHERWISE WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.

15.2 CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO, ILLINOIS IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO, ILLINOIS.

15.3 WAIVER OF JURY TRIAL. THE BORROWER, THE AGENT AND EACH LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER.

[signature pages follow]

47

IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have executed this Agreement as of the date first above written.

TORCHMARK CORPORATION
By:	/s/    MICHAEL J. KLYCE
Print Name:	Michael J. Klyce
Title:	Vice President & Treasurer
	Address:	2001 Third Avenue South
		Birmingham, Alabama 35233
		Attn: Mr. Michael J. Klyce
		Vice President and Treasurer
	Telephone:	(205) 325-2051
	Fax:	(205) 325-4157
BANK ONE, NA, Individually and as Agent
By:
Print Name:
Title:
	Address:	1 Bank One Plaza
		Chicago, Illinois 60670
		Attn: Thomas W. Doddridge
	Telephone:	(312) 732-3881
	Fax:	(312) 732-4033

BANK ONE, NA, Individually and as Agent
By:	/s/    MARIE E. BASBAGILL
Print Name:	Marie E. Basbagill
Title:	Associate
	Address:	1 Bank One Plaza
		Suite IL1-0085
		Chicago, Illinois 60670
		Attn: Thomas W. Doddridge
	Telephone:	(312) 732-3881
	Fax:	(312) 732-4033

2

Bank of America, N.A.
By:	/s/    LESLIE NANNEN
Print Name:	Leslie Nannen
Title:	Vice President
	Address:	901 Main Street
		66th Floor
		Dallas, Texas 75202
		Attn: Jeffrey M. Shaver
	Telephone:	(214) 209-9031
	Fax:	(214) 209-3742

3

Fleet National Bank
By:	/s/    DAVID A. BOSSELAIT
Print Name:	David A. Bosselait
Title:	Director
	Address:	MA DE 10010H
		100 Federal St.
		Boston, MA 02110
		Attn: Esteban V. Koosau
	Telephone:	(617) 434-3667
	Fax:	(617) 434-1096

4

AmSouth Bank
By:	/s/    DAVID A. SIMMONS
Print Name:	David A. Simmons
Title:	Senior Vice President
	Address:	1900 Fifth Avenue North
		Birmingham, AL 35203
		Attn: David A. Simmons
	Telephone:	(205) 326-5924
	Fax:	(205) 581-7479

5

THE BANK OF NEW YORK
By:	/s/    DAVID TRICK
Print Name:	David Trick
Title:	Vice President
	Address:	1 Wall Street
		17th Floor
		New York, NY 10286
		Attn: David Trick
	Telephone:	(212) 635-1064
	Fax:	(212) 809-9520

6

COMMERICA BANK
By:	/s/    CAROL S. GERAGHTY
Print Name:	Carol S. Geraghty
Title:	Vice President
	Address:	4100 Spring Valley
		Suite 400
		Dallas, Texas 75244
		Attn: Janet L. Wheeler
	Telephone:	(972) 361-2652
	Fax:	(972) 361-2550

7

Committment	SouthTrust Bank
$26,000,000	By:	/s/    W. SPENCER RAGLAND
	Print Name:	W. Spencer Ragland
	Title:	Vice President
		Address:	420 North 20th Street
			A-001-TW-1103
			Birmingham, AL 35203
			Attn: W. Spencer Ragland
		Telephone:	(205) 254-4521
		Fax:	(205) 254-5911

8

Committment	COMPASS BANK
$20,800,000	By:	/s/    ALEX MORTON
	Print Name:	Alex Morton
	Title:	Vice President
		Address:	15 South 20th Street
			Suite 201
			Birmingham, AL 35233
			Attn: Alex Morton
		Telephone:	(205) 297-3294
		Fax:	(205) 297-3926

9

SUNTRUST BANK
By:	/s/    DAVID PENTER
Print Name:	David Penter
Title:	Director
	Address:	303 Peachtree Street
		2nd Floor, MC 1921
		Atlanta, GA 30309
		Attn: David Penter
	Telephone:	(404) 588-8658
	Fax:	(404) 575-2594

10

UMB Bank, N.A.
By:	/s/    DAVID A. PROFFITT
Print Name:	David A. Proffitt
Title:	Senior Vice President
	Address:	1010 Grand Blvd.
		Kansas City, MO 64106
		Attn: David A. Proffitt
	Telephone:	(816) 860-7935
	Fax:	(816) 860-7143

11

PRICING SCHEDULE

	LEVEL I STATUS	LEVEL II STATUS	LEVEL III STATUS	LEVEL IV STATUS	LEVEL V STATUS
Borrower Debt Rating	A+/A1	A/A2	A-/A3	BBB+/Baa1	<BBB+/Baa1
Applicable Facility Fee Rate	.06%	.08%	.09%	.10%	.125%
Applicable Margin
Eurodollar Rate	.24%	.27%	.31%	.425%	.60%
Floating Rate	0.0	0.0	0.0	0.0	0.0
Applicable Utilization Fee Rate* (>33%)	.05%	.075%	.10%	.10%	.15%
Applicable Term Out Premium Rate	.10%	.125%	.15%	.25%	.375%

Subject to the following two sentences, a particular Level Status shall exist on a particular day if on such day the Borrower does not qualify for a Level Status with more advantageous pricing and either the Moody’s Rating or the S&P Rating is at least equal to the corresponding rating specified for such Level Status in the table above. In the event of a differential in Ratings of one level, Level Status shall be determined by reference to the higher of

* The Applicable Utilization Fee Rate shall be payable only with respect to outstanding Advances on days when Utilization is greater than 33%. “Utilization” means, for any day, a percentage equal to the aggregate principal amount of Loans hereunder and “Loans” and “Reimbursement Obligations” (each as defined in the Five Year Agreement) outstanding on such day (and at the close of business on such day if a Business Day) divided by the sum on such day of the Aggregate Commitment and the “Aggregate Commitment” under the Five Year Agreement; provided that for purposes of computing Utilization (a) the Aggregate Commitment shall be deemed to in no event be less than the aggregate outstanding principal amount of the Loans (and on and after the Revolving Credit Termination Date, the Aggregate Commitment shall be deemed to be equal to the aggregate outstanding principal amount of the Loans) and (b) the “Aggregate Commitment” (as defined in the Five Year Agreement) shall be deemed to in no event be less than the aggregate outstanding principal amount of the “Loans” and “Reimbursement Obligations” (each as defined in the Five Year Agreement).

12

the two Ratings. In the event of a differential in Ratings of more than one level, the applicable Level Status shall be that Level Status one below the Level Status which would have been applicable had the lower Rating been the same as the higher Rating. The above ratings are in the format of S&P Rating/Moody’s Rating.

For the purposes of this Schedule, the following terms have the following meanings, subject to the final paragraph of this Schedule:

“Level Status” means either Level I Status, Level II Status, Level III Status, Level IV Status or Level V Status.

“Moody’s” means Moody’s Investors Service, Inc., a Delaware corporation, together with any Person succeeding thereto by merger, consolidation or acquisition of all or substantially all of its assets, including substantially all of its business of rating securities.

“Moody’s Rating” means, at any time, the Borrower Debt Rating issued by Moody’s and then in effect.

“Rating” means Moody’s Rating or S&P Rating.

“S&P” means Standard and Poor’s Ratings Services, a division of The McGraw Hill Companies, Inc.

“S&P Rating” means, at any time, the Borrower Debt Rating issued by S&P and then in effect.

The Applicable Margin, Applicable Fee Rate and Applicable Term Out Premium Rate shall be determined in accordance with the foregoing table based on the Borrower’s Level Status as determined from its then-current Moody’s and S&P Ratings. The Rating in effect on any date for the purposes of this Schedule is that in effect at the close of business on such date. If at any time the Borrower has no Moody’s Rating or no S&P Rating or the Borrower does not qualify for a Level Status with more advantageous pricing, Level V Status shall exist.

13

COMMITMENT SCHEDULE

Lender	Commitment
Bank One, NA	$	52,000,000
Bank of America, N.A.	$	52,000,000
Fleet National Bank	$	40,000,000
Amsouth Bank	$	39,000,000
The Bank of New York	$	26,000,000
Comerica Bank	$	26,000,000
Southtrust Bank	$	26,000,000
Compass Bank	$	20,800,000
Suntrust Bank	$	13,000,000
UMB Bank, NA	$	5,200,000
Total	$	300,000,000

SCHEDULE 1

SIGNIFICANT SUBSIDIARIES

Name of Significant Subsidiary	State of Incorporation	Percetage of Voting Stock Owned By Borrowers or Subsidiaries
Globe Life And Accident Insurance Company	Delaware	100%
Liberty National Life Insurance Company	Alabama	100%
United American Insurance Company	Delaware	100%
United Investors Life Insurance Company	Missouri	100%
American Income Life Insurance Company	Indiana	100%

SCHEDULE 2

INSURANCE LICENSES

Significant Insurance Subsidiary	Jurisdictions in which company holds active Licenses	Type of Insurance
Globe Life And Accident Insurance Company	All states except New York plus Guam and the District of Columbia	Life and Accident and Health
Liberty National Life Insurance Company	All states except New York plus Guam and the District of Columbia	Life and Accident and Health
United American Insurance Company	All states except New York plus the District of Columbia and Canada	Life and Accident and Health
United Investors Life Insurance Company	All states except New York plus the District of Columbia	Life and Accident and Health
American Income Life Insurance Company	All states except New York plus New Zealand, Puerto Rico, the U.S. Virgin Islands, Canada, and the District of Columbia	Life and Accident and Health
TMK Re, Ltd.	Bermuda	Reinsurance

EXHIBIT A

NOTE

[$                        ] [Date]

Torchmark Corporation, a Delaware corporation (the “Borrower”), promises to pay to the order of                                  (the “Lender”) the lesser of the principal sum of                      Dollars or the aggregate unpaid principal amount of all Loans made by the Lender to the Borrower pursuant to Article II of the Agreement (as hereinafter defined), in immediately available funds at the main office of Bank One, NA in Chicago, Illinois, as Agent, together with interest on the unpaid principal amount hereof at the rates and on the dates set forth in the Agreement. The Borrower shall pay the principal of and accrued and unpaid interest on the Loans in full on the Facility Termination Date and shall make such mandatory payments as are required to be made under the terms of Article II of the Agreement.

The Lender shall, and is hereby authorized to, record on the schedule attached hereto, or to otherwise record in accordance with its usual practice, the date and amount of each Loan and the date and amount of each principal payment hereunder.

This Note is one of the Notes issued pursuant to, and is entitled to the benefits of, the 364-Day Credit Agreement dated as of November 28, 2002 (which, as it may be amended or modified and in effect from time to time, is herein called the “Agreement”), among the Borrower, the lenders party thereto, including the Lender, and Bank One, NA, as Agent, to which Agreement reference is hereby made for a statement of the terms and conditions governing this Note, including the terms and conditions under which this Note may be prepaid or its maturity date accelerated. Capitalized terms used herein and not otherwise defined herein are used with the meanings attributed to them in the Agreement.

TORCHMARK CORPORATION

By:

Print Name:

Title:

SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL

TO

NOTE OF TORCHMARK CORPORATION,

DATED                             ,

Date Principal Amount of Loan Maturity of Interest Period Principal Amount Paid Unpaid Balance

EXHIBIT B

COMPLIANCE CERTIFICATE

To: The Lenders parties to the

Credit Agreement Described Below

This Compliance Certificate is furnished pursuant to that certain 364-Day Credit Agreement dated as of November 28, 2002 (as amended, modified, renewed or extended from time to time, the “Agreement”) among the Borrower, the lenders party thereto and Bank One, NA, as Agent for the Lenders. Unless otherwise defined herein, capitalized terms used in this Compliance Certificate have the meanings ascribed thereto in the Agreement.

THE UNDERSIGNED HEREBY CERTIFIES THAT:

1. I am the duly elected                          of the Borrower;

2. I have reviewed the terms of the Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of the Borrower and its Subsidiaries during the accounting period covered by the attached financial statements;

3. The examinations described in paragraph 2 did not disclose, and I have no knowledge of, the existence of any condition or event which constitutes a Default or Unmatured Default during or at the end of the accounting period covered by the attached financial statements or as of the date of this Certificate, except as set forth below; and

4. Schedule I attached hereto sets forth financial data and computations evidencing the Borrower’s compliance with certain covenants of the Agreement, all of which data and computations are true, complete and correct.

Described below are the exceptions, if any, to paragraph 3 by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which the Borrower has taken, is taking, or proposes to take with respect to each such condition or event:

The foregoing certifications, together with the computations set forth in Schedule I hereto and the financial statements delivered with this Certificate in support hereof, are made and delivered this                  day of                     , 20    .

2

SCHEDULE I TO COMPLIANCE CERTIFICATE

Schedule of Compliance as of                         , 20     with

Provisions of 6.15, 6.16 and 6.17 of

the Agreement

1.	Section 6.15—Consolidated Net Worth
	A.     Consolidated Net Worth (consolidated shareholders’ equity excluding the effect of the application of FAS 115)	$
	B.     $2,216,253,000
	C.     Positive Consolidated Net Income for each fiscal quarter ending after September 30, 2001 X .25	$
	D.     B plus C	$
	E.     A minus D (must be greater than or equal to 0)	$
	Complies                      Does Not Comply
2.	Section 6.16—Ratio of Consolidated Total Indebtedness to Consolidated Total Capitalization
	A.     Consolidated Total Indebtedness	$
	B.     Consolidated Capitalization
	(i)     Consolidated Net Worth (1A)	$
	(ii)    Consolidated Total Indebtedness (2A(v))	$
	(iii)   Sum of (i) and (ii)	$
	C.     Ratio of A to B                                                                      :1.0
	D.     Permitted Ratio                                         Less than 0.4 to 1.0
	Complies                      Does Not Comply

3.	Section 6.17—Ratio of Consolidated Adjusted Net Income to Consolidated Interest Expense
	A.     Consolidated Adjusted Net Income (for four fiscal quarters ended                     , 200    )
	(i)     Consolidated Net Income	$
	(ii)    Taxes	$
	(iii)   Consolidated Interest Expense	$
	(iv)   Sum of (i), (ii) and (iii)	$
	B.     Consolidated Interest Expense (3A(iii))	$
	C.     Ratio of A to B                                                                               to 1.0
	D.     Permitted Ratio                                                  Greater than 3.0 to 1.0
	Complies                      Does Not Comply

2

EXHIBIT C

ASSIGNMENT AND ASSUMPTION AGREEMENT

This Assignment and Assumption Agreement (this “Assignment and Assumption”) is dated as of the Effective Date set forth below and is entered into by and between [Insert name of Assignor] (the “Assignor”) and [Insert name of Assignee] (the “Assignee”). Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as amended, the “Credit Agreement”), receipt of a copy of which is hereby acknowledged by the Assignee. The Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.

For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Agent as contemplated below, the interest in and to all of the Assignor’s rights and obligations in its capacity as a Lender under the Credit Agreement and any other documents or instruments delivered pursuant thereto that represents the amount and percentage interest identified below of all of the Assignor’s outstanding rights and obligations under the respective facilities identified below (including without limitation any letters of credit, guaranties and swingline loans included in such facilities and, to the extent permitted to be assigned under applicable law, all claims (including without limitation contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity), suits, causes of action and any other right of the Assignor against any Person whether known or unknown arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby) (the “Assigned Interest”). Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by the Assignor.

1. Assignor:                                                                                                   

2. Assignee:                                                                       [and is an Affiliate/Approved Fund of [identify Lender]]¹

3. Borrower(s):                                                                          

4. Agent: Bank One, NA, as the agent under the Credit Agreement.

5. Credit Agreement: The $300,000,000 364-Day Credit Agreement dated as of November 28, 2002 among Torchmark Corporation, the Lenders party thereto, Bank One, NA, as Agent, and the other agents party thereto.

¹ Select as applicable.

6. Assigned Interest:

Facility	Aggregate Amount of Commitment/Loans for all Lenders*	Amount of Commitment/Loans Assigned*	Percentage Assigned of Commitment/Loans2
Revolving Commitment	$	$	_______%

7. Trade Date:                                                                                   ³

Effective Date:                         , 20     [TO BE INSERTED BY AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER BY THE AGENT.]

The terms set forth in this Assignment and Assumption are hereby agreed to:

ASSIGNOR [NAME OF ASSIGNOR]
By:
	Title:
ASSIGNEE [NAME OF ASSIGNEE]
By:
	Title:

[Consented to and]⁴ Accepted:

BANK ONE, NA, as Agent

By:
	Title:

[Consented to:]⁵

TORCHMARK CORPORATION

By:
	Title:

* Amount to be adjusted by the counterparties to take into account any payments or prepayments made between the Trade Date and the Effective Date.

² Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Lenders thereunder.

³ Insert if satisfaction of minimum amounts is to be determined as of the Trade Date.

⁴ To be added only if the consent of the Agent is required by the terms of the Credit Agreement.

⁵ To be added only if the consent of the Borrower is required by the terms of the Credit Agreement.

2

ANNEX 1

TERMS AND CONDITIONS FOR

ASSIGNMENT AND ASSUMPTION

1. Representations and Warranties.

1.1 Assignor. The Assignor represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby. Neither the Assignor nor any of its officers, directors, employees, agents or attorneys shall be responsible for (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency, perfection, priority, collectibility, or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document, (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Documents, (v) inspecting any of the property, books or records of the Borrower, or any guarantor, or (vi) any mistake, error of judgment, or action taken or omitted to be taken in connection with the Loans or the Loan Documents.

1.2. Assignee. The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder, (iii) agrees that its payment instructions and notice instructions are as set forth in Schedule 1 to this Assignment and Assumption, (iv) confirms that none of the funds, monies, assets or other consideration being used to make the purchase and assumption hereunder are “plan assets” as defined under ERISA and that its rights, benefits and interests in and under the Loan Documents will not be “plan assets” under ERISA, (v) agrees to indemnify and hold the Assignor harmless against all losses, costs and expenses (including, without limitation, reasonable attorneys’ fees) and liabilities incurred by the Assignor in connection with or arising in any manner from the Assignee’s non-performance of the obligations assumed under this Assignment and Assumption, (vi) it has received a copy of the Credit Agreement, together with copies of financial statements and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest on the basis of which it has made such analysis and decision independently and without reliance on the Agent or any other Lender, and (vii) attached as Schedule 1 to this Assignment and Assumption is any documentation required to be delivered by the Assignee with respect to its tax status pursuant to the terms of the Credit Agreement, duly completed and executed by the Assignee and (b) agrees that (i) it will, independently and without reliance on the Agent, the Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.

2. Payments. The Assignee shall pay the Assignor, on the Effective Date, the amount agreed to by the Assignor and the Assignee. From and after the Effective Date, the Agent shall make all

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payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued to but excluding the Effective Date and to the Assignee for amounts which have accrued from and after the Effective Date.

3. General Provisions. This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of Illinois.

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SCHEDULE 1

TO ASSIGNMENT AND ASSUMPTION

A. Administrative Questionnaire

[to be supplied by Agent’s Closing Unit or Trading Documentation Unit]

B. US and Non-US Tax Information Reporting Requirements

[to be supplied by Agent’s Closing Unit or Trading Documentation Unit]

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EXHIBIT D

LOAN/CREDIT RELATED MONEY TRANSFER INSTRUCTION

To Bank One, NA,

as Agent (the “Agent”) under the Credit Agreement

Described Below.

Re: 364-Day Credit Agreement, dated November 28, 2002 (as the same may be amended or modified, the “Credit Agreement”), among Torchmark Corporation (the “Borrower”), the Lenders named therein and the Agent. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned thereto in the Credit Agreement.

The Agent is specifically authorized and directed to act upon the following standing money transfer instructions with respect to the proceeds of Advances or other extensions of credit from time to time until receipt by the Agent of a specific written revocation of such instructions by the Borrower, provided, however, that the Agent may otherwise transfer funds as hereafter directed in writing by the Borrower in accordance with Section 13.1 of the Credit Agreement or based on any telephonic notice made in accordance with Section 2.14 of the Credit Agreement.

Facility    Identification    Number(s)

Customer/Account Name

Transfer Funds To

For Account No.

Reference/Attention To

Authorized Officer (Customer Representative)	Date: November 28, 2002
(Please Print)	Signature
Bank Officer Name	Date: November 28, 2002
(Please Print)	Signature

(Deliver Completed Form to Credit Support Staff For Immediate Processing)

COMMITMENT ADDITION AGREEMENT

This Commitment Addition Agreement (this “Agreement”) is made and entered into as of the 10^th day of December, 2002 by and among Torchmark Corporation (the “Borrower”), Bank One, NA, as Agent (the “Agent”), and Regions Bank (the “Supplemental Lender”).

RECITALS

A. The Borrower, the Agent and various financial institutions are party to that certain Credit Agreement dated as of November 28, 2002 (the “Credit Agreement”) pursuant to which the “Aggregate Commitment” is $300,000,000. Terms used but not otherwise defined herein have the meaning ascribed to them by the Credit Agreement.

B. Acting pursuant to Section 2.5(b) of the Credit Agreement, the Borrower has elected to increase the Aggregate Commitment by $25,000,000 to $325,000,000 and has given prior notice of such fact to the Agent.

C. The Supplemental Lender wishes to become a Lender under the Credit Agreement with a Commitment of $25,000,000.

D. As of the date hereof there are no extensions of credit outstanding under the Credit Agreement.

NOW THEREFORE, the Agent, the Borrower and the Supplemental Lender agree as follows:

1. The Supplemental Lender hereby joins the Credit Agreement as a Lender thereunder having a Commitment of $25,000,000 and having all the obligations and rights of a Lender thereunder as if an original party thereto.

2. Each of the Agent and the Borrower consents to the foregoing additional Commitment and joinder.

3. The parties acknowledge that, pursuant to Section 8.2 of the Credit Agreement, by virtue of this Agreement, the Credit Agreement is deemed amended without further action by any party to reflect the Supplemental Lender as a Lender thereunder with a Commitment of $25,000,000.

4. The Borrower certifies that on the date hereof no Default or Unmatured Default has occurred and is continuing under the Credit Agreement.

5. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart.

6. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (INCLUDING, WITHOUT LIMITATION, 735 ILCS SECTION 105/5-1 ET SEQ, BUT OTHERWISE WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.

IN WITNESS WHEREOF, the parties have entered into this Agreement by their duly authorized representatives as of the date first written above.

TORCHMARK CORPORATION
By:	/s/    MICHAEL J. KLYCE
Name:	Michael J. Klyce
Its:	Vice President & Treasurer
BANK ONE, NA, as Agent and Issuer
By:	/s/    THOMAS W. DODDRIDGE
Name:	Thomas W. Doddridge
Its:	Director, Capital Markets
REGIONS BANK
By:	/s/    SHANNON I. DYE
Name:	Shannon I. Dye
Its:	Vice President

EX-10.(Y)

EXHIBIT 10(y)

AMENDMENT NO. 2

Dated as of August 30, 2002

to

RECEIVABLES PURCHASE AGREEMENT

Dated as of December 21, 1999

THIS AMENDMENT NO. 2 (this “Amendment”) dated as of August 30, 2002 is entered into among:

(i) AILIC RECEIVABLES CORPORATION, a Delaware corporation (“Seller”),

(ii) AMERICAN INCOME LIFE INSURANCE COMPANY, an insurance company organized under the laws of Indiana (“AIL”), as the initial Servicer (the Servicer together with the Seller, the “Seller Parties” and each a “Seller Party”),

(iii) PREFERRED RECEIVABLES FUNDING CORPORATION, a Delaware corporation (“PREFCO”),

(iv) certain financial institutions parties hereto as the “Financial Institutions” (and, together with PREFCO, the “Purchasers”), and

(v) BANK ONE, NA (with headquarters in Chicago, Illinois), as agent for the Purchasers (the “Agent”).

PRELIMINARY STATEMENTS

A. Reference is made to that certain Receivables Purchase Agreement dated as of December 21, 2000 (as amended, restated, supplemented or otherwise modified since such date, the “Receivables Purchase Agreement”) among the Seller, AIL, PREFCO, certain financial institutions and the Agent. Unless defined elsewhere herein, capitalized terms used in this Agreement shall have the meanings assigned to such terms in the Receivables Purchase Agreement.

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B. The Seller Parties have requested that the Purchasers and the Agent amend the Receivables Purchase Agreement and the Purchasers and the Agent have agreed to amend the Receivables Purchase Agreement on the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the premises set forth above and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Seller Parties, PREFCO, the Financial Institutions and the Agent hereby agree as follows:

SECTION 1. Amendments to the Receivables Purchase Agreement. The Receivables Purchase Agreement is, effective the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 2 hereof, hereby amended as follows:

1.1 Exhibit I to the Receivables Purchase Agreement is amended to delete the definition therein of “Liquidity Termination Date” in its entirety and to substitute the following new definition therefor:

“Liquidity Termination Date” means August 29, 2003.”

SECTION 2. Conditions Precedent. This Amendment shall become effective and be deemed effective as of the date hereof upon receipt by the Agent of

(i) counterparts of this Amendment executed by each of the Seller Parties, the Purchasers and the Agent;

(ii) a reaffirmation of guaranty executed by Torchmark, substantially in the form of Exhibit A hereto;

(iii) an opinion of Wood Tuohy Gleason Mercer & Herrin, P.C., substantially in the form of Exhibit B hereto, accompanied by a letter from Mr. William J. Wood identifying the members of the staff of the Insurance Regulatory Agency that he consulted prior to rendering such opinion; and

(iv) an amended and restated Fee Letter, in form and substance satisfactory to the Agent, together with any fees payable thereunder on the date of closing of this Amendment.

SECTION 3. Covenants, Representations and Warranties of the Seller Parties.

3.l Upon the effectiveness of this Amendment, each of the Seller Parties hereby reaffirms all covenants, representations and warranties made by it in the Receivables Purchase Agreement and agrees that all such covenants, representations and

2

warranties shall be deemed to have been re-made as of the effective date of this Amendment.

3.2 Each of the Seller Parties hereby represents and warrants to the Purchasers and the Agent that:

(a) each of the Receivables Purchase Agreement, the Receivables Sale Agreement, the Fee Letter and this Amendment has been duly authorized by proper corporate proceedings of each Seller Party and constitutes the legal, valid and binding obligation of such Person, enforceable against it in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and general principles of equity which may limit the availability of equitable remedies,

(b) after giving effect to the amendments contained herein, no Amortization Event or Potential Amortization Event exists or will result from the execution of this Amendment,

(c) no event or circumstance has occurred since August 31, 2001 that has resulted or could reasonably be expected to result in a Material Adverse Effect, and

(d) the Amendment does not affect the enforceability of the Receivables Purchase Agreement, the Receivables Sale Agreement or the Fee Letter against any Seller Party, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and general principles of equity which may limit the availability of equitable remedies.

SECTION 4. Reference to and Effect on the Receivables Purchase Agreement.

4.l Upon the effectiveness of this Amendment, each reference in the Receivables Purchase Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or words of like import shall mean and be a reference to the Receivables Purchase Agreement, as amended hereby, and each reference to the Receivables Purchase Agreement in any and all other documents, instruments, agreements, notes, certificates and other writings of every kind and nature shall mean and be a reference to the Receivables Purchase Agreement as amended hereby.

4.2 Except as specifically amended above, the Receivables Purchase Agreement and all other documents, instruments and agreements executed and/or delivered in connection therewith shall remain in full force and effect and are hereby ratified and confirmed.

4.3 The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of any Purchaser or the Agent

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under the Receivables Purchase Agreement or any other document, instrument or agreement executed in connection therewith, nor constitute a waiver of any provision contained therein, except as specifically set forth herein.

4.4 Each party hereto agrees and acknowledges that this Amendment constitutes a “Transaction Document” under and as defined in the Receivables Purchase Agreement.

SECTION 5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS.

SECTION 6. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. Delivery of an executed counterpart of this Amendment by facsimile shall be deemed as effective as delivery of an originally executed counterpart. Any party delivering an executed counterpart of this Amendment by facsimile will also deliver an original executed counterpart, but the failure of any party to so deliver an original executed counterpart of this Amendment will not affect the validity or effectiveness of this Amendment.

SECTION 7. Successors and Assigns. This Amendment shall be binding upon each of the Seller Parties, the Purchasers and the Agent and their respective successors and assigns, and shall inure to the benefit of each of the Seller Parties, the Purchasers and the Agent.

SECTION 8. Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose.

SECTION 9. Agent’s Expenses. Each Seller Party jointly and severally agrees to promptly reimburse the Agent for all of the reasonable out-of-pocket expenses, including, without limitation, attorneys’ and paralegals’ fees, it has heretofore or hereafter incurred or incurs in connection with the preparation, negotiation and execution of this Amendment and all other instruments, documents and agreements executed and delivered in connection with this Amendment.

SECTION 10. Integration. This Amendment contains the entire understanding of the parties hereto with regard to the subject matter contained herein. This Amendment supersedes all prior or contemporaneous negotiations, promises, covenants, agreements and representations of every nature whatsoever with respect to the matters referred to in this Amendment, all of which have become merged and finally integrated into this Amendment. Each of the parties hereto understands that in the event

4

of any subsequent litigation, controversy or dispute concerning any of the terms, conditions or provisions of this Amendment, no party shall be entitled to offer or introduce into evidence any oral promises or oral agreements between the parties relating to the subject matter of this Amendment not included or referred to herein and not reflected by a writing included or referred to herein.

SECTION 11. No Course of Dealing. The Agent and the Purchasers have entered into this Amendment on the express understanding with each Seller Party that in entering into this Amendment the Agent and the Purchasers are not establishing any course of dealing with the Seller Parties. The Agent’s and the Purchasers’ rights to require strict performance with all of the terms and conditions of the Receivables Purchase Agreement and the other Transaction Documents shall not in any way be impaired by the execution of this Amendment. None of the Agent and the Purchasers shall be obligated in any manner to execute any further amendments or waivers and if such waivers or amendments are requested in the future, assuming the terms and conditions thereof are satisfactory to them, the Agent and the Purchasers may require the payment of fees in connection therewith.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the date first above written.

AILIC RECEIVABLES CORPORATION
By:	/s/    MICHAEL J. KLYCE
Name:	Michael J. Klyce
Title:	Vice President & Treasurer
Address:	3700 South Stonebridge Dr.
	McKinney, Texas 75070
	FAX: (972) 569-3282
Attention:	Danny Almond
AMERICAN INCOME LIFE INSURANCE COMPANY, as Servicer
By:	/s/    LARRY M. HUTCHISON
Name:	Larry M. Hutchison
Title:	Executive Vice President and General Counsel
Address:	1200 Wooded Acres
	Waco, Texas 76710
	FAX: (205) 325-4157
Attention:	Michael J. Klyce
	Vice President and Treasurer

Amendment No.2

dated as of August 30, 2002

to Receivables Purchase Agreement

dated as of December 21, 1999

PREFERRED RECEIVABLES FUNDING CORPORATION
By:	/s/    EDWIN J. REISINGER
Name:	Edwin J. Reisinger
Title:	Authorized Signatory
Address:	c/o Bank One, NA, as Agent
	Asset Backed Finance
	Suite IL1-0079, 1-19 1 Bank One Plaza Chicago, Illinois 60670-0019
Fax:	(312) 732-1844
BANK ONE, NA, as a Financial Institution and as Agent
By:	/s/    EDWIN J. REISINGER
Name:	Edwin J. Reisinger
Title:	Director, Capital Markets
Address:	Bank One, NA
	Asset Backed Finance
	Suite IL1-0079, 1-19 1 Bank One Plaza Chicago, Illinois 60670-0019
Fax:	(312) 732-4487

Amendment No.2

dated as of August 30, 2002

to Receivables Purchase Agreement

dated as of December 21, 1999

Exhibit A

to

Amendment No. 2

Dated as of August 30, 2002

FORM OF REAFFIRMATION OF PERFORMANCE GUARANTY

The undersigned, TORCHMARK CORPORATION (“Torchmark”), hereby:

(a) acknowledges, and consents to, the execution of the following documents, each dated on or as of August 30, 2002 (collectively, the “Amendment Documents”):

(i) that certain Amendment No. 2 to the Receivables Purchase Agreement dated as of December 21, 1999 (as amended, restated, supplemented or otherwise modified from time to time, the “Receivables Purchase Agreement”) among AILIC RECEIVABLES CORPORATION (“Seller”), AMERICAN INCOME LIFE INSURANCE COMPANY (“AIL”), as the initial Servicer, PREFERRED RECEIVABLES FUNDING CORPORATION (“PREFCO”), the financial institutions party thereto as “Financial Institutions” and BANK ONE, NA (with headquarters in Chicago, Illinois), as “Agent”; and

(ii) that certain Second Amended and Restated Fee Letter among the Agent, PREFCO, the Seller and Torchmark;

(b) reaffirms all of its obligations under that certain Performance Guaranty (the “Performance Guaranty”) dated as of December 21, 1999 and amended and restated as of March 31, 2000 made by Torchmark in favor of the Agent; and

(c) acknowledges and agrees that such Performance Guaranty remains in full force and effect (including, without limitation, with respect to the “Guaranteed Obligations” and “Obligations” (each as defined in the Performance Guaranty) after giving effect to the Amendment Documents), and such Performance Guaranty is hereby ratified and confirmed.

Dated: August 30, 2002

TORCHMARK CORPORATION
By
	Name: Title:

Exhibit B

to

Amendment No. 2

Dated as of August 30, 2002

FORM OF INDIANA REGULATORY OPINION

(Attached hereto)

EX-11

Exhibit 11. Statement re computation of per share earnings

TORCHMARK CORPORATION  COMPUTATION OF EARNINGS PER SHARE

	Twelve months ended December 31,
	2002			2001			2000
Income from continuing operations before extraordinary item and cumulative effect of change in accounting principle	$	383,435,000		$	390,930,000		$	361,833,000
Loss from discontinued operations (net of applicable tax benefit)		-0-			(3,280,000	)		-0-
Income before extraordinary item and change in accounting principle		383,435,000			387,650,000			361,833,000
Gain (loss) on redemption of debt (net of applicable tax)		(2,000	)		(277,000	)		202,000
Loss on redemption of monthly income preferred securities (net of tax)		-0-			(4,276,000	)		-0-
Income before cumulative effect of change in accounting principle		383,433,000			383,097,000			362,035,000
Cumulative effect of change in accounting principle (net of applicable tax)		-0-			(26,584,000	)		-0-
Net Income	$	383,433,000		$	356,513,000		$	362,035,000
Basic weighted average shares outstanding		120,258,685			125,134,535			128,089,235
Diluted weighted average shares outstanding		120,669,115			125,860,937			128,353,404
Basic earnings per share:
Income from continuing operations before extraordinary item and cumulative effect of change in accounting principle	$	3.19		$	3.12		$	2.83
Loss from discontinued operations (net of applicable tax benefit)		-0-			(.02	)		-0-
Income before extraordinary item and change in accounting principle		3.19			3.10			2.83
Loss on redemption of debt (net of applicable tax benefit)		-0-			-0-			-0-
Loss on redemption of monthly income preferred securities		-0-			(.04	)		-0-
Income before cumulative effect of change in accounting principle		3.19			3.06			2.83
Cumulative effect of change in accounting principle (net of applicable tax)		-0-			(.21	)		-0-
Net Income	$	3.19		$	2.85		$	2.83
Diluted earnings per share:
Income from continuing operations before extraordinary item and cumulative effect of change in accounting principle	$	3.18		$	3.11		$	2.82
Loss from discontinued operations (net of applicable tax benefit)		-0-			(.03	)		-0-
Income before extraordinary item and change in accounting principle		3.18			3.08			2.82
Loss on redemption of debt (net of applicable tax benefit)		-0-			-0-			-0-
Loss on redemption of monthly income preferred securities		-0-			(.04	)		-0-
Income before cumulative effect of change in accounting principle		3.18			3.04			2.82
Cumulative effect of change in accounting principle (net of applicable tax)		-0-			(.21	)		-0-
Net Income	$	3.18		$	2.83		$	2.82

97

EX-20

March 24, 2003

To the Stockholders of

    TORCHMARK CORPORATION:

Torchmark’s 2003 annual meeting of stockholders will be held in the auditorium at the executive offices of the Company, 2001 Third Avenue South, Birmingham, Alabama 35233 at 10:00 a.m., Central Daylight Time, on Thursday, April 24, 2003. The meeting will be conducted using Robert’s Rules of Order and the Company’s Shareholder Rights Policy. This policy is posted on Torchmark’s web site at http://www.torchmarkcorp.com or you may obtain a printed copy by writing to the Corporate Secretary at the Company’s executive offices.

The accompanying notice and proxy statement discuss proposals which will be submitted to a stockholder vote. If you have any questions or comments about the matters discussed in the proxy statement or about the operations of your Company, we will be pleased to hear from you.

It is important that your shares be voted at this meeting. Please mark, sign, and return your proxy or vote over the telephone or the Internet. If you attend the meeting, you may withdraw your proxy and vote your stock in person if you desire to do so.

We hope that you will take this opportunity to meet with us to discuss the results and operations of the Company during 2002.

Sincerely,

C.B. Hudson

Chairman & Chief Executive Officer

Notice of Annual Meeting of Stockholders

to be held April 24, 2003

To the Holders of Common Stock of

TORCHMARK CORPORATION

The annual meeting of stockholders of Torchmark Corporation will be held at the executive offices of the Company, 2001 Third Avenue South, Birmingham, Alabama 35233 on Thursday, April 24, 2003 at 10:00 a.m., Central Daylight Time. The meeting will be conducted in accordance with Robert’s Rules of Order and the Company’s Shareholders Rights Policy. You will be asked to:

(1)  Elect the nominees shown in the proxy statement as directors to serve for their designated terms or until their successors have been duly elected and qualified.

(2)  Consider the appointment of Deloitte & Touche LLP as independent auditors.

(3)  Approve the Torchmark Corporation Annual Management Incentive Plan.

(4)  Consider a shareholder proposal regarding holding tobacco equities in the Company’s investment portfolio.

(5)  Transact any other business that properly comes before the meeting.

These matters are more fully discussed in the accompanying proxy statement.

The close of business on Monday, March 3, 2003 is the date for determining stockholders who are entitled to notice of and to vote at the annual meeting. You are requested to mark, date, sign, and return the enclosed form of proxy in the accompanying envelope, whether or not you expect to attend the annual meeting in person. You may also choose to vote your shares over the telephone or the Internet. You may revoke your proxy at any time before it is voted at the meeting.

The annual meeting may be adjourned from time to time without further notice other than by an announcement at the meeting or at any adjournment. Any business described in this notice may be transacted at any adjourned meeting.

By Order of the Board of Directors

Carol A. McCoy

Vice President, Associate Counsel & Secretary

Birmingham, Alabama

March 24, 2003

PROXY STATEMENT

Solicitation of Proxies

The Board of Directors of Torchmark Corporation solicits your proxy for use at the 2003 annual meeting of stockholders and at any adjournment of the meeting. The annual meeting will be held at the executive offices of the Company, 2001 Third Avenue South, Birmingham, Alabama 35233 at 10:00 a.m., Central Daylight Time on Thursday, April 24, 2003. C.B. Hudson and Larry M. Hutchison are named as proxies on the proxy/direction card. They have been designated as directors’ proxies by the Board of Directors.

If the enclosed proxy/direction card is returned, properly executed, and in time for the meeting, your shares will be voted at the meeting. All proxies will be voted in accordance with the instructions set forth on the proxy/direction card. If proxies are executed and returned which do not specify a vote on the proposals considered, those proxies will be voted FOR proposals 1, 2 and 3 and AGAINST proposal 4. You have the right to revoke your proxy by giving written notice of revocation addressed to the Secretary of the Company at the address shown above at any time before the proxy is voted.

The card is considered to be voting instructions furnished to the respective trustees of each of the Torchmark Corporation Savings and Investment Plan, the Waddell & Reed Financial, Inc. 401-K and Savings and Investment Plan, the Liberty National Life Insurance Company 401(k) Plan and the Profit-Sharing and Retirement Plan of Liberty National Life Insurance Company with respect to shares allocated to individual’s accounts under these plans. If the account information is the same, participants in one or more of the plans who are also shareholders of record will receive a single card representing all their shares. If a plan participant does not return a proxy/direction card to the Company, the trustees of any plan in which shares are allocated to the participant’s individual account will vote those shares in the same proportion as the total shares in that plan for which directions have been received.

A simple majority vote of the holders of the issued and outstanding common stock of the Company represented in person or by proxy at the stockholders meeting is required to elect directors and approve all other matters put to a vote of stockholders. Abstentions are considered as shares present and entitled to vote. Abstentions have the same legal effect as a vote against a matter presented at the meeting. Any shares for which a broker or nominee does not have discretionary voting authority under applicable New York Stock Exchange rules will be considered as shares not entitled to vote and will not be considered in the tabulation of the votes.

Record Date and Voting Stock

Each stockholder of record at the close of business on March 3, 2003 is entitled to one vote for each share of common stock held on that date upon each proposal to be voted on by the stockholders at the meeting. At the close of business on March 3, 2003, there were 117,121,462 shares of common capital stock of the Company outstanding (not including 2,862,196 shares held by the Company which are non-voting while so held). There is no cumulative voting of the common stock.

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Principal Stockholders

The following table lists all persons known to be the beneficial owner of more than five percent of the Company’s outstanding common stock as of December 31, 2002, as indicated from Schedule 13G filings with the Securities and Exchange Commission.

Name and Address	Number of Shares	Percent of Class
AXA Conseil Vie Assurance Mutuelle
AXA Assurances I.A.R.D. Mutuelle
AXA Assurances Vie Mutuelle
370, rue Saint Honore
75001 Paris, France
AXA Courtage Assurance Mutuelle
26, rue Louis le Grand
75002 Paris, France
AXA
25, avenue Matignon
75008 Paris, France
AXA Financial, Inc.	10,746,076(1)	9.	1%
1290 Avenue of The Americas
New York, NY 10104
Dodge & Cox	11,257,884(2)	9.5	%
One Sansome Street, 35th Floor
San Francisco, CA 94104

(1) AXA Conseil Vie Assurance Mutuelle, AXA Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle and AXA Courtage Assurance Mutuelle, French companies (collectively, the “Mutuelles AXA”), acting as a parent holding company, and AXA, a French company, as a parent holding company, hold no shares of Torchmark stock directly and the Mutuelles AXA and AXA have disclaimed beneficial ownership of such stock. All stock reported is owned either by AXA subsidiary, AXA Rosenberg Investment Management LLC, solely for investment purposes, 1,500 shares (sole power to vote and shared power to dispose of 1,500 shares) or by subsidiaries of AXA Financial, Inc. (a Delaware corporation), Alliance Capital Management L.P., solely for investment purposes on behalf of client discretionary investment advisory accounts, 10,743,776 shares (sole power to vote 4,604,196 shares, shared power to vote 886,004 shares and sole power to dispose of 10,743,776 shares) or The Equitable Life Assurance Society of the United States, solely for investment purposes, 800 shares (sole power to dispose of 800 shares, no sole or shared power to vote).

(2) Stock reported as owned is beneficially owned by clients of Dodge & Cox, a California corporation, which clients may include investment companies registered under the Investment Company Act and/or employee benefit plans, pension funds, endowment funds or other institutional clients. Dodge & Cox has sole power to vote 10,426,984 shares, shared power to vote 231,000 shares and sole power to dispose of 11,257,884 shares.

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PROPOSAL NUMBER 1

Election of Directors

The Company’s By-laws provide that there will be not less than seven nor more than fifteen directors with the exact number to be fixed by the Board of Directors. In July, 2002, the number of directors was increased to twelve persons and Paul J. Zucconi was elected to the Board.

The Board of Directors proposes the election of David L. Boren, Louis T. Hagopian, Harold T. McCormick and Paul J. Zucconi as directors, to hold office for a term of three years, expiring at the close of the annual meeting of stockholders to be held in 2006 or until their successors are elected and qualified. Messrs. Boren, Hagopian, McCormick and Zucconi’s current terms expire in 2003. The term of Joseph W. Morris will expire at the April 2003 annual meeting of stockholders at which time he will retire from the Board. The term of office of the other seven directors continues until the close of the annual meeting of stockholders in the year shown in the biographical information below.

Non-officer directors retire from the Board of Directors at the annual meeting of stockholders which immediately follows their 78th birthday. Directors who are employee officers of the Company retire from active service as directors at the annual stockholders meeting immediately following their 65th birthday, except that these directors may be elected to a series of additional three year terms not to continue beyond the annual meeting of stockholders following the director’s 78th birthday.

If any of the nominees becomes unavailable for election, the directors’ proxies will vote for the election of any other person recommended by the Board of Directors unless the Board reduces the number of directors.

The Board recommends that the stockholders vote FOR the nominees.

Profiles of Directors and Nominees⁽¹⁾

David L. Boren (age 62) has been a director of the Company since April, 1996. He is a director of Conoco-Phillips Inc., AMR Corporation and Texas Instruments, Inc. Principal occupation: President of The University of Oklahoma, Norman, Oklahoma since November, 1994.

Joseph M. Farley (age 75) has been a director of the Company since 1980. His term expires in 2004. Principal occupation: Of Counsel at Balch & Bingham LLP, Attorneys and Counselors, Birmingham, Alabama since November, 1992.

Louis T. Hagopian (age 77) has been a director of the Company since 1988. Principal occupation: Owner of Meadowbrook Enterprises, Darien, Connecticut, an advertising and marketing consultancy, since January, 1990.

C. B. Hudson (age 57) has been a director since 1986. His term expires in 2004. Principal occupation: Chairman and Chief Executive Officer of the Company since March, 1998. (President of the Company, March, 1998-April, 2001; Chairman of Insurance Operations of the Company January, 1993-March, 1998; Chairman of Liberty, United American and Globe October, 1991-September, 1999 and Chief Executive Officer of Liberty December, 1989-September, 1999, of United American November, 1982-September, 1999 and of Globe February, 1986-September, 1999).

Joseph L. Lanier, Jr. (age 71) has been a director of the Company since 1980. His term expires in 2004. He is a director of Dan River Incorporated, Flowers Foods and Dimon Inc. Principal occupation: Chairman of the Board and Chief Executive Officer of Dan River Incorporated, Danville, Virginia, a textile manufacturer, since November, 1989.

Mark S. McAndrew (age 49) has been a director of the Company since July, 1998. His term expires in 2005. Principal occupation: Chairman of Insurance Operations of the Company since February, 2003; Chief Executive Officer of United American, Globe and American Income since September, 1999; President of United American and Globe since October, 1991 and of American Income since September, 1999 (Executive Vice President of the Company, September, 1999-February, 2003; Chairman of United American, Globe and American Income, September 1999-June, 2001; Vice President of the Company April-September, 1999).

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Harold T. McCormick (age 74) has been a director since April, 1992. Principal occupation: Chairman and Chief Executive Officer of Bay Point Yacht & Country Club, Panama City, Florida, since March, 1988; Director, First Ireland Spirits Co., Ltd., Abbeyleix, Ireland, since February, 2001 (Chairman, February, 1996-February, 2001).

George J. Records (age 68) has been a director of the Company since April, 1993. His term expires in 2005. Principal occupation: Chairman of Midland Financial Co., Oklahoma City, Oklahoma, a bank and financial holding company for retail banking and mortgage operations, since 1982.

R. K. Richey (age 76) has been a director of the Company since 1980. His term expires in 2004. Principal occupation: Chairman of the Executive Committee of the Board of Directors of the Company since March, 1998. (Chairman of the Company, August, 1986-March, 1998 and Chief Executive Officer of the Company, December, 1984-March, 1998).

Lamar C. Smith (age 55) has been a director of the Company since October, 1999. His term expires in 2005. Principal Occupation: Chairman since 1992 and Chief Executive Officer since 1990 of First Command Financial Services, Inc., Fort Worth, Texas.

Paul J. Zucconi (age 62) has been a director of the Company since July, 2002. He is a director of Titanium Metals Corporation. Principal occupation: Business Consultant, Plano, Texas, since January, 2001. (Partner, KPMG LLP July, 1976-January, 2001)

(1) Liberty, Globe, United American, American Income and UILIC as used in this proxy statement refer to Liberty National Life Insurance Company, Globe Life And Accident Insurance Company, United American Insurance Company, American Income Life Insurance Company and United Investors Life Insurance Company, subsidiaries of the Company.

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PROPOSAL NUMBER 2

Approval of Auditors

A proposal to approve the appointment of the firm of Deloitte & Touche LLP as the principal independent accountants of the Company to audit the financial statements of the Company and its subsidiaries for the year ending December 31, 2003 will be presented to the stockholders at the annual meeting. Deloitte & Touche served as the principal independent accountants of Torchmark, auditing the financial statements of the Company and its subsidiaries for the fiscal year ended December 31, 2002 and has served in such capacity since 1999. The Audit Committee of the Board recommends the appointment of Deloitte & Touche to serve as the Company’s principal independent accountants for 2003.

A representative of Deloitte & Touche is expected to be present at the meeting and available to respond to appropriate questions and, although the firm has indicated that no statement will be made, an opportunity for a statement will be provided.

If the stockholders do not ratify the appointment of Deloitte & Touche LLP, the selection of independent auditors will be reconsidered by the Board of Directors.

The Board recommends that stockholders vote FOR the proposal.

PROPOSAL NUMBER 3

Approval of Annual Management Incentive Plan

Torchmark’s executive compensation program has for a number of years included short-term incentive bonus awards to selected senior executive officers. On February 25, 2003, the Board of Directors adopted the Torchmark Corporation Annual Management Incentive Plan (the Plan), subject to shareholder approval. The Plan is consistent with Torchmark’s historical practices for the payment of bonuses to its senior executive officers. The purposes of the Plan are to attract and retain top quality senior executives and to reward selected senior executive officers for their contributions to superior corporate performance through the payment of objectively-determined, performance-based annual bonuses. Subject to Torchmark shareholders’ approval of the Plan, compensation paid pursuant to the Plan is intended, to the extent reasonable, to qualify as “performance-based compensation” not subject to the limitations of the Internal Revenue Code Section 162(m) on tax deductibility of executive compensation in excess of $1 million. In order to ensure that Torchmark can receive a federal income tax deduction for the bonus compensation paid to such senior executives, Torchmark is submitting the Plan for your approval. In addition to compensation payable under the Plan, Torchmark may compensate its executives and key employees, in the form of salaries, bonuses or other benefits, for which Torchmark may or may not receive a tax deduction. A brief summary of the material provisions of the Plan follows. This summary is qualified in its entirety by a complete copy of the Plan, which is included as Attachment A to this Proxy Statement.

Description of Plan

Administration

The Plan will be administered by the Compensation Committee of the Board of Directors of Torchmark, which will always be comprised of at least three directors, each of whom must be an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code. All questions of Plan interpretation will be determined by the Compensation Committee and its decisions will be final and binding on all participants. The Compensation Committee will interpret the Plan in a manner consistent with the requirements to qualify payments made under the Plan as deductible “performance-based” compensation under Section 162(m).

Eligibility And Participation

Persons eligible to participate in the Plan will include all “covered employees” as defined in Section 162(m), meaning those employees who, on the last day of Torchmark’s taxable year, are the chief executive

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officer of the Company and the four highest paid executive officers (other than the chief executive officer) whose compensation is required to be reported to shareholders in the Summary Compensation Table in the Proxy Statement. Additionally, the Compensation Committee may annually designate any other executive officer of Torchmark or its subsidiaries to participate in the Plan. In total, eight employees (including all of Torchmark’s named Executive Officers in this Proxy Statement) are currently eligible to participate in the Plan and three employees have been designated to participate in the Plan for the current fiscal year.

Plan Operation

The Plan will provide for the establishment of a portion of Torchmark’s annual bonus pool from which bonuses to each eligible executive will be paid, subject to the attainment of the pre-determined performance criteria discussed below.

Bonus Pool.    Each year, the Torchmark Compensation Committee establishes a bonus pool from which all eligible executives of Torchmark and its subsidiaries, defined as those executives whose cash compensation is $150,000 or more, may be paid bonuses. The amount of the total bonus pool for the performance period (typically a calendar year) is determined by taking a percentage, not to exceed 1%, of Torchmark’s pre-tax operating income for the performance period. Pre-tax operating income is defined by Torchmark as income, before taxes, excluding realized investment losses and certain other nonoperating items, nonrecurring items and discontinued operations which may vary from year to year.

The actual percentage for determining the amount of the bonus pool is determined by the Compensation Committee not later than 90 days after the beginning of each year. The percentage to be used for establishing the bonus pool is based on the percentage derived by dividing the aggregate amount of the target bonus amounts for all executives of Torchmark and its subsidiaries who are eligible to receive a bonus (including bonuses paid outside of the Plan) by the amount of Torchmark’s projected pre-tax operating income for the year. Each year, the Compensation Committee will determine, with input from the Chief Executive Officer, target bonus amounts for all company executives covered by the Plan, which are the maximum bonus amounts payable to a participating executive assuming the attainment of the performance or other criteria used for evaluating the performance of such executive. The maximum bonus amount payable under the Plan to the Chief Executive Officer and the other four “covered employees” will not exceed 40% of the total bonus pool.

Target Bonuses and Performance Criteria.    Under the Plan, the Compensation Committee will establish the performance criteria/objectives and target bonus awards for each participant not later than 90 days after the beginning of each year. These performance criteria/objectives that must be met in order for Torchmark to pay bonuses to Plan participants will be based on: (1) for holding company executives, growth in net operating income per share, pre-tax operating income and/or return on equity; and (2) for insurance company executives, growth in insurance operating income, underwriting income and/or premium income. Actual performance relative to the selected objective(s) will determine the extent to which the target bonus amount will be paid for a performance period, typically a fiscal year. The chief executive officer may be paid a bonus not to exceed 15% of the total bonus pool described above; the four other “covered employees” may be paid individual bonuses which in total may not exceed 25% of the total bonus pool. The maximum bonus amount which may be paid to any single participant in any one fiscal year is $1,500,000 and a minimum of zero may be paid.

Calculation and Payment of Annual Awards.    At the end of the performance period, the Compensation Committee will be required to determine if the performance criteria/objectives have been met by a participant and certify the same before any bonus is actually paid. The Plan gives the Compensation Committee the right, in its sole discretion, to reduce the amount to be paid based upon that Committee’s assessment of the participant’s individual performance or for any other reason. The Plan does not permit the Compensation Committee to increase a bonus payment above the objectively-determined amount.

These awards will be payable to participants (provided they are employed by Torchmark or any of its subsidiaries as of the determination date) as soon as practicable after final determination by the Compensation Committee, either in cash or in the form of non-qualified Torchmark stock options with an exercise price equal to the fair market value of Torchmark common stock on the payment date of the bonus.

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Amendment and Termination of the Plan

Torchmark’s Board of Directors may at any time alter, amend, suspend or terminate the Plan in whole or in part. However, no such action will be effective without approval by the shareholders of Torchmark to the extent that this approval is required to continue to qualify the payments under the Plan for treatment as performance-based compensation under Section 162(m).

Federal Income Tax Consequences

Cash payments made under the Plan will be taxable to the recipient thereof when paid, and Torchmark or the subsidiary of Torchmark which employs or employed the recipient will generally be entitled to a federal income tax deduction in the calendar year for which the amount is paid.

If the recipient of a bonus determines to receive payment in the form of non-qualified Torchmark stock options, such stock options will be taxable to him or her when the options are exercised. Torchmark or its subsidiary which employs or employed the recipient will also be entitled to a federal income tax deduction for the calendar year in which the option was exercised.

New Plan Benefits

No awards have been paid under the Plan. The Compensation Committee has fixed the total bonus pool for 2003 at .60% of pre-tax operating income for 2003. Because payment of any award for 2003 to a participating executive will be contingent upon the attainment of performance objectives that have been established for that calendar year by the Compensation Committee, the amounts payable to eligible participants under the Plan for 2003 cannot currently be determined. Since such amounts are not presently determinable, the amounts that would have been awarded for fiscal year 2002, based upon the formula for calculating the 2003 total bonus pool (as described above) and assuming the attainment of the performance objectives/targets set by the Compensation Committee for 2003 are as follows:

New Plan Benefits

Torchmark Corporation Short-Term Incentive Plan

Name and Position(1)	Dollar Value
C.B. Hudson, Chairman & CEO	$576,000
Mark S. McAndrew, Chairman of Insurance Operations; President & CEO, UA, Globe & AIL	$384,000
Tony G. Brill, Executive Vice President & Chief Administrative Officer	$192,000
Executive Group (3 persons)	$1,152,000
Non-Executive Group	0
Non-Executive Officer Employee Group	0

(1) Messrs. Anthony L. McWhorter and Gary L. Coleman have not been designated as participants in the Plan for 2003 and thus their bonuses are not determinable or subject to estimation for purposes of this Table.

Required Vote

In order to be adopted, this proposal must receive the affirmative vote of a majority of the holders of common shares eligible to be voted at the Annual Meeting. As a result, any shares not voted (whether by abstention, broker non-vote or otherwise) will have the same effect as a vote against the proposal.

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The Board recommends that you vote FOR the adoption of the Torchmark Corporation Annual Management Incentive Plan.

PROPOSAL NUMBER 4

Shareholder Proposal

Torchmark received the following resolution submitted by CHRISTUS Health and co-sponsored by the St. Joseph Health System and the Congregation of the Sisters of Charity of the Incarnate Word and is including it in this proxy statement in accordance with SEC Rule 14a-8 of the Securities and Exchange Act of 1934. Torchmark will provide the addresses for the proponents as well as the number of common shares of Torchmark that they hold promptly upon written or oral request addressed to the Corporate Secretary at the Company’s executive offices.

The Board recommends that stockholders vote AGAINST the proposal.

INSURANCE INVESTMENTS IN TOBACCO COMPANIES

WHEREAS—as shareholders, we are concerned about investing in the tobacco industry by any health care-related institution, especially when the negative health effects of tobacco use are so clearly understood by health care insurers and providers:

— A March 1998 analysis by the U.S. Treasury Department found the nation loses $80 billion a year on goods and services otherwise produced by Americans who die prematurely or retire early because of smoking-related ills.

— A Philip Morris-commissioned Arthur D. Little International Report in 2001 showed a cost-benefit analysis of smoking and social services in the Czech Republic. It showed savings of $24.2 million to $30.6 million from lower costs for health care and retirement benefits caused by a shortened life span of smokers who die early by tobacco use. If this Report is true it would indicate that, for purely financial reasons, such investments undermine the bottom-line of our industry, to say nothing of the ethical implications.

— While Steve Parrish, Senior Vice President of Corporate Affairs for PM, responded that for the company “to commission this study was not only a terrible mistake, it was wrong” (USA Today 07/30/01). This apology for the Report being commissioned failed to include an apology for the facts contained in the report.

— In 1996 the AMA called for mutual funds and health-conscious investors to divest from stocks and bonds in tobacco companies.

— We believe it is inconsistent for insurers to invest in tobacco equities and yet proclaim concerns about health and life. Whether or not the facts in studies such as that commissioned by Philip Morris are true or not is not the issue. The fact is that our company is invested in an industry that has a cavalier attitude toward life itself.

RESOLVED: That shareholders request the Board to initiate a policy mandating no further purchases of tobacco equities in any of the portfolios under our direct control unless it can be proven that tobacco use does not cause the illnesses and deaths that have been attributed to it. If the company cannot produce such proof, it shall divest itself of all tobacco stocks by January 1, 2004.

Supporting Statement

In commenting on the huge equities of health insurers and health providers in tobacco, a July 7-9, 1995 editorial in USA Today declared:

Major U.S. health insurers are large investors in major U.S. tobacco companies. In other words, the nation’s merchants of care are partners with the nation’s merchants of death. . . . These investments grate and gall. Every year, tobacco use is fatal for thousands of Americans. For insurers to provide health care for those suffering smokers on the one hand while investing in the source of their misery on the other is unconscionable. And hypocritical.

Harvard, Johns Hopkins and The Maryland Retirement and Pension Systems have divested from tobacco stocks. If you think our Company should not profit from peoples’ illness and death by investing in tobacco, vote YES for this resolution.

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OTHER BUSINESS

The directors are not aware of any other matters which may properly be and are likely to be brought before the meeting. If any other proper matters are brought before the meeting, the persons named in the proxy, or in the event no person is named, C.B. Hudson and Larry M. Hutchison will vote in accordance with their judgment on these matters.

INFORMATION REGARDING DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS

Executive Officers

The following table shows certain information concerning each person deemed to be an executive officer of the Company, except those persons also serving as directors. Each executive officer is elected by the Board of Directors of the Company or its subsidiaries annually and serves at the pleasure of that board. There are no arrangements or understandings between any executive officer and any other person pursuant to which the officer was selected.

Name	Age	Principal Occupation and Business Experience for the Past Five Years(1)
Tony G. Brill	60	Executive Vice President and Chief Administrative Officer of Company since September, 1999. (Vice President of Company, January, 1997-September, 1999).
Gary L. Coleman	50	Executive Vice President and Chief Financial Officer of Company since September, 1999. (Vice President and Chief Accounting Officer of Company, July, 1994-September, 1999).
Larry M. Hutchison	49	Executive Vice President and General Counsel of Company since September, 1999; (Vice President and General Counsel of Company, April, 1997-September, 1999).
Anthony L. McWhorter	53	President of Liberty since December, 1994 and of UILIC since September, 1998; Chief Executive Officer of Liberty and UILIC since September, 1999; Executive Vice President of Company since September, 1999. (Chairman of Liberty and UILIC, September, 1999-June, 2001).
Rosemary J. Montgomery	53	Executive Vice President and Chief Actuary of Company, United American and Globe since September, 1999 and of American Income since October, 1999. (Senior Vice President and Chief Actuary of United American, October, 1991-September, 1999 and of Globe, May, 1992-September, 1999).
Russell B. Tucker	55	Executive Vice President and Chief Investment Officer of Company since October, 2001; (Vice President of Company, January, 1997-October, 2001).

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Stock Ownership

The following table shows certain information about stock ownership of the directors, director nominees and executive officers of the Company as of December 31, 2002.

	Company Common Stock or Options Beneficially Owned as of December 31, 2002(1)
Name	Directly(2)	Indirectly(3)
David L. Boren	28,422	0
Norman, OK
Joseph M. Farley	155,383	4,800
Birmingham, AL
Louis T. Hagopian	186,807	0
Darien, CT
C. B. Hudson	2,168,536	192,439
Plano, TX
Joseph L. Lanier, Jr.	182,221	18,912
Lanett, AL
Mark S. McAndrew	425,597	9,873
McKinney, TX
Harold T. McCormick	0	96,146
Panama City, FL
George J. Records	104,517	0
Oklahoma City, OK
R. K. Richey	1,004,909	1,352,413
Plano, TX
Lamar C. Smith	22,179	0
Fort Worth, TX
Paul J. Zucconi	500	0
Plano, TX
Tony G. Brill	315,611	3,036
Plano, TX
Gary L. Coleman	321,183	14,358
Richardson, TX
Larry M. Hutchison	202,009	9,686
Duncanville, TX
Anthony L. McWhorter	293,828	10,524
Birmingham, AL
Rosemary J. Montgomery	257,311	546
Frisco, TX
Russell B. Tucker	63,689	7,931
Arlington, TX
All Directors, Nominees and Executive Officers as a group:(4)	5,732,702	1,720,664

(1) No directors, director nominees or executive officers other than R. K. Richey (1.9%) and C.B. Hudson (1.9%) beneficially own 1% or more of the common stock of the Company.

(2) Includes: for David L. Boren, 26,467 shares; for Joseph Farley, 76,485 shares; for Louis Hagopian, 124,447 shares; for Joseph Lanier, 116,628 shares; for Mark McAndrew, 314,846 shares; for Lamar Smith, 18,980 shares; for George Records, 83,867 shares; for R. K. Richey, 493,917 shares; for C. B. Hudson, 1,130,971 shares; for Tony Brill, 238,339 shares; for Anthony McWhorter, 226,377 shares; for Gary Coleman, 221,081 shares; for Larry Hutchison, 170,674 shares; for Rosemary Montgomery, 199,066 shares; for Russell Tucker, 49,466 shares; and for all directors, executive officers and nominees as a group, 3,491,611 shares, that are subject to presently exercisable Company stock options. Paul J. Zucconi holds options on 6,000 shares. None of such options are presently exercisable prior to July 2, 2003.

(3) Indirect beneficial ownership includes shares (a) owned by the director, executive officer or spouse as trustee of a trust or executor of an estate, (b) held in a trust in which the director, executive officer or a family member living in his home has a beneficial interest, (c) owned by the spouse or a family member

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living in the director’s, executive officer’s or nominee’s home or (d) owned by the director or executive officer in a personal corporation or limited partnership. Indirect beneficial ownership also includes approximately 19,237 shares, 9,873 shares, 2,429 shares, 8,704 shares, 14,358 shares, 7,931 shares, 9,686 shares and 546 shares calculated based upon conversion of stock unit balances held in the accounts of Messrs. Hudson, McAndrew, Brill, McWhorter, Coleman, Tucker and Hutchison and Ms. Montgomery, respectively, in the Company Savings and Investment Plan to shares. Additionally, indirect beneficial ownership includes for Mr. Richey 461,346 shares subject to stock options held by Richey Capital Partners, Ltd., a family limited partnership and for Mr. McCormick 88,544 shares subject to stock options transferred to his spouse. Indirect ownership for Mr. McWhorter also includes approximately 1,820 shares calculated based upon conversion of stock unit balance in the Profit Sharing & Retirement Plan of Liberty (PS&R Plan) to shares.

Mr. Lanier disclaims beneficial ownership of 16,512 shares owned by his spouse and 2,400 shares owned by his children. Mr. Farley disclaims 4,800 shares held as trustee of a church endowment fund.

(4) All directors, nominees and executive officers as a group, beneficially own 6.0% of the common stock of the Company.

During 2002, the Board of Directors met four times. In 2002, all of the directors attended at least 75% of the meetings of the Board and the committees on which they served.

Committees of the Board of Directors

The Board of Directors has the following standing committees: Audit-Messrs. Farley (Chairman), Hagopian, McCormick and Zucconi; Compensation — Messrs. Farley, Lanier (Chairman) and Hagopian; Executive — Messrs. Hudson, McAndrew and Richey (Chairman); Finance — Messrs. Farley, Lanier, McCormick, Records (Chairman) and Smith; and Nominating — Messrs. Boren, Farley, Hagopian, Lanier, McCormick, Records, Richey (Chairman) and Smith.

The audit committee recommends the independent auditors to be selected by the Board; discusses the scope of the proposed audit with the independent auditors and considers the audit reports; discusses the implementation of the auditors’ recommendations with management; reviews the fees of the independent auditors for audit and non-audit services; reviews the adequacy of the Company’s system of internal accounting controls; reviews, before publication or issuance, the quarterly and annual financial statements and any annual reports to be filed with the Securities and Exchange Commission and periodically reviews pending litigation. Additionally, the audit committee meets with the Company’s independent accountants and internal auditors both with and without management being present. The audit committee met seven times in 2002.

The compensation committee determines the compensation of senior management of the Company and its subsidiaries and affiliates. Additionally, the compensation committee administers the stock incentive plans of the Company. The compensation committee met three times in 2002.

The executive committee makes recommendations on the strategic direction to be taken by the Company to the Board of Directors. The executive committee did not meet in 2002.

The finance committee serves as the pricing committee in connection with capital financing by the Company. The finance committee did not meet in 2002.

The nominating committee reviews the qualifications of potential candidates for the Board of Directors from whatever source received, reports its findings to the Board and proposes nominations for Board membership for approval by the Board of Directors and for submission to the stockholders for approval. Recommendations of potential Board candidates may be directed to the nominating committee in care of the Corporate Secretary of the Company at the address stated herein. The nominating committee did not meet but executed one unanimous consent action in 2002.

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COMPENSATION AND OTHER TRANSACTIONS WITH

EXECUTIVE OFFICERS AND DIRECTORS

Summary Compensation Table
	Annual Compensation			Long Term Compensation
				Awards
(a) Name and Principal Position	(b) Year	(c) Salary ($)	(d) Bonus ($)(1)	(f) Restricted Stock Award(s) ($)(2)	(g) Securities underlying Options/SARs (#)(3)	(i) All other Compensation ($)(4)
C.B. Hudson	2002	800,000	0	0	138,431	7,302
Chairman and CEO	2001	800,000	0	0	657,182	5,381
	2000	800,000	0	0	379,849	6,393
Mark S. McAndrew	2002	700,000	270,000		100,000	6,000
President and CEO of	2001	680,000	250,000	0	185,398	5,100
United American, Globe and	2000	600,000	210,000	0	90,000	5,100
American Income
Tony G. Brill	2002	569,016	130,000	0	70,000	6,000
Executive Vice President and	2001	549,000	126,000	0	130,124	5,100
Chief Administrative Officer	2000	525,000	121,000	0	68,000	5,100
Anthony L. McWhorter	2002	425,048	136,000	0	70,000	6,000
President and Chief	2001	399,048	136,000	0	133,252	5,100
Executive Officer of Liberty	2000	375,024	136,000	0	68,000	5,100
and UILIC
Gary L. Coleman	2002	370,000	120,000	0	60,000	6,000
Executive Vice President	2001	344,000	110,000	0	156,376	5,100
and Chief Financial Officer	2000	320,000	96,000	0	54,000	5,100

(1) Mr. Hudson elected to defer all $400,000, $400,000 and $400,000 of his 2002, 2001 and 2000 bonuses and received for them Company stock options under the provisions of the Torchmark Corporation 1998 Stock Incentive Plan (1998 Incentive Plan).

(2) At year-end 2002, Messrs. McAndrew, McWhorter and Brill held 16,800, 10,500 and 16,800 restricted shares, respectively, valued at $613,704, $383,565 and $613,704 (based on a year-end closing price of $36.53 per share). Restricted stock (40,000 shares) awarded on January 1, 1998 at $42.1875 per share to each of Messrs. McAndrew and Brill vests as follows: 1-1-99 6,400 shares; 1-1-00 6,000 shares; 1-1-01 5,600 shares; 1-1-02 5,200 shares; 1-1-03 4,800 shares; 1-1-04 4,400 shares; 1-1-05 4,000 shares; and 1-1-06 3,600 shares. Restricted stock (25,000 shares) awarded on January 1, 1998 at $42.1875 per share to Mr. McWhorter vests as follows: 1-1-99 4,000 shares; 1-1-00 3,750 shares; 1-1-01 3,500 shares; 1-1-02 3,250 shares; 1-1-03 3,000 shares; 1-1-04 2,750 shares; 1-1-05 2,500 shares; and 1-1-06 2,250 shares. Cash dividends on all restricted stock are paid directly to the stockholder at the same rate as on unrestricted stock. Messrs. McAndrew, McWhorter and Brill agreed as a condition of their restricted stock awards to waive receipt of any shares of Waddell & Reed Financial, Inc. (WDR) stock distributed by Torchmark to its common shareholders in the WDR spin-off on November 6, 1998.

(3) On December 16, 2002, Messrs. Hudson, McAndrew, Brill, McWhorter and Coleman received stock option grants pursuant to the 1998 Incentive Plan on 100,000, 100,000, 70,000, 70,000 and 60,000 Torchmark shares, respectively. On that same date, Mr. Hudson elected to receive his 2002 bonus of $400,000 in the form of Torchmark stock options on 38,431 shares.

In August 2001, Messrs. Hudson, McAndrew, Brill, McWhorter and Coleman elected to participate in a program under the 1998 Incentive Plan whereby they exercised existing Torchmark stock options and received restoration options for 519,515, 85,398, 60,124, 63,252 and 96,376 Torchmark shares, respectively. On December 13, 2001, Messrs. Hudson, McAndrew, Brill, McWhorter and Coleman received stock option grants pursuant to the 1998 Incentive Plan on 100,000, 100,000, 70,000 70,000 and 60,000 Torchmark shares, respectively. Also, on that same date, Mr. Hudson elected to receive his 2001 bonus of $400,000 in the form of Torchmark stock options on 37,667 shares.

On December 20, 2000, Mr. Hudson elected to participate in a restoration program under the 1998 Incentive Plan, comparable to a November 1999 program for other eligible Company officers, directors and employees in which Mr. Hudson could not participate because of Securities and Exchange Commission rules, whereby he exercised existing Torchmark stock options and received restoration options on 251,351 Torchmark shares.

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          Also, on that same date, Mr. Hudson elected to receive his 2000 bonus of $400,000 in the form of Torchmark stock options on 38,498 shares. Messrs. Hudson, McAndrew, Brill, McWhorter and Coleman received stock option grants pursuant to the 1998 Incentive Plan on 90,000, 90,000, 68,000, 68,000 and 54,000 Torchmark shares, respectively, on December 20, 2000.

(4) Includes Company contributions to Torchmark Corporation Savings and Investment Plan, a funded, qualified defined contribution plan, for each of Messrs. Hudson, McAndrew, Brill, McWhorter and Coleman of $6,000 in 2002 and of $5,100 in 2001 and 2000, interest only on prior contributions to the Torchmark Corporation Supplemental Savings and Investment Plan, an unfunded, non-qualified defined contribution plan, for Mr. Hudson of $1,302, $1,281 and $1,293, respectively, in 2002, 2001 and 2000.

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OPTION GRANTS IN LAST FISCAL YEAR
	Individual Grants				Potential realizable value at assumed annual rates of stock price appreciation for option term
Name (a)	Number of Securities underlying options granted(#) (b)(1)	% of total options granted to employees in fiscal year (c)	Exercise or base price ($/share) (d)	Expiration Date (e)	0% ($)	5% ($) (f)	10% ($) (g)
C.B. Hudson	100,000	9.3	37.44	12-18-12	0	2,354,583	5,966,970
	38,431	3.6	37.44	12-16-13	0	1,022,076	2,293,166
Mark S. McAndrew	100,000	9.3	37.44	12-18-12	0	2,354,583	5,966,970
Tony G. Brill	70,000	6.5	37.44	12-18-12	0	1,648,208	4,176,879
Anthony L. McWhorter	70,000	6.5	37.44	12-18-12	0	1,648,208	4,176,879
Gary L. Coleman	60,000	6.0	37.44	12-18-12	0	1,412,750	3,580,182

(1) Options expiring on 12-18-12 are non-qualified stock options granted in Torchmark common stock pursuant to the 1998 Incentive Plan with a ten year and two day term at an exercise price equal to the closing price of the Company’s common stock on the grant date. Options expiring on 12-18-12 granted to Messrs. McAndrew, Brill, McWhorter and Coleman and to Mr. Hudson for 100,000 shares are not exercisable during the first two years after the grant date and vest on 50% of the shares two years after the grant date and on the remaining 50% of the shares three years after the grant date.

          Options expiring on 12-16-13 are non-qualified stock options granted in Torchmark stock with an eleven year term, an exercise price equal to the closing price of the Company’s common stock on the grant date and are fully vested upon issuance, but are only first exercisable as to 1/10 per year commencing on the first anniversary of the grant date. These options were received in lieu of cash payment of a bonus.

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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

(a) Name	(b) Shares acquired on exercise (#)	(c) Value Realized ($)	(d) Number of Securities underlying unexercised options at FY-end (#)		(e) Value of unexercised in-the-money options at FY-end ($)
			Exercisable	Unexercisable	Exercisable		Unexercisable
C.B. Hudson	0	0	1,121,983	455,103	$	1,321,263	$	1,041,854
Mark S. McAndrew	0	0	314,846	245,000	$	1,076,383	$	0
Tony G. Brill	0	0	238,339	180,454	$	824,496	$	19,959
Anthony L. McWhorter	0	0	226,377	180,003	$	785,698	$	18,564
Gary L. Coleman	0	0	221,081	154,754	$	622,663	$	49,443

Pension Plans

Torchmark Corporation Pension Plan (TMK Pension Plan); Liberty National Life Insurance Company Pension Plan for Non-Commissioned Employees (LNL Pension Plan).    These plans are non-contributory pension plans which cover all eligible employees who are 21 years of age or older and have one or more years of credited service. The benefits at age 65 under the TMK Pension Plan are determined by multiplying the average of the participant’s earnings in the five consecutive years in which they were highest during the ten years before the participant’s retirement by a percentage equal to 1% for each of the participant’s first 40 years of credited service plus 2% for each year of credited service up to 20 years after the participant’s 45th birthday and then reducing that result by a Social Security offset and by other benefits from certain other plans of affiliates. Benefits at age 65 under the LNL Pension Plan are determined by multiplying the average of the participant’s earnings in the five consecutive years in which they were highest during the ten years before the participant’s retirement by a percentage equal to 2% for each of the participant’s first 30 years of credited service plus 1% for each year of credited service in excess of 30 years (up to a maximum of 10 years) and then reducing that result by a Social Security offset and by other benefits from certain other plans of affiliates. Earnings for purposes of both pension plans include compensation paid by subsidiaries and affiliates, and do not include commissions, directors’ fees, expense reimbursements, employer contributions to retirement plans, deferred compensation, or any amounts in excess of $200,000 (as adjusted). Benefits under both pension plans vest 100% at five years. Upon the participant’s retirement, benefits under the plan are payable as an annuity or in a lump sum. In 2002, covered compensation was $200,000 for Messrs. Hudson, McAndrew, Brill and Coleman under the TMK Pension Plan and for Mr. McWhorter under the LNL Pension Plan.

Vested benefits under the non-qualified Torchmark Supplemental Retirement Plan, in which Messrs. Hudson, McAndrew, McWhorter and Coleman have participated, were frozen as of December 31, 1994 and no additional benefits accrue after that date pursuant to the supplementary retirement plan. Messrs. Hudson, McAndrew, McWhorter and Coleman participate in the Torchmark Supplemental Retirement Plan. Mr. Brill does not participate in any supplementary pension plan.

Messrs. Hudson, McAndrew, Brill and Coleman have 28 years, 23 years, six years and 21 years of credited service under the TMK Pension Plan, respectively. Mr. McWhorter has 28 years of credited service under the LNL Pension Plan.

The following tables show the estimated annual benefits payable under the TMK Pension Plan or LNL Pension Plan along with the TMK Supplemental Retirement Plan (which was frozen in 1994) upon retirement of participants with varying final average earnings and years of service. Primarily because of the termination of the Supplemental Retirement Plan, the benefits shown below as payable pursuant to the TMK Pension or LNL Pension Plans and the TMK Supplemental Retirement Plan may in most cases exceed the actual amounts paid. The benefits shown are offset as described above and the amounts are calculated on the basis of payments for the life of a participant who is 65 years of age.

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Torchmark Pension and Supplemental Retirement Plans*

Final Average Earnings	Years of Credited Service
	15	20	25	30	35
$1,000,000	450,000	600,000	650,000	700,000	750,000
1,200,000	540,000	720,000	780,000	840,000	900,000
1,400,000	630,000	840,000	910,000	980,000	1,050,000
1,600,000	720,000	960,000	1,040,000	1,120,000	1,200,000

* Benefits paid under a qualified defined benefit plan are limited by law in 2002 to $160,000 per year. The balance of the benefit payments shown above thus comes from the Supplemental Retirement Plan. Because benefit accruals under the Supplemental Retirement Plan ceased as of December 31, 1994, Messrs. Hudson, McAndrew and Coleman have eight years less of credited service under the Supplemental Retirement Plan than under the TMK Pension Plan.

LNL Pension and TMK Supplemental Retirement Plans*

Final Average Earnings	Years of Credited Service
	15	20	25	30	35
$100,000	30,000	40,000	50,000	60,000	65,000
200,000	60,000	80,000	100,000	120,000	130,000
300,000	90,000	120,000	150,000	180,000	195,000
400,000	120,000	160,000	200,000	240,000	260,000
500,000	150,000	200,000	250,000	300,000	325,000

* Benefits paid under a qualified defined benefit plan are limited by law in 2002 to $160,000 per year. The balance of the benefit payments shown above thus comes from the Supplemental Retirement Plan. Because benefit accruals under the Supplemental Retirement Plan ceased as of December 31, 1994, Mr. McWhorter has eight years less of credited service under the Supplemental Retirement Plan than under the LNL Pension Plan.

Payments to Directors

Directors of the Company are currently compensated on the following basis:

(1) Directors who are not officers or employees of the Company or a subsidiary of the Company (Outside Directors) receive a fee of $1,000 for each attended Board meeting, a fee of $500 for each attended Board committee meeting, and an annual retainer of $40,000, payable each January for the entire year. They do not receive fees for the execution of written consents in lieu of Board meetings and Board committee meetings. They receive an allowance for their travel and lodging expenses if they do not live in the area where the meeting is held.

Each Outside Director is automatically awarded annually non-qualified stock options on 6,000 shares of Company common stock on the first day of each calendar year in which stock is traded on the New York Stock Exchange. The entire Board may, for calendar years commencing with 1996, award non-qualified stock options on a non-formula basis to all or such individual Outside Directors as it shall select. Such options may be awarded at such times and for such number of shares as the Board in its discretion determines. The price of such options may be fixed by the Board at a discount not to exceed 25% of the fair market value on the grant date or at the fair market value of the stock on the grant date.

Commencing with 1997 retainer and meeting and committee fees (assuming attendance at all scheduled meetings), Outside Directors may annually elect to make deferrals of such compensation for the following year into the interest-bearing account of the Torchmark Corporation 1996 Non-Employee Director Stock Option Plan (for amounts earned prior to 1999) and pursuant to the deferred compensation stock option provisions of the 1998 Incentive Plan (for amounts earned in 1999 and in subsequent years). They may subsequently elect to convert such balances to stock options with either fair market value or discounted exercise prices. In December 2001, Messrs. Hagopian, Lanier, McCormick, Records and Richey chose to make such deferrals of 2002 compensation, which were converted in 2002 into options on 4,777, 4,221, 4,662, 4,125, and 27,408 shares, respectively, with fair market value exercise prices.

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(2) Beginning in January, 1993, directors who are officers or employees of the Company or a subsidiary of the Company waived receipt of all fees for attending Board meetings. They do not receive fees for the execution of written consents in lieu of Board meetings or Board committee meetings. They also do not receive a fee for attending Board committee meetings or an annual retainer. They are reimbursed their travel and lodging expenses, if any.

(3) Compensation paid to the director serving as Chairman of the Executive Committee is determined annually by the Compensation Committee in their discretion. Pursuant to the terms of a Consultation Agreement, the Compensation Committee determined to pay R.K. Richey $250,000 for service in 2002 as Chairman of the Executive Committee. Mr. Richey elected to defer this compensation and received it in the form of Torchmark stock options which are included in the options reported on page 16, paragraph 3 of this section.

Each person who served as a director on or prior to February 29, 2000 is eligible to receive upon retirement from the Board a retirement benefit payable annually, in an amount equal to $200 a year for each year of service as a director or advisory director up to 25 years, but not less than $1,200 a year. In determining this benefit, the number of years of service may include years as a director of a subsidiary of the Company if the payment for such years by the Company is in place of a payment which would otherwise be made by the subsidiary. Directors who retired prior to the termination of this retirement benefit program effective February 29, 2000, have been and will continue to receive their retirement benefit payments in cash. Directors with accrued but unpaid retirement benefits under this program on the date of termination were offered the opportunity to convert the present value of such retirement benefits on that date to options in Company common stock. Accordingly, Messrs. Boren, Farley, Hagopian, Lanier, McCormick, Records, Richey and Smith received stock options reflecting the present value of their respective retirement benefits on February 29, 2000.

Other Transactions

Robert Richey, son of R.K. Richey and formerly a Vice President of a Company subsidiary, received compensation and fringe benefits from that Company subsidiary in 2002 of $100,307.

In 2002, the Company paid MidFirst Bank $118,190 in fees as the servicing agent for portions of the Company subsidiaries’ commercial real estate portfolios. George J. Records is an officer, director and 38.33% beneficial owner of Midland Financial Co., the parent corporation of MidFirst Bank.

Lamar C. Smith is an officer and director of First Command Financial Services, Inc. (First Command) a corporation 100% owned by the First Command Employee Stock Ownership Plan (First Command ESOP). Mr. Smith is a beneficiary of the First Command ESOP although he has no ability to vote the stock of First Command that is held by the First Command ESOP. First Command, with 545 home office agency employees and more than 1,000 appointed agents both inside and outside the United States, receives commissions as the military agency distribution system for selling certain life insurance products offered by Torchmark’s insurance subsidiaries pursuant to agency agreements. In 2002, that company received commission payments of $52,613,000 for sales of life insurance on behalf of Torchmark subsidiaries, which comprised approximately 28.4% of First Command’s 2002 revenues.

Liberty, a Torchmark subsidiary, is also party to a coinsurance agreement with First Command Life Insurance Company, a First Command subsidiary, whereby Liberty cedes back to First Command Life on an annual basis approximately 5% of the life insurance business sold by First Command Life on behalf of Liberty and First Command Life annually pays Liberty certain designated percentages of renewal and first year premiums as expense reimbursement and the actual amount of commissions paid or advanced on the premium received. Additionally, under this agreement, Liberty and other Torchmark subsidiaries provide First Command Life with certain administrative, accounting and investment management services. In 2002, Liberty paid $781,000 to First Command Life in premiums and received $77,000 in expense reimbursements, $16,000 in benefit repayments and $1,232,000 as commission reimbursements.

Torchmark subsidiaries, United American and Liberty, entered into a $27,000,000 7% collateral loan agreement (maximum principal amount and accumulated interest) with IRA in 1998 and a 7.55% construction

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loan agreement in an amount not to exceed $22,500,000 with First Command in 2001, respectively. UA made a $7,000,000 loan in 1998 and a $15,000,000 loan to IRA under the collateral loan agreement. The largest aggregate amount of indebtedness outstanding from IRA to United American under the collateral loan during 2002 was $22,659,891 and as of March 14, 2003, the outstanding balance of the collateral loan was $21,749,273. The construction loan, which will result in a permanent fifteen year mortgage financing at a rate of 2.25% over the ten year treasury rate at inception but not less than 7%, had an outstanding principal balance of $19,708,825 at February 15, 2003. The largest aggregate indebtedness to Liberty from First Command under the construction loan during 2002 was $19,396,270.

R.K. Richey is a 25% owner of Stonegate Realty Co., LLC, the parent company of Elgin Development Company, LLC (Elgin Development). Elgin Development in 1999 purchased certain investment real estate from Torchmark and its subsidiaries and as a part of the consideration for the purchase issued its collateralized 8% Promissory Note (Note) due September 30, 2009 to Torchmark. The largest aggregate principal amount of indebtedness outstanding to Torchmark on such Note during 2002 was $10,526,234. As of March 14, 2003, the outstanding principal balance of this indebtedness was $10,061,488.

R. K. Richey is also a one-third owner of Stonegate Management Company, LLC (Stonegate Management). In 2002, pursuant to contractual agreements, Torchmark subsidiaries paid $748,937 to a Stonegate Management subsidiary for building management and maintenance services on Liberty, Globe, and United American real estate and $259,595 for leased rental property.

Section 16(a) Beneficial Ownership Reporting Compliance

Under the securities laws of the United States, the Company’s directors, its executive officers, and any persons holding more than ten percent of the Company’s common stock are required to report their initial ownership of the Company’s common stock and other equity securities and any subsequent changes in that ownership to the Securities and Exchange Commission and the New York Stock Exchange and to submit copies of these reports to the Company. To the Company’s knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended December 31, 2002, all required Section 16(a) filings applicable to its executive officers, directors, and greater than ten percent beneficial owners were timely and correctly made except that R.K. Richey amended one Form 4 to correctly reflect his total direct shareholdings resulting from a reported 2001 gift of shares to charity and amended three Form 4s to report shares directly held in his charitable remainder annuity trust and indirectly held in his spouse’s charitable remainder unitrust which were inadvertently omitted from the original filings.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

Compensation of senior executives of Torchmark and its subsidiaries and affiliates is determined by the Compensation Committee of the Board of Directors. The Compensation Committee, comprised entirely of outside directors, meets to fix annual salaries in advance and bonuses for the current year of executives earning more than $150,000, to review annual goals and reward outstanding annual performance of executives, to grant stock options pursuant to the 1998 Stock Incentive Plan and to determine senior executives eligible to participate in the executive deferred compensation stock option program under the 1998 Incentive Plan.

In 1993, the Compensation Committee employed an unaffiliated executive compensation consulting firm, Towers Perrin, to assist it in reviewing executive compensation policies and the payment of bonuses to executives. In 1997, the Compensation Committee utilized an unaffiliated executive compensation consultant from KPMG Peat Marwick LLP to review certain of its executive compensation policies and practices. In 2002, the Compensation Committee reviewed compensation of the Chief Executive Officer and the four most highly compensated executives of each of Torchmark’s peer group companies relative to the compensation of comparable Company executives. The Compensation Committee met in 2002 with the Chairman and Chief Executive Officer to discuss the salaries and bonuses of the five most highly compensated executives, including the Chairman. Also, the Compensation Committee received written materials discussing compensation of the Chairman, the four other most highly compensated executives and persons reporting to these five most highly compensated executives.

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Compensation Principles

The business philosophy of the Company focuses on maintenance and improvement of insurance operating margins and other operating margins through the efficient management of assets and control of costs. The Company’s executive compensation program is based on principles which align compensation with this business philosophy, company values and management initiative. The program also takes into consideration competitive remuneration practices in the insurance and financial services sectors. Torchmark’s executive compensation program seeks to attract and retain key executives necessary to the long-term success of the Company, to mesh compensation with both annual and long-term strategic plans and goals and to reward executives for their efforts

in the continued growth and success of the Company. Annual goals for executive compensation focus on a number of factors, including but not limited to, growth in earnings per share, return on equity and pre-tax operating income for holding company executives and on insurance operating income, underwriting income and premium growth for the executives of the Company’s insurance subsidiaries.

To the extent readily determinable and as one of the factors in its consideration of compensation matters, the Compensation Committee considers the anticipated tax treatment to the Company and to the executives of various payments and benefits. Some types of compensation payments and their deductibility depend upon the timing of an executive’s vesting or exercise of previously granted rights. Further, interpretations of and changes in the tax laws and other factors beyond the Compensation Committee’s control also affect the deductibility of compensation. For these and other reasons, the Compensation Committee will not necessarily and in all circumstances limit executive compensation to that deductible under Section 162(m) of the Internal Revenue Code. The Compensation Committee will consider various alternatives to preserving the deductibility of compensation payments and benefits to the extent reasonably practicable and to the extent consistent with its other compensation objectives.

Salary and Bonus System

For some time the Company has used a system of salaries and bonuses to reward executives of the Company and its subsidiaries for performance relative to annual goals. These goals vary by operating company based upon that particular company’s current position. Annually, the Company’s Chairman and Chief Executive Officer calculates a proposed pool to fund current year bonuses and subsequent year salaries for all executives whose combined cash compensation exceeds $150,000 per year. The proposed salary/bonus pool is determined based upon a formula that takes into account succeeding year salaries and current year bonuses paid, reported and adjusted earnings per share for the prior and current years and average diluted shares outstanding. The amount of the proposed pool is submitted to the Compensation Committee for its review and approval.

The Compensation Committee, in consultation with the Company’s Chairman and Chief Executive Officer, then reviews each subsidiary’s performance relative to the goals and fixes salaries and bonuses for that operating subsidiary’s executives. The degree to which these executives have met their particular subsidiary’s goals in turn determines the amount of the bonus, if any, and whether senior executive officers of the Company receive salary increases. Such executives do not receive any cost of living salary adjustments.

Stock Option Program

The Company began awarding stock options to executives and key employees in 1984. The option plan under which options in Company common stock were awarded in 2002 was adopted in April 1998. It has as its stated purpose attracting and retaining employees who contribute to the Company’s success and enabling those persons to participate in that long-term success and growth through an equity interest in the Company. To this end, the Compensation Committee, as administrator of the 1998 Incentive Plan, grants non-qualified stock options to officers and key employees at the market value of the Company’s common stock on the date of the grant, the size of the grant being based generally on the current compensation of such officers or key employees. The five most highly compensated executive officers are paid salaries and bonuses commensurate with the level of their responsibilities and therefore they typically are awarded a larger number of option shares than other employees with lesser levels of compensation and responsibility. In 2002, for the most highly compensated executive officers shown in the Summary Compensation Table on page 12, the options granted were in proportion to current compensation adjusted by a subjective factor ranging from .1230 to .1647.

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Decisions regarding stock option grants are made annually and the number of options previously awarded to an individual executive officer is not a substantial consideration in determining the amount of options granted to that officer in the future. Once an officer has been awarded options and becomes a part of the stock option program, he or she will typically continue to be eligible from year to year for consideration for stock option awards related to salary.

Stock options may be exercised using cash or previously-owned stock for payment or through a simultaneous exercise and sale program. Such stock options generally become first exercisable to the extent of 50% of the shares on the second anniversary of the option grant date and on the remaining 50% of the shares on the third anniversary of the option grant date.

Deferred Compensation Option Program

The Company’s 1998 Incentive Plan, adopted in April, 1998, contains provisions permitting designated executives to receive deferred compensation stock options. The plan permits eligible executives to defer salary and/or bonus on an annual basis into an interest-bearing account and subsequently on a one time basis within a limited time period to elect to convert all or a portion of their deferred compensation into Company stock options granted at market value or at a discount not to exceed 25%. The Compensation Committee did not designate any Company executives to participate in this program in 2002. However, Mr. Hudson elected to receive all of his 2002 bonus in the form of stock options under the regular provisions of the 1998 Incentive Plan.

Compensation of Chief Executive Officer

C. B. Hudson joined the Company subsidiary Globe in 1974 as its Chief Actuary and subsequently has served as a senior executive officer and director of the Company’s principal insurance subsidiaries since that time. During the period 1982 to 1991, he was elected as Chairman and Chief Executive Officer of United American, Globe and Liberty, all principal insurance subsidiaries of the Company. Mr. Hudson was elected to the Torchmark Board of Directors in 1986 and was named Chairman of Insurance Operations of the Company in January 1993. He assumed the responsibilities of Chairman, President and Chief Executive Officer of the Company on March 10, 1998. Effective as of April 2001, he serves as Chairman and Chief Executive Officer of the Company.

Mr. Hudson’s base salary is determined by the Compensation Committee considering his current job responsibilities and a comparison of salaries paid at peer companies.

Mr. Hudson’s bonus and stock options, which are also determined by the Compensation Committee, were based upon his leadership and ability to enhance the long term value of the Company. Mr. Hudson was awarded a 2002 discretionary bonus of $400,000 from the pool by the Compensation Committee, all of which he chose to receive in the form of Company stock options granted at market value. The Compensation Committee granted Mr. Hudson market value stock options on 100,000 shares in December 2002.

Mr. Hudson’s base salary, bonus and any stock options awarded to him were not directly tied to any one or a group of specific measures of corporate performance.

In the three-year period 2000-2002, which is covered by the Summary Compensation Table on page 12, Torchmark’s diluted operating earnings per share grew from $2.64 per share in 1999 to $3.51 per share in 2002. Return on equity decreased to 16.5% in 2002 from 16.8% in 1999. Torchmark repurchased 14.9 million shares in the 2000-2002 period under its share repurchase program, 11.3% of the outstanding shares at the beginning of that period.

Compensation of Other Executives

The other executive officers listed in the Summary Compensation Table in the Proxy Statement are compensated by salary and a discretionary bonus which may be impacted by a number of factors, including but not limited to, growth in earnings per share and return on equity at the Company and growth in insurance operating income, underwriting income and premium of the various Company subsidiaries, affiliates or areas of operation for which each is responsible. The pool of funds available for determining their salaries and bonuses is calculated based upon the formula described in the discussion of the salary and bonus system. Determination of any salary increase or bonus award to such an executive is then recommended by the Chairman and Chief

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Executive Officer in his discretion based upon an evaluation of a number of factors, including those listed above, to the Compensation Committee for its decision.

Mr. McAndrew serves as an Executive Vice President of the Company and as President and Chief Executive Officer of United American, Globe and American Income. He is responsible for the Company’s direct response insurance marketing. Mr. McAndrew was awarded a $270,000 discretionary bonus by the Compensation Committee for 2002, which he chose to receive in cash.

Mr. Brill is the Executive Vice President and Chief Administrative Officer in charge of insurance administration for Torchmark and all its insurance subsidiaries. The Compensation Committee awarded Mr. Brill a $130,000 discretionary bonus for 2002, which he elected to take in cash.

Mr. McWhorter is an Executive Vice President of the Company and the President and Chief Executive Officer of Liberty and UILIC. Mr. McWhorter was awarded a $136,000 discretionary bonus by the Compensation Committee for 2002, which he elected to be paid in cash.

Mr. Coleman serves as Executive Vice President and Chief Financial Officer of the Company. He has been responsible for the Company’s accounting operations since 1994 and is also in charge of all financial areas. The Compensation Committee awarded Mr. Coleman a $120,000 discretionary bonus for 2002, which he chose to be paid in cash.

Compensation and Company Performance

As indicated above, the annual aspect of executive compensation for holding company executives of Torchmark centers on growth in the earnings per share and return on equity as well as increases in pre-tax operating income and for executives of the insurance subsidiaries on growth in underwriting income and premium income. Excluding amortization of goodwill in 2001, pre-tax operating income was $640 million in 2002, an increase of 11% over 2001. Diluted operating earnings per share grew from $3.21 per share in 2001 to $3.51 per share in 2002, a 9% change. Return on equity was 16.5% in 2002 compared to 16.6% in 2001. Premium income, which made up 83% of the Company’s total revenues, rose to $2.28 billion in 2002 from $2.22 billion in 2001. Underwriting income comprised 56% of the Company’s pre-tax operating income for 2002. Underwriting income decreased from $368 million to $359 million in 2002 from 2001.

The above performance resulted in compensation increases to certain of the Company’s executives as a group shown in the Summary Compensation Table on page 12. Cash compensation paid persons who are listed in that table increased 3.7% in 2002 over 2001.

The long-term portion of the executive compensation program centers on stock value through the granting of stock options. Over the last three fiscal years diluted operating earnings per share have increased 33% and rose from $2.64 in 1999 to $3.51 in 2002.

Joseph L. Lanier, Jr., Chairman

Joseph M. Farley

Louis T. Hagopian

The foregoing Compensation Committee Report on Executive Compensation shall not be deemed “filed” with the Securities and Exchange Commission or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934.

AUDIT COMMITTEE REPORT

The Audit Committee of the Board of Directors is comprised of three directors: Joseph M. Farley, who currently serves as Committee Chairman; Louis T. Hagopian, Harold T. McCormick and Paul J. Zucconi. All of the Audit Committee members are independent as that term is currently defined in the rules of the New York Stock Exchange (“NYSE”). In April 2000, the Board of Directors reviewed and made a determination under NYSE listing standards Section 393.01(B)(3)(b) that in their business judgment, Mr. McCormick was independent and that his former business relationship with the Company which terminated in July 1998 does not

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interfere with his exercise of independent judgment. During 2001, the Board of Directors, exercising their business judgment and with Mr. Farley abstaining, designated Joseph M. Farley as the member of the Audit-Committee possessing “accounting or related financial management expertise” under the current NYSE rules.

The Audit Committee assists the Board of Directors in fulfilling its oversight responsibilities by reviewing the Company’s consolidated financial reports, its internal financial and accounting controls, and its auditing, accounting and financial reporting processes generally. In June 2000, the Board of Directors approved and adopted a written Audit Committee Charter, which was amended in February 2002.

In discharging its oversight responsibilities regarding the audit process, the Audit Committee reviewed and discussed the audited consolidated financial statements of Torchmark as of and for the year ended December 31, 2002 with Company management and Deloitte & Touche LLP (Deloitte), the independent auditors. The Audit Committee received the written disclosures and the letter from Deloitte required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, discussed with Deloitte any relationships which might impair that firm’s independence from management and the Company and satisfied itself as to the auditors’ independence. The Audit Committee reviewed and discussed with Deloitte all communications required by auditing standards generally accepted in the United States of America, including Statement on Auditing Standards No. 61, Communications with Audit Committees, as amended.

Based upon these reviews and discussions, the Audit Committee recommended to the Board of Directors that the Company’s audited consolidated financial statements be included in Torchmark’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002 for filing with the Securities and Exchange Commission.

Joseph M. Farley, Chairman

Louis T. Hagopian

Harold T. McCormick

Paul J. Zucconi

The foregoing Audit Committee Report shall not be deemed “filed” with the Securities and Exchange Commission or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934.

PRINCIPAL ACCOUNTING FIRM FEES

The following table sets forth the aggregate fees, including out-of-pocket expenses, billed to Torchmark for the fiscal year ended December 31, 2002 by the Company’s principal accountants, Deloitte & Touche LLP.

Audit Fees		$	1,087,913	(a)
Financial Information Systems Design and Implementation Fees			0
All Other Fees:
Tax Services	275,745
Actuarial Services	50,870
Audit Related:
Audits of Employee Benefit Plans	89,000
Preparation of Registration Statements and Comfort Letters	0
Other Services:
Regulatory Services for Market Conduct Examinations	79,746
Assistance with Insurance Department Examinations	19,270
			514,631	(b)
		$	1,602,544

(a) Includes those fees for professional services and out-of-pocket expenses in connection with the audits of the separate statutory financial statements of Torchmark’s insurance company subsidiaries.

(b) The Audit Committee has considered whether the provision of these services is compatible with maintaining the principal accountants’ independence.

22

SUPPLEMENTAL INFORMATION

The following table is provided only as supplemental information. It sets out the aggregate fees, including out-of-pocket expenses billed to Torchmark for the fiscal year-ended December 31, 2002 by the Company’s principal accountants, Deloitte & Touche, LLP in the format which will be required for such disclosures after May 6, 2003.

Audit Fees	$	1,087,913
Audit Related(a)		89,000
Total Audit and Audit Related Fees				1,176,913
Tax Fees(b)				275,745
All Other Fees:
Actuarial Services		50,870
Insurance Department Examinations		99,016
Total All Other Fees				149,886
			$	1,602,544

(a) Fees paid for the audits of the Company’s employee benefit plans.

(b) Includes fees for tax compliance, examinations, protests, advice and planning.

23

The line graph shown above compares the yearly percentage change in 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 Insurance (Life/Health)). Torchmark is one of the companies whose stock is included within both the S&P 500 and the S&P Insurance (Life/Health).

Information for graph produced by Research Data Group, Inc.

24

MISCELLANEOUS INFORMATION

Proposals of Stockholders

In order for a proposal by a stockholder of the Company to be eligible to be included in the proxy statement and proxy form for the annual meeting of stockholders in 2004, the proposal must be received by the Company at its home office, 2001 Third Avenue South, Birmingham, Alabama 35233, on or before November 21, 2003. If a stockholder proposal is submitted outside the proposal process mandated by Securities and Exchange Commission rules, it will be considered untimely if received after February 4, 2004.

General

The cost of this solicitation of proxies will be paid by the Company. The Company is requesting that certain banking institutions, brokerage firms, custodians, trustees, nominees, and fiduciaries forward solicitation material to the underlying beneficial owners of the shares of the Company they hold of record. The Company will reimburse all reasonable forwarding expenses.

The Annual Report of the Company for 2002, which accompanies this proxy statement, includes a copy of the Company’s Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December 31, 2002 and the financial statements and schedules thereto. Upon request and payment of copying cost, the exhibits to the Form 10-K will be furnished. These written requests should be directed to Investor Relations Department, Torchmark Corporation at its address stated above.

By Order of the Board of Directors

Carol A. McCoy

Vice President, Associate Counsel & Secretary

March 24, 2003

25

ATTACHMENT A

TORCHMARK CORPORATION

ANNUAL MANAGEMENT INCENTIVE PLAN

(Effective as of January 1, 2003)

1.    Purpose.

The purposes of the Plan are to enable the Company and its Subsidiaries to attract, retain, motivate and reward qualified executive officers and key employees by providing them with the opportunity to earn competitive compensation directly linked to the Company’s performance. The Plan is designed to assure that amounts paid to certain executive officers of the Company will not fail to be deductible by the Company for Federal income tax purposes because of the limitations imposed by Section 162(m).

2.    Definitions.

Unless the context requires otherwise, the following words as used in the Plan shall have the meanings ascribed to each below, it being understood that masculine, feminine and neuter pronouns are used interchangeably and that each comprehends the others.

(a) “Board” shall mean the Board of Directors of the Company.

(b)    “Bonus Pool” shall mean the bonus pool established each year by the Committee from which all eligible executives of the Company and its Subsidiaries (not just Participants in the Plan) may be paid bonuses. The total amount of the Bonus Pool for a given performance period is determined by taking a percentage of the Company’s pre-tax operating income for the performance period. Such percentage will be determined each year by the Committee and will not exceed 1.0%.

(c)    “Committee” shall mean the Compensation Committee of the Board (or such other committee of the Board that the Board shall designate from time to time) or any subcommittee thereof comprised of two or more directors each of whom is an “outside director” within the meaning of Section 162(m).

(d)    “Company” shall mean Torchmark Corporation, a Delaware corporation.

(e)    “Covered Employee” shall have the meaning set forth in Section 162(m).

(f)    “Change in Control” shall be deemed to have occurred if (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) or any two or more persons acting as a partnership, syndicate or other such group (other than the Company, any trustee or other fiduciary holding securities under any employee benefit plan of the Company, any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of Stock of the Company is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company’s then outstanding securities; (ii) during any period of two consecutive years (not including any period prior to the adoption of the Plan), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (i), (iii), or (iv) of this paragraph) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board; (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 20% of the combined voting power of

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the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets. If any of the events enumerated in clauses (i) through (iv) occur, the Board shall determine the effective date of the Change in Control resulting therefrom, for purposes of the Plan.

(g) “Deferral Period” shall mean the period of time during which payment of any amount otherwise payable under the Plan is deferred pursuant to Section 5(b) or Section 5(c) hereof, subject to the right of the Committee to terminate the Deferral Period as provided in Section 5(f).

(h)    “Participant” shall mean (i) each executive officer of the Company who the Committee designates as a participant under the Plan and (ii) each other key employee of the Company or a Subsidiary who the Committee designates as a participant under the Plan.

(i)    “Plan” shall mean the Torchmark Corporation Annual Management Incentive Plan, as set forth herein and as may be amended from time to time.

(j)    “Section 162(m)” shall mean Section 162(m) of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder.

(k)    “Subsidiary” shall mean any entity of which the Company possesses directly or indirectly fifty percent or more of the total combined voting power of all classes of stock of such entity.

3. Administration.

The Committee shall administer and interpret the Plan; provided, however, that in no event shall the Plan be interpreted in a manner which would cause any amount payable under the Plan to any Covered Employee to fail to qualify as performance-based compensation under Section 162(m). The Committee shall establish the performance objectives for any calendar year in accordance with Section 4 and certify whether such performance objectives have been attained. Any determination made by the Committee under the Plan shall be final and conclusive. The Committee may employ such legal counsel, consultants and agents (including counsel or agents who are employees of the Company or a Subsidiary) as it may deem desirable for the administration of the Plan and may rely upon any opinion received from any such counsel or consultant or agent and any computation received from such consultant or agent. All expenses incurred in the administration of the Plan, including, without limitation, for the engagement of any counsel, consultant or agent, shall be paid by the Company. No member or former member of the Board or the Committee shall be liable for any act, omission, interpretation, construction or determination made in connection with the Plan other than as a result of such individual’s willful misconduct.

4. Bonuses.

(a)    Performance Criteria. On or before March 31 of each year (or such other date as may be required or permitted under Section 162(m)), the Committee shall establish the performance criteria that must be satisfied in order for a Participant to receive a bonus for such year, including threshold, target and maximum performance levels for each performance criteria. Any such performance objectives will be based upon the relative or comparative achievement of one or more of the following criteria, as determined by the Committee: (i) for officers of the Company, growth in net operating income per share, pre-tax operating income and/or return on equity, or (ii) for officers of Subsidiaries, growth in insurance operating income, underwriting income and/or insurance premium.

(b)    Maximum Amount Payable. In connection with the establishment of the performance criteria for Participants in the Plan for a given year, the Committee will establish target bonus amounts for each Participant, which will be the maximum bonus amount payable to a Participant assuming that all of the relevant performance

A-2

criteria are met. Notwithstanding the foregoing, (i) the Chief Executive Officer of the Company may be paid a bonus for any calendar year not to exceed 15% of the amount of the Bonus Pool for that year, (ii) the other four Covered Employees, as a group, may be paid bonuses for any calendar year not to exceed, in the aggregate, 25% of the Bonus Pool for that year, and (iii) the maximum bonus amount payable to any Participant for any single calendar year hereunder shall be $1,500,000.

(c)    Determination of Bonus Amounts.    Following the end of each year, the Committee will determine the extent to which the performance criteria for such Participant have been met and certify such determination. Based on such determination, the Committee shall determine the amount of the bonus payable to such Participant for such year.

(d)    Termination of Employment.    Unless the Committee shall otherwise determine, if a Participant voluntarily resigns employment or is terminated involuntarily prior to the last day of the calendar year for which the bonus is payable or prior to the date on which the bonus amounts are determined by the Compensation Committee for such calendar year, any bonus payable for such calendar year shall be forfeited. If Participant’s employment terminates for any other reason (including, without limitation, his death, disability or retirement under the terms of any retirement plan maintained by the Company or a Subsidiary) prior to the last day of the calendar year for which the bonus is payable, such Participant shall receive an annual bonus equal to the amount the Participant would have received as an annual bonus award if such Participant had remained an employee through the end of the year multiplied by a fraction, the numerator of which is the number of days that elapsed during the calendar year in which the termination occurs prior to and including the date of the Participant’s termination of employment and the denominator of which is 365.

(e)    Negative Discretion.    Notwithstanding anything else contained in Section 4(b) to the contrary, the Committee shall have the right, in its absolute discretion, (i) to reduce or eliminate the amount otherwise payable to any Participant under Section 4(b) based on individual performance or any other factors that the Committee, in its discretion, shall deem appropriate and (ii) to establish rules or procedures that have the effect of limiting the amount payable to each Participant to an amount that is less than the maximum amount otherwise authorized under Section 4(b).

(f)    Affirmative Discretion.    Notwithstanding any other provision in the Plan to the contrary, (i) the Committee shall have the right, in its discretion, to pay to any Participant who is not a Covered Employee an annual bonus for such year in an amount up to the maximum bonus payable under Section 4(b), based on individual performance or any other criteria that the Committee deems appropriate and (ii) in connection with the hiring of any person who is or becomes a Covered Employee, the Committee may provide for a minimum bonus amount in any calendar year, regardless of whether performance objectives are attained.

5. Payment.

(a)    Payment.    Except as otherwise provided hereunder, payment of any bonus amount determined under Section 4 shall be made to each Participant as soon as practicable after the Committee certifies that one or more of the applicable performance criteria have been attained (or, in the case of any bonus payable under the provisions of Section 4(f), after the Committee determines the amount of any such bonus). Any such payments shall be made in cash or, at the option of the Participant and subject to the approval of the Committee, in stock options (if such options are available under any properly approved and adopted plan in conformance with applicable regulations). In the event that any bonuses are paid in the form of stock options, the terms of such stock options shall be set forth in the applicable plan and/or stock option agreement or grant document.

(b)    Voluntary Deferral.    Notwithstanding Section 5(a), the Committee may permit a Participant to defer payment of any portion of a bonus to a date or event later than that specified by the Committee. Any such election shall be made at such time or times, and subject to such terms and conditions, as the Committee shall determine, including, but not limited to, provisions for the payment of amounts deferred under this Section 5 in the event of retirement, death or disability of the Participant prior to the end of the Deferral Period.

A-3

(c)    Deferrals at the Election of the Committee.    Notwithstanding anything in the Plan to the contrary, the Committee may defer all or any portion of any distribution of an award to be made hereunder to the extent such distribution, when added to all other payments to be made to a Participant in a calendar year, would not be deductible compensation paid by the Company for Federal income tax purposes within the meaning of Section 162(m). The deferred amount of the award shall be paid to such Participant (or, in the event of his or her death, to his or her designated beneficiary or, if none, to his or her estate) in a lump sum, or in installments, if necessary to preserve the deductibility of such payment, as of the earliest date that the payment of the deferred amount, or portion thereof, when added to all other payments to be made to a Participant in a calendar year, would be deductible by the Company for Federal income tax purposes within the meaning of Section 162 of the Code (including Section 162(m)).

(d)    Accounting for Deferrals.    Any amount deferred under this Section 5 shall be credited to one or more bookkeeping accounts for the benefit of such Participant on the books and records of the Company. Such amounts shall be deemed held in cash and shall be credited with such rate of interest or such deemed rate of earnings as the Committee shall specify from time to time.

(e)    Payment of Deferred Amounts.    Amounts attributable to any amount deferred under the Plan, regardless of whether deferred pursuant to Section 5(b) or 5(c), shall be paid or commence to be paid, at the election of the Participant, at the end of the applicable Deferral Period or as of the first business day of the calendar year next following the end of the Deferral Period. Payment of such amounts shall be made, at the Participant’s election, in a lump sum or in five, ten or such other number of annual installments as shall be permitted by the Committee. If a Participant does not timely elect the time at which or the form in which such amounts shall be paid, such amounts shall be paid immediately following the end of the Deferral Period and in a lump sum, unless the Committee shall specify a different time or method of payment. The Committee may, in its discretion, accelerate the order to alleviate a financial hardship, as defined by IRS Regulations under Section 457, incurred by the Participant due to an unforeseeable emergency beyond the Participant’s control.

(f)    Termination of Deferral Period.    Notwithstanding anything else contained in the Plan to the contrary, the Committee may, in its discretion, terminate any Deferral Period in respect of any Participant. Such elective termination will be deemed to be the end of the Deferral Period for purposes of determining when payment of the Participant’s interest is to commence under Section (e).

(g)    Change in Control.    Upon the occurrence of a Change in Control, unless otherwise determined and agreed upon by all interested parties, including the Participant, all amounts deferred under Section 5(b) or Section 5(c) shall become immediately due and shall promptly be paid to the Participant.

6.    General Provisions.

(a)    Effectiveness of the Plan.    Subject to the approval by the holders of the Common Stock at the 2003 Annual Meeting of Stockholders, the Plan shall be effective with respect to calendar years beginning on or after January 1, 2003, and ending on or before December 31, 2007, unless the term hereof is extended by action of the Board.

(b)    Amendment and Termination.    Notwithstanding Section 6(a), the Board or the Committee may at any time amend, suspend, discontinue or terminate the Plan; provided, however, that no such amendment, suspension, discontinuance or termination shall adversely affect the rights of any Participant in respect of any calendar year which has already commenced and no such action shall be effective without approval by the stockholders of the Company to the extent necessary to continue to qualify the amounts payable hereunder to Covered Employees as performance-based compensation under Section 162(m).

(c)    Designation of Beneficiary.    Each Participant may designate a beneficiary or beneficiaries (which beneficiary may be an entity other than a natural person) to receive any payments which may be made following the Participant’s death. Such designation may be changed or canceled at any time without the consent of any such

A-4

beneficiary. Any such designation, change or cancellation must be made in a form approved by the Committee and shall not be effective until received by the Committee. If no beneficiary has been named, or the designated beneficiary or beneficiaries shall have predeceased the Participant, the beneficiary shall be the Participant’s spouse or, if no spouse survives the Participant, the Participant’s estate. If a Participant designates more than one beneficiary, the rights of such beneficiaries shall be payable in equal shares, unless the Participant has designated otherwise.

(d)    No Right of Continued Employment.    Nothing in this Plan shall be construed as conferring upon any Participant any right to continue in the employment of the Company or any of its Subsidiaries.

(e)    Interpretation.    Notwithstanding anything else contained in this Plan to the contrary, to the extent required to so qualify any award as other performance based compensation within the meaning of Section 162(m)(4)(C) of the Code, the Committee shall not be entitled to exercise any discretion otherwise authorized under this Plan (such as the right to accelerate vesting without regard to the achievement of the relevant performance objectives) with respect to such award if the ability to exercise such discretion (as opposed to the exercise of such discretion) would cause such award to fail to qualify as other performance based compensation under Section 162(m).

(f)    No Limitation to Corporation Action.    Nothing in this Plan shall preclude the Committee or the Board, as each or either shall deem necessary or appropriate, from authorizing the payment to the eligible employees of compensation outside the parameters of the Plan, including, without limitation, base salaries, awards under any other plan of the Company and/or its Subsidiaries (whether or not approved by stockholders), any other bonuses (whether or not based on the attainment of performance objectives) and retention or other special payments; provided, however, that if the stockholders of the Company do not approve the Plan at the first annual meeting of stockholders following the adoption of the Plan, the Plan set forth herein shall not be implemented.

(g)    Nonalienation of Benefits.    Except as expressly provided herein, no Participant or beneficiary shall have the power or right to transfer, anticipate, or otherwise encumber the Participant’s interest under the Plan. The Company’s obligations under this Plan are not assignable or transferable except to (i) a corporation which acquires all or substantially all of the Company’s assets or (ii) any corporation into which the Company may be merged or consolidated. The provisions of the Plan shall inure to the benefit of each Participant and the Participant’s beneficiaries, heirs, executors, administrators or successors in interest.

(h)    Withholding.    Any amount payable to a Participant or a beneficiary under this Plan shall be subject to any applicable Federal, state and local income and employment taxes and any other amounts that the Company or a Subsidiary is required at law to deduct and withhold from such payment.

(i)    Severability.    If any provision of this Plan is held unenforceable, the remainder of the Plan shall continue in full force and effect without regard to such unenforceable provision and shall be applied as though the unenforceable provision were not contained in the Plan.

(j)    Governing Law.    The Plan shall be construed in accordance with and governed by the laws of the State of Delaware, without reference to the principles of conflict of laws.

(k)    Headings.    Headings are inserted in this Plan for convenience of reference only and are to be ignored in a construction of the provisions of the Plan.

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EX-21

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	Delaware	Globe Life And Accident     Insurance Company
Liberty National Life Insurance Company	Alabama	Liberty National Life     Insurance Company
United American Insurance Company	Delaware	United American     Insurance Company
United Investors Life Insurance Company	Missouri	United Investors Life     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” on pages 93 through 96 of this report. Exhibits not referred to have been omitted as inapplicable or not required.

98

EX-23.(A)-(H)

EXHIBIT 23(a)-(h)

INDEPENDENT AUDITORS’ CONSENT

We consent to the incorporation by reference in Registration Statements (Nos. 2-76378, 2-93760, 33-23580, 33-1032, 33-65507, 333-27111, 333-83317 and 333-40604) on Forms S-8 of our report dated February 28, 2003, appearing in this Annual Report on Form 10-K of Torchmark Corporation for the year ended December 31, 2002.

Dallas, Texas	DELOITTE & TOUCHE LLP
March 24, 2003

EX-24

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

That the undersigned Director of Torchmark Corporation does hereby constitute and appoint Larry M. Hutchison, Gary L. Coleman 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, 2002. 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/    DAVID L. BOREN            

David L. Boren, Director

Date:                     February 25, 2003

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

That the undersigned Director of Torchmark Corporation does hereby constitute and appoint Larry M. Hutchison, Gary L. Coleman 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, 2002. 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/    JOSEPH M. FARLEY            

Joseph M. Farley, Director

Date:                     February 25, 2003

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

That the undersigned Director of Torchmark Corporation does hereby constitute and appoint Larry M. Hutchison, Gary L. Coleman 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, 2002. 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/    LOUIS T. HAGOPIAN            

Louis T. Hagopian, Director

Date:                     February 25, 2003

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 Larry M. Hutchison, Gary L. Coleman 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, 2002. Without limiting the generality of the foregoing, the powers granted include the power and authority to execute and file the Form 10-K, 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/    C.B. HUDSON            

C.B. Hudson, Chief Executive Officer and Director

Date:                     February 25, 2003

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

That the undersigned Director of Torchmark Corporation does hereby constitute and appoint Larry M. Hutchison, Gary L. Coleman 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, 2002. 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/    JOSEPH L. LANIER, JR.            

Joseph L. Lanier, Jr., Director

Date:                     February 25, 2003

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

That the undersigned Director of Torchmark Corporation does hereby constitute and appoint Larry M. Hutchison, Gary L. Coleman 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, 2002. 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/    MARK S. MCANDREW            

Mark S. McAndrew, Director

Date:                     February 25, 2003

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

That the undersigned Director of Torchmark Corporation does hereby constitute and appoint Larry M. Hutchison, Gary L. Coleman 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, 2002. 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/    HAROLD T. MCCORMICK            

Harold T. McCormick, Director

Date:                     February 25, 2003

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

That the undersigned Director of Torchmark Corporation does hereby constitute and appoint Larry M. Hutchison, Gary L. Coleman 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, 2002. 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/    JOSEPH W. MORRIS            

Joseph W. Morris, Director

Date:                     February 25, 2003

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

That the undersigned Director of Torchmark Corporation does hereby constitute and appoint Larry M. Hutchison, Gary L. Coleman 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, 2002. Without limiting the generality of the foregoing, the powers granted include the power and authority to execute and file the Form-10, 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/    R.K. RICHEY            

R.K. Richey, Director

Date:                     February 25, 2003

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

That the undersigned Director of Torchmark Corporation does hereby constitute and appoint Larry M. Hutchison, Gary L. Coleman 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, 2002. 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/    GEORGE J. RECORDS            

George J. Records, Director

Date:                     February 25, 2003

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

That the undersigned Director of Torchmark Corporation does hereby constitute and appoint Larry M. Hutchison, Gary L. Coleman 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, 2002. 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 25, 2003

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

That the undersigned Director of Torchmark Corporation does hereby constitute and appoint Larry M. Hutchison, Gary L. Coleman 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, 2002. 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/    PAUL J. ZUCCONI            

Paul J. Zucconi, Director

Date:                     February 25, 2003

Exhibit 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

That the undersigned Officer of Torchmark Corporation does hereby constitute and appoint Larry M. Hutchison 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, 2002. 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, Executive Vice President

and Chief Financial Officer (Principal Accounting Officer)

Date:                     February 25, 2003

EX-99.(A)

EXHIBIT 99(a)

CERTIFICATION OF PERIODIC REPORT

I, C. B. Hudson, Chairman and Chief Executive 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 my knowledge:

(1) the Annual Report on Form 10-K of the Company for the period ended December 31, 2002 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:    March     , 2003	/s/    C.B. HUDSON
	C. B. Hudson Chairman and Chief Executive Officer

EX-99.(B)

EXHIBIT 99(b)

CERTIFICATION OF PERIODIC REPORT

I, Gary L. Coleman, 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 my knowledge:

(1) the Annual Report on Form 10-K of the Company for the period ended December 31, 2002 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:    March     , 2003	/s/    GARY L. COLEMAN
	Gary L. Coleman Executive Vice President and Chief Financial Officer