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, 2003

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: $5,852,656,590

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

FEBRUARY 27, 2004:112,291,953

DOCUMENTS INCORPORATED BY REFERENCE

PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 29, 2004, PART III

INDEX OF EXHIBITS (PAGES 94 through 97)

TOTAL NUMBER OF PAGES INCLUDED ARE 104

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 marketing distribution method.

Primary Distribution Method	Company	Products and Target Markets	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 marketed to middle-income Americans.	Direct response, mail, television, magazine; nationwide.
Liberty National Exclusive Agency	Liberty National Life Insurance Company Birmingham, Alabama	Individual life and supplemental health insurance marketed to middle-income families.	2,197 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 marketed to union and credit union members.	2,291 agents in the U.S., Canada, and New Zealand.
United Investors Agency	United Investors Life Insurance Company Birmingham, Alabama	Individual life insurance and annuities to middle-income Americans.	Independent Agency.
Military	Liberty National Life Insurance Company Birmingham, Alabama Globe Life And Accident Insurance Company Oklahoma City, Oklahoma	Individual life insurance marketed to active and retired military officers.	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 and life products marketed to over-age 50 individuals.	31,092 independent agents in the U.S., Puerto Rico and Canada; 1,510 exclusive producing agents in branch offices.

Additional information concerning industry segments may be found in Management’s Discussion and Analysis and in Note 16—Business Segments in the Notes to the Consolidated Financial Statements.

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Insurance

Life Insurance

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

	(Amounts in thousands)
	Annualized Premium in Force
	2003		2002		2001
Whole life:
Traditional	$	817,454	$	758,770	$	695,261
Interest-sensitive		138,676		146,985		154,743
Term		459,135		411,534		387,695
Other		34,025		25,867		19,714
	$	1,449,290	$	1,343,156	$	1,257,413

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. The following table presents life annualized premium in force by distribution method.

	(Amounts in thousands)
	Annualized Premium in Force
	2003		2002		2001
Direct response	$	404,963	$	357,393	$	326,111
Exclusive Agents:
Liberty National		321,176		318,613		314,676
American Income		346,982		302,064		265,912
United American		19,715		21,286		21,158
Military		179,027		158,840		141,565
Independent Agents:
United American		56,891		58,087		54,143
Other		120,536		126,873		133,848
	$	1,449,290	$	1,343,156	$	1,257,413

Health insurance

Torchmark offers 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 Torchmark 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

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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 information for the three years ended December 31, 2003 by product category.

	(Amounts in thousands)
	Annualized Premium in Force
	2003		2002		2001
Medicare Supplement	$	687,489	$	714,112	$	760,848
Cancer		181,626		172,830		169,341
Other health-related policies		195,313		143,540		112,454
	$	1,064,428	$	1,030,482	$	1,042,643

The number of individual health policies in force were 1.62 million, 1.58 million, and 1.59 million at December 31, 2003, 2002, and 2001, respectively.

The following table presents supplemental health annualized premium in force for the three years ended December 31, 2003 by marketing (distribution) method.

	(Amounts in thousands)
	Annualized Premium in Force
	2003		2002		2001
Direct response	$	33,256	$	23,932	$	18,817
Exclusive agents:
Liberty National		172,106		165,394		162,724
American Income		55,421		51,299		49,260
United American		322,428		316,337		337,026
Independent agents:
United American		481,217		473,520		474,816
	$	1,064,428	$	1,030,482	$	1,042,643

Annuities

Annuity products offered include single-premium deferred annuities, flexible-premium deferred annuities, and variable annuities. In recent years Torchmark has deemphasized the marketing of annuity products, and annuities now comprise less than 2% of insurance underwriting income.

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.

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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.

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 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 6—Future Policy Benefit Reserves in the Notes to the Consolidated Financial Statements). 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 93% of total investments at December 31, 2003. (See Note 3—Investments in the Notes to the Consolidated Financial Statements and Management’s Discussion and Analysis.)

Competition

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

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

Management believes Torchmark companies operate at lower policy acquisition and administrative expense levels than peer companies, 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.

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Regulation

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

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

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 2003, Torchmark had 2,082 employees and 2,786 licensed employees under sales contracts. Additionally, approximately 41,000 independent and exclusive agents and brokers, who were not employees of Torchmark, were associated with Torchmark’s marketing efforts.

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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 in 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 51 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 McKinney, Texas (a north Dallas suburb).

Globe owns a 300,000 square foot office building in Oklahoma City, Oklahoma 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 also in Oklahoma City which is available for lease. Further, Globe owns a 112,000 square foot facility located in Oklahoma City which houses the Direct Response operation.

American Income owns and is the sole occupant of an office building located in 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 in Waco which houses a direct response operation.

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

Torchmark believes that its owned and leased properties are suitable and adequate for its current business operations.

Item 3.    Legal Proceedings

Torchmark and its subsidiaries, in common with the insurance industry in general, are subject to litigation, including claims involving tax matters, alleged breaches of contract, torts, including bad faith and fraud claims based on alleged wrongful or fraudulent acts of agents of Torchmark’s subsidiaries, employment discrimination, and miscellaneous other causes of action. A number of such actions involving Torchmark’s subsidiary Liberty also name Torchmark as a defendant. Based upon information presently available, and in light of legal and other factual defenses available to Torchmark and its subsidiaries, management does not believe that such litigation will have a material adverse effect on Torchmark’s financial condition, future operating results or liquidity, however, assessing the eventual outcome of litigation necessarily involves forward-looking speculation as to judgments to be made by judges, juries and appellate courts in the future. This bespeaks caution, particularly in states with reputations for high punitive damage verdicts such as Alabama and Mississippi.

Many of these lawsuits involve claims for punitive damages in state courts of Alabama and Mississippi, jurisdictions particularly recognized for their large punitive damage verdicts. Torchmark’s management recognizes that large punitive damage awards continue to occur bearing little or no relation to actual damages awarded by juries in jurisdictions in which Torchmark has substantial business, particularly Alabama and Mississippi, creating the potential for unpredictable material adverse judgments in any given punitive damage suit. As of December 31, 2003, Liberty was a party to approximately 93 active lawsuits (including 7 employment related cases and excluding interpleaders and stayed cases), 66 of which were Alabama proceedings and 12 of which were Mississippi proceedings in which punitive damages were sought.

As previously reported in Forms 10-K and 10-Q, beginning in October 1999, Liberty was served with subpoenas from the Departments of Insurance of several states (Florida, Alabama, Georgia, Kentucky, Texas, South Carolina and Minnesota) in connection with investigations into Liberty’s sales practices and disclosures regarding industrial and low face amount coverage life insurance policies, specifically the historical use of race-distinct mortality in the design or pricing of industrial insurance, a practice discontinued by Liberty years ago. Liberty responded to all of these subpoenas in a timely fashion.

Liberty is a party to a number of lawsuits (both a large number of lawsuits brought by individual plaintiffs and purported class action litigation with extremely broad class periods and relief sought) involving allegations of racially discriminatory pricing in the sale of insurance to African Americans. This litigation began with the filing on December 8, 1999 of Moore v Liberty National Life Insurance Company, Case No. CV-99-BU-3262-S in the United States District Court for the Northern District of Alabama. There

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are currently a total of 17 race-distinct mortality cases with in excess of 700 named plaintiffs, which have been consolidated in the Moore case that are pending in the U.S. District Court for the Northern District of Alabama (either originally filed with the Court or transferred to that Court), two pending cases in Alabama Circuit Courts (Edwards v Liberty National Life Insurance Company, Case No. CV0005872 and Baldwin v. Liberty National Life Insurance Company, Case No. CV 00-684), which are currently stayed pending disposition of the Moore case, and three individual, multi-plaintiff lawsuits which were originally filed in various state courts in Mississippi and subsequently transferred to U.S. District Court for the North District of Mississippi. As previously reported, Liberty is awaiting a ruling from the Alabama Federal District Court on the issue of class certification in Moore. Additional information regarding the race-distinct mortality/dual pricing litigation can be found in the Company’s prior Forms 10-K and Forms 10-Q.

On December 23, 2003, an order of dismissal was entered by the U.S. District Court for the Northern District of Mississippi in Cates v. Liberty National Life Insurance Company, Civil Action No. 4:03CV35-P-B, one of the three above-mentioned Mississippi cases. In another of the Mississippi cases, Billingsley v. Liberty National Life Insurance Company, (Civil Action No. 2002-532), the U.S. District Court entered an order of partial dismissal on January 30, 2004, reducing the remaining number of plaintiffs to nine persons with claims involving 14 policies.

As previously reported in Forms 10-K and Forms 10-Q, Torchmark, its subsidiary United Investors Life Insurance Company (UILIC) and two current members of Torchmark’s Board of Directors remain defendants in litigation filed in the U.S. District Court for the District of Kansas by Waddell & Reed Financial, Inc. (Waddell & Reed) (Waddell & Reed Financial, Inc. v. Torchmark Corporation, Civil Action No. 01-2372-KHV). Torchmark and UILIC are also plaintiffs in litigation in Circuit Court in Jefferson County, Alabama against Waddell & Reed and Waddell & Reed, Inc. (W&R) (United Investors Life Insurance Company v. Waddell & Reed Financial, Inc., Case No. CV 00-2720). On November 2, 2003, the Jefferson County Alabama Circuit Court denied Waddell & Reed’s motion for summary judgment filed in October 2003. UILIC continues to pursue its remaining claims against Waddell & Reed in this case which is pending in the Alabama Circuit Court. Additional information regarding the Kansas District Court litigation and the Alabama Circuit Court litigation can be found in the Company’s prior Forms 10-K and Forms 10-Q.

As previously reported in Forms 10-Q, Liberty and Torchmark are parties to purported class action litigation filed in the Circuit Court of Choctaw County, Alabama on behalf of all persons who currently or in the past were insured under Liberty cancer policies which are no longer marketed regardless of whether the policies remain in force or have lapsed (Roberts v. Liberty National Life Insurance Company, Case No. CV-2002-009-B). These cases are based on allegations of breach of contract in the implementation of premium rate increases, misrepresentation regarding the premium rate increases, fraud and suppression concerning the closed block of business and unjust enrichment. On December 30, 2003, the Alabama Supreme Court issued an opinion granting Liberty’s and Torchmark’s petition for a writ of mandamus, concluding that the Choctaw Circuit Court did not have subject matter jurisdiction and ordering that Circuit Court to dismiss the action. The plaintiffs have filed a petition asking the Alabama Supreme Court to reconsider this decision. Additionally, the plaintiffs refiled their purported class action litigation against Liberty and Torchmark in the Circuit Court of Barbour County, Alabama on December 30, 2003 (Roberts v. Liberty National Life Insurance Company, Civil Action No. CV2003 0137). Additional information regarding the Roberts case can be found in the Company’s prior Forms 10-Q.

As previously reported in the Form 10-Q for the third quarter, 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. DV-96-62). This case, originally filed in March 1996, involved allegations that an interest-sensitive life insurance policy would have paid-up policy status in ten years. Liberty pursued appellate relief from this verdict and on February 20, 2004, the Alabama Supreme Court reversed and rendered the trial court’s judgment in Ingram. The Supreme Court held that the plaintiff’s claims were barred by the statute of limitations and that the plaintiff failed to demonstrate reasonable reliance on Liberty’s representations to him regarding the policy or that Liberty suppressed material facts.

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 2003.

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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 5,332 shareholders of record on December 31, 2003, 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 14—Shareholders’ Equity in the Notes to the Consolidated Financial Statements. The market prices and cash dividends paid by calendar quarter for the past two years are as follows:

		2003 Market Price
Quarter		High		Low		Dividends Per Share
1		$	38.5000	$	33.3200	$	.0900
2			39.3700		36.3800		.0900
3			42.0600		37.3800		.0900
4			45.5400		41.5500		.1100
Year-end closing price	$45.5400
		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

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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,	2003			2002			2001			2000			1999
Premium revenue:
Life	$	1,310,373		$	1,220,688		$	1,144,499		$	1,082,125		$	1,018,301
Health		1,034,031			1,019,120			1,010,753			911,156			824,816
Other		31,379			39,225			59,917			52,929			40,969
Total		2,375,783			2,279,033			2,215,169			2,046,210			1,884,086
Net investment income		557,310			518,618			491,830			472,426			447,337
Realized investment gains (losses)		(3,274	)		(38,722	)		(1,255	)		(2,400	)		(105,991	)
Total Revenue		2,930,638			2,761,049			2,708,219			2,518,816			2,231,875
Net income from continuing operations		430,141			383,433			386,377			362,035			258,830
Net income		430,141			383,433			356,513			362,035			273,956
Annualized premium issued:
Life		382,304			334,046			294,632			290,743			257,207
Health		228,114			201,782			213,284			252,472			192,826
Total		610,418			535,828			507,916			543,215			450,033
Per common share:
Basic earnings:
Net income from continuing operations		3.75			3.19			3.09			2.83			1.95
Net income		3.75			3.19			2.85			2.83			2.06
Diluted earnings:
Net income from continuing operations		3.73			3.18			3.07			2.82			1.93
Net income		3.73			3.18			2.83			2.82			2.04
Cash dividends paid		.38			0.36			0.36			0.36			0.36
Basic average shares outstanding		114,837			120,259			125,135			128,089			133,197
Diluted average shares outstanding		115,377			120,669			125,861			128,353			133,986
As of December 31,	2003			2002			2001			2000			1999
Cash and invested assets	$	8,702,400		$	7,790,932		$	7,108,088		$	6,506,292		$	6,202,251
Total assets		13,460,886			12,360,722			12,428,153			12,962,558			12,131,664
Short-term debt		182,448			201,479			204,037			329,148			418,394
Long-term debt		693,403			551,564			536,152			365,989			371,555
Shareholders’ equity		3,240,099			2,851,453			2,497,127			2,202,360			1,993,337
Per diluted share		28.45			24.04			20.24			17.30			15.06
Effect of SFAS 115 on diluted equity per share(1)		3.39			1.58			(.01	)		(1.09	)		(1.22	)
Annualized premium in force:
Life		1,449,290			1,343,156			1,257,413			1,200,144			1,130,609
Health		1,064,428			1,030,482			1,042,643			1,004,299			884,358
Total		2,513,718			2,373,638			2,300,056			2,204,443			2,014,967
Basic shares outstanding		112,715			118,267			122,888			126,389			131,996
Diluted shares outstanding		113,887			118,598			123,354			127,339			(132,348	)

(1) SFAS 115 is an accounting rule requiring fixed maturities to be revalued at fair value each period. The effect of SFAS 115 on equity per share reflects the amount added or (deducted) under SFAS 115 to produce GAAP Shareholders’ equity. Please see the explanation and discussion under the caption Capital Resources in Management’s Discussion and Analysis in this report concerning the effect this rule has on Torchmark’s equity.

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

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

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RESULTS OF OPERATIONS

How Torchmark Views Its Operations:    Torchmark consists of a group of life insurance companies which market primarily individual life and supplemental health insurance and annuities to a limited extent throughout the United States. As a group of insurance carriers, Torchmark collects premium as revenue from policyholders for the eventual payment of policyholder benefits. As part of its insurance operations, Torchmark pays policy benefits, incurs operating expenses, including policy acquisition costs, administrative expenses, and taxes. Life and health insurance contracts can be long-term. Therefore, premium receipts in excess of current expenses are invested. The resulting investment income is a component of revenue. Torchmark’s investment activities focus on seeking quality investments to provide an appropriate yield to support its insurance products. Torchmark does not engage in trading investments for profit, and generally holds investments over long periods. Torchmark considers its “core operations” to be its insurance operations and the associated investment activities to provide a yield to support those products. While realized gains and losses do occur from time to time, they are not considered in the determination of insurance premium pricing or product profitability. These periodic gains or losses can be material in relation to core results, however, having a considerable positive or negative impact on Torchmark’s net income. Therefore, Torchmark management does not consider realized gains and losses from portfolio management to be part of ongoing investment operations. Please refer to the discussion of Realized Gains and Losses in this report.

Torchmark’s management views its operations in accordance with the manner in which its business is segmented. As fully described in Note 16—Business Segments in the Notes to the Consolidated Financial Statements, Torchmark’s core operations are divided into two major categories, insurance underwriting and investments. Insurance underwriting operations are segmented according to general product type: life insurance, health insurance, annuity, and other. Managers of the insurance segments are responsible for marketing, underwriting, and administering their respective insurance products. Management’s measure of profitability for the insurance segments is insurance underwriting income before other income and insurance administrative expenses. Insurance underwriting income represents the profit margin on insurance products before administrative expenses, and is calculated by deducting net policy obligations, commissions, and acquisition expenses from premium revenue. The investment segment’s management is responsible for Torchmark’s investments, debt, and cash flow. Management’s measure of profitability for the investment segment is excess investment income, which is the income earned on the investment portfolio less the interest credited to net policy liabilities and financing costs associated with Torchmark’s debt and preferred securities. Other income and the unallocated insurance administrative expenses are classified in a separate “Other Insurance” segment. Torchmark further views its insurance segment operations by the marketing group, either direct response, independent, or captive/career agencies, which distributes the products of that segment. Profitability of these marketing groups is also measured in the same manner as the overall segment is measured. Insurance underwriting income and excess investment income are highly useful to management in evaluating the performance of the segments and the underlying marketing groups within each insurance segment, because each of Torchmark’s distribution units tend to operate in a niche market offering insurance products designed for that niche. These measures enable management to view period-to-period trends, and make informed decisions regarding future courses of action by segment, distribution unit, and niche product.

The tables in Note 16—Business Segments demonstrate the measures of profitability. Those tables also reconcile Torchmark’s revenues and expenses by segment to its major income statement line items for each of the years in the three-year period ending December 31, 2003. Additionally, this Note provides a summary of the profitability measures that demonstrates year-to-year comparability and which reconciles to Torchmark’s net income. That summary is reproduced below from the Consolidated Financial Statements to present Torchmark’s overall operations in the manner that management uses to manage the business.

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Analysis of Profitability by Segment

(Dollar amounts in thousands)

	For the Year									2003 Increase					2002 Increase
	2003			2002			2001			Amount			%		Amount			%
Life insurance	$	324,334		$	298,008		$	283,392		$	26,326		9	%	$	14,616		5	%
Health insurance		164,364			167,487			173,458			(3,123	)	(2	)		(5,971	)	(3	)
Annuity		11,824			14,634			25,696			(2,810	)	(19	)		(11,062	)	(43	)
Other insurance:
Other income		2,582			3,906			4,391			(1,324	)	(34	)		(485	)	(11	)
Administrative expense		(131,314	)		(124,605	)		(119,038	)		(6,709	)	5			(5,567	)	5
Investment		321,280			294,999			255,545			26,281		9			39,454		15
Corporate and adjustments		(13,908	)		(14,224	)		(14,481	)		316		(2	)		257		(2	)
Pretax total		679,162			640,205			608,963			38,957		6			31,242		5
Applicable taxes		(232,779	)		(216,596	)		(204,378	)		(16,183	)	7			(12,218	)	6
After-tax total		446,383			423,609			404,585			22,774		5			19,024		5
Remove interest-rate swap benefit (after tax) from Investment segment		(17,099	)		(15,006	)		(5,318	)		(2,093	)				(9,688	)
Realized gains (losses) (after tax)*		(2,129	)		(25,170	)		(815	)		23,041					(24,355	)
Interest on tax settlements (after tax)		3,511			0			0			3,511					0
Loss on sale of airplane (after tax)		(525	)		0			0			(525	)				0
Amortization of goodwill		0			0			(12,075	)		0					12,075
Discontinued operations (after tax)		0			0			(3,280	)		0					3,280
Change in accounting principle (after tax)		0			0			(26,584	)		0					26,584
Net income	$	430,141		$	383,433		$	356,513		$	46,708		12	%	$	26,920		8	%

* See the discussion of Realized Gains and Losses in this report.

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

Summary of Operations: Torchmark’s net income increased $47 million to $430 million in 2003, and net income increased $27 million to $383 million in 2002. The growth in earnings came primarily from the life insurance and investment segments. The life insurance segment added $26 million to the 2003 increase in earnings, and $15 million in 2002 pretax earnings growth. Life insurance growth has been a result of increases in sales volumes, premium and improvements in margins in both 2003 and 2002, and is discussed further under the caption Life Insurance.

Health premium income rose just 1% in each of the years and pretax health profits declined by 2% ($3 million) to $164 million in 2003 and 3% ($6 million) in 2002. Premium growth has been limited because of health sales declines in 2001 and 2002, while the high loss ratios on a closed block of cancer business contributed to the lower pretax health profits. See the discussion under Health Insurance for a more detailed discussion of health insurance results.

The annuity segment profits have been adversely affected by replacement activity of Torchmark’s policies by a former distributor. Torchmark has previously stated that it will offer annuities, but does not plan to emphasize annuity products, favoring life insurance instead. See the caption Annuities for further discussion.

The investment segment’s profitability increased $26 million on a pretax basis in 2003 and $39 million on a pretax basis in 2002. The investment segment, which includes net investment income offset by financing costs, has benefited from the lower interest rates on financing costs and a greater benefit from the interest-rate swaps on Torchmark’s debt. See the analysis of excess investment income under the caption Investments for a more detailed discussion.

Included in net income were after-tax realized investment losses which can fluctuate greatly from period to period. In 2003, they were $2 million compared with $25 million in 2002 and $815 thousand in 2001. Therefore, the 2002 realized investment losses resulted in an after-tax decline in 2002 net income of $24 million but an increase in 2003 net income of $23 million. Realized losses in 2002 were primarily

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caused by writedowns of fixed maturities due to deterioration in credit quality of certain investments. Realized investment gains and losses are fully discussed under the caption Realized Gains and Losses in this report.

Total revenues rose 6% in 2003 to $2.93 billion. In 2002, total revenues increased 2% to $2.76 billion from $2.71 billion in 2001. The change in pretax realized investment losses accounted for 1% of the 2003 increase but offset 1% of the 2002 increase. The life premium increase was the primary contributor to revenue growth in both periods, adding 3% to revenue growth each year. Net investment income added 1% of the growth in each period, but the decline in annuity premium reduced 2002 revenues by 1%.

Torchmark views the benefit of the reduced interest cost resulting from the swap of its fixed–rate interest obligations to variable rates as a reduction in interest costs. In addition to the beneficial impact on earnings from this interest cost differential, GAAP rules also require that all derivatives (including Torchmark’s swaps) must be valued at market value with period-to-period changes reflected in earnings. In accordance with GAAP, these changes in value are treated as realized gains and losses. In 2003, the Securities and Exchange Commission informally interpreted the GAAP rules affecting the reporting of Torchmark’s swap instruments stating that all income and expenses related to non-hedged derivatives must be reported in the same line item as the required fair value adjustment. For this reason, Torchmark reports the interest expense reduction in its Consolidated Statements of Operations as a realized investment gain, not as a reduction in interest expense. Torchmark continues to report this interest savings as a reduction in interest cost in its segment analysis and in management’s discussion, as this is the way Torchmark manages its investment segment.

In 2001 through 2003, a number of significant, unusual, and nonrecurring items affected Torchmark’s net income. Torchmark management does not view these items as components of its core operating results because they are not indicative of past performance or future prospects of the insurance operations. A discussion of these items follows.

In 2003, net income was impacted by two nonrecurring items. First, Torchmark sold an airplane and recognized a pretax loss of $.8 million. In the Consolidated Statements of Operations, this item was included as an administrative expense. Secondly, the settlement of a tax issue resulted in interest due Torchmark in the pretax amount of $4.3 million. This item was included in investment income on the Consolidated Statements of Operations. Because the tax issue covered a period of many years, the interest income on the tax refund exceeded the refund itself. After costs, the effect of the tax refund on earnings was immaterial. Significant gains or losses from non-investment property or significant interest income from non-investment sources is highly unusual for Torchmark.

The 2001 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, resulting in the charge.

Also in 2001, Torchmark adopted a new accounting standard concerning the way asset-backed securities are to be accounted for and set forth new rules regarding their impairment. In accordance with this rule, Torchmark determined that certain of these assets were impaired, and an after-tax impairment charge in the amount of $27 million was taken upon adoption of this standard as a cumulative effect of a change in accounting principle. Please see Note 11—Change in Accounting Principle in the Consolidated Financial Statements for more detail on this item. As of December 31, 2003, Torchmark held $35 million at market value ($37 million at book value) of the securities subject to this standard.

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, and 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 in both 2002 and 2003 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 and 2003. In order to compare the performance in 2001 with 2002 and 2003, the effect of goodwill amortization in the amount of $12 million in 2001 must be removed from consideration. See Note 1—Significant Accounting Policies in the Notes to the Consolidated Financial Statements for more information.

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Life insurance.    Life insurance is Torchmark’s largest and fastest growing insurance segment. In 2003, life premium represented 55% of total premium, compared with 54% in 2002 and 52% in 2001. Life underwriting income before other income and administrative expense represented 65% of the total in 2003, up from 62% in 2002 and 59% in 2001.

Life insurance premium rose 7% in 2003 to $1.31 billion and 7% in 2002 to $1.22 billion. Life insurance products are marketed through several distribution channels. Premium by channel for each of the last three years is as follows.

LIFE INSURANCE

Premium by Distribution Method

(Dollar amounts in thousands)

	2003				2002				2001
	Amount		% of Total		Amount		% of Total		Amount		% of Total
Direct Response	$	350,317	26.8	%	$	315,651	25.9	%	$	289,097	25.3	%
American Income Exclusive Agency		314,849	24.0			277,181	22.7			246,690	21.5
Liberty National Exclusive Agency		304,319	23.2			301,715	24.7			297,223	26.0
Military Agency		166,299	12.7			148,709	12.2			133,378	11.7
Other Agencies		174,589	13.3			177,432	14.5			178,111	15.5
	$	1,310,373	100.0	%	$	1,220,688	100.0	%	$	1,144,499	100.0	%

Torchmark historically reports its in force, active policies and sales (issued) of insurance policies in terms of “annualized premium,” a statistical measure representing the amount of annual premium prospectively collectible for any policy. In force policies at the end of a reporting period means all the Company’s active policies as of the date regardless of when they were issued. Annualized premium in force means the amount of prospectively collectible annual premium for all active policies. For policies issued during a period, annualized premium issued means the amount of prospectively collectible annual premiums for those policies. Annualized premium is a standard measure used widely in the life insurance industry.

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

LIFE INSURANCE

Annualized Premium Data by Distribution Method

(Dollar amounts in thousands)

	Annualized Premium Issued For the Year						Annualized Premium In Force At December 31,
	2003		2002		2001		2003		2002		2001
Direct Response	$	164,201	$	123,260	$	112,041	$	404,963	$	357,393	$	326,111
American Income Exclusive Agency		107,285		91,882		66,421		346,982		302,064		265,912
Liberty National Exclusive Agency		53,525		56,341		54,853		321,176		318,613		314,676
Military Agency		26,886		23,479		21,182		179,027		158,840		141,565
Other Agencies		30,407		39,084		40,135		197,142		206,246		209,149
	$	382,304	$	334,046	$	294,632	$	1,449,290	$	1,343,156	$	1,257,413

Beginning with this report, Torchmark also presents first year collected premium, which is premium that was collected during the reported period on all policies in their first policy year. Torchmark suggests that this new data is useful primarily as it is more predictive of future annual premium revenue than annualized premium issued because this new measure takes into account lapses on newly issued policies at the time when most lapses occur.

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

LIFE INSURANCE

First-Year Collected Premium by Distribution Method

(Dollar amounts in thousands)

	2003				2002				2001
	Amount		% of Total		Amount		% of Total		Amount		% of Total
Direct Response	$	62,580	28.2	%	$	50,403	25.5	%	$	45,400	24.7	%
Liberty National Exclusive Agency		40,459	18.3			39,741	20.1			39,640	21.6
American Income Exclusive Agency		72,803	32.8			61,058	30.9			45,319	24.7
Military Agency		24,273	11.0			21,501	10.9			19,798	10.8
Other Agencies		21,521	9.7			25,018	12.6			33,309	18.2
	$	221,636	100.0	%	$	197,721	100.0	%	$	183,466	100.0	%

The Direct Response Group is Torchmark’s leading writer of life insurance. 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 27% of Torchmark’s life insurance premium during 2003. Direct Response life premium rose 11% in 2003 and 9% in 2002. At December 31, 2003, Direct Response life annualized premium in force was $405 million, which represented 28% of Torchmark’s total, the largest of any distribution group. Direct Response life insurance annualized premium in force rose 13% in 2003 after growing 10% in 2002.

Growth in premium income and annualized premium in force resulted from strong sales of Direct Response products in each period, as evidenced by the increases in first-year collections of 24% in 2003 and 11% in 2002 and annualized premium issued growth of 33% in 2003 and 10% in 2002. The growth in sales is largely attributable to this group’s focus on its juvenile life product. This product was sold for many years as a modified-premium term product. Sales of this product historically resulted in an average face amount of about $7,500 with an average annual premium of $30. In recent years, rising acquisition costs restricted margins and limited marketing expansion. After testing a variety of other replacement products and pricing that would result in more favorable results, Direct Response began marketing in mid-2001 a simple whole-life product with an average face amount of $14,000 and an average annual premium of $80. The higher annual premium has allowed Direct Response to reenter some juvenile markets that had previously become unprofitable with the old product. Not only is the juvenile market an important source of sales, but it also is a vehicle to reach the parents and grandparents of the juvenile insureds. Parents and grandparents are more likely to respond favorably to a solicitation by Direct Response for life coverage on themselves than is the general adult population. Also, both the juveniles and their parents are low-acquisition cost targets for sales of additional coverage over time. Given the success of the change in product offering to the juvenile market and their parents, sales to this demographic group should continue as one of Direct Response’s premier markets.

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 life insurance agency during both 2003 and 2002 in terms of premium income and annualized premium in force. Annualized life premium in force rose 15% to $347 million at year-end 2003, after having increased 14% in 2002, while premium income rose 14% in 2003 and 12% in 2002. Sales for this agency rose 17% in 2003 after having increased 38% in 2002. First-year collected premium grew 19% in 2003 and 35% in 2002. The rapid growth in sales for this agency over the last three years was a result of the growth in the number of its agents. Since year end 2000, the agent count has grown from 1,352 agents to 2,291 agents by year-end 2003, a compounded annual growth rate of 19%. As in the case of all of Torchmark’s agency distribution systems, continued increases in sales are largely dependent on increases in agent count. 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.

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The Liberty National Exclusive Agency distribution system markets primarily to middle-income markets in several Southeastern states. Liberty’s life premium rose 1% in 2003 to $304 million, representing 23% of Torchmark’s total life premium. In 2002, life premium grew 2% over the prior year. The annualized life premium in force at the Liberty Agency was $321 million at December 31, 2003, representing 22% of Torchmark’s total life annualized premium in force. Annualized life premium in force rose 1% in each of the last two years. Life premium sales for this agency, in terms of annualized premium issued, declined 5% during 2003 to $54 million, compared with growth of 3% in 2002. The 2003 decline in sales resulted primarily from a new procedure adopted in April, 2003 whereby agents no longer accept the initial premium in the form of cash, a type of business prone to higher lapse rates. Instead, customers are required to pay the initial premium with a check. Management believes that the lower life insurance sales from this change in procedure will be temporary, and that over time, the new procedure is expected to result in sales of life policies that are more persistent, resulting in higher margins. The “cash with application” sales comprised 25% of life sales at the time this procedure was changed. Therefore, excluding these “cash with application” sales, issued premium would have increased 15% in 2003. The positive effect of this change is a factor in the increase of 2% in first-year collected premium in 2003, compared with no change in 2002.

Liberty’s total agent count at year-end 2003 was essentially flat with the prior year at 2,197. However, the count of renewal agents, those agents that have been with Liberty for more than one year, declined 7% to 856 at year-end 2003. Renewal agents are generally higher producers than first-year agents. In the latter part of 2003, Liberty restructured its bonus system to not only reward production, but also to encourage recruiting and retention of productive agents. 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.

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 has steadily grown. In 2003, Military Agency life premium was $166 million or 13% of Torchmark’s total life premium. Premium rose 12% in 2003 and 11% in 2002. Growth in this agency continues to accelerate as annualized premium in force rose 13% in 2003 to $179 million after an increase in 2002 of 12%. One key to the growth of premium income and premium in force in the Military Agency is the high persistency associated with military business, as lapses are very low and most premium sold is retained. Sales of this agency grew 15% in terms of annualized premium issued in 2003 to $27 million, after an 11% increase in 2002. First year collections were $24 million in 2003, increasing 13% in 2003 and 9% in 2002.

Torchmark’s other life insurance distribution systems consist of the United Investors Agency, the United American Independent and Branch Office Agencies, and other small miscellaneous sales agencies. The United Investors Agency is comprised of several independent agencies, but 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. The loss of the Waddell & Reed sales group has had a negative impact on production in the United Investors Agency. The United American Independent and Branch Office Agencies combined represented approximately 41% of Other Agency premium in 2003, or 5% of the Torchmark total. Life premium for these agencies has been relatively flat for the past three years, because these two agencies focus on health insurance, with life sales being incidental.

In addition to life insurance sales, the United Investors distribution system has also engaged in the sale of variable life products. Variable life products are considered deposit-type products under GAAP. Therefore, premium collections on these products are accounted for as deposits and are added to a customer’s account known as a “Separate account liability.” A discussion of the accounting for variable products and how Torchmark manages this business is presented in this report under the caption Annuities because variable life products are very similar to variable annuities. 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, particularly equity markets. Because equity markets were weak in 2002 and 2001, the variable

16

life account balance was negatively impacted in those periods. However, in 2003, a rebound in markets had a favorable impact on the account balance. At December 31, 2003, the variable life account balance was $148 million, increasing 24% over the prior-year balance of $119 million. The following table summarizes selected variable life insurance information.

	Selected Variable Life Data (Dollar amounts in thousands)
	2003		2002		2001
Variable life collections during the year	$	26,393	$	30,063	$	33,961
Variable life deposit balance at year end		147,669		118,639		146,547

LIFE INSURANCE

Summary of Results

(Dollar amounts in thousands)

	2003					2002					2001
	Amount			% of Premium		Amount			% of Premium		Amount			% of Premium
Premium and policy charges	$	1,310,373		100.0	%	$	1,220,688		100.0	%	$	1,144,499		100.0	%
Policy obligations		862,775		65.9			815,356		66.8			754,193		65.9
Required interest on reserves		(294,670	)	(22.5	)		(279,309	)	(22.9	)		(263,748	)	(23.0	)
Net policy obligations		568,105		43.4			536,047		43.9			490,445		42.9
Commissions and premium taxes		75,308		5.7			68,622		5.6			63,949		5.5
Amortization of acquisition costs		223,998		17.1			206,424		16.9			201,322		17.6
Required interest on deferred acquisition costs		118,628		9.0			111,587		9.2			105,391		9.2
Total expense		986,039		75.2			922,680		75.6			861,107		75.2
Insurance underwriting margin before other income and administrative expenses	$	324,334		24.8	%	$	298,008		24.4	%	$	283,392		24.8	%

Gross margins, as indicated by insurance underwriting margin before other income and administrative expense, rose 9% in 2003 and 5% in 2002 over the respective prior year. As a percentage of life insurance premium, gross margins have remained fairly stable, with a slight improvement in 2003. Improvement in life margins should continue as the percentage of American Income premium to total premium continues to grow, because that agency’s margins are Torchmark’s highest. Also, Direct Response margins have increased from 24% to 25% in 2003, as it has emphasized sales of its juvenile policy, a higher-margin product.

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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 channel for each of the last three years.

HEALTH INSURANCE

Premium by Distribution Method

(Dollar amounts in thousands)

	2003				2002				2001
	Amount		% of Total		Amount		% of Total		Amount		% of Total
United American Independent Agency	$	469,939	45.4	%	$	467,017	45.8	%	$	464,100	45.9	%
United American Branch Office Agency		316,017	30.6			318,508	31.3			323,159	32.0
Liberty National Exclusive Agency		163,921	15.9			159,720	15.7			155,886	15.4
American Income Exclusive Agency		55,769	5.4			52,080	5.1			49,835	4.9
Direct Response		28,385	2.7			21,795	2.1			17,773	1.8
	$	1,034,031	100.0	%	$	1,019,120	100.0	%	$	1,010,753	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						Annualized Premium In Force At December 31,
	2003		2002		2001		2003		2002		2001
United American Independent Agency	$	105,512	$	96,052	$	73,539	$	481,217	$	473,520	$	474,816
United American Branch Office Agency		84,610		75,383		115,684		322,428		316,337		337,026
Liberty National Exclusive Agency		11,525		12,157		10,747		172,106		165,394		162,724
American Income Exclusive Agency		13,193		11,438		10,019		55,421		51,299		49,260
Direct Response		13,274		6,752		3,295		33,256		23,932		18,817
	$	228,114	$	201,782	$	213,284	$	1,064,428	$	1,030,482	$	1,042,643

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

HEALTH INSURANCE

First-Year Collected Premium by Distribution Method

(Dollar amounts in thousands)

	2003				2002				2001
	Amount		% of Total		Amount		% of Total		Amount		% of Total
United American Independent Agency	$	62,496	42.7	%	$	56,210	39.0	%	$	62,123	32.5	%
United American Branch Office Agency		54,300	37.1			63,348	44.0			108,633	56.8
Liberty National Exclusive Agency		9,321	6.4			9,133	6.3			8,043	4.2
American Income Exclusive Agency		12,119	8.3			11,217	7.8			9,598	5.0
Direct Response		8,077	5.5			4,217	2.9			2,978	1.5
	$	146,313	100.0	%	$	144,125	100.0	%	$	191,375	100.0	%

Health products sold by Torchmark insurance companies are all supplemental plans that include Medicare Supplements sold to enrollees in the federal Medicare program, as well as other limited-benefit

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plans including cancer and hospital-surgical plans sold to people under age 65. The table below presents Torchmark’s health insurance annualized premium in force by major product category at December 31, 2003 and for the two preceding years.

HEALTH INSURANCE

Annualized Premium in Force by Product

(Dollar amounts in thousands)

	December 31,
	2003				2002				2001
	Amount		% of Total		Amount		% of Total		Amount		% of Total
Medicare Supplement	$	687,489	64.6	%	$	714,112	69.3	%	$	760,848	73.0	%
Cancer		181,626	17.1			172,830	16.8			169,341	16.2
Other Limited-Benefit Plans		195,313	18.3			143,540	13.9			112,454	10.8
Total	$	1,064,428	100.0	%	$	1,030,482	100.0	%	$	1,042,643	100.0	%

At December 31, 2003, Medicare Supplement accounted for 65% of Torchmark’s annualized health premium in force. The Medicare Supplement market has become more difficult in recent periods due to regulatory pressures and increased competition, resulting in declines in sales and premium in force for this product. While Medicare Supplement still remains Torchmark’s dominant product in terms of annualized premium, hospital-surgical products have been growing rapidly in their contribution to health premium. This product line has risen from 11% of annualized health premium in force in 2001 to 18% in 2003. Growth in this line has more than offset the declines in Medicare Supplement premium in force in 2003.

Medicare Supplement annualized premium issued fell 23% in 2003 to $77 million from $99 million in 2002. In 2002, Medicare Supplement sales were down 37% from $159 million the prior year. The primary factor in the declining sales has been price competition. In recent periods, Medicare Supplement sales faced increased premium rate pressure from competition in some markets. Torchmark implemented premium rate increases on its Medicare Supplement policies earlier than some competitors in order to maintain the level of underwriting margins. In 2003, Torchmark was able to seek lower rate increases than obtained in recent years. Management believes that competitive pressures will subside as competitors obtain necessary rate increases. In addition to the increased competition, the number of producing agents at the United American Branch Office Agency declined in 2001 to 1,644 agents and further declined 22% in 2002 to 1,280 agents at December 31, 2002. These declines in counts occurred as agents in some markets left for easier sales for those competitors whose Medicare Supplement products were priced lower than Torchmark’s, negatively impacting Torchmark’s Medicare Supplement sales. In 2003, this trend reversed and the United American Branch Office Agency’s count grew 18% to 1,510 producing agents, as the focus of this agency was expanded to other supplemental health products discussed below which have experienced increased demand.

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. 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. The Medicare program is constantly being studied and reviewed by Congress and the Executive Branch, with changes in the program expected from time to time.

However, Medicare Supplements 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 that the federal Medicare program does not pay. Because of minimum 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 assistance and claims administration, as well as its economies of scale, it is a profitable line of business. In 2003, Congress passed legislation that in 2006

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will provide Medicare covered prescription drugs, a benefit not previously covered by Medicare. While this is a major addition to the Medicare program, it will have little effect on Torchmark’s Medicare supplement business because the legislation does not require Medicare supplements to cover the co-pays and deductibles that the Medicare drug program does not cover. In the past, Torchmark did not write any Medicare supplement plans that provided prescription drug coverage. At this time, it appears that there will continue to be an important role for private insurers such as Torchmark in helping senior citizens cover their healthcare costs. As a result, Medicare Supplements should continue as a popular product for senior-age consumers.

Sales of other limited-benefit health products, in terms of annualized premium issued, rose 52% in 2003 to $137 million over $91 million in 2002. In 2002, sales more than doubled. Annualized premium in force for other health products grew 36% in 2003 to $195 million, after rising 28% in 2002 to $144 million. Both of the United American agencies offer these limited benefit plans. 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 consumer 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 plans generally require lower minimum loss ratios and have higher margins than Medicare Supplements, but they do experience slightly higher lapse rates.

Cancer business is primarily produced by the Liberty National Agency. Cancer annualized premium in force represented 17% of Torchmark’s total health premium in force at December 31, 2003. Annualized premium in force rose 5% in 2003 and 2% in 2002. Approximately $79 million of the total $182 million of the cancer annualized premium in force consists of a closed block of cancer business which arose from a class action settlement in the mid-nineties. Cancer sales, in terms of annualized premium issued, were $14 million in 2003, 17% above $12 million sold in 2002. Sales in 2002 increased 9% over the prior year.

HEALTH INSURANCE

Summary of Results

(Dollar amounts in thousands)

	2003					2002					2001
	Amount			% of Premium		Amount			% of Premium		Amount			% of Premium
Premium	$	1,034,031		100.0	%	$	1,019,120		100.0	%	$	1,010,753		100.0	%
Policy obligations		689,395		66.7			673,890		66.1			663,908		65.7
Required interest on reserves		(17,397	)	(1.7	)		(15,330	)	(1.5	)		(14,911	)	(1.5	)
Net policy obligations		671,998		65.0			658,560		64.6			648,997		64.2
Commissions and premium taxes		93,789		9.1			101,164		10.0			99,047		9.8
Amortization of acquisition costs		83,142		8.0			72,643		7.1			71,913		7.1
Required interest on deferred acquisition costs		20,738		2.0			19,266		1.9			17,338		1.7
Total expense		869,667		84.1			851,633		83.6			837,295		82.8
Insurance underwriting margin before other income and administrative expenses	$	164,364		15.9	%	$	167,487		16.4	%	$	173,458		17.2	%

Health insurance underwriting margin before other income and administrative expense declined 2% in 2003 from $167 million to $164 million. In 2002, health underwriting income declined 3% from $173 million in 2001. As a percentage of premium, underwriting income before other income and administrative expense declined in each year from their respective prior years. The decreases in margins were caused

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primarily by increased policy obligations in the previously-mentioned closed block of cancer policies as loss ratios on this block continue to exceed 100%. These increases in claims cost on this block resulted from additional benefits required in the class action settlements.

Annuities.    Annuity products are marketed by Torchmark subsidiaries to service a variety of needs, including retirement income and long-term, tax-deferred growth opportunities. Annuities are sold on both a fixed and variable basis.

Torchmark measures the monetary volume of its inventory of annuity products and annuity sales on the basis of “deposit balance” and “collections,” respectively. Annuity collections are the deposits or annuity premium received from a customer, either as a new sale or as an addition to an existing deposit balance. Collections measure annuity growth through new deposits. Collections are not accounted for as revenue but are added to the deposit balance. The deposit balance is the liability due to customers for Torchmark’s annuities and is a measure of the size of the annuity inventory upon which annuity revenue is based. The variable annuity deposit balance is included in “Separate account liabilities” on Torchmark’s Consolidated Balance Sheet. The fixed annuity balance is a component of Torchmark’s “Future policy benefits.” The deposit balance is increased by collections and interest credits, but is reduced by withdrawals and by the policy charge assessments that are revenue to Torchmark. The variable account balance is additionally increased or decreased by market growth or declines in the investments in the underlying funds.

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 are equal to “Separate account liabilities.”

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.

Prior to the second quarter of 2001, Torchmark’s annuities were sold primarily by the Waddell & Reed sales force, which marketed United Investors’ products under a marketing agreement. Effective April 30, 2001, Torchmark terminated the marketing agreement providing for the sale of Torchmark’s variable annuities by the Waddell & Reed sales force due to a dispute over compensation due and Waddell & Reed’s replacement of United Investors’ variable annuities with those of another carrier. Waddell & Reed was a former subsidiary of Torchmark which was spun off in 1998. In addition to no longer marketing United Investors’ products, Waddell & Reed has continued replacing United Investors’ products with those of another carrier since the termination of the agreement. As a result, Torchmark has experienced declines in annuity sales and deposit balances.

Subsequently, United Investors and Waddell & Reed have engaged in litigation regarding the compensation dispute and Waddell’s replacement of the United Investors variable annuities. This litigation has been discussed in detail in prior years’ forms 10-K and 10-Q as well as in Item 3—Legal Proceedings.

United Investors now markets variable annuities 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.

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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 (Dollar amounts in millions)						Annuity Collections (Dollar amounts in thousands)
	2003		2002		2001		2003		2002		2001
Fixed	$	743.4	$	628.1	$	609.6	$	138,613	$	64,814	$	33,461
Variable		1,546.2		1,538.2		2,355.7		18,379		25,766		111,768
Total	$	2,289.6	$	2,166.3	$	2,965.3	$	156,992	$	90,580	$	145,229

Fixed-annuity premium collections more than doubled in 2003 and almost doubled in 2002. The fixed-annuity deposit balance rose 18% in 2003 and 3% in 2002, reversing an 8% decline in 2001. The strong growth in the fixed-annuity deposits and account balance in 2003 resulted in large part from production by a United American General Agency through arrangements with banks. Additionally, many United Investors policyholders transferred funds from variable annuities to fixed products in both 2002 and 2003. Management believes that the poor market conditions in the past three years are a major factor in the transfers to the lower-risk fixed products.

Variable-annuity collections have declined steadily since the sales agreement with Waddell & Reed was terminated. The loss of the Waddell & Reed sales force, the replacement activity by Waddell & Reed, and the transfers of variable accounts to fixed products have all been major factors in the declines in variable-annuity sales and the variable-annuity deposit balance in the years 2001 through 2003. Weaker financial markets also caused the declines in the years of 2001 and 2002, and in early 2003. The increases in equity markets during most of 2003 offset the earlier decline in account value in 2003. Variable accounts are valued based on the market values of the underlying securities.

ANNUITIES

Summary of Results

(Dollar amounts in thousands)

	2003			2002			2001
Policy charges	$	31,379		$	39,225		$	59,917
Policy obligations		37,902			34,828			36,535
Required interest on reserves		(39,110	)		(37,119	)		(42,604	)
Net policy obligations		(1,208	)		(2,291	)		(6,069	)
Commissions and premium taxes		246			341			2,381
Amortization of acquisition costs		14,604			18,443			28,558
Required interest on deferred acquisition costs		5,913			8,098			9,351
Total expense		19,555			24,591			34,221
Insurance underwriting margin before other income and administrative expenses	$	11,824		$	14,634		$	25,696

Annuity underwriting margin before other income and administrative expense declined from $26 million in 2001 to $15 million in 2002 to $12 million in 2003. The declines in annuity underwriting income also resulted from the declines in the average annuity account balance in each period. Underwriting income as a percentage of policy charges was 37.7% in 2003, consistent with 37.3% in 2002. The higher ratio in 2001 (42.9%) resulted primarily from the additional surrender charges in that year.

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Administrative expenses.    Torchmark’s operating expenses are classified in two categories: insurance administrative expenses and expenses of the parent company. Consider the following information for the three years ended December 31, 2003.

Operating Expenses Selected Information

(Dollar amounts in thousands)

	2003			2002			2001
Insurance administrative expenses*	$	131,314		$	124,605		$	119,038
Parent company expense		10,234			10,523			10,104
Total operating expenses	$	141,548		$	135,128		$	129,142
Insurance administrative expenses:
Increase over prior year		5.4	%		4.7	%		6.5	%
Expense as percentage of premium		5.5			5.5			5.4
Total operating expenses:
Increase over prior year		4.8			4.6			6.6
Expense as percentage of revenue**		4.8			4.9			4.8

* Insurance administrative expenses exclude $807 thousand nonrecurring loss on sale of aircraft equipment in 2003.

** Revenues include realized losses of $3.3 million in 2003, $38.7 million in 2002, and $1.3 million in 2001. Revenues in 2003 also include a nonrecurring interest income benefit of $4.3 million related to a tax settlement. Because realized gains and losses and nonrecurring items bear no relationship to core operations, Torchmark management removes the effect of these items from revenue when evaluating expense ratios.

Insurance administrative expenses as a percentage of premium and total operating expenses as a percentage of total revenue have held steady throughout the period considered. Increases in 2003 were mainly a result of an increase in pension expense of $2.7 million and slightly higher litigation expense.

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)

	2003			2002			2001
Net investment income	$	557,310		$	518,618		$	491,830
Interest from tax settlements		(4,337	)		- 0 -			- 0 -
Tax equivalency adjustment		3,674			3,701			4,377
Tax-equivalent investment income		556,647			522,319			496,207
Interest credited to net insurance policy liabilities:
Interest on reserves		(351,177	)		(331,758	)		(321,263	)
Interest on deferred acquisition costs		145,279			138,951			132,080
Net required		(205,898	)		(192,807	)		(189,183	)
Financing costs		(29,469	)		(34,513	)		(51,479	)
Excess investment income	$	321,280		$	294,999		$	255,545
Excess investment income per diluted share	$	2.78		$	2.44		$	2.03
Mean invested assets (at amortized cost)	$	7,848,475		$	7,297,834		$	6,921,118
Average net insurance policy liabilities		3,771,903			3,420,952			3,228,005
Average debt and preferred securities (at amortized cost)		861,678			882,267			849,162

Excess investment income represents the profit margin attributable to investment operations. It is the measure that management uses to evaluate the performance of the investment segment as described in Note 16—Business Segments in the Notes to the Consolidated Financial Statements. It is defined as net investment income on a tax-equivalent basis reduced by the interest credited to net policy liabilities and

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the interest cost associated with capital funding or “financing costs.” Tax-equivalent investment income includes an adjustment to the yield on tax-exempt securities to produce a yield equivalent to the pretax yield on taxable securities. Tax-equivalent investment income is useful because it places all fixed maturities on a comparable-yield basis, regardless of tax treatment.

Excess investment income per diluted share is the measure used by management to evaluate the performance of the investment segment. This segment is responsible for the management of capital resources including investments, debt and cash flow. Since 1986, Torchmark has used over $2 billion of cash flow to repurchase Torchmark shares under its ongoing share repurchase program after determining that the repurchases provided a greater return than other investment alternatives. Share repurchases reduce excess investment income because of the foregone earnings on the cash that would otherwise have been invested in interest bearing assets, but they also reduce the number of shares outstanding. In order to put all capital resource uses on a comparable basis, management believes that excess investment income per diluted share is the best measure of the investment segment.

Net investment income rose 7% to $557 million in 2003 and 5% to $519 million in 2002. Included in 2003 investment income was a nonrecurring interest income item resulting from a tax settlement of $4.3 million pretax. On a tax-equivalent basis, as management views investment income, investment income also rose 7% in 2003 and 5% in 2002. The increases in 2003 and 2002 were caused by the growth in mean invested assets at book value, which were $7.8 billion in 2003, compared with $7.3 billion in 2002 and $6.9 billion in 2001. The impact of the 8% growth in assets in 2003 on investment income was partially offset by lower yields available on new investments. The growth in mean invested assets was achieved in 2003 and 2002 even though $225 million and $182 million, respectively, were used to buy back Torchmark stock under its ongoing share repurchase program each year. Growth in average invested assets has resulted from the investment of new cash flow into taxable fixed-maturity securities in both 2003 and 2002. These securities consisted primarily of investment-grade corporate bonds and trust preferred securities. More information about investment acquisitions follows under this caption.

As shown on the following chart, interest credited to the net insurance policy liabilities increased 7% to $206 million in 2003 and 2% to $193 million in 2002.

Interest Credited to Net Insurance Policy Liabilities

(Dollar amounts in millions)

	Interest Credited			Average Net Insurance Policy Liabilities			Average Crediting Rate
2003
Life and Health	$	173		$	3,202		5.39	%
Annuity		33			570		5.83	%
Total		206			3,772		5.46	%
Increase in 2003		7	%		10	%
2002
Life and Health		164			2,944		5.56	%
Annuity		29			477		6.08	%
Total		193			3,421		5.64	%
Increase in 2002		2	%		6	%
2001
Life and Health		156			2,744		5.68	%
Annuity		33			484		6.87	%
Total		189			3,228		5.86	%

The 7% increase in interest credited in 2003 was due to a 10% increase in average net liabilities offset by a reduction in the average crediting rate from 5.64% to 5.46%. As discussed under the caption Annuities, the 10% growth in net policy liabilities was primarily due to the annuity production from a new

24

United American general agency and the transfers from United Investor variable policies to fixed annuities due to the deteriorating equity markets. The lower average crediting rate resulted from reductions made by the Company in response to the low interest-rate environment. The 2% increase in interest credited in 2002 resulted from a reduction in the average crediting rate from 5.86% to 5.64%, offsetting the 6% increase in average liabilities.

Financing costs for the investment segment primarily consist of interest on Torchmark’s various debt instruments and are deducted from excess investment income. The table below reconciles interest expense per the Consolidated Statements of Operations to financing costs.

Reconciliation of Interest Expense to Financing Costs

(Amounts in thousands)

	2003			2002			2001
Interest expense per Consolidated Statements of Operations	$	49,952		$	45,948		$	44,741
Adjustments to reported interest expense:
Benefit from interest-rate swaps(1)		(26,306	)		(23,086	)		(8,181	)
Preferred securities distributions(2)		5,823			11,651			14,919
Subtotal of adjustments		(20,483	)		(11,435	)		6,738
Financing costs	$	29,469		$	34,513		$	51,479

(1) Included in the Consolidated Statements of Operations as a realized investment gain under the caption “Realized investment losses”.

(2) Prior to July 1, 2003, preferred securities distributions were reported net of tax on the Consolidated Statements of Operations after income taxes in accordance with GAAP. Subsequent to July 1, 2003, upon adoption of SFAS 150, these distributions are included with interest expense.

The table below presents the components of financing costs.

Analysis of Financing Costs

(Amounts in thousands)

	2003			2002			2001
Interest on funded debt	$	40,240		$	40,236		$	29,427
Preferred securities distributions		11,647			11,651			14,919
Interest on short-term debt		3,757			5,556			15,122
Other		131			156			192
Subtotal of interest expense		55,775			57,599			59,660
Benefit from interest-rate swaps		(26,306	)		(23,086	)		(8,181	)
Financing costs	$	29,469		$	34,513		$	51,479

Financing costs have declined significantly during the past two years, falling 33% in 2002 and an additional 15% in 2003. The decline in short-term interest rates over the past two years has been a significant factor in the decline in financing costs for two reasons. First, it has reduced short-term borrowing costs in each period. Secondly, it has favorably impacted the benefit of Torchmark’s three interest-rate swaps of fixed-rate interest obligations to floating rates. A full description of these swaps is disclosed in Note 13—Debt in the Notes to the Consolidated Financial Statements.

Financing costs have also benefitted from Torchmark’s restructuring of its debt in 2001, redeeming the 9.18% Monthly Income Preferred Securities for lower fixed-rate debt. The issuance and redemption of Torchmark’s debt instruments are disclosed in Note 13—Debt and are further discussed under the caption Capital Resources in this report.

Excess investment income rose 9% in 2003 to $321 million. It increased 15% in 2002 and 13% in 2001. Excess investment income per diluted share increased 14% in 2003 to $2.78 per share from $2.44

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per share. It increased 20% in 2002 and 15% in 2001. The growth in excess investment income in both 2003 and 2002 resulted from the increased investment income due to the growth in the portfolio and the reductions in financing costs caused by the lower interest-rate environment in both years. Additionally, share purchases have caused excess investment income per share to grow faster than excess investment income as the effect of the foregone interest income on funds used for the repurchase was more than offset by the reduced number of diluted shares outstanding. Torchmark acquired 5.9 million shares in 2003 at a cost of $225 million and 4.8 million shares in 2002 at a cost of $182 million.

Torchmark’s investment strategy is to maintain a positive spread between yields on new investments and the Company’s required yield on policy and financing costs. It is this positive spread that results in excess investment income. At the same time, Torchmark desires to invest predominately in investment-grade quality corporate fixed maturities. In prolonged periods of low interest rates, maintaining sufficient spread while limiting new investments to high quality becomes more challenging. Because Torchmark’s policy liabilities are very long-term in nature with fixed rates, a low-rate environment must exist for a considerable period of time before any meaningful negative impact will be made on the spread. Nevertheless, Torchmark has addressed this issue in the recent periods of declining rates by lengthening maturities of new investment purchases and revising the crediting rates on various products.

The chart below presents selected information about Torchmark’s fixed-maturity acquisitions in the years 2001 through 2003. Investment-grade corporate securities include both bonds and trust preferred securities (classified as redeemable preferred stocks) with a diversity of issuers and industry sectors. Both yield and average life calculations on new purchases on noncallable bonds are based on the maturity date. In the case of callable bonds, the average life is based on the call date or maturity date, whichever produces the lowest yield (“yield to worst”).

Fixed Maturity Acquisitions Selected Information

(Dollar amounts in millions)

	For the Year
	2003			2002			2001
Cost of acquisitions:
Investment-grade corporate securities	$	1,333.7		$	1,068.6		$	1,378.1
Other investment-grade securities		31.3			57.0			54.2
Below investment-grade securities		1.8			33.2			100.2
Total fixed-maturity acquisitions	$	1,366.8		$	1,158.8		$	1,532.5
Average yield *		6.45	%		7.39	%		7.35	%
Effective annual yield *		6.55	%		7.53	%		7.49	%
Average life (in years, to worst call)		23.14			13.68			11.37
*Tax-equivalent basis

As rates have declined in recent periods, Torchmark has maintained yield on new investments by lengthening maturities. Management believes that the long-term, fixed-rate characteristics of its policy liabilities do not result in negative asset and liability matching. In years prior to 2003, Torchmark was able to maintain yields in excess of 7.25% on new acquisitions of investment-grade bonds. In 2003, however, yields at this level were unavailable for investment-grade bonds due to the lower-rate environment. As a result, new money was invested at an average effective yield of 6.55% in 2003. While the lower yields available to Torchmark reduce investment income, the impact of the lower rates on excess investment income and total net income is expected to be immaterial in the near term. This is because Torchmark has been able to reduce the crediting rates on the majority of its interest-sensitive and annuity products, offsetting a large portion of the reduction in income. Additionally, the lower interest-rate environment reduces the cost of Torchmark’s commercial paper borrowings and enhances the benefits from its interest-rate swaps, further reducing financing costs and minimizing the impact of lower investment rates on income.

Management believes its strategy to maintain yields has been effective, as evidenced by the increases in excess investment income as a percentage of tax-equivalent investment income even in

26

periods of very low interest rates. Management also believes that Torchmark will 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.

Torchmark’s emphasis has been on bond investments over investments in equities, mortgages, or real estate. Therefore, the relative percentage of Torchmark’s investments by type continues to vary from industry norms. The following table presents a comparison of Torchmark’s components of invested assets at amortized cost as of December 31, 2003 with the latest industry data.

	Torchmark				Industry % (1)
	Amount (in thousands)		%
Bonds	$	7,472,003	92.8	%	72.9	%
Equities		49,074	0.6		5.6
Mortgage loans		115,411	1.4		10.4
Real estate		14,774	0.2		1.0
Policy loans		294,108	3.7		4.4
Other invested assets		53,297	0.7		2.1
Short terms		51,648	0.6		3.6
	$	8,050,315	100.0	%	100.0	%

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

An analysis of Torchmark’s fixed-maturity portfolio by component at December 31, 2003 is as follows.

Fixed Maturities by Component

(Dollar amounts in millions)

	At December 31, 2003
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		% of Total Fixed Maturities*
Fixed maturities available for sale:
Bonds:
U. S. Government direct obligations & agencies	$	70	$	4	$	(2	)	$	72	0.9	%
GNMA pools		59		6					65	0.8
Other mortgage-backed securities		86		7					93	1.1
States, municipalities and political subdivisions		101		7		(1	)		107	1.3
Foreign governments		20		2					22	0.3
Corporates		5,707		519		(25	)		6,201	76.6
Asset-backed securities		86		7		(3	)		90	1.1
Redeemable preferred stocks		1,343		118		(8	)		1,453	17.9
Total fixed maturities	$	7,472	$	670	$	(39	)	$	8,103	100.0	%
Total fixed maturities at December 31, 2002	$	6,889	$	482	$	(177	)	$	7,194

*At fair value

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

	2003		2002
Short terms and under 1 year	4.0	%	4.5	%
2-5 years	28.9		28.6
6-10 years	28.1		34.8
11-15 years	9.3		12.8
16-20 years	5.4		5.2
Over 20 years	24.3		14.1
	100.0	%	100.0	%

Additional information concerning the fixed-maturity portfolio is as follows.

Fixed Maturity Portfolio Selected Information

	At December 31, 2003		At December 31, 2002
Average yield (tax-equivalent book basis)	7.24	%	7.43	%
Average life (in years, to worst call)	11.3		9.6
Average life (in years, to maturity)	14.7		13.6
Effective duration (to worst call) *	6.5		5.9
Effective duration (to maturity)*	7.8		7.3

* A measure of the price sensitivity of a fixed-income security to a particular change in interest rates.

Torchmark calculates the average life and duration of the fixed-maturity portfolio two ways: (1) based on the same date used to calculate the yield, which is the “worst call” date for callable bonds and the maturity date for all other bonds, and (2) based on the maturity date of all bonds, whether callable or not.

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At the end of 2003, the fixed-maturity portfolio had a gross unrealized gain of $670 million, compared with $482 million at the end of 2002. Gross unrealized losses on fixed maturities were $39 million at December 31, 2003, compared with $177 million a year earlier. The following tables disclose selected information about the gross unrealized losses of Torchmark’s fixed maturities at December 31, 2003.

Analyses of Gross Unrealized Investment Losses on Fixed Maturities

At December 31, 2003

(Amounts in millions)

	Fair value greater than 80% of book		Fair value less than 80% of book for less than 6 months		Fair value less than 80% of book from 6 months to less than 1 year		Fair value less than 80% of book for 1 year or longer		Total
Investment grade securities:
Corporates	$	18.7							$	18.7
U.S. government and agency		1.8								1.8
Redeemable preferred stock		3.9								3.9
Non-investment grade securities:
States, municipals, & political subdivisions							$	1.1		1.1
Corporates		6.0						0.3		6.3
Asset-backed securities		2.8								2.8
Redeemable preferred stock								4.0		4.0
	$	33.2	$	0.0	$	0.0	$	5.4	$	38.6
Maturity distribution:
Due in one year or less	$	0.2							$	0.2
Due in more than 1 year through 5 years		5.9					$	1.1		7.0
Due in more than 5 years through 10 years		4.0						0.3		4.3
Due in more than 10 years through 20 years		7.4								7.4
Due in more than 20 years		15.7						4.0		19.7
		$33.2	$	0.0	$	0.0	$	5.4	$	38.6
Major sectors:
Insurance carriers	$	5.8					$	4.0	$	9.8
Electric, gas, water, sanitation services		5.9						0.2		6.1
General merchandise stores		3.0								3.0
Food stores		2.7								2.7
Communications		2.5								2.5
U.S. Government		1.8								1.8
Depository institutions		1.5								1.5
Industrial, comm machinery, computer equip		1.4								1.4
Municipal bonds								1.1		1.1
Other		8.6						0.1		8.7
	$	33.2	$	0.0	$	0.0	$	5.4	$	38.6

Based on the information available at December 31, 2003, Torchmark believes that the par value of these securities will be recoverable.

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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 recent periods, the securities of many industry sectors affected by the economic downturn 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 acquiring investment-grade bonds, and by investigating the financial fundamentals of each prospective issuer. At December 31, 2003, approximately 93% of invested assets at fair value were held in fixed-maturity securities. The major rating agencies considered 91% of this portfolio to be investment grade. The average quality rating of the portfolio continues to be BBB+. The table below demonstrates the credit rankings of Torchmark’s fixed-maturity portfolio at fair value as of December 31, 2003.

Rating	Amount (in millions)		%
AAA	$	329.3	4.1	%
AA		303.6	3.8
A		3,348.4	41.3
BBB		3,369.9	41.6
BB		496.8	6.1
B		219.7	2.7
Less than B		35.1	0.4
Not rated		0.0	0.0
	$	8,102.8	100.0	%

Torchmark’s current investment policy is to acquire only investment-grade obligations. Thus, increases in below investment-grade issues are a result of ratings downgrades of existing holdings.

Torchmark reduces credit risk by maintaining investments in a wide range of industry sectors. The following table presents the industry sectors that exceeded 2% of the corporate fixed-maturity portfolio at December 31, 2003.

Industry	%
Depository institutions	16.9	%
Electric, gas, sanitation services	15.1
Insurance carriers	13.8
Nondepository credit institutions (finance)	6.7
Communications	4.6
Chemicals & allied products	3.9
Transportation equipment	3.8
Food & kindred products	2.7
Oil & gas extraction	2.5
Petroleum refining & related industries	2.5
Industrial, commercial machinery, computer equipment	2.5
General merchandise stores	2.1

Otherwise, no individual industry represented 2% or more of Torchmark’s corporate fixed maturities.

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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 at amortized cost represent approximately 93% 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 $4.2 billion and debt was $.9 billion at December 31, 2003, compared with fixed-maturity investments of $7.5 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 61% within ten years.

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 Note 13—Debt in the Notes to the Consolidated Financial Statements and under the caption Capital Resources in this report.

The following table illustrates the market risk sensitivity of Torchmark’s interest-rate sensitive fixed-maturity portfolio at December 31, 2003 and 2002. 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 are 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, 2003		At December 31, 2002
-200	$	9,385	$	8,213
-100		8,729		7,702
0		8,103		7,194
100		7,555		6,744
200		7,032		6,302

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Realized Gains and Losses.    Torchmark’s core business of providing insurance coverage requires it to maintain an investment portfolio to support its insurance liabilities. These insurance liabilities are often very long-term in nature, with the realization of profits from core insurance operations emerging over many years. The investments that support these liabilities consist primarily of fixed maturities, with yields expected to provide for the cost of carrying these insurance liabilities. These expected yields are taken into account when setting insurance premium rates and product profitability expectations. As a result, fixed maturities are generally held for long periods to support the liabilities, even though they are available for sale at any time.

Because Torchmark holds a large and diverse investment portfolio, investments are sold or called from time to time, resulting in a realized gain or loss. These gains and losses occur only incidentally, and are usually the result of sales for tax reasons, deterioration in investment quality of issuers, or calls by the issuers. Torchmark does not engage in trading investments for profit. Therefore, gains or losses which occur in protecting the portfolio or its yield are only secondary to Torchmark’s core insurance operation of providing insurance coverage to policyholders.

Realized gains and losses can be significant in relation to the earnings from core insurance operations, and as a result, have a material positive or negative impact on net income. They are not considered in determining premium rates or product profitability of Torchmark’s insurance products, nor are they considered to be part of ongoing investment income. Therefore, they have no bearing on core insurance operations or segment results as management views its operations because such results might not be indicative of the past or future performance of core operations. For these reasons, Torchmark management removes the effects of realized gains and losses when evaluating its overall insurance operating results.

The following table summarizes Torchmark’s tax-effected realized gains (losses) by component for each of the years in the three-year period ended December 31, 2003.

Analysis of Realized Gains (Losses)

(Amounts in thousands, except for per share data)

	Year Ended December 31,
	2003						2002						2001
	Amount			Per Share			Amount			Per Share			Amount			Per Share
Realized gains (losses), net of tax, from:
Investment sales	$	449		$	.01		$	8,703		$	.07		$	1,236		$	.01
Writedown of fixed maturities		(6,305	)		(.06	)		(58,066	)		(.48	)		(6,000	)		(.05	)
Writedown of other investments		(3,250	)		(.03	)		(2,365	)		(.02	)		- 0 -			.00
Loss on redemption of debt		- 0 -			.00			(2	)		.00			(4,553	)		(.04	)
Valuation of interest rate swaps		(10,122	)		(.09	)		11,554			.10			3,184			.03
Spread on interest rate swaps*		17,099			.15			15,006			.12			5,318			.04
Total	$	(2,129	)	$	(.02	)	$	(25,170	)	$	(.21	)	$	(815	)	$	(.01	)

* The reduction in interest cost from swapping fixed-rate obligations to floating rate.

In each year, 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 Note 3—Investments in the Consolidated Financial Statements and in its Critical Accounting Policies in this report. Pretax charges for these impairments were $10 million in 2003, $89 million in 2002, and $9 million in 2001. Of the seventeen issuers written down in 2001 through 2003, the bonds of five issuers were still held at December 31, 2003 at a fair value of $43 million and a book value of $19 million.

Accounting rules require Torchmark to revalue its interest-rate swaps at their fair value at the end of each accounting period. The fair values of these instruments fluctuate with interest rates in financial markets and diminish with the passage of time so that their value is zero when they expire. Torchmark intends to hold its swaps until they expire. Therefore, while period-to-period fluctuations can be

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substantial, the value of the swaps and the cumulative unrealized gains and losses from marking the swaps to market value from inception will be zero when the swap agreements expire. Temporary unrealized changes in swap values are included as a component of “Realized investment losses” on the Consolidated Statements of Operations. This fair value adjustment for all swaps on a pretax basis was a negative $16 million in 2003, a positive $18 million in 2002, and a positive $5 million in 2001.

In September, 2003, the Securities and Exchange Commission informally interpreted SFAS 133, the GAAP rules concerning the reporting of nonhedged derivatives. Their interpretation concluded that all income and expenses related to a non hedged derivative must be recorded in the same line item on the income statement that the adjustment to fair value is recorded. This interpretation was effective immediately with prior periods reclassified accordingly for comparability. This interpretation requires cash settlements in interest cost to be combined with the noncash unrealized fair value adjustment as a component of realized investment gains and losses. Torchmark’s pretax interest cost reduction from its swap derivatives that was included in realized investment gains was a positive $26 million in 2003, a positive $23 million in 2002, and a positive $8 million in 2001. Torchmark continues to reduce interest cost for this benefit in its segment analysis as permitted because Torchmark views the benefit from lower interest rates as a reduction in its financing costs.

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 2003, Torchmark held $35 million at fair value of asset-backed securities subject to the provisions of EITF 99-20. Under the provisions of this standard, these investments were not considered impaired. For more information on the effects of this accounting rule, see Note 11—Change in Accounting Principle in the Notes to the Consolidated Financial Statements.

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FINANCIAL CONDITION

Liquidity.    Liquidity provides 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, a 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. Sources of cash flows from operations include primarily premium and investment income. Cash outflows from operations include policy benefit payments, commissions, administrative expenses, and taxes.

Operating cash inflows significantly exceed cash outflows primarily because life insurers, such as Torchmark, expect to pay the majority of their policyholder benefits in future periods, sometimes many years later. A liability is actuarially computed and recorded for these future benefits which increases as insurance in force grows so that Torchmark can “save” for these future payments. Earnings are charged for the increase in this reserve each period, but there is no corresponding cash outlay. Therefore, cash provided from operations will generally significantly exceed net income in any given period. Cash flows are also generated by the maturities and scheduled repayments of Torchmark’s investment portfolio. Cash flows in excess of immediate requirements are invested 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.

Cash flows provided from operations increased in each of the three years ended December 31, 2003 over their respective prior year. They were $740 million in 2003, $651 million in 2002, and $618 million in 2001. In addition, Torchmark received $682 million in investment maturities and repayments in 2003, adding to available cash flows. Such repayments were $304 million in 2002 and $219 million in 2001.

Torchmark’s cash and short-term investments were $64 million at year-end 2003 and $80 million at year-end 2002. Additionally, Torchmark has a portfolio of marketable fixed and equity securities that are available for sale in the event of an unexpected need. These securities had a fair value of $8.2 billion at December 31, 2003.

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 24, 2004, 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 floating 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, 2003, $182 million carrying amount of commercial paper was outstanding, $159 million letters of credit were issued, and there were no borrowings under the line of credit. Although the commercial paper borrowing balance fluctuates based on Torchmark’s needs, 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, 2003, Torchmark was in full compliance with these covenants. Borrowings on this facility are reported as short-term debt.

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

34

substantially exceeded the cash flow needs for parent company operations. In 2003, subsidiaries of Torchmark paid $314 million in dividends to the parent company. During the year 2004, a maximum amount of $341 million is expected to be available to Torchmark from insurance subsidiaries without regulatory approval.

Off-Balance Sheet Arrangements.    As of December 31, 2003, Torchmark had no off-balance sheet arrangements, no significant unconsolidated affiliates, no variable interest entities, and no guarantees of the obligations of third-party entities. All of Torchmark’s guarantees, as disclosed in Note 17—Commitments and Contingencies, were guarantees of the performance of consolidated subsidiaries. All of Torchmark’s derivative instruments were recorded at fair value on the balance sheet.

As described under the caption New Accounting Rules, the Financial Accounting Standards Board (FASB) has issued a revised interpretation of rules concerning consolidation of variable interests (FIN46R). This interpretation will result in the trusts which are liable for Torchmark’s Trust Preferred Securities being deconsolidated as of January 1, 2004 and reflected as “off-balance sheet arrangements,” even though Torchmark is the sole owner and has total voting control of these trusts.

The following table presents Torchmark’s scheduled contractual obligations for the selected periods as of December 31, 2003.

	($ millions)
	Total		2004		2005		2006		2007		2008		Thereafter
Long-term debt—principal	$	692.4		—		—	$	180.0		—		—	$	512.4
Long-term debt—interest		843.4	$	51.3	$	51.3		50.8	$	40.1	$	40.1		609.8
Capital leases		-0-		—		—		—		—		—		—
Operating leases		17.4		3.3		2.7		2.3		1.9		1.6		5.6
Purchase obligations		-0-		—		—		—		—		—		—
Pension obligations		170.3		7.8		9.6		10.0		11.0		13.0		118.9
Other long-term obligations		26.2		2.8		2.4		2.0		1.7		1.4		15.9
Total	$	1,749.7	$	65.2	$	66.0	$	245.1	$	54.7	$	56.1	$	1,262.6

Interest on debt is based on Torchmark’s fixed obligations. As certain debt instruments have related swaps which exchange the fixed obligations to those based on floating rates, Torchmark’s actual interest cost may be greater or lesser than presented.

Pension obligations are liabilities in trust funds that are funded by Torchmark to provide for the pensions. At December 31, 2003, these pension obligations were $170 million but there were also assets of $162 million in the plans to fund those obligations. The schedule of pension benefits is based on the same assumptions used to measure the pension obligations. All other benefit plan obligations are direct liabilities of Torchmark and are included in other long-term obligations.

Torchmark’s other long-term contractual obligations at December 31, 2003 consisted of its long-term future policy liabilities in the amount of $6.2 billion and its long-term employee benefit liabilities other than pensions in the amount of $12.5 million. Of these amounts, $26 million of insurance policy obligations and no employee benefit obligations were fixed and determinable as of December 31, 2003. These fixed and determinable obligations include amounts in which a specified balance is due to be paid at a certain specified date, such as an annuity certain. All other insurance and benefit liabilities contain life, death, or health contingencies causing either the timing, the amount of benefit, or both not to be known until the event occurs. Therefore, Torchmark has scheduled as contractual obligations only those long-term obligations which are fixed and determinable at December 31, 2003. In accordance with GAAP, Torchmark carries insurance and benefit liabilities on a discounted basis on its Consolidated Balance Sheet. However, for the purpose of this disclosure, total benefits are shown on an undiscounted basis.

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Capital Resources.    Torchmark’s capital structure consists of short-term debt (the commercial paper facility described above), long-term funded debt, trust preferred securities, and shareholders’ equity. An analysis of long-term debt issues outstanding is as follows at December 31, 2003.

Long Term Debt at December 31, 2003

(Dollar amounts in thousands)

Instrument	Year Due	Interest Rate		Par Value		Book Value		Fair Value
Senior Debentures	2009	8 1/4	%	$	99,450	$	99,450	$	118,942
Notes	2023	7 7/8			168,912		165,866		200,803
Notes	2013	7 3/8			94,050		93,054		110,029
Senior Notes	2006	6 1/4			180,000		190,584		196,434
Total funded debt					542,412		548,954		626,208
Trust Preferred Securities	2041	7 3/4			150,000		144,449		162,420
Total long-term debt				$	692,412	$	693,403	$	788,628

The carrying value of Torchmark’s 6 ¹/4% Senior Notes is adjusted each period to reflect the change in fair value of a swap instrument which hedges the value of the note. This instrument increased the value of long-term debt by $12.0 million and $15.1 million at December 31, 2003 and December 31, 2002, respectively.

The carrying value of the funded debt was $693 million at December 31, 2003, compared with $552 million a year earlier. Effective July 1, 2003, Torchmark adopted Statement of Financial Accounting Standard No. 150 Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS 150). This Statement specifies that Torchmark’s trust preferred securities are to be reported as a component of long-term debt subsequent to adoption, rather than as an item reported between liabilities and equity, and that prior periods may not be restated for comparative purposes. The inclusion of the trust preferred securities with funded debt added $144 million to the 2003 balance. Additionally, in accordance with accounting rules, Torchmark adjusts the carrying value of the 2006 Senior Notes for the change in value of the above-mentioned swap instrument, since that derivative qualifies as a hedge. This fair value adjustment for the swap declined $3 million in 2003 but increased $15 million in 2002. For more information about specific debt issues, please refer to Note 13—Debt in the Notes to the Consolidated Financial Statements.

During 2001, Torchmark redeemed its Monthly Income Preferred Securities, redemption amount $200 million, and issued its $150 million 7 ³/4% Trust Preferred Securities and $180 million 6 ¹/4% Senior Notes. Information about the issuance and redemption of these instruments, including the terms and the uses of proceeds, are disclosed in Note 13—Debt in the Notes to the Consolidated Financial Statements. In connection with these instruments, Torchmark has in place three interest-rate swap agreements in which Torchmark has exchanged its fixed-rate obligations on the debt instruments to floating rates. Information about these swaps is also found in this note.

Torchmark maintains a significant available-for-sale fixed-maturity portfolio to support its insurance policyholders’ liabilities. Torchmark is required by an accounting rule (SFAS 115) to revalue this portfolio to fair market value at the end of each accounting period. The period-to-period changes in fair value, net of their associated impact on deferred acquisition costs and income tax, are reflected directly in shareholders’ equity. Changes in the fair value of the portfolio result from changes in interest rates in financial markets. While SFAS 115 requires invested assets to be revalued, accounting rules do not permit interest-bearing insurance policy liabilities to be valued at fair value in a consistent manner. Due to the size of Torchmark’s policy liabilities in relation to its shareholders’ equity, this inconsistency in measurement usually has a material impact in the reported value of shareholders’ equity. If these liabilities were revalued in the same manner as the assets, the effect on equity would be largely offset. Fluctuations in interest rates cause undue volatility in the period-to-period presentation of Torchmark’s shareholders’ equity, capital structure, and financial ratios which would be essentially removed if interest-bearing liabilities were valued in the same manner as assets. For this reason, Torchmark’s management, credit rating agencies, lenders, many industry analysts, and certain other financial statement users prefer

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to remove the effect of SFAS 115 when analyzing Torchmark’s balance sheet, capital structure, and financial ratios.

The following tables present selected data related to Torchmark’s capital resources. Additionally, the tables present the effect of SFAS 115 on relevant line items, so that investors and other financial statement users may determine its impact on Torchmark’s capital structure.

Selected Financial Data

	At December 31, 2003						At December 31, 2002						At December 31, 2001
	GAAP			Effect of SFAS 115*			GAAP			Effect of SFAS 115*			GAAP			Effect of SFAS 115*
Fixed maturities (millions)	$	8,103		$	631		$	7,194		$	306		$	6,526		$	(2	)
Deferred acquisition costs (millions) **		2,420			(37	)		2,286			(18	)		2,182			1
Total assets (millions)		13,461			594			12,361			288			12,428			(1	)
Short-term debt (millions)		182			0			201			0			204			0
Long-term debt (millions)		693			0			552			0			536			0
Trust preferred securities (millions)		0			0			144			0			145			0
Shareholders’ equity (millions)		3,240			386			2,851			187			2,497			0
Book value per diluted share		28.45			3.39			24.04			1.58			20.24			(.01	)
Debt to capitalization ***		21.3	%		(2.2	)%		23.9	%		(1.3	)%		26.2	%		0	%
Diluted shares outstanding (thousands)		113,887						118,598						123,354
Actual shares outstanding (thousands)		112,715						118,267						122,888

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

** Includes the value of insurance purchased

*** Torchmark’s debt covenants require that the effect of SFAS 115 be removed to determine this ratio

Torchmark’s ratio of earnings before interest, taxes and discontinued operations to interest requirements (times interest earned) was 14.2 times in 2003, compared with 13.8 times in 2002, and 14.5 times in 2001. These ratios were restated from those previously reported because of the reclassifications to interest expense required by GAAP for the interest-rate spreads on swap instruments. A discussion of Torchmark’s interest expense is included in the discussion of financing costs under the caption Investments in this report.

On July 24, 2003, Torchmark’s Board reaffirmed its continued authorization of the Company’s stock repurchase program in amounts and timing that management, in consultation with the Board, determined to be in the best interest of the Company. Torchmark has repurchased its common stock every year since 1986, except for 1995, the year following the acquisition of American Income. Since 1998, Torchmark has repurchased 34.8 million shares at a total cost of $1.2 billion, and has acquired no fewer than 3.4 million shares in any one year. Management believes that Torchmark share purchases at favorable prices add incrementally to per share earnings, return on equity, and are an excellent way to increase total shareholder value. In 2003, Torchmark acquired 5.9 million shares at a cost of $225 million. If the $225 million free cash flow used for the repurchase of Torchmark common stock had alternatively been invested in corporate bonds, an estimated $5.7 million of additional investment income, after tax, would have resulted and net income per diluted share would have increased 15% to $3.67. Because share purchases were made, actual net income per share was $3.73, an increase of 17%. Torchmark intends to continue the repurchase of its common shares when financial markets are favorable. In 2002, Torchmark acquired 4.8 million shares at a cost of $182 million and purchased 7.8 million shares at a cost of $303 million in 2001.

37

Credit Ratings.    The credit quality of Torchmark’s debt instruments and capital securities are rated by various rating agencies. During 2003, Standard and Poor’s upgraded Torchmark’s funded debt rating from A to A+ and its preferred securities rating from BBB+ to A-. The chart below presents Torchmark’s credit ratings as of December 31, 2003.

	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	A-	A-	baa1	a-

The financial strength of Torchmark’s major insurance subsidiaries are also rated by Standard & Poor’s and A.M. Best. Standard and Poor’s lowered the insurance financial strength rating of United Investors to A+ from AA, noting that United Investors was no longer a strategic subsidiary to Torchmark. Also during 2003, A. M. Best upgraded American Income’s insurance financial strength rating to A+ (Superior) from A (Excellent). The following chart presents these ratings for Torchmark’s five largest insurance subsidiaries at December 31, 2003.

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

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.

The AA rating is assigned by Standard & Poor’s Corporation to those insurers which have very strong financial security characteristics, differing only slightly from those rated higher. The A+ rating is assigned to an insurer with strong financial security characteristics, somewhat more likely to be affected by adverse business conditions than insurers with higher ratings. The “+” indicates that United Investors is among the strongest insurers within the A category.

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 considered by management to be material. For more information concerning litigation, please refer to Note 17—Commitments and Contingencies in the Notes to the Consolidated Financial Statements.

38

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 572 home office 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 $59.4 million in 2003, $52.6 million in 2002, and $48.2 million in 2001. Torchmark held balances due from these agents of $15.0 million at year-end 2003 and $13.1 million at year-end 2002.

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 2003 was $1.6 million, in 2002 was $780 thousand, and in 2001 was $108 thousand. At December 31, 2003, the face amount of life insurance ceded was $241 million and annualized ceded premium was $2.0 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 called for Torchmark to finance the construction of a building subject to a maximum amount of borrowing of $22.5 million. Upon completion, Torchmark committed to permanently finance the building with a fifteen-year mortgage at a rate of 2.25% over the ten-year treasury rate at that time, subject to a minimum rate of 7.0%. The building was completed in April, 2003 and the interest rate was reset to 7.0%. The outstanding balance is being repaid in equal monthly payments over fifteen years beginning May 1, 2003. At year-end 2003, the outstanding balance was $21.7 million. The loan 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 collateral loan agreement was originally entered into in 1998 with an initial loan of $7 million and an additional $15 million loaned in 2001. The loan bears interest at a rate of 7%. 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. It is collateralized by a group of mutual funds and real estate in which the loan balance can never exceed 90% of the mutual funds pledged plus 75% of the appraised value of the real estate. Because First Command made a significant payment in 2003, the outstanding loan balance at December 31, 2003 was $12.7 million, compared with $22.0 million at December 31, 2002. The market value of the mutual funds pledged was $12.6 million at December 31, 2003. The real estate was appraised by an independent firm in 2002 for $17.6 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. 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.

As part of the consideration for the transaction, Torchmark accepted a ten-year collateralized 8% note from Elgin Development in the amount of $12.4 million. Elgin Development made all interest payments and paid down $2.3 million in principal payments through December 31, 2002. As of that date the outstanding balance of the collateralized note with Elgin Development Company was $10.1 million. In 2003, Elgin Development defaulted on the note. As a result, Torchmark foreclosed on the collateral which consisted of real estate with a value of $5.7 million. Torchmark recognized a realized loss on the transaction of $2.6 million after tax.

39

Mr. Richey was a 25% investor in Stonegate Realty Company, LLC, the parent company of Elgin Development Company until December 31, 2003, at which time he became a 50% investor. Until December 31, 2003, he was also a one-third investor in Stonegate Management Company, LLC, which, in turn, is a 50% owner of Commercial Real Estate Services. As of December 31, 2003, he became a two-thirds investor in Stonegate Management. 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 $683 thousand in 2003, $750 thousand in 2002, and $757 thousand in 2001. Lease rentals paid by Torchmark subsidiaries were $261 thousand, $260 thousand, and $261 thousand in 2003, 2002, and 2001, 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, was an officer, director, and 38.3% beneficial owner of Midland Financial Co., the parent corporation of MidFirst Bank until December 31, 2003. After that date, he is no longer a beneficial owner. Fees paid for these services were $110 thousand in 2003, $118 thousand in 2002, and $109 thousand in 2001.

In the fourth quarter of 2003, a reserve in the pretax amount of $5 million was established on certain mortgages that met Torchmark’s criteria for impairment. These mortgages were originated and serviced by MidFirst.

Baxley.    William J. Baxley is a partner in the law firm of Baxley, Dillard, Dauphin, McKnight & Barclift 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, 2003 and 2002, the outstanding balance of this loan was $689 thousand and $743 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, 2003 and 2002, the outstanding balance of this loan was $791 thousand and $809 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.

40

NEW ACCOUNTING RULES

Guaranteed Minimum Policy Benefits.    The American Institute of Certified Public Accountants issued Statement of Position 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts (SOP 03-1). This Statement is effective for Torchmark beginning January 1, 2004. This Statement covers various aspects of accounting for nontraditional product features in order to increase uniformity in practice. The primary issue affecting Torchmark is the accounting for liabilities for certain guaranteed minimum policy benefits. Torchmark believes that this accounting change will result in a charge to earnings in a range from $4 to $8 million net of tax in 2004 to establish the required additional liability. This charge will be recorded as the cumulative effect of a change in accounting principle.

In future periods, Torchmark does not believe that the provision for guaranteed minimum policy benefits will have a material impact on its operations. However, the liability for guaranteed minimum policy benefits is highly dependent on the performance of financial markets, whereby poor market performance in the future could increase Torchmark’s obligations.

Deconsolidation.    In January 2003, the FASB issued FASB Interpretation 46 (FIN 46), Consolidation of Variable Interest Entities, which Torchmark adopted in 2003 with no impact to the consolidated financial statements. In December, 2003, the FASB revised FIN 46 (FIN46R) and deferred its adoption for variable interest entities (VIEs) that meet certain criteria until the first quarter of 2004. FIN46R clarified the definition of a variable interest such that only the holder of a variable interest can ever be the VIE’s primary beneficiary. Only primary beneficiaries are permitted to consolidate VIEs. Therefore, FIN46R does not permit consolidation of VIEs in which a company has voting control but is not the primary beneficiary. The trusts that are liable for Torchmark’s Trust Preferred Securities meet the definition of VIEs. Under FIN46R, Torchmark does not have a variable interest in the trusts and therefore cannot be the entity’s primary beneficiary. For this reason, Torchmark may no longer consolidate the trusts, even though Torchmark is the sole owner of the voting equity of these entities.

Upon adoption, effective January 1, 2004, prior periods will be restated for comparability. The effect of adoption will be to increase Torchmark’s long-term debt by approximately $5 million with a corresponding increase in an asset of equal amount. In addition, investment income and interest expense will be increased by approximately $350 thousand per year.

41

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 is determined by standard actuarial procedures common to the life insurance industry. The accounting policies for determining this liability are disclosed in Note 1—Significant Accounting Policies in the Notes to the Consolidated Financial Statements. 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, because of the size of this liability, 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 6—Future Policy Benefits Reserves in the Notes to the Consolidated Financial Statements.

Deferred Acquisition Costs and Value of Insurance Purchased.    The costs of acquiring new business are generally deferred and recorded as an asset. 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.” Torchmark’s policies for accounting for deferred acquisition costs and the associated amortization are reported in Note 1—Significant Accounting Policies in the Notes to the Consolidated Financial Statements. 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 5—Deferred Acquisition Costs and Value of Insurance Purchased in the Notes to the Consolidated Financial Statements.

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 and is made after careful evaluation of all information available to the Company. However, the factors upon which these estimates are based can be subject to change from historical patterns. Factors involved include medical trend rates and medical cost inflation, the litigation environment, regulatory mandates, and the introduction of policy types for which claim patterns are not well established. Changes in these estimates, if any, are reflected in the earnings of the period in which the adjustment is made. Torchmark management believes that the estimates used to produce the liability for claims and other benefits, including the estimate of unsubmitted claims, are the most appropriate under the circumstances. However, there is no certainty that the resulting stated liability will be 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 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. For more information concerning revenue recognition, investment accounting, and interest sensitivity, please refer to Note 1—Significant Accounting Policies and Note 3—Investments in the Notes to the Consolidated Financial Statements and discussions under the captions Annuities, Investments, and Market Risk Sensitivity in 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

42

experienced a decline in fair market value which is deemed other than temporary. The policies and procedures that Torchmark uses to evaluate and account for impairments of investments are disclosed in Note 1—Significant Accounting Policies and Note 3—Investments in the Notes to the Consolidated Financial Statements and the discussions under the captions Investments and Realized Gains and Losses in this report.

While every effort is made to make the best estimate of status and value with the information available regarding an other-than-temporary impairment, it is difficult to predict the 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.

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 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. The assumptions are reviewed annually and revised, if necessary, based on more current information available to the company. 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 in this report. This note also contains information about pension plan assets, investment policies, funded status, and other related data.

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 31 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, 2003 and 2002	46
Consolidated Statements of Operations for each of the three years in the period ended December 31, 2003	47
Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31, 2003	49
Consolidated Statements of Shareholders’ Equity for each of the three years in the period ended December 31, 2003	50
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2003	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, 2003 and 2002, 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, 2003. 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, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 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 13 to the consolidated financial statements, Torchmark Corporation and subsidiaries changed their classification of the trust preferred securities in 2003, in accordance with Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments With Characteristics of Both Liabilities and Equity. In addition, as discussed in Note 1 to the consolidated financial statements, Torchmark Corporation and subsidiaries changed their 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

March 5, 2004

45

TORCHMARK CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands except per share data)

	December 31,
	2003			2002
Assets:
Investments:
Fixed maturities—available for sale, at fair value (amortized cost: 2003—$7,472,003; 2002—$6,888,830)	$	8,102,810		$	7,194,392
Equity securities, at fair value (cost: 2003—$49,074; 2002—$24,260)		57,364			24,457
Mortgage loans on real estate, at cost (estimated fair value: 2003—$114,026; 2002—$122,368)		115,411			121,805
Investment real estate, at cost (less allowance for depreciation: 2003—$20,806; 2002—$20,236)		14,774			9,351
Policy loans		294,108			279,429
Other long-term investments		53,577			81,505
Short-term investments		51,648			72,812
Total investments		8,689,692			7,783,751
Cash		12,708			7,181
Accrued investment income		142,719			132,984
Other receivables		80,728			70,419
Deferred acquisition costs		2,330,010			2,184,134
Value of insurance purchased		89,849			102,091
Property and equipment, net of accumulated depreciation		29,835			33,431
Goodwill		378,436			378,436
Other assets		13,009			11,500
Separate account assets		1,693,900			1,656,795
Total assets	$	13,460,886		$	12,360,722
Liabilities:
Future policy benefits	$	6,204,226		$	5,709,623
Unearned and advance premiums		96,628			95,243
Policy claims and other benefits payable		248,937			242,661
Other policyholders’ funds		86,878			83,427
Total policy liabilities		6,636,669			6,130,954
Deferred and accrued income taxes		905,126			720,176
Other liabilities		109,241			103,874
Short-term debt		182,448			201,479
Long-term debt (estimated fair value: 2003—$788,628; 2002—$612,172)		693,403			551,564
Separate account liabilities		1,693,900			1,656,795
Total liabilities		10,220,787			9,364,842
Trust preferred securities (redemption amount —$150,000, estimated fair value: 2002—$157,200)		-0-			144,427
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: (2003—113,783,658 issued, less 1,069,053 held in treasury and 2002—126,800,908 issued, less 8,533,456 held in treasury)		113,784			126,801
Additional paid-in capital		501,034			554,768
Accumulated other comprehensive income (loss)		393,052			176,622
Retained earnings		2,273,448			2,316,868
Treasury stock		(41,219	)		(323,606	)
Total shareholders’ equity		3,240,099			2,851,453
Total liabilities and shareholders’ equity	$	13,460,886		$	12,360,722

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,
	2003			2002			2001
Revenue:
Life premium	$	1,310,373		$	1,220,688		$	1,144,499
Health premium		1,034,031			1,019,120			1,010,753
Other premium		31,379			39,225			59,917
Total premium		2,375,783			2,279,033			2,215,169
Net investment income		557,310			518,618			491,830
Realized investment losses		(3,274	)		(38,722	)		(1,255	)
Other income		819			2,120			2,475
Total revenue		2,930,638			2,761,049			2,708,219
Benefits and expenses:
Life policyholder benefits		862,775			815,356			754,193
Health policyholder benefits		689,395			673,890			663,908
Other policyholder benefits		37,902			34,828			36,535
Total policyholder benefits		1,590,072			1,524,074			1,454,636
Amortization of deferred acquisition costs		321,744			297,510			301,793
Commissions and premium taxes		167,580			168,341			163,461
Other operating expense		142,355			135,128			129,142
Amortization of goodwill		-0-			-0-			12,075
Interest expense		49,952			45,948			44,741
Total benefits and expenses		2,271,703			2,171,001			2,105,848
Income from continuing operations before income taxes and preferred securities distributions		658,935			590,048			602,371
Income taxes		(225,009	)		(199,042	)		(206,297	)
Preferred securities distributions (net of tax)		(3,785	)		(7,573	)		(9,697	)
Net income from continuing operations		430,141			383,433			386,377
Discontinued operations:
Loss on disposal of energy operations (less applicable income tax benefit of $1,766 in 2001)		-0-			-0-			(3,280	)
Net income before cumulative effect of change in accounting principle		430,141			383,433			383,097
Cumulative effect of change in accounting principle (less applicable income tax benefit of $14,314 in 2001)		-0-			-0-			(26,584	)
Net income	$	430,141		$	383,433		$	356,513

(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,
	2003		2002		2001
Basic net income per share:
Continuing operations	$	3.75	$	3.19	$	3.09
Discontinued operations:
Loss on disposal (net of tax)		-0-		-0-		(.03	)
Net income before cumulative effect of change in accounting principle		3.75		3.19		3.06
Cumulative effect of change in accounting principle (net of tax)		-0-		-0-		(.21	)
Net income	$	3.75	$	3.19	$	2.85
Diluted net income per share:
Continuing operations	$	3.73	$	3.18	$	3.07
Discontinued operations:
Loss on disposal (net of tax)		-0-		-0-		(.03	)
Net income before cumulative effect of change in accounting principle		3.73		3.18		3.04
Cumulative effect of change in accounting principle (net of tax)		-0-		-0-		(.21	)
Net income	$	3.73	$	3.18	$	2.83
Dividends declared per common share	$	0.40	$	0.36	$	0.36

See accompanying Notes to Consolidated Financial Statements.

48

TORCHMARK CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

	Year Ended December 31,
	2003			2002			2001
Net income	$	430,141		$	383,433		$	356,513
Other comprehensive income:
Unrealized investment gains (losses):
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period		330,338			236,876			190,627
Reclassification adjustment for (gains) losses on securities included in net income		14,002			76,335			6,941
Reclassification adjustment for change in accounting principle		-0-			-0-			40,899
Reclassification adjustment for amortization of (discount) and premium		(255	)		(4,714	)		(6,988	)
Foreign exchange adjustment on securities marked to market		(10,749	)		(828	)		2,525
Unrealized gains (losses) on securities		333,336			307,669			234,004
Unrealized gains (losses) on other investments		(489	)		227			(292	)
Unrealized gains (losses), adjustment to deferred acquisition costs		(19,193	)		(18,956	)		(20,444	)
Total unrealized investment gains (losses)		313,654			288,940			213,268
Applicable tax		(109,779	)		(101,053	)		(74,689	)
Unrealized investment gains (losses), net of tax		203,875			187,887			138,579
Foreign exchange translation adjustments, other than securities, net of tax		12,555			1,049			(2,487	)
Other comprehensive income (loss)		216,430			188,936			136,092
Comprehensive income (loss)	$	646,571		$	572,369		$	492,605

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, 2001
Balance at January 1, 2001	$	-0-	$	147,801		$	626,530		$	(148,406	)	$	2,220,671		$	(644,236	)	$	2,202,360
Comprehensive income										136,092			356,513						492,605
Common dividends declared ($0.36 a share)													(44,873	)					(44,873	)
Acquisition of treasury stock																(303,085	)		(303,085	)
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-
Other							1,227												1,227
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																(182,188	)		(182,188	)
Exercise of stock options							909						(2,382	)		7,479			6,006
Other							1,225												1,225
Balance at December 31, 2002		-0-		126,801			554,768			176,622			2,316,868			(323,606	)		2,851,453
Year Ended December 31, 2003
Comprehensive income										216,430			430,141						646,571
Common dividends declared ($0.40 a share)													(45,605	)					(45,605	)
Acquisition of treasury stock																(225,273	)		(225,273	)
Exercise of stock options							1,403						(2,388	)		12,913			11,928
Retirement of treasury stock				(13,000	)		(56,179	)					(425,568	)		494,747			-0-
Other				(17	)		1,042												1,025
Balance at December 31, 2003	$	-0-	$	113,784		$	501,034		$	393,052		$	2,273,448		$	41,219		$	3,240,099

See accompanying Notes to Consolidated Financial Statements.

50

TORCHMARK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

	Year Ended December 31,
	2003			2002			2001
Net income	$	430,141		$	383,433		$	356,513
Adjustments to reconcile net income to cash provided from operations:
Increase in future policy benefits		344,616			316,262			263,837
Increase (decrease) in other policy benefits		11,112			(1,555	)		11,600
Deferral of policy acquisition costs		(469,648	)		(420,329	)		(429,280	)
Amortization of deferred policy acquisition costs		321,744			297,510			301,793
Change in deferred and accrued income taxes		74,954			38,696			82,141
Tax benefit of stock option exercises		1,403			909			13,958
Depreciation		4,814			5,218			5,822
Realized losses on sale of investments and properties, and redemption of debt		29,580			61,808			9,436
Change in accounts payable and other liabilities		5,815			(22,474	)		(49,654	)
Change in receivables		(14,734	)		(3,523	)		9,319
Changes in other accruals and adjustments		677			(5,143	)		1,303
Change in accounting principle		-0-			-0-			40,899
Cash provided from operations	$	740,474		$	650,812		$	617,687

(Continued)

See accompanying Notes to Consolidated Financial Statements.

51

TORCHMARK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)

(Amounts in thousands)

	Year Ended December 31,
	2003			2002			2001
Cash provided from operations	$	740,474		$	650,812		$	617,687
Cash used for investment activities:
Investments sold or matured:
Fixed maturities available for sale—sold		91,702			423,683			925,655
Fixed maturities available for sale—matured, called, and repaid		682,035			303,743			218,569
Equity securities		5,308			-0-			-0-
Mortgage loans		6,329			3,677			12,240
Real estate		-0-			1,067			731
Other long-term investments		10,788			1,312			1,996
Total investments sold or matured		796,162			733,482			1,159,191
Acquisition of investments:
Fixed maturities—available for sale		(1,366,815	)		(1,158,806	)		(1,532,344	)
Equity securities		(26,999	)		(23,486	)		-0-
Mortgage loans		(2,927	)		(13,327	)		(6,181	)
Real estate		(394	)		(755	)		(464	)
Net increase in policy loans		(14,679	)		(12,450	)		(11,659	)
Other long-term investments		(2,942	)		-0-			(15,180	)
Total investments acquired		(1,414,756	)		(1,208,824	)		(1,565,828	)
Net (increase) decrease in short-term investments		21,357			61,344			(33,581	)
Net change in payable or receivable for securities		(2,202	)		(52,309	)		44,726
Dispositions of properties		3,370			197			1,159
Additions to properties		(3,614	)		(2,442	)		(3,692	)
Cash used for investment activities		(599,683	)		(468,552	)		(398,025	)
Cash provided from (used for) financing activities:
Issuance of common stock		10,525			5,097			135,003
Issuance of 6 1/4% senior notes		-0-			-0-			177,771
Cash dividends paid to shareholders		(43,850	)		(43,501	)		(45,188	)
Net repayment of short-term debt		(19,031	)		(2,558	)		(125,111	)
Redemption of long-term debt		-0-			(75	)		(8,343	)
Acquisition of treasury stock		(225,273	)		(182,188	)		(303,085	)
Redemption of monthly income preferred securities		-0-			-0-			(200,000	)
Issuance of trust preferred securities		-0-			-0-			144,554
Net receipts (payments) from deposit product operations		142,365			44,432			(26,638	)
Cash provided from (used for) financing activities		(135,264	)		(178,793	)		(251,037	)
Increase (decrease) in cash		5,527			3,467			(31,375	)
Cash at beginning of year		7,181			3,714			35,089
Cash at end of year	$	12,708		$	7,181		$	3,714

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. Investment income on other-than-temporarily impaired investments which are past due is not recorded until received.

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, 2003, 2002, and 2001, included $351 million, $332 million, and $321 million, respectively, which was allocable to policyholder reserves or accounts. Realized investment gains and losses are not allocated to insurance policyholders’ liabilities.

Derivatives: Torchmark accounts for derivative instruments in accordance with Statement of Financial Accounting Standards (SFAS) 133, Accounting for Derivative Instruments and Hedging Activities, as amended. At December 31, 2003 and 2002, 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 133, gains and losses in the derivative are substantially offset by changes in the underlying hedged instrument.

During 2003, the Securities and Exchange Commission made known interpretative guidance concerning SFAS 133. They have concluded that all income and expenses related to a nonhedged derivative must be recorded in the same line item that the adjustment to fair value is recorded. This interpretation also requires prior periods to be reclassified accordingly for comparability. In order to comply with this interpretation, Torchmark no longer reduces its interest expense on the Statement of Operations for the reduction in interest cost for swapping its fixed rate for a variable rate on nonhedged derivatives. Instead, this benefit is reported as a component of realized investment gains (losses), the same line where the required fair value adjustment for nonhedged derivatives is reported. Torchmark has also reported the interest cost benefit on hedged derivatives as a component of realized gains (losses), in order to report these items on a consistent basis.

53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 1—Significant Accounting Policies (continued)

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.

Recognition of Premium Revenue and Related Expenses: Premiums for insurance contracts which are not defined as universal life-type according to SFAS 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 life and annuity products are also assessed an investment management fee and a sales charge. Life premium includes policy charges of $64.7 million, $69.0 million, and $71.3 million for the years ended December 31, 2003, 2002, and 2001, respectively. Other premium includes annuity policy charges for the years ended December 31, 2003, 2002, and 2001 of $31.2 million, $39.0 million, and $59.5 million, respectively. Profits are also earned to the extent that investment income exceeds policy liability 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 considered appropriate at the time the policies were issued. Assumptions used 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. Once established, assumptions are generally not changed. An additional provision is made on most products to allow for possible adverse deviation from the assumptions assumed. 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. Additionally, significantly different assumptions could result in materially different reported amounts.

Deferred Acquisition Costs and Value of Insurance Purchased: The costs of acquiring new business are generally deferred and recorded as an asset. 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 and the value of insurance purchased are amortized in a systematic manner which matches these costs with the associated revenues. Policies other than universal life-type policies are amortized with interest over the estimated premium-paying period of the policies in a manner which charges each year’s operations in proportion to the receipt of premium income. Limited-payment contracts are amortized over the contract period. Universal life-type policies are amortized with interest in proportion to estimated gross profits. The assumptions used to amortize acquisition costs with regard to interest, mortality, morbidity, and persistency are consistent with those used to estimate the liability for future policy benefits. For interest-sensitive and deposit-balance type products, these assumptions are reviewed on a regular basis and are revised if actual experience differs significantly from original expectations. 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

54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 1—Significant Accounting Policies (continued)

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.

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.

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 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 142, Goodwill and Other Intangible Assets. SFAS 142 changed the accounting for goodwill from an amortization method to an impairment method. SFAS 142 calls for goodwill to be subject to impairment testing upon implementation and annually thereafter based on the procedures outlined in the Statement. Amortization of goodwill is not permitted after adoption. Restatement of prior year results to exclude the amortization of goodwill for comparability is prohibited.

In accordance with SFAS 142, Torchmark tested its goodwill as of December 31, 2001 and annually thereafter for impairment. As a result of the tests, Torchmark’s goodwill was not impaired in any of the periods. Therefore, Torchmark ceased amortizing goodwill in 2002 and thereafter and continues to carry goodwill at the December 31, 2001 balance of $378 million. The amortization of goodwill in 2001 was $12.1 million.

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 are as follows:

	(Amounts in thousands, except for per share data) For the Year Ended December 31,
	2003		2002		2001
Reported income before extraordinary items	$	430,141	$	383,433	$	386,377
Add back: Goodwill amortization		0		0		12,075
Adjusted net income before extraordinary items	$	430,141	$	383,433	$	398,452
Basic earnings per share:
Reported income before extraordinary items	$	3.75	$	3.19	$	3.09
Add back: Goodwill amortization		0.00		0.00		0.09
Adjusted net income before extraordinary items	$	3.75	$	3.19	$	3.18
Diluted earnings per share:
Reported income before extraordinary items	$	3.73	$	3.18	$	3.07
Add back: Goodwill amortization		0.00		0.00		0.10
Adjusted net income before extraordinary items	$	3.73	$	3.18	$	3.17
Reported net income	$	430,141	$	383,433	$	356,513
Add back: Goodwill amortization		0		0		12,075
Adjusted net income	$	430,141	$	383,433	$	368,588
Basic earnings per share:
Reported net income	$	3.75	$	3.19	$	2.85
Add back: Goodwill amortization		0.00		0.00		0.10
Adjusted net income	$	3.75	$	3.19	$	2.95
Diluted earnings per share:
Reported net income	$	3.73	$	3.18	$	2.83
Add back: Goodwill amortization		0.00		0.00		0.10
Adjusted net income	$	3.73	$	3.18	$	2.93

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.

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.

56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 1—Significant Accounting Policies (continued)

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,
	2003			2002			2001
Net income as reported	$	430,141		$	383,433		$	356,513
After tax stock-based compensation, as reported		350			450			423
After tax effect of stock-based compensation, fair value method*		(8,066	)		(8,163	)		(36,436	)
Pro forma net income	$	422,425		$	375,720		$	320,500
Earnings per share:
Basic—as reported	$	3.75		$	3.19		$	2.85
Basic—pro forma	$	3.68		$	3.12		$	2.56
Diluted—as reported	$	3.73		$	3.18		$	2.83
Diluted—pro forma	$	3.67		$	3.12		$	2.55

* In 2001, $29.4 million was related to a restoration grant as discussed in Note 15 — Employee Stock Options.

Earnings Per Share: Torchmark presents basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing income available to common stockholders by the weighted average common shares outstanding for the period. Diluted EPS is calculated by adding to shares outstanding the additional net effect of potentially dilutive securities or contracts, such as stock options, which could be exercised or converted into common shares. For more information on earnings per share, see Note 14—Shareholders’ Equity.

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.

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,
	2003		2002		2001		2003		2002		2001
Life insurance subsidiaries	$	331,586	$	235,300	$	243,325	$	935,274	$	858,193	$	766,328

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.

57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 3—Investments

	Year Ended December 31,
	2003			2002			2001
Net investment income is summarized as follows:
Fixed maturities	$	528,025		$	497,183		$	468,357
Equity securities		2,232			613			33
Mortgage loans on real estate		8,438			8,304			9,196
Investment real estate		2,270			2,234			2,233
Policy loans		20,488			19,307			18,225
Other long-term investments		9,622			4,756			4,895
Short-term investments		1,541			1,434			6,582
		572,616			533,831			509,521
Less investment expense		(15,306	)		(15,213	)		(17,691	)
Net investment income	$	557,310		$	518,618		$	491,830
An analysis of realized gains (losses) from investments is as follows:
Realized investment gains (losses):
Fixed maturities	$	(14,294	)	$	(76,009	)	$	(7,429	)
Equity securities		1,259			-0-			-0-
Valuation of interest rate swaps		(15,572	)		17,776			4,898
Spread on interest rate swaps		26,306			23,086			8,181
Other		(973	)		(3,575	)		(6,905	)
		(3,274	)		(38,722	)		(1,255	)
Applicable tax		1,145			13,552			441
Realized gains (losses) from investments, net of tax	$	(2,129	)	$	(25,170	)	$	(814	)
An analysis of the net change in unrealized investment gains (losses) is as follows:
Equity securities	$	8,093		$	292		$	28
Fixed maturities available for sale		325,243			307,377			233,976
Unrealized gains (losses) on securities	$	333,336		$	307,669		$	234,004

A summary of fixed maturities available for sale and equity securities by cost or amortized cost and estimated fair value at December 31, 2003 and 2002 is as follows:

	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amount per the Balance Sheet		% of Total Fixed Maturities
2003:
Fixed maturities available for sale:
Bonds:
U.S. Government direct obligations and agencies	$	69,935	$	3,967	$	(1,809	)	$	72,093	$	72,093	0.9	%
GNMAs		59,403		5,966		-0-			65,369		65,369	0.8
Other mortgage-backed securities		85,547		6,978		-0-			92,525		92,525	1.1
State, municipalities and political subdivisions		101,397		6,228		(1,108	)		106,517		106,517	1.3
Foreign governments		19,621		2,229		-0-			21,850		21,850	0.3
Public utilities		878,683		78,340		(4,263	)		952,760		952,760	11.8
Industrial and miscellaneous		4,828,257		441,030		(20,697	)		5,248,590		5,248,590	64.8
Asset-backed securities		86,356		6,212		(2,760	)		89,808		89,808	1.1
Redeemable preferred stocks		1,342,804		118,462		(7,968	)		1,453,298		1,453,298	17.9
Total fixed maturities		7,472,003		669,412		(38,605	)		8,102,810		8,102,810	100	%
Equity securities:
Common stocks:
Banks and insurance companies		20,426		1,995		-0-			22,421		22,421
Industrial and all others		5,162		1,640		(109	)		6,693		6,693
Non-redeemable preferred stocks		23,486		4,764		-0-			28,250		28,250
Total equity securities		49,074		8,399		(109	)		57,364		57,364
Total fixed maturities and equity securities	$	7,521,077	$	677,811	$	(38,714	)	$	8,160,174	$	8,160,174

58

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
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
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		980,365		60,142		(42,666	)		997,841		997,841	13.9
Industrial and miscellaneous		4,221,876		340,958		(100,744	)		4,462,090		4,462,090	62.0
Asset-backed securities		38,287		3,490		(122	)		41,655		41,655	0.6
Redeemable preferred stocks		1,155,383		38,558		(31,968	)		1,161,973		1,161,973	16.1
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

A schedule of fixed maturities by contractual maturity at December 31, 2003 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	$	170,641	$	174,880
Due from one to five years		1,324,862		1,458,725
Due from five to ten years		1,765,368		2,002,933
Due after ten years		3,979,826		4,218,570
		7,240,697		7,855,108
Mortgage-backed and asset- backed securities		231,306		247,702
	$	7,472,003	$	8,102,810

Proceeds from sales of fixed maturities available for sale were $92 million in 2003, $424 million in 2002, and $926 million in 2001. Gross gains realized on those sales were $3.7 million in 2003, $25.4 million in 2002, and $20.6 million in 2001. Gross losses were $13.5 million in 2003, $14.7 million in 2002, and $21.4 million in 2001. Proceeds from sales of equity securities were $5.3 million in 2003. Gross gains realized on those sales were $1.5 million and there were no gross realized losses. There were no sales of equity securities during 2002 or 2001.

Torchmark’s portfolio of fixed maturities fluctuates in value based on interest rates in financial markets and other economic factors. These fluctuations caused by market rate changes have little bearing on whether or not the investment will be ultimately recoverable. Therefore, Torchmark considers these declines in value as temporary even in periods exceeding one year. In certain circumstances,

59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 3—Investments (continued)

however, it may become apparent that the principal of an investment may not be recoverable, generally due to factors specific to an individual issuer and not market interest rates. In this event, Torchmark classifies such investments as other-than-temporarily impaired and writes the investment down to fair value, realizing an investment loss. The determination that a security is other-than-temporarily impaired is highly subjective and involves the careful consideration of many factors. These factors include:

• 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

• News releases by issuer

• Information disseminated through the investment community

While all available information is taken into account, it is difficult to predict the ultimately recoverable amount of a distressed or impaired security.

The following table discloses unrealized investment losses by class of investment at December 31, 2003. Torchmark considers these investments to be only temporarily impaired.

ANALYSIS OF GROSS UNREALIZED INVESTMENT LOSSES

At December 31, 2003

	Less than Twelve Months					Twelve Months or Longer					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. Government and agency	$	25,027	$	(1,809	)		—		—		$	25,027	$	(1,809	)
States, municipalities, & political subdivisions		—		—		$	3,153	$	(1,108	)		3,153		(1,108	)
Corporates		809,244		(23,038	)		194,242		(12,650	)		1,003,486		(35,688	)
Total fixed maturities		834,271		(24,847	)		197,395		(13,758	)		1,031,666		(38,605	)
Equities		1,045		(109	)		—		—			1,045		(109	)
Total	$	835,316	$	(24,956	)	$	197,395	$	(13,758	)	$	1,032,711	$	(38,714	)

Torchmark maintains a “watchlist” of all securities upon which are reported those investments that have a fair value less than 80% of book value, have a NAIC designation of 5 or 6, or were previously impaired and written down. Securities on this list are reviewed and tested for impairment at least quarterly. At December 31, 2003, securities of twelve issuers were on this list with a fair value of $96 million and a book value of $77 million. Securities of 4 issuers with a fair value of $20 million and a book value of $25 million were in this position for more than a year. As of December 31, 2003, Torchmark has no information available to cause it to believe that any of these investments are other-than-temporarily impaired.

Torchmark had $7.5 million in investment real estate at December 31, 2003, which was nonincome producing during the previous twelve months. These properties consisted primarily of undeveloped land. Torchmark had $9.2 million in nonincome producing mortgages as of December 31, 2003. Torchmark had $2.7 million in nonincome producing fixed maturities during the twelve months ended December 31, 2003. There were no other long-term investments which were nonincome producing at December 31, 2003.

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, 2003, Torchmark owned $14.8 million in investment real estate, of which $6.6 million was included with properties partially occupied by Torchmark subsidiaries.

60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 3—Investments (continued)

During 2003, Torchmark recorded a reserve against its mortgage loans on real estate portfolio as a result of impairments. The reserve resulted in a pretax loss of $5 million, or $3.3 million after tax. At December 31, 2003, Torchmark owned $115.4 million in mortgage real estate.

Note 4—Property and Equipment

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

	December 31, 2003				December 31, 2002
	Cost		Accumulated Depreciation		Cost		Accumulated Depreciation
Company occupied real estate	$	61,625	$	35,149	$	61,713	$	33,909
Data processing equipment		23,322		21,911		23,132		21,810
Transportation equipment		874		523		5,561		2,339
Furniture and office equipment		20,650		19,053		20,205		19,122
	$	106,471	$	76,636	$	110,611	$	77,180

Depreciation expense on property and equipment used in the business was $4.1 million, $4.5 million, and $5.2 million in each of the years 2003, 2002, and 2001, 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:

	2003						2002						2001
	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	$	2,184,134		$	102,091		$	2,066,423		$	115,939		$	1,942,161		$	133,158
Additions:
Deferred during period:
Commissions		294,989			-0-			264,565			-0-			265,116			-0-
Return of commissions(1)		(10,857	)		-0-			-0-			-0-			-0-			-0-
Other expenses		185,516			-0-			155,764			-0-			164,164			-0-
Total deferred		469,648			-0-			420,329			-0-			429,280			-0-
Foreign exchange adjustment		4,697			226			-0-			-0-			-0-			-0-
Total additions		474,345			226			420,329			-0-			429,280			-0-
Deductions:
Amortized during period		(309,276	)		(12,468	)		(283,662	)		(13,848	)		(284,574	)		(17,219	)
Adjustment attributable to unrealized investment gains(2)		(19,193	)		-0-			(18,956	)		-0-			(20,444	)		-0-
Total deductions		(328,469	)		(12,468	)		(302,618	)		(13,848	)		(305,018	)		(17,219	)
Balance at end of year	$	2,330,010		$	89,849		$	2,184,134		$	102,091		$	2,066,423		$	115,939

(1) In 2003, $10.9 million in disputed commissions paid in prior years to Waddell & Reed were returned in settlement. This amount reduced deferred commissions.

(2) 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 $5.5 million, $6.6 million, and $7.7 million, for the years ended December 31, 2003, 2002, and 2001, respectively. The average interest rates used for the years ended December 31, 2003, 2002, and 2001, were 5.7%, 6.1%, and 6.2%, respectively. The estimated amortization, net of interest accrued, on the unamortized balance at December 31, 2003 during each of the next five years is: 2004, $10.6 million; 2005, $9.2 million; 2006, $7.8 million; 2007, $6.8 million; and 2008, $5.8 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—Future Policy Benefit Reserves

A summary of the assumptions used in determining the liability for future policy benefits at December 31, 2003 is as follows:

Individual Life Insurance

Interest assumptions:

Years of Issue	Interest Rates	Percent of Liability
1917-2003	2.5% to 5.5%	18	%
1929-2003	6.0%	25
1986-1994	7.0% graded to 6.0%	11
1954-2000	8.0% graded to 6.0%	13
1951-1985	8.5% graded to 6.0%	6
1980-2003	7.0%	5
1984-2003	Interest Sensitive	22
		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
1955-2003	2.5% to 4.5%	5	%
1993-2003	6.0%	37
1986-1992	7.0% graded to 6.0%	38
1955-2000	8.0% graded to 6.0%	16
1951-1986	8.5% graded to 6.0%	3
2001-2003	7.0%	1
		100	%

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 2003 was 5.9%.

62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 7—Liability for Unpaid Health Claims

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

	Year Ended December 31,
	2003			2002			2001
Balance at beginning of year:	$	173,616		$	185,056		$	183,147
Incurred related to:
Current year		662,025			656,743			664,876
Prior year		(8,703	)		(11,235	)		2,363
Total incurred		653,322			645,508			667,239
Paid related to:
Current year		504,724			497,452			501,977
Prior year		151,202			159,496			163,353
Total paid		655,926			656,948			665,330
Balance at end of year	$	171,012		$	173,616		$	185,056

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.” Prior-year claims incurred during the year result from claim settlements at different amounts from those amounts originally estimated.

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

Note 8—Discontinued Operations

        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 9—Supplemental Disclosures of Cash Flows Information

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

	Year Ended December 31,
	2003		2002		2001
Paid-in capital from tax benefit for stock option exercises	$	1,402	$	909	$	13,958
Other stock-based compensation not involving cash		1,026		1,225		1,227

The following table summarizes certain amounts paid during the period:

	Year Ended December 31,
	2003		2002		2001
Interest paid*	$	49,382	$	43,877	$	45,885
Income taxes paid		144,654		151,355		89,675

* The interest cost reductions resulting from the cash settlements of Torchmark’s interest-rate swaps are netted against realized investment losses.

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,
	2003			2002			2001
Income from continuing operations	$	225,009		$	199,042		$	206,297
Discontinued operations		-0-			-0-			(1,766	)
Preferred securities dividends		(2,038	)		(4,078	)		(5,222	)
Change in accounting principle		-0-			-0-			(14,315	)
Shareholders’ equity:
Unrealized gains (losses)		109,779			101,053			74,689
Tax basis compensation expense (from the exercise of stock options) in excess of amounts recognized for financial reporting purposes		(1,403	)		(909	)		(13,958	)
Other		-0-			(3,864	)		(977	)
	$	331,347		$	291,244		$	244,748

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

	Year Ended December 31,
	2003		2002		2001
Current income tax expense	$	151,473	$	153,762	$	146,737
Deferred income tax expense		73,536		45,280		59,560
	$	225,009	$	199,042	$	206,297

In 2003, 2002, and 2001, 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,
	2003			%		2002			%		2001			%
Expected income taxes	$	230,627		35	%	$	206,517		35	%	$	210,830		35	%
Increase (reduction) in income taxes resulting from:
Tax-exempt investment income		(4,284	)	(1	)		(6,146	)	(1	)		(7,754	)	(1	)
Other		(1,334	)	—			(1,329	)	—			3,221		—
Income taxes	$	225,009		34	%	$	199,042		34	%	$	206,297		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,
	2003		2002
Deferred tax assets:
Present value of future policy surrender charges	$	20,181	$	24,704
Carryover of nonlife net operating losses		9,292		14,499
Other assets and other liabilities, principally due to the current nondeductibility of certain accrued expenses for tax purposes		10,050		23,120
Total gross deferred tax assets		39,523		62,323
Deferred tax liabilities:
Unrealized investment gains		210,895		101,116
Deferred acquisition costs		580,454		527,355
Future policy benefits, unearned and advance premiums, and policy claims		136,332		134,625
Other		4,459		8,529
Total gross deferred tax liabilities		932,140		771,625
Net deferred tax liability	$	892,617	$	709,302

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 it becomes probable that all or a portion of the policyholders’ surplus accounts will become taxable.

Torchmark has net operating loss carryforwards of approximately $26.5 million at December 31, 2003 of which $.2 million expire in 2008; $21.6 million expire in 2020; and $4.7 million expire in 2021. A valuation allowance is to be provided when it is more likely than not that deferred tax assets will not be realized by the company. No valuation allowance has been recorded relating to Torchmark’s deferred tax assets since, in management’s judgment, Torchmark will more likely than not have sufficient taxable income in future periods to fully realize its existing deferred tax assets.

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 which were subject to impairment writedowns 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
2003	$	3,308	$	5,031
2002		3,247		2,330
2001		3,283		2,535

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. All plan measurements for the defined benefit plans are as of December 31 of the respective year. The defined benefit pension plans covering the majority of employees are funded. Contributions are made to the pension plans subject to minimums required by regulation and maximums allowed for tax purposes. Defined benefit plan contributions were $10.4 million in 2003, $7.2 million in 2002, and $1.0 million in 2001. Torchmark estimates as of December 31, 2003 that it will contribute an amount not to exceed $20 million to these plans in 2004. The actual amount of contribution cannot reasonably be determined as of December 31, 2003.

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. This plan is limited to a select group of employees and was closed as of December 31, 1994. Although this plan is unfunded, pension cost is determined in the same manner as for the funded plans. Liability for the excess benefit plan was $5.6 million at December 31, 2003 and $5.4 million at December 31, 2002.

Plan assets in the funded plans consist primarily of investments in marketable long-term fixed maturities and equity securities and are valued at fair market value. The following table presents the assets of Torchmark’s defined benefit pension plans by component for the years ended December 31, 2003 and 2002.

Pension Assets by Component

(Dollar amounts in thousands)

	December 31, 2003			December 31, 2002
	Amount		%	Amount		%
Corporate debt	$	62,278	38.5	$	53,556	40.4
Other fixed maturities		2,078	1.3		11,285	8.5
Equity securities		70,015	43.3		33,959	25.6
Securities of Torchmark		13,273	8.2		12,682	9.6
Short-term investments		8,669	5.4		16,886	12.7
Annuity contract issued by Torchmark		3,759	2.3		3,278	2.5
Other		1,660	1.0		949	0.7
Total	$	161,732	100.0	$	132,595	100.0

The increase in pension assets during 2003 resulted primarily from improved financial markets and a $10.4 million contribution during the period.

66

Note 12—Postretirement Benefits (continued)

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

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

Allowed investments are limited to equities, fixed maturities, and short-term investments (invested cash). Equities include common and preferred stocks, securities convertible into equities, and mutual funds that invest in equities. Fixed maturities consist of marketable debt securities rated investment grade at purchase by a major rating agency. Short-term investments include fixed maturities with maturities less than one year and invested cash. Target asset allocations are as follows with a twenty percent allowable variance as noted.

Asset Type	Target		Minimum		Maximum
Equities	65	%	45	%	85	%
Fixed maturities	35		15		55
Short-terms	0		0		20

Short-term divergences due to rapid market movements are allowed.

Portfolio risk is managed through quality standards, diversification, and continuous monitoring. Equities must be listed on major exchanges and adequate market liquidity is required. Fixed maturities must be rated investment grade at purchase by a major rating agency. Short-term investments in commercial paper must be rated at least A-2 by Standard & Poor’s with the issuer rated investment grade. Invested cash is limited to banks rated A or higher. Investments outside of the aforementioned list are not permitted, except by prior approval of the Plans’ Trustees. At December 31, 2003, there were no restricted investments contained in the portfolio.

The investment portfolio is to be well diversified to avoid undue exposure to a single sector, industry, business, or security. The equity and fixed-maturity portfolios are not permitted to invest in any single issuer that would exceed 10% of total plan assets at the time of purchase.

Torchmark does not employ any other special risk management techniques, such as derivatives, in managing the pension investment portfolio.

67

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 12—Postretirement Benefits (continued)

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

Weighted Average Pension Plan Assumptions

For Benefit Obligations at December 31:
	2003		2002
Discount Rate	6.29	%	6.75	%
Rate of Compensation Increase	3.78		4.50
For Periodic Benefit Cost for the Year:
	2003		2002		2001
Discount Rate	6.75	%	7.25	%	7.50	%
Expected Long-Term Returns	8.75		9.25		9.25
Rate of Compensation Increase	3.78		4.50		4.50

The expected long-term rate of return on plan assets is management’s best estimate of the average rate of earnings expected to be received on the assets invested in the plan over the benefit period. In determining this assumption, consideration is given to the historical rate of return earned on the assets, the projected returns over future periods, and the spread between the long-term rate of return on plan assets and the discount rate used to compute benefit obligations.

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

	Year Ended December 31,
	2003			2002			2001
Service cost—benefits earned during the     period	$	6,051		$	5,112		$	5,195
Interest cost on projected benefit obligation		10,066			9,670			9,077
Expected return on assets		(11,752	)		(11,688	)		(11,212	)
Amortization of prior service cost		10			(10	)		(82	)
Recognition of net actuarial (gain)/loss		656			(754	)		(443	)
Net periodic pension cost	$	5,031		$	2,330		$	2,535

68

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 12—Postretirement Benefits (continued)

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,
	2003			2002
Changes in benefit obligation:
Obligation at beginning of year	$	146,199		$	128,646
Service cost		6,051			5,112
Interest cost		10,066			9,670
Actuarial loss (gain)		17,252			11,485
Benefits paid		(9,641	)		(9,618	)
Plan amendments		371			904
Obligation at end of year		170,298			146,199
Changes in plan assets:
Fair value at beginning of year		132,595			133,809
Return on assets		28,357			1,191
Contributions		10,421			7,213
Benefits paid		(9,641	)		(9,618	)
Fair value at end of year		161,732			132,595
Funded status at year end		(8,566	)		(13,604	)
Unrecognized amounts at year end:
Unrecognized actuarial loss (gain)		2,520			2,550
Unrecognized prior service cost		1,147			787
Unrecognized transition obligation		(54	)		(61	)
Net amount recognized at year end	$	(4,953	)	$	(10,328	)
Amounts recognized consist of:
Prepaid benefit cost	$	-0-		$	-0-
Accrued benefit liability		(4,953	)		(10,328	)
Intangible asset		-0-			-0-
Net amount recognized at year end	$	(4,953	)	$	(10,328	)

The accumulated benefit obligations (ABO) for Torchmark’s defined benefit pension plans were $150.4 million and $119.7 million at December 31, 2003 and 2002, respectively. Because the Excess Benefit Plan is unfunded, its ABO of $5.6 million and $5.4 million at December 31, 2003 and 2002, respectively exceeded plan assets.

Torchmark has estimated its expected pension benefits to be paid over the next ten years as of December 31, 2003. These estimates use the same assumptions that measure the benefit obligation at December 31, 2003, taking estimated future employee service into account. Those estimated benefits are as follows:

For the year(s)
2004	$	7,806
2005		9,606
2006		10,003
2007		11,000
2008		13,000
2009-2013		69,600

69

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 a small postretirement life insurance benefit for most retired employees, and also provides additional postretirement life insurance benefits for certain key employees. The majority of the life insurance benefits are accrued over the working lives of active employees.

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. Because Torchmark does not offer postretirement health benefits to retired employees over age sixty-five, passage of the Medicare Prescription Drug Improvement and Modernization Act of 2003 has no effect on its benefit obligations.

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

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

	Year Ended December 31,
	2003			2002			2001
Service cost	$	730		$	506		$	647
Interest cost on accumulated postretirement benefit     obligation		862			861			1,323
Expected return on plan assets		-0-			-0-			-0-
Amortization of prior service cost		-0-			-0-			(5,145	)
Recognition of net actuarial (gain)/loss		(139	)		(598	)		(2,426	)
Net periodic postretirement benefit cost	$	1,453		$	769		$	(5,601	)

70

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 12—Postretirement Benefits (continued)

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

	Benefits Other Than Pensions For the year ended December 31,
	2003			2002
Changes in benefit obligation:
Obligation at beginning of year	$	11,952		$	11,959
Service cost		730			506
Interest cost		862			861
Amendments		-0-			-0-
Actuarial loss (gain)		(139	)		(598	)
Benefits paid		(917	)		(776	)
Obligation at end of year		12,488			11,952
Changes in plan assets:
Fair value at beginning of year		-0-			-0-
Return on assets		-0-			-0-
Contributions		917			776
Benefits paid		(917	)		(776	)
Fair value at end of year		-0-			-0-
Funded status at year end		(12,488	)		(11,952	)
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	$	(12,488	)	$	(11,952	)

On an aggregate basis, the accumulated post-retirement benefit obligation for the post-retirement plans other than pensions were $12.5 million and $12.0 million at December 31, 2003 and 2002, respectively. The table below presents the assumptions used to determine the liabilities and costs of Torchmark’s post-retirement plans other than pensions.

Weighted Average Assumptions for Post-Retirement

Benefit Plans Other Than Pensions

For Benefit Obligations at December 31:
	2003		2002
Discount Rate	7.25	%	7.59	%
Rate of Compensation Increase	4.50		4.50
For Periodic Benefit Cost for the Year:
	2003		2002		2001
Discount Rate	7.59	%	7.58	%	7.55	%
Rate of Compensation Increase	4.50		4.50		4.50

71

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 12—Postretirement Benefits (continued)

For measurement purposes of the healthcare benefits, a 7.5% annual rate of increase in per capita cost of covered healthcare benefits was assumed for the years 2001 through 2003. Torchmark has assumed that the health care cost trend rate will remain stable at 7.5% in future periods. This trend rate assumption can have a significant effect on the amounts reported. The following table 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	$	-0	-	$	-0	-
Benefit obligation		6			(5	)

Note 13—Debt

An analysis of debt at carrying value is as follows:

	December 31,
	2003				2002
	Short-term Debt		Long-term Debt		Short-term Debt		Long-term Debt
Funded Debt
Senior Debentures, due 2009			$	99,450			$	99,450
Notes, due 2023				165,866				165,803
Notes, due 2013				93,054				92,966
Senior Notes, due 2006				190,584				193,325
Trust Preferred Securities, due 2041				144,449
Commercial paper	$	182,448			$	201,479
		182,448		693,403		201,479		551,564
Trust Preferred Securities, due 2041								144,427
	$	182,448	$	693,403	$	201,479	$	695,991

The amount of debt that becomes due during each of the next five years is: 2004—$182,448, 2005—$0, 2006—$180,000, 2007—$0, 2008—$0, and thereafter—$512,412.

Funded debt:    Effective July 1, 2003, Torchmark adopted Financial Accounting Standards Board Statement 150—Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS 150). SFAS 150 requires the reclassification in the financial statements of certain financial instruments which have both characteristics of liabilities and equity as liabilities. Included in the scope of this Standard are mandatorily redeemable securities, such as Torchmark’s Trust Preferred Securities (trust preferreds). Upon adoption of SFAS 150, Torchmark reclassified its trust preferreds as a component of long-term debt as of July 1, 2003. Restatement of prior periods for comparability is prohibited by the Standard. As such, the December 31, 2002 balance of $144,427 is shown on the Consolidated Balance Sheet between liabilities and equity. Pretax distributions were $11.6 million in both 2003 and 2002 and $1.6 million in 2001. As a result of the adoption of SFAS 150 in 2003, only the distributions prior to July 1 were reported as “Preferred securities distributions (net of tax)” on the Consolidated Statements of Operations. The distributions in the second half of 2003 of $5.8 million were reported in the Consolidated Statements of Operations as “Interest expense”. Torchmark’s other debt instruments were unaffected by the adoption of this Standard.

In November 2001, Torchmark established two Capital Trusts, which, in turn, sold the 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 (par value). Both trust preferreds pay a quarterly dividend at

72

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 13—Debt (continued)

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 at par value 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 trusts 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 a 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.

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. The loss was included in realized investment losses.

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 exchange a variable rate based on the one-month LIBOR plus 139 basis points for a fixed rate of 9.18%. The rate resets each month.

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 and 2001, Torchmark purchased principal amounts of $75 thousand and $8.1 million in the open market at a cost of $76 thousand and $8.3 million, respectively. Losses on the redemption of debt of $3 thousand and $425 thousand were included in realized investment losses in accordance with SFAS 145 during 2002 and 2001, respectively. 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%. 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 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.

73

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 13—Debt (continued)

Interest rate swaps:    All swaps are carried at fair value and are classified as “Other long-term investments” on the Consolidated Balance Sheet. The swap related to the Senior Notes qualifies as a hedge under accounting rules. Changes in the fair value of this swap adjust the carrying value of the Senior Notes in like amount each period. The following tables summarize selected information about interest rate swaps.

Selected Information About Interest Rate Swaps

									Value at December 31,
Related Debt	Expiration	Hedge Y/N	Notional Amount		Fixed Rate		Floating Rate at 12/31/03		2003		2002
Senior Note, due 12/06	12/06	Yes	$	180,000	6.25	%	2.435	%	$	11,989	$	15,146
Trust Preferred Securities, due 11/11	11/11	No		150,000	7.75	%	3.360	%		11,719		16,150
Monthly Income Preferred Securities*	09/04	No		200,000	9.18	%	2.560	%		9,668		20,809
			$	530,000					$	33,376	$	52,105

* $200 million of Monthly Income Preferred Securities were redeemed in full in 2001, but the related swap was retained.

Net Cash Settlements of Interest Rate Swaps by Instrument*

Original Instrument	2003		2002		2001
Senior Note	$	6,813	$	5,480	$	235
Trust Preferred Securities		6,448		5,731		765
Monthly Income Preferred Securities		13,045		11,874		7,181
	$	26,306	$	23,085	$	8,181

* Due to the Securities and Exchange Commission’s interpretive guidance concerning SFAS 133, the benefit of the interest spread has been reclassified from “Interest expense” to “Realized investment losses” in 2003 with all prior periods reclassified.

Commercial Paper:    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 24, 2004 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, 2003, Torchmark had $183 million face amount of commercial paper outstanding, $159 million of letters of credit issued, and no borrowings under the line of credit. During 2003, the short term borrowings under the combined facilities averaged approximately $175 million, and were made at an average yield of 1.2%. 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 2003, 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, 2003.

There was no capitalized interest in 2003, 2002, or 2001.

74

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 14—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
2001:
Balance at January 1, 2001	-0-	-0-	147,800,908		(21,411,898	)
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					196,381
Treasury stock acquired					(4,816,695	)
	-0-	-0-	126,800,908		(8,533,456	)
2003:
Issuance of common stock due to exercise of stock options					349,453
Treasury stock acquired					(5,902,300	)
Lapse of restricted stock			(17,250	)	17,250
Retirement of treasury stock			(13,000,000	)	13,000,000
	-0-	-0-	113,783,658		(1,069,053	)

	At December 31, 2003				At December 31, 2002
	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 5.9 million shares at a cost of $225 million in 2003, 4.8 million shares at a cost of $182 million in 2002, and 7.8 million shares at a cost of $303 million in 2001.

Retirement of Treasury Stock:    In 2003, Torchmark retired 13 million shares of its treasury stock. The retirement of these shares resulted in a decrease in common stock of $13 million, a decrease in additional paid-in capital of $56 million, a decrease in retained earnings of $426 million, and a decrease in treasury stock of $495 million in 2003. In 2001, Torchmark retired 21 million shares of its treasury stock. This retirement resulted in a decrease in common stock of $21 million, a decrease in additional paid-in capital of $89 million, a decrease in retained earnings of $527 million, and a decrease in treasury stock of $637 million.

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 2004, $341 million will be available to Torchmark for dividends from insurance subsidiaries in compliance with statutory regulations without prior regulatory approval.

75

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 14—Shareholders’ Equity (continued)

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

	2003	2002	2001
Basic weighted average shares outstanding	114,836,778	120,258,685	125,134,535
Weighted average dilutive options outstanding	540,377	410,430	726,334
Diluted weighted average shares outstanding	115,377,155	120,669,115	125,860,869

Stock options to purchase 3,252,445, 5,551,271, and 3,305,025 as of December 31, 2003, 2002, and 2001, 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 15—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. Stock options awarded in connection with compensation deferrals by certain directors and executives generally vest over ten years. Torchmark generally issues shares for the exercise of stock options from treasury stock.

An analysis of shares available for grant is as follows:

	Available for Grant
	2003		2002		2001
Balance at January 1	3,860,340		5,024,187		9,476,067
Expired during year	4,250		2,477		35,573
Granted during year	(1,078,885	)	(1,166,324	)	(4,487,453	)
Balance at December 31	2,785,705		3,860,340		5,024,187

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. Option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Changes in the valuation 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.

76

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 15—Employee Stock Options (continued)

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 2003, 2002, and 2001:

	2003		2002		2001
Risk-free interest rate	2.8	%	3.1	%	4.5	%
Dividend yield	1.0	%	1.0	%	0.9	%
Volatility factor	25.8		30.1		31.7
Weighted average expected life (in years)	4.48		4.51		4.75

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. As a result of this restoration program, 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, 2003, 2002, and 2001 follows:

	2003				2002				2001
	Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Outstanding-beginning of year	9,694,898		$	36.64	8,727,432		$	36.28	8,531,198		$	31.85
Granted	1,078,885			44.32	1,166,324			37.55	4,487,453			40.40
Exercised	(349,453	)		30.12	(196,381	)		25.96	(4,255,646	)		31.62
Expired	(4,250	)		33.85	(2,477	)		34.32	(35,573	)		36.82
Outstanding-end of year	10,420,080		$	37.66	9,694,898		$	36.64	8,727,432		$	36.28
Exercisable at end of year	7,514,759		$	36.99	6,748,645		$	36.59	5,802,358		$	37.02

The weighted average fair value of options as determined by the option pricing model granted during the years ended December 31, 2003, 2002, and 2001 were $10.52, $10.33, and $13.00, respectively.

77

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 15—Employee Stock Options (continued)

The following table summarizes information about stock options outstanding at December 31, 2003.

				Options Outstanding			Options Exercisable
Range of Exercise Prices			Number Outstanding	Weighted- Average Remaining Contractual Life (Years)	Weighted- Average Exercise Price		Number Exercisable	Weighted- Average Exercise Price
$14.93	—	$28.31	1,277,759	5.57	$	26.38	1,142,430	$	26.74
33.04	—	34.88	1,196,925	5.08		33.96	1,106,416		33.98
35.63	—	37.38	1,383,990	6.74		37.24	1,328,778		37.25
37.41	—	37.63	1,131,546	9.00		37.44	62,258		37.43
38.20	—	38.79	1,177,815	8.06		38.24	622,432		38.28
41.26	—	41.26	3,252,445	7.61		41.26	3,252,445		41.26
44.89	—	44.89	999,600	9.95		44.89	0		n/a
$14.93	—	$44.89	10,420,080	7.38	$	37.66	7,514,759	$	36.99

Note 16—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.

78

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 16—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 2003
	Life				Health				Annuity				Total
Distribution Channel	Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total
United American Independent	$	52,645	4.0	%	$	469,939	45.4	%	$	226	0.7	%	$	522,810	22.0	%
Liberty National Exclusive		304,319	23.2			163,921	15.9			87	0.3			468,327	19.7
American Income Exclusive		314,849	24.0			55,769	5.4							370,618	15.6
Direct Response		350,317	26.8			28,385	2.7							378,702	15.9
United American Branch Office		18,674	1.4			316,017	30.6							334,691	14.1
Military		166,299	12.7											166,299	7.0
Other		103,270	7.9							31,066	99.0			134,336	5.7
	$	1,310,373	100.0	%	$	1,034,031	100.0	%	$	31,379	100.0	%	$	2,375,783	100.0	%
	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	%

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 margin before other income and administrative expenses, in accordance with the manner the segments are managed. It essentially represents gross profit margin on insurance products before insurance administrative expenses and consists of premium, less net policy obligations, acquisition expenses, and commissions. Interest credited to net policy liabilities (reserves less deferred acquisition costs 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.

79

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 16—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 Torchmark’s debt. 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 following tables set forth a reconciliation of Torchmark’s revenues and operations by segment to its major income statement line items.

	For the Year 2003
	Life			Health			Annuity			Investment			Other			Corporate			Adjustments			Consolidated
Revenue:
Premium	$	1,310,373		$	1,034,031		$	31,379														$	2,375,783
Net investment income										$	556,647								$	(3,674	)(1)		552,973	(5)
Other income													$	2,582						(1,763	)(4)		819
Total revenue		1,310,373			1,034,031			31,379			556,647			2,582			-0-			(5,437	)		2,929,575
Expenses:
Policy benefits		862,775			689,395			37,902															1,590,072
Required interest on reserves		(294,670	)		(17,397	)		(39,110	)		351,177												-0-
Amortization of acquisition costs		223,998			83,142			14,604															321,744
Commissions and premium tax		75,308			93,789			246												(1,763	)(4)		167,580
Required interest on acquisition costs		118,628			20,738			5,913			(145,279	)											-0-
Insurance administrative expense(2)														131,314									131,314	(6)
Parent expense																$	10,234						10,234	(6)
Financing costs:
Debt and preferred securities(3)											55,775												55,775
Benefit from interest rate swaps											(26,306	)											(26,306	)
Total expenses		986,039			869,667			19,555			235,367			131,314			10,234			(1,763	)		2,250,413
Measure of segment profitability (pretax)	$	324,334		$	164,364		$	11,824		$	321,280		$	(128,732	)	$	(10,234	)	$	(3,674	)(1)		679,162
Deduct applicable income taxes																							(232,779	)
Segment profits after tax																							446,383
Add back income taxes applicable to segment profitability																							232,779
Add back financing costs—preferred securities (reported on Statement of Operations after tax)(3)																							5,823
Remove benefit from interest rate swaps (included in “Realized investment losses”)																							(26,306	)
Deduct realized investment losses																							(3,274	)
Add non-recurring interest on settlement from tax litigation(5)																							4,337
Deduct non-recurring loss on sale of airplane(6)																							(807	)
Pretax income per income statement																						$	658,935

1 Tax equivalency adjustment

2 Administrative expense is not allocated to insurance segments

3 Investment segment includes preferred distributions, net of swap benefit, on a pretax basis

4 Elimination of intersegment commission.

5 Differs from Net investment income on Statement of Operations by $4,337 interest on tax settlement

6 Differs from Other operating expense on Statement of Operations by $807 loss on sale of airplane

80

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 16—Business Segments (continued)

	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	)(1)		518,618
Other income													$	3,906						(1,786	)(4)		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	)(4)		168,341
Required interest on acquisition costs		111,587			19,266			8,098			(138,951	)											-0-
Insurance administrative expense(2)														124,605									124,605
Parent expense																$	10,523						10,523
Financing costs:
Debt and preferred securities(3)											57,599												57,599
Benefit from interest rate swaps											(23,086	)											(23,086	)
Total expenses		922,680			851,633			24,591			227,320			124,605			10,523			(1,786	)		2,159,566
Measure of segment profitability (pretax)	$	298,008		$	167,487		$	14,634		$	294,999		$	(120,699	)	$	(10,523	)	$	(3,701	)(1)		640,205
Deduct applicable income taxes																							(216,596	)
Segment profits after tax																							423,609
Add back income taxes applicable to segment profitability																							216,596
Add back financing costs—preferred securities (reported on Statement of Operations after tax)(3)																							11,651
Remove benefit from interest rate swaps (included in “Realized investment losses”)																							(23,086	)
Deduct realized investment losses																							(38,722	)
Pretax income per income statement																						$	590,048

1 Tax equivalency adjustment.

2 Administrative expense is not allocated to insurance segments.

3 Investment segment includes preferred distributions, net of swap benefit, on a pretax basis.

4 Elimination of intersegment commission.

81

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 16—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	)(1)		491,830
Other income													$	4,391						(1,916	)(4)		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	)(4)		163,461
Required interest on acquisition costs		105,391			17,338			9,351			(132,080	)											-0-
Insurance administrative expense(2)														119,038									119,038
Parent expense																$	10,104						10,104
Financing costs:
Debt and preferred securities(3)											59,660												59,660
Benefit from interest rate swaps											(8,181	)											(8,181	)
Total expenses		861,107			837,295			34,221			240,662			119,038			10,104			(1,916	)		2,100,511
Measure of segment profitability (pretax)	$	283,392		$	173,458		$	25,696		$	255,545		$	(114,647	)	$	(10,104	)	$	(4,377	)(1)		608,963
Deduct applicable income taxes																							(204,378	)
Segment profits after tax																							404,585
Add back income taxes applicable to segment profitability																							204,378
Add back financing costs—preferred securities (reported on Statement of Operations after tax)(3)																							14,919
Remove benefit from interest rate swaps (included in “Realized investment losses”)																							(8,181	)
Deduct realized investment losses																							(1,255	)
Deduct goodwill amortization																							(12,075	)
Pretax income per income statement																						$	602,371

1 Tax equivalency adjustment.

2 Administrative expense is not allocated to insurance segments

3 Investment segment includes preferred distributions, net of swap benefit, on pretax basis.

4 Elimination of intersegment commission.

82

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 16—Business Segments (continued)

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

Analysis of Profitability by Segment

	For the Year									2003 Increase					2002 Increase
	2003			2002			2001			Amount			%		Amount			%
Life insurance	$	324,334		$	298,008		$	283,392		$	26,326		9	%	$	14,616		5	%
Health insurance		164,364			167,487			173,458			(3,123	)	(2	)		(5,971	)	(3	)
Annuity		11,824			14,634			25,696			(2,810	)	(19	)		(11,062	)	(43	)
Other insurance:
Other income		2,582			3,906			4,391			(1,324	)	(34	)		(485	)	(11	)
Administrative expense		(131,314	)		(124,605	)		(119,038	)		(6,709	)	5			(5,567	)	5
Investment		321,280			294,999			255,545			26,281		9			39,454		15
Corporate and adjustments		(13,908	)		(14,224	)		(14,481	)		316		(2	)		257		(2	)
Pretax total		679,162			640,205			608,963			38,957		6			31,242		5
Applicable taxes		(232,779	)		(216,596	)		(204,378	)		(16,183	)	7			(12,218	)	6
After-tax total		446,383			423,609			404,585			22,774		5			19,024		5
Remove interest-rate swap benefit (after tax) from Investment segment		(17,099	)		(15,006	)		(5,318	)		(2,093	)				(9,688	)
Realized gains (losses) (after tax)		(2,129	)		(25,170	)		(815	)		23,041					(24,355	)
Interest on tax settlements (after tax)		3,511			0			0			3,511					0
Loss on sale of airplane (after tax)		(525	)		0			0			(525	)				0
Amortization of goodwill		0			0			(12,075	)		0					12,075
Discontinued operations (after tax)		0			0			(3,280	)		0					3,280
Change in accounting principle (after tax)		0			0			(26,584	)		0					26,584
Net income	$	430,141		$	383,433		$	356,513		$	46,708		12	%	$	26,920		8	%

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 the insurance segments based on SFAS 142. All other assets, representing less than 1% 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, 2003
	Life		Health		Annuity		Investment		Other		Consolidated
Cash and invested assets							$	8,702,400			$	8,702,400
Accrued investment income								142,719				142,719
Deferred acquisition costs	$	1,930,412	$	364,315	$	125,132						2,419,859
Goodwill		288,089		87,282		3,065						378,436
Separate account assets						1,693,900						1,693,900
Other assets									$	123,572		123,572
Total assets	$	2,218,501	$	451,597	$	1,822,097	$	8,845,119	$	123,572	$	13,460,886
	At December 31, 2002
	Life		Health		Annuity		Investment		Other		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		288,089		87,282		3,065						378,436
Separate account assets						1,656,795						1,656,795
Other assets									$	115,350		115,350
Total assets	$	2,100,631	$	423,371	$	1,797,454	$	7,923,916	$	115,350	$	12,360,722

83

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 17—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, 2003. Insurance ceded on life and accident and health products represents .5% of premium income for 2003. 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 1.8% of life insurance in force at December 31, 2003 and reinsurance assumed on life and accident and health products represents .9% of premium income for 2003.

Leases: Torchmark leases office space and office equipment under a variety of operating lease arrangements. Rental expense for operating leases was $4.7 million in 2003, $3.4 million in 2002, and $3.2 million in 2001. Future minimum rental commitments required under operating leases having remaining noncancelable lease terms in excess of one year at December 31, 2003 are as follows: 2004, $3.3 million; 2005, $2.7 million; 2006, $2.3 million; 2007, $1.9 million; 2008, $1.6 million and in the aggregate, $17.4 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, 2003, the investment portfolio consisted of the following:

Investment-grade corporate securities	80	%
Noninvestment-grade securities	9
Policy loans, which are secured by the underlying insurance policy values	3
Securities of the U.S. government or U.S. government-backed securities	2
Nongovernment-guaranteed mortgage-backed securities	1
Securities of state and municipal governments	1
Mortgages	1
Equity securities	1
Short-term investments, which generally mature within one month	1
Securities of foreign governments, 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, 2003, 2% or more of the portfolio was invested in the following industries:

Depository institutions	16	%
Electric, gas, and sanitation services	14
Insurance carriers	12
Nondepository credit institutions	6
Communications	4
Chemicals and allied products	3
Transportation equipment	3
Food and kindred products	2
Oil and gas extraction	2
Industrial, commercial machinery, and computer equipment	2
Petroleum refining and related industries	2

84

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 17—Commitments and Contingencies (continued)

Otherwise, no individual industry represented 2% or more of Torchmark’s investments. At year-end 2003, 9% 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 investments was $736 million, amortized cost was $713 million, and fair value was $752 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 four 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, 2003, Torchmark had no liability with respect to these guarantees.

Trust Preferred Securities: Torchmark entered into a performance guarantee for the obligations of the Torchmark Capital Trusts I and II 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 an annually 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, 2003, $159 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 Life Insurance Company. 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, 2003, the present value of future commissions substantially exceeded the purchased balance.

Equipment leases: Torchmark has guaranteed performance of two subsidiaries as lessees under leasing arrangements for aviation equipment. The leases commenced in 2003 for lease terms of approximately 10 years. Lessees have certain renewal and early termination options, however. At December 31, 2003, total remaining undiscounted payments under the leases were approximately $7.8 million. Torchmark (parent company) would be responsible for any subsidiary obligation in the event the subsidiary did not make payments or otherwise perform under the terms of the lease.

85

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 17—Commitments and Contingencies (continued)

Litigation: Torchmark and its subsidiaries, in common with the insurance industry in general, are subject to litigation, including claims involving tax matters, alleged breaches of contract, torts, including bad faith and fraud claims based on alleged wrongful or fraudulent acts of agents of Torchmark’s subsidiaries, employment discrimination, and miscellaneous other causes of action. A number of such actions involving Torchmark’s subsidiary Liberty also name Torchmark as a defendant. Based upon information presently available, and in light of legal and other factual defenses available to Torchmark and its subsidiaries, management does not believe that such litigation will have a material adverse effect on Torchmark’s financial condition, future operating results or liquidity, however, assessing the eventual outcome of litigation necessarily involves forward-looking speculation as to judgments to be made by judges, juries and appellate courts in the future. This bespeaks caution, particularly in states with reputations for high punitive damage verdicts such as Alabama and Mississippi.

Many of these lawsuits involve claims for punitive damages in state courts of Alabama and Mississippi, jurisdictions particularly recognized for their large punitive damage verdicts. Torchmark’s management recognizes that large punitive damage awards continue to occur bearing little or no relation to actual damages awarded by juries in jurisdictions in which Torchmark has substantial business, particularly Alabama and Mississippi, creating the potential for unpredictable material adverse judgments in any given punitive damage suit. As of December 31, 2003, Liberty was a party to approximately 93 active lawsuits (including 7 employment related cases and excluding interpleaders and stayed cases), 66 of which were Alabama proceedings and 12 of which were Mississippi proceedings in which punitive damages were sought.

As previously reported in Forms 10-K and 10-Q, beginning in October 1999, Liberty was served with subpoenas from the Departments of Insurance of several states (Florida, Alabama, Georgia, Kentucky, Texas, South Carolina and Minnesota) in connection with investigations into Liberty’s sales practices and disclosures regarding industrial and low face amount coverage life insurance policies, specifically the historical use of race-distinct mortality in the design or pricing of industrial insurance, a practice discontinued by Liberty years ago. Liberty responded to all of these subpoenas in a timely fashion.

Liberty is a party to a number of lawsuits (both a large number of lawsuits brought by individual plaintiffs and purported class action litigation with extremely broad class periods and relief sought) involving allegations of racially discriminatory pricing in the sale of insurance to African Americans. This litigation began with the filing on December 8, 1999 of Moore v Liberty National Life Insurance Company, Case No. CV-99-BU-3262-S in the United States District Court for the Northern District of Alabama. There are currently a total of 17 race-distinct mortality cases with in excess of 700 named plaintiffs, which have been consolidated in the Moore case that are pending in the U.S. District Court for the Northern District of Alabama (either originally filed with the Court or transferred to that Court), two pending cases in Alabama Circuit Courts (Edwards v Liberty National Life Insurance Company, Case No. CV0005872 and Baldwin v. Liberty National Life Insurance Company, Case No. CV 00-684), which are currently stayed pending disposition of the Moore case, and three individual, multi-plaintiff lawsuits which were originally filed in various state courts in Mississippi and subsequently transferred to U.S. District Court for the North District of Mississippi. As previously reported, Liberty is awaiting a ruling from the Alabama Federal District Court on the issue of class certification in Moore. Additional information regarding the race-distinct mortality/dual pricing litigation can be found in the Company’s prior Forms 10-K and Forms 10-Q.

On December 23, 2003, an order of dismissal was entered by the U.S. District Court for the Northern District of Mississippi in Cates v. Liberty National Life Insurance Company, Civil Action No. 4:03CV35-P-B, one of the three above-mentioned Mississippi cases. In another of the Mississippi cases, Billingsley v. Liberty National Life Insurance Company, (Civil Action No. 2002-532), the U.S. District Court entered an order of partial dismissal on January 30, 2004, reducing the remaining number of plaintiffs to nine persons with claims involving 14 policies.

As previously reported in Forms 10-K and Forms 10-Q, Torchmark, its subsidiary United Investors Life Insurance Company (UILIC) and two current members of Torchmark’s Board of Directors remain

86

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 17—Commitments and Contingencies (continued)

defendants in litigation filed in the U.S. District Court for the District of Kansas by Waddell & Reed Financial, Inc. (Waddell & Reed) (Waddell & Reed Financial, Inc. v. Torchmark Corporation, Civil Action No. 01-2372-KHV). Torchmark and UILIC are also plaintiffs in litigation in Circuit Court in Jefferson County, Alabama against Waddell & Reed and Waddell & Reed, Inc. (W&R) (United Investors Life Insurance Company v. Waddell & Reed Financial, Inc., Case No. CV 00-2720). On November 2, 2003, the Jefferson County Alabama Circuit Court denied Waddell & Reed’s motion for summary judgment filed in October 2003. UILIC continues to pursue its remaining claims against Waddell & Reed in this case which is pending in the Alabama Circuit Court. Additional information regarding the Kansas District Court litigation and the Alabama Circuit Court litigation can be found in the Company’s prior Forms 10-K and Forms 10-Q.

As previously reported in Forms 10-Q, Liberty and Torchmark are parties to purported class action litigation filed in the Circuit Court of Choctaw County, Alabama on behalf of all persons who currently or in the past were insured under Liberty cancer policies which are no longer marketed regardless of whether the policies remain in force or have lapsed (Roberts v. Liberty National Life Insurance Company, Case No. CV-2002-009-B). These cases are based on allegations of breach of contract in the implementation of premium rate increases, misrepresentation regarding the premium rate increases, fraud and suppression concerning the closed block of business and unjust enrichment. On December 30, 2003, the Alabama Supreme Court issued an opinion granting Liberty’s and Torchmark’s petition for a writ of mandamus, concluding that the Choctaw Circuit Court did not have subject matter jurisdiction and ordering that Circuit Court to dismiss the action. The plaintiffs have filed a petition asking the Alabama Supreme Court to reconsider this decision. Additionally, the plaintiffs refiled their purported class action litigation against Liberty and Torchmark in the Circuit Court of Barbour County, Alabama on December 30, 2003 (Roberts v. Liberty National Life Insurance Company, Civil Action No. CV2003 0137). Additional information regarding the Roberts case can be found in the Company’s prior Forms 10-Q.

As previously reported in the Form 10-Q for the third quarter, 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. DV-96-62). This case, originally filed in March 1996, involved allegations that an interest-sensitive life insurance policy would have paid-up policy status in ten years. Liberty pursued appellate relief from this verdict and on February 20, 2004, the Alabama Supreme Court reversed and rendered the trial court’s judgment in Ingram. The Supreme Court held that the plaintiff’s claims were barred by the statute of limitations and that the plaintiff failed to demonstrate reasonable reliance on Liberty’s representations to him regarding the policy or that Liberty suppressed material facts.

87

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 18—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 572 home office 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 $59.4 million in 2003, $52.6 million in 2002, and $48.2 million in 2001. Torchmark held balances due from these agents of $15.0 million at year-end 2003 and $13.1 million at year-end 2002.

During 2001, Torchmark entered into a coinsurance agreement with First Command’s life subsidiary whereby Torchmark cedes 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 2003 was $1.6 million, in 2002 was $780 thousand, and in 2001 was $108 thousand. At December 31, 2003, the face amount of life insurance ceded was $241 million and annualized ceded premium was $2.0 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 called for Torchmark to finance the construction of a building subject to a maximum amount of borrowing of $22.5 million. Upon completion, Torchmark committed to permanently finance the building with a fifteen-year mortgage at a rate of 2.25% over the ten-year treasury rate at that time, subject to a minimum rate of 7.0%. The building was completed in April, 2003 and the interest rate was reset to 7.0%. The outstanding balance is being repaid in equal monthly payments over fifteen years beginning May 1, 2003. At year-end 2003, the outstanding balance was $21.7 million. The loan 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 collateral loan agreement was originally entered into in 1998 with an initial loan of $7 million and an additional $15 million loaned in 2001. The loan bears interest at a rate of 7%. 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. It is collateralized by a group of mutual funds and real estate in which the loan balance can never exceed 90% of the mutual funds pledged plus 75% of the appraised value of the real estate. Because First Command made a significant payment in 2003, the outstanding loan balance at December 31, 2003 was $12.7 million compared with $22.0 million at December 31, 2002. The market value of the mutual funds pledged was $12.6 million at December 31, 2003. The real estate was appraised by an independent firm in 2002 for $17.6 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. 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.

As part of the consideration for the transaction, Torchmark accepted a ten-year collateralized 8% note from Elgin Development in the amount of $12.4 million. Elgin Development made all interest payments and paid down $2.3 million in principal payments through December 31, 2002. As of that date

88

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 18—Related Party Transactions (continued)

the outstanding balance of the collateralized note with Elgin Development Company was $10.1 million. In 2003, Elgin Development defaulted on the note. As a result, Torchmark foreclosed on the collateral which consisted of real estate with a value of $5.7 million. Torchmark recognized a realized loss on the transaction of $2.6 million after tax.

Mr. Richey was a 25% investor in Stonegate Realty Company, LLC, the parent company of Elgin Development Company until December 31, 2003, at which time he became a 50% investor. Until December 31, 2003, he was also a one-third investor in Stonegate Management Company, LLC, which, in turn, is a 50% owner of Commercial Real Estate Services. As of December 31, 2003, he became a two-thirds investor in Stonegate Management. 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 $683 thousand in 2003, $750 thousand in 2002, and $757 thousand in 2001. Lease rentals paid by Torchmark subsidiaries were $261 thousand, $260 thousand, and $261 thousand in 2003, 2002, and 2001, 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, was an officer, director, and 38.3% beneficial owner of Midland Financial Co., the parent corporation of MidFirst Bank until December 31, 2003. After that date, he is no longer a beneficial owner. Fees paid for these services were $110 thousand in 2003, $118 thousand in 2002, and $109 thousand in 2001.

In the fourth quarter of 2003, a reserve in the pretax amount of $5 million was established on certain mortgages that met Torchmark’s criteria for impairment. These mortgages were originated and serviced by MidFirst.

Baxley.    William J. Baxley is a partner in the law firm of Baxley, Dillard, Dauphin, McKnight & Barclift 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, 2003 and 2002, the outstanding balance of this loan was $689 thousand and $743 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, 2003 and 2002, the outstanding balance of this loan was $791 thousand and $809 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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Note 19—Selected Quarterly Data (Unaudited)

The following is a summary of quarterly results for the two years ended December 31, 2003. 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,
2003:
Premium and policy charges	$	590,473		$	591,466		$	592,198		$	601,646
Net investment income		135,436			136,771			138,272			146,831
Realized investment gains(losses)		(7,975	)		5,668			(78	)		(889	)
Total revenues		718,426			734,320			730,389			747,503
Policy benefits		395,405			399,370			395,027			400,270
Amortization of acquisition expenses		77,746			77,617			82,834			83,547
Pretax income from continuing operations		155,579			169,450			164,226			169,680
Net income		100,633			109,592			107,882			112,034
Basic net income per common share from continuing operations		.86			.95			.95			.99
Basic net income per common share		.86			.95			.95			.99
Diluted net income per common share from continuing operations		.85			.95			.94			.98
Diluted net income per common share		.85			.95			.94			.98
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)		(4,511	)		(60,966	)		22,599			4,156
Total revenues		695,412			639,218			721,513			704,906
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		150,697			96,349			180,735			162,267
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

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.

Item 9A. 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.

As of the end of the fiscal year completed December 31, 2003, 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-15(e) 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 as an exhibit to this Form 10-K.

As of the date of this Form 10-K for the fiscal year ended December 31, 2003, there have not been any significant changes in Torchmark’s internal control over financial reporting or in other factors that could significantly affect this control over financial reporting subsequent to the date of their evaluation. 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.

91

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,” “Audit Committee Report,” “Governance Guidelines and Codes of Ethics” 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 29, 2004 (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, 2003

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	10,420,080	$	37.66	2,785,705
Equity compensation plans not approved by security holders	0		0	0
Total	10,420,080	$	37.66	2,785,705

(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.

Item 14. Principal Accounting Fees and Services

Information required by this Item is incorporated by reference from the section entitled Principal Accounting Firm Fees in the Proxy Statement.

92

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, 2003 and 2002	46
Consolidated Statements of Operations for each of the three years in the period ended December 31, 2003	47
Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31, 2003	49
Consolidated Statements of Shareholders’ Equity for each of the three years in the period ended December 31, 2003	50
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2003	51
Notes to Consolidated Financial Statements	53
Schedules Supporting Financial Statements for each of the three years in the period ended December 31, 2003:
II.Condensed Financial Information of Registrant (Parent Company)	100
IV.Reinsurance (Consolidated)	103

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

(b)  Reports on Form 8-K.

A Form 8-K dated October 23, 2003 was filed by the registrant during the fourth quarter of 2003 furnishing a press release announcing Torchmark Corporation’s third quarter 2003 financial results. The Form 8-K contained no financial statements.

(c)  Exhibits

93

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 $325,000,000 Credit Agreement dated as of November 26, 2003 among Torchmark Corporation, the Lenders, BankOne, NA, as Administrative Agent, Bank of America, N.A., as Syndication Agent and Fleet National Bank, as Documentation Agent
(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)
(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)

94

		Page of this Report
(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)
(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)

95

		Page of this Report
(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	98
(20)	Proxy Statement for Annual Meeting of Stockholders to be held April 29, 2004
(21)	Subsidiaries of the registrant	99
(23)(a)	Consent of Deloitte & Touche LLP to incorporation by reference of their audit report dated March 5, 2004, 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 5, 2004, 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 5, 2004, 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 5, 2004, 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 5, 2004, into Form S-8 of the Liberty National Life Insurance Company 401(k) Plan (Registration No. 33-65507)
(f)	Consent of Deloitte & Touche LLP to incorporation by reference of their audit report dated March 5, 2004, 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 5, 2004 into Form S-8 of the Profit Sharing and Retirement Plan of Liberty National Life Insurance Company (Registration No. 333-83317)

96

		Page of this Report
(h)	Consent of Deloitte & Touche LLP to incorporation by reference of their audit report dated March 5, 2004 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
(31.1)	Rule 13a-14(a)/15d-14(a) Certification by C.B. Hudson
(31.2)	Rule 13a-14(a)/15d-14(a) Certification by Gary L. Coleman
(32.1)	Section 1350 Certification by C.B. Hudson and Gary L. Coleman

97

Exhibit 11. Statement re computation of per share earnings

TORCHMARK CORPORATION COMPUTATION OF EARNINGS PER SHARE

	Twelve Months Ended December 31,
	2003		2002		2001
Income from continuing operations before cumulative effect of change in accounting principle	$	430,141,000	$	383,433,000	$	386,377,000
Loss from discontinued operations (net of applicable tax benefit)		-0-		-0-		(3,280,000	)
Income before cumulative effect of change in accounting principle		430,141,000		383,433,000		383,097,000
Cumulative effect of change in accounting principle (net of applicable tax)		-0-		-0-		(26,584,000	)
Net Income	$	430,141,000	$	383,433,000	$	356,513,000
Basic weighted average shares outstanding		114,836,778		120,258,685		125,134,535
Diluted weighted average shares outstanding		115,377,155		120,669,115		125,860,937
Basic earnings per share:
Income from continuing operations before cumulative effect of change in accounting principle	$	3.75	$	3.19	$	3.09
Loss from discontinued operations (net of applicable tax benefit)		-0-		-0-		(.03	)
Income before cumulative effect of change in accounting principle		3.75		3.19		3.06
Cumulative effect of change in accounting principle (net of applicable tax)		-0-		-0-		(.21	)
Net Income	$	3.75	$	3.19	$	2.85
Diluted earnings per share:
Income from continuing operations before cumulative effect of change in accounting principle	$	3.73	$	3.18	$	3.07
Loss from discontinued operations (net of applicable tax benefit)		-0-		-0-		(.03	)
Income before cumulative effect of change in accounting principle		3.73		3.18		3.04
Cumulative effect of change in accounting principle (net of applicable tax)		-0-		-0-		(.21	)
Net Income	$	3.73	$	3.18	$	2.83

98

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 94 through 97 of this report. Exhibits not referred to have been omitted as inapplicable or not required.

99

TORCHMARK CORPORATION (PARENT COMPANY)

SCHEDULE II. CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CONDENSED BALANCE SHEETS

(Amounts in thousands)

	December 31,
	2003			2002
Assets:
Investments:
Long-term investments	$	40,506		$	63,768
Short-term investments		24,872			9,050
Total investments		65,378			72,818
Investment in affiliates		4,062,119			3,683,877
Taxes receivable		-0-			1,879
Other assets		45,089			45,658
Total assets	$	4,172,586		$	3,804,232
Liabilities and shareholders’ equity:
Liabilities:
Short-term debt	$	182,448		$	201,479
Long-term debt		693,403			551,564
Due to affiliates		4,768			23,906
Taxes payable		1,275			-0-
Other liabilities		50,593			31,403
Total liabilities		932,487			808,352
Trust preferred securities		-0-			144,427
Shareholders’ equity:
Preferred stock		351			351
Common stock		113,784			126,801
Additional paid-in capital		851,545			905,279
Accumulated other comprehensive income		393,052			176,622
Retained earnings		2,273,448			2,316,868
Treasury stock		(392,081	)		(674,468	)
Total shareholders’ equity		3,240,099			2,851,453
Total liabilities and shareholders’ equity	$	4,172,586		$	3,804,232

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 OPERATIONS

(Amounts in thousands)

	Year Ended December 31,
	2003			2002			2001
Net investment income	$	14,881		$	11,682		$	13,510
Realized investment gains (losses)		6,734			40,859			6,075
Total revenue		21,615			52,541			19,585
General operating expenses		10,020			10,215			11,735
Reimbursements from affiliates		(10,596	)		(10,872	)		(9,900	)
Interest expense		50,169			45,946			44,841
Total expenses		49,593			45,289			46,676
Operating income (loss) before income taxes and equity in earnings of affiliates		(27,978	)		7,252			(27,091	)
Income taxes		11,080			(1,064	)		10,607
Net operating loss before equity in earnings of affiliates		(16,898	)		6,188			(16,484	)
Equity in earnings of affiliates		450,824			384,818			412,558
Preferred securities distributions (net of tax)		(3,785	)		(7,573	)		(9,697	)
Net income from continuing operations		430,141			383,433			386,377
Discontinued operations:
Loss on disposal		-0-			-0-			(3,280	)
Net income before cumulative effect of change in accounting principle		430,141			383,433			383,097
Cumulative effect of change in accounting principle		-0-			-0-			(26,584	)
Net Income	$	430,141		$	383,433		$	356,513

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

101

TORCHMARK CORPORATION

(PARENT COMPANY)

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

CONDENSED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

	Year Ended December 31,
	2003			2002			2001
Cash used in operations before dividends from subsidiaries	$	23,399		$	(24,120	)	$	(3,274	)
Cash dividends from subsidiaries		313,682			262,139			273,466
Cash provided from operations		337,081			238,019			270,192
Cash provided from (used for) investing activities:
Disposition of investments		479			467			1,874
Acquisition of investments		-0-			(811	)		(10,407	)
Investment in subsidiaries		-0-			(10,000	)		-0-
Loans to subsidiaries		(14,000	)		(49,800	)		(1,000	)
Repayments on loans to subsidiaries		14,000			49,800			1,000
Net decrease (increase) in temporary investments		(15,822	)		9,456			(13,287	)
Additions to properties		(37	)		(29	)		(155	)
Disposition of properties		-0-			2			78
Cash used for investing activities		(15,380	)		(915	)		(21,897	)
Cash provided from (used for) financing activities:
Issuance of 6.25% senior notes		-0-			-0-			177,771
Issuance of trust preferred securities		-0-			-0-			144,554
Repayments of debt		(19,031	)		(2,633	)		(133,454	)
Issuance of stock		9,123			4,188			120,977
Redemption of monthly income preferred securities		-0-			-0-			(200,000	)
Acquisitions of treasury stock		(225,273	)		(182,188	)		(303,085	)
Borrowed from subsidiaries		116,600			94,100			100,100
Repayment on borrowings from subsidiaries		(136,000	)		(83,800	)		(86,700	)
Payment of dividends		(67,120	)		(66,771	)		(68,458	)
Cash provided from (used for) financing activities		(321,701	)		(237,104	)		(248,295	)
Net decrease in cash		-0-			-0-			-0-
Cash balance at beginning of period		-0-			-0-			-0-
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:

	2003		2002		2001
Consolidated subsidiaries	$	313,682	$	262,139	$	273,466

See accompanying Independent Auditors’ Report.

102

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, 2003:
Life insurance in force	$	124,514,661	$	1,478,974	$	2,222,421	$	125,258,108	1.8	%
Premiums:*
Life insurance	$	1,231,657	$	5,763	$	19,993	$	1,245,887	1.6	%
Health insurance		1,038,709		4,678		-0-		1,034,031	0	%
Total premiums	$	2,270,366	$	10,441	$	19,993	$	2,279,918	0.9	%
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	%

* Excludes policy charges

See accompanying Independent Auditors’ Report.

103

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 12, 2004

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/    CHARLES E. ADAIR    * By:                                                                                                   Charles E. Adair
Director /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/    PAUL J. ZUCCONI    * By:                                                                                                   Paul J. Zucconi
Director

Date:  March 12, 2004

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

104

EX-10.(D)

EXHIBIT 10(d)

EXECUTION COPY

364-DAY $325,000,000 CREDIT AGREEMENT

DATED AS OF NOVEMBER 26, 2003

AMONG

TORCHMARK CORPORATION,

THE LENDERS,

BANK ONE, NA,

AS ADMINISTRATIVE AGENT,

BANK OF AMERICA, N.A.,

AS SYNDICATION AGENT,

AND

FLEET NATIONAL 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
ARTICLEI       DEFINITIONS	1
ARTICLE II     THE CREDITS	13
2.1     Commitment	13
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	15
2.7     Optional Principal Payments	15
2.8     Method of Selecting Types and Interest Periods for New Advances	15
2.9     Conversion and Continuation of Outstanding Advances	15
2.10   Changes in Interest Rate, etc	16
2.11   Rates Applicable After Default	16
2.12   Method of Payment	17
2.13   Noteless Agreement; Evidence of Indebtedness	17
2.14   Telephonic Notices	18
2.15   Interest Payment Dates; Interest and Fee Basis	18
2.16   Notification of Advances, Interest Rates, Prepayments and Commitment Reductions	18
2.17   Lending Installations	19
2.18   Non-Receipt of Funds by the Agent	19
2.19   Replacement of Lender	19
ARTICLE III     YIELD PROTECTION TAXES	20
3.1     Yield Protection	20
3.2     Changes in Capital Adequacy Regulations	21
3.3     Availability of Types of Advances	21
3.4     Funding Indemnification	21
3.5     Taxes	21
3.6     Lender Statements; Survival of Indemnity	23
ARTICLE IV     CONDITIONS PRECEDENT	24
4.1     Initial Advance	24
4.2     Each Advance	25
ARTICLE V     REPRESENTATIONS AND WARRANTIES	26
5.1     Corporate Existence and Standing	26
5.2     Authorization and Validity	26
5.3     No Conflict; Government Consent	26

- i -

TABLE OF CONTENTS

	Page
5.4     Financial Statements	26
5.5     Material Adverse Change	27
5.6     Taxes	27
5.7     Litigation and Contingent Obligations	27
5.8     Subsidiaries	27
5.9     ERISA	28
5.10   Accuracy of Information	28
5.11   Regulation U	28
5.12   Material Agreements	28
5.13   Compliance With Laws	28
5.14   Ownership of Properties	28
5.15   Investment Company Act	29
5.16   Public Utility Holding Company Act	29
5.17   Insurance Licenses	29
5.18   Defaults	29
5.19   Reportable Transaction	29
ARTICLE VI     COVENANTS	30
6.1     Financial Reporting	30
6.2     Use of Proceeds	31
6.3     Certain Notices	32
6.4     Conduct of Business	32
6.5     Taxes	32
6.6     Insurance	32
6.7     Compliance with Laws	33
6.8     Maintenance of Properties	33
6.9     Inspection	33
6.10   Merger	33
6.11   Sale of Assets	33
6.12   Sale and Leaseback	33
6.13   Investments and Acquisitions	33
6.14   Liens	34
6.15   Consolidated Net Worth	34
6.16   Ratio of Consolidated Indebtedness to Consolidated Capitalization	34
6.17   Ratio of Consolidated Adjusted Net Income to Consolidated Interest Expense	34
6.18   Affiliates	34
6.19   Preferred Securities	34
ARTICLEVII     DEFAULTS	34
7.1     Representations	34
7.2     Non-Payment	35
7.3     Specific Defaults	35

- ii -

TABLE OF CONTENTS

	Page
7.4     Other Defaults	35
7.5     Cross-Default	35
7.6     Insolvency; Voluntary Proceedings	35
7.7     Involuntary Proceedings	35
7.8     Condemnation	36
7.9     Judgment	36
7.10   Unfunded Liabilities	36
7.11   Withdrawal Liability	36
7.12   Environmental	36
7.13   Change in Control	36
7.14   Licenses	36
ARTICLE VIII     ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES	37
8.1     Acceleration	37
8.2     Amendments	37
8.3     Preservation of Rights	38
ARTICLE IX     GENERAL PROVISIONS	38
9.1     Survival of Representations	38
9.2     Governmental Regulation	38
9.3     Headings	38
9.4     Entire Agreement	38
9.5     Several Obligations; Benefits of this Agreement	39
9.6     Expenses; Indemnification	39
9.7     Numbers of Documents	39
9.8     Accounting	39
9.9     Severability of Provisions	40
9.10   Nonliability of Lenders	40
9.11   Confidentiality	40
9.12   Nonreliance	40
9.13   Disclosure	41
ARTICLE X     THE AGENT	41
10.1   Appointment; Nature of Relationship	41
10.2   Powers	41
10.3   General Immunity	41
10.4   No Responsibility for Loans, Recitals, etc	41
10.5   Action on Instructions of Lenders	42
10.6   Employment of Agents and Counsel	42
10.7   Reliance on Documents; Counsel	42
10.8   Agent’s Reimbursement and Indemnification	42

- iii -

TABLE OF CONTENTS

	Page
10.9   Notice of Default	43
10.10Rights as a Lender	43
10.11Lender Credit Decision	43
10.12Successor Agent	44
10.13Agent and Arranger Fees	44
10.14Delegation to Affiliates	44
10.15Documentation Agents, Syndication Agent, etc	45
ARTICLE XI     SETOFF; RATABLE PAYMENTS	45
11.1   Setoff	45
11.2   Ratable Payments	45
ARTICLE XII     BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS	45
12.1   Successors and Assigns	45
12.2   Participations	46
12.2.1    Permitted Participants; Effect	46
12.2.2    Voting Rights	46
12.2.3    Benefit of Certain Provisions	47
12.3   Assignments	47
12.3.1    Permitted Assignments	47
12.3.2    Effect; Effective Date	48
12.3.3    Register	48
12.4   Dissemination of Information	49
12.5   Tax Treatment	49
ARTICLE XIII     NOTICES	49
13.1   Notices	49
13.2   Change of Address	49
ARTICLE XIV     COUNTERPARTS	49
ARTICLE XV     CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL	50
15.1   CHOICE OF LAW	50
15.2   CONSENT TO JURISDICTION	50
15.3   WAIVER OF JURY TRIAL	50

- iv -

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

- v -

364-DAY CREDIT AGREEMENT

This Agreement, dated as of November 26, 2003, 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 $325,000,000, 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.

2

“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.

3

“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.

“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.

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“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 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 Agreements” means (i) the 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 and (ii) 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

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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 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 $300,000,000 364-Day Credit Agreement dated as of November 28, 2002 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 24, 2005 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

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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.

“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 Debenture Purchase Agreements.

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

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“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 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.

“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).

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“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.

“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.

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“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.

“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

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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.

“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 24, 2004 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.

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“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 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.

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“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 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

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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 $75,000,000 (resulting in a 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

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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,

(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

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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 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),

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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.

(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

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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 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

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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 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

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

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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 shall be increased as necessary so that after making all required deductions (including deductions

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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

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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.

(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

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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 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

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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.

(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.

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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.

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, 2002 audited consolidated financial statements of the Borrower and its Subsidiaries and the September 30, 2003 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

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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, 2002, 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, 1997. 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 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.

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5.9 ERISA. The Unfunded Liabilities of all Single Employer Plans do not in the aggregate exceed $20,000,000. 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 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

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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.

5.19 Reportable Transaction. The Borrower does not intend to treat the Advances and related transactions as being a “reportable transaction” (within the meaning of Treasury Regulation Section 1.6011-4). In the event the Borrower determines to take any action inconsistent with such intention, it will promptly notify the Agent thereof. The Borrower acknowledges that one or more of the Lenders may treat its Advances as part of a transaction that is subject to Treasury Regulation Section 1.6011-4 or Section 301.6112-1, and the Agent. Any such Lender or Lenders, as applicable, which reasonably determine to treat its Advances as such a transaction, may file such IRS forms or maintain such lists and other records as they may determine is required by such Treasury Regulations.

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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 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

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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).

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

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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.

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.

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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.

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.

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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.

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

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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 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 $20,000,000 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

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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 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.

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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 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.

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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 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.

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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.

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. Notwithstanding anything herein to the contrary, confidential information shall not include, and each party hereto (and each employee, representative or other agent of any party hereto) may disclose to any and all Persons, without limitation of any kind, the U.S. federal income tax treatment and U.S. federal income tax structure of the transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are or have been provided to such party relating to such tax treatment or tax structure, and it is hereby confirmed that each party hereto has been authorized to make such disclosures since the commencement of discussions regarding the transactions contemplated hereby.

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.

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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.

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

41

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.

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

42

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 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

43

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 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

44

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 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

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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.

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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 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

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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, 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]

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IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have executed this Agreement as of the date first above written.

TORCHMARK CORPORATION

By:

Print Name:

Title:
	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

S-1

BANK ONE, NA,

Individually and as Administrative 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

S-2

BANK OF AMERICA, N.A., individually and as

Syndication Agent

By:

Print Name:

Title:
	Address:
	Telephone:
	FAX:

S-3

FLEET NATIONAL BANK, individually and as

Documentation Agent

By:

Print Name:

Title:
	Address:
	Telephone:
	FAX:

S-4

THE BANK OF NEW YORK

By:

Print Name:

Title:
	Address:
	Telephone:
	FAX:

S-5

COMERICA BANK

By:

Print Name:

Title:
	Address:
	Telephone:
	FAX:

S-6

SOUTH TRUST BANK

By:

Print Name:

Title:
	Address:
	Telephone:
	FAX:

S-7

REGIONS BANK

By:

Print Name:

Title:
	Address:
	Telephone:
	FAX:

S-8

KEY BANK

By:

Print Name:

Title:
	Address:
	Telephone:
	FAX:

S-9

SUN TRUST BANK

By:

Print Name:

Title:
	Address:
	Telephone:
	FAX:

S-10

COMPASS BANK

By:

Print Name:

Title:
	Address:
	Telephone:
	FAX:

S-11

AMSOUTH BANK

By:

Print Name:

Title:
	Address:
	Telephone:
	FAX:

S-12

UMB BANK, NA

By:

Print Name:

Title:
	Address:
	Telephone:
	FAX:

S-13

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 two Ratings. In the event of a differential in Ratings of more than one level, the applicable

* 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).

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 Premi um 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.

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COMMITMENT SCHEDULE

Lender	Commitment
Bank One, NA	$	47,000,000
Bank of America, N.A.	$	47,000,000
Fleet National Bank	$	39,000,000
The Bank of New York	$	26,000,000
Comerica Bank	$	26,000,000
South Trust Bank	$	26,000,000
Regions Bank	$	26,000,000
Key Bank	$	25,000,000
SunTrust Bank	$	23,000,000
Compass Bank	$	20,800,000
AmSouth Bank	$	14,000,000
UMB Bank, NA	$	5,200,000
Total Commitments	$	325,000,000

SCHEDULE 1

SIGNIFICANT SUBSIDIARIES

Name of Significant Subsidiary	State of Incorporation	Percentage of Voting Stock Owned by Borrower 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 26, 2003 (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

2

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 26, 2003 (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 $325,000,000 364-Day Credit Agreement dated as of November 26, 2003 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

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.

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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.

4

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 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.

5

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]

6

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 26, 2003 (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 26, 2003
(Please Print)	Signature

Bank Officer Name	Date: November 26, 2003
(Please Print)	Signature

(Deliver Completed Form to Credit Support Staff For Immediate Processing)

1

EX-20

March 22, 2004

To the Stockholders of

    TORCHMARK CORPORATION:

Torchmark’s 2004 annual meeting of stockholders will be held at the Hilton Suites Dallas North, 13402 Noel Road, Dallas, Texas 75240 at 10:00 a.m., Central Daylight Time, on Thursday, April 29, 2004. 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,2001 Third Ave South, Birmingham, Alabama 35233.

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 2003.

Sincerely,

C.B. Hudson

Chairman & Chief Executive Officer

Notice of Annual Meeting of Stockholders

to be held April 29, 2004

To the Holders of Common Stock of

TORCHMARK CORPORATION

The annual meeting of stockholders of Torchmark Corporation will be held at the Hilton Suites Dallas North, 13402 Noel Rd., Dallas, TX 75240 on Thursday, April 29, 2004 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 ratification of the appointment of Deloitte & Touche LLP as independent auditors.

(3)  Consider a shareholder proposal regarding the use of performance and time-based restricted share programs in executive compensation.

(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 Friday, March 5, 2004 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 22, 2004

PROXY STATEMENT

Solicitation of Proxies

The Board of Directors of Torchmark Corporation solicits your proxy for use at the 2004 annual meeting of stockholders and at any adjournment of the meeting. The annual meeting will be held at the Hilton Suites Dallas North, 13402 Noel Road, Dallas, TX 75240 at 10:00 a.m., Central Daylight Time on Thursday, April 29, 2004. 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 and 2 and AGAINST proposals 3 and 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 5, 2004 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 5, 2004, there were 112,373,784 shares of common capital stock of the Company outstanding (not including 2,609,874 shares held by the Company which are non-voting while so held). There is no cumulative voting of the common stock.

1

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, 2003, as indicated from Schedule 13G filings with the Securities and Exchange Commission.

Name and Address	Number of Shares	Percent of Class
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.	10,359,464(1)	9.	2%
1290 Avenue of The Americas
New York, NY 10104
Dodge & Cox	10,272,584(2)	9.1	%
One Sansome Street, 35th Floor
San Francisco, CA 94104

(1) 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 entities, AXA Rosenberg Investment Management LLC, solely for investment purposes, 55,100 shares (sole power to vote 50,700 shares and shared power to dispose of 55,100 shares) and AXA Konzern AG (Germany), solely for investment purposes, 1,800 shares (sole power to vote and sole power to dispose of 1,800 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, 10,299,614 shares (sole power to vote 3,697,223 shares, shared power to vote 888,598 shares and sole power to dispose of 10,299,614 shares) and The Equitable Life Assurance Society of the United States, solely for investment purposes, 2,150 shares (sole power to dispose of 2,950 shares, sole power to vote 2,150 shares).

(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 9,689,684 shares, shared power to vote 127,400 shares and sole power to dispose of 10,272,584 shares.

2

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 fixed at twelve persons and in April, 2003, the Board elected Charles E. Adair to a one year term as a director filling the directorship vacated by the retirement of Joseph W. Morris.

The Board of Directors proposes the election of Charles E. Adair, Joseph M. Farley, C. B. Hudson, Joseph L. Lanier, Jr. and R. K. Richey 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 2007 or until their successors are elected and qualified. Messrs. Adair, Farley, Hudson, Lanier and Richey’s current terms expire in 2004. Louis T. Hagopian reached the retirement age for non-officer directors and will retire from the Board as of the April 2004 annual meeting of stockholders. The Board of Directors, at their February 26, 2004 meeting, resolved to reduce the number of directors to eleven persons, effective upon Mr. Hagopian’s retirement. The term of office of the other six 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⁾

Charles E. Adair (age 56) has been a director since April, 2003. He is also a director of Performance Food Group, Inc., Tech Data Corporation, and PSS World Medical, Inc. Principal Occupation: Partner, Cordova Ventures, Atlanta, Georgia, a venture capital management company since December, 1993.

David L. Boren (age 63) has been a director of the Company since April, 1996. His term expires in 2006. He is also 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 76) has been a director of the Company since 1980. Principal occupation: Of Counsel at Balch & Bingham LLP, Attorneys and Counselors, Birmingham, Alabama since November, 1992.

C. B. Hudson (age 58) has been a director since 1986. 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 72) has been a director of the Company since 1980. He is also 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 50) 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 75) has been a director since April, 1992. His term expires in 2006. 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 69) 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 77) has been a director of the Company since 1980. 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 56) 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, a financial services company providing insurance, mutual funds and banking services to current and former commissioned and non-commissioned military officers.

Paul J. Zucconi (age 63) has been a director of the Company since July, 2002. His term expires in 2006. He is also 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 ratify 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, 2004 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, 2003 and has served in such capacity since 1999. The Audit Committee of the Board has appointed Deloitte & Touche to serve as the Company’s principal independent accountants for 2004 and has recommended ratification by stockholders of the appointment of Deloitte & Touche for 2004.

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 Audit Committee of the Board of Directors.

The Board recommends that stockholders vote FOR the proposal.

PROPOSAL NUMBER 3

Shareholder Proposal

Torchmark received the following resolution submitted by the Massachusetts State Carpenters Pension Fund 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 address for the proponent 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.

Performance and Time-Based Restricted Shares Proposal

Resolved, that the shareholders of Torchmark Corporation (“Company”) hereby request that the Board of Directors’ Compensation Committee, in developing future senior executive equity compensation plans, utilize performance and time-based restricted share programs in lieu of stock options. Restricted shares issued by the Company should include the following features:

(1) Operational Performance Measurers—The restricted share program should utilize justifiable operational performance criteria combined with challenging performance benchmarks for each criteria utilized. The performance criteria and associated performance benchmarks selected by the Compensation Committee should be clearly disclosed to shareholders.

(2) Time-Based Vesting—A time-based vesting requirement of at least three years should also be a feature of the restricted shares program. That is, in addition to the operational performance criteria, no shares should vest in less than three years from the grant date.

(3) Dividend Limitation—No dividend or proxy voting rights should be granted or exercised prior to the vesting of the restricted shares.

(4) Share Retention—In order to link shareholder and management interests, a retention feature should also be included; that is, all shares granted pursuant to the restrict share program should be retained by the senior executives for the duration of their tenure with the Company.

The Board and Compensation Committee should implement this restricted share program in a manner that does not violate any existing employment agreement or equity compensation plan.

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SUPPORTING STATEMENT: As long-term shareholders of the Company, we support executive compensation policies and practices that provide challenging performance objectives and serve to motivate executives to achieve long-term corporate value creation goals. The Company’s executive compensation program should include a long-term equity compensation component with clearly defined operational performance criteria and challenging performance benchmarks.

We believe that performance and time-based restricted shares are a preferred mechanism for providing senior executives long-term equity compensation. We believe that stock option plans, as generally constituted, all to often provide extraordinary pay for ordinary performance. In our opinion, performance and time-based restricted shares provide a better means to tie the levels of equity compensation to meaningful financial performance beyond stock price performance and to condition equity compensation on performance above that of peer companies.

Our proposal recognizes that the Compensation Committee is in the best position to determine the appropriate performance measures and benchmarks. It is requested that detailed disclosure of the criteria be made so that shareholders may assess whether, in their opinion, the equity compensation system provides challenging targets for senior executives to meet. In addition, the restricted share program prohibits the receipt of dividends and the exercise of voting rights until shares vest.

We believe that a performance and time-based restricted share program with the features described above offers senior executives the opportunity to acquire significant levels of equity commensurate with their long-term contributions. We believe such a system best advances the long-term interest of our Company, its shareholders, employees and other important constituents. We urge shareholders to support this reform.

The Board of Directors of the Company OPPOSES the adoption of the resolution for the following reasons:

The Board of Directors of the Company has authorized its Compensation Committee, which is comprised exclusively of independent directors, to structure, implement and administer the Company’s equity incentive compensation program for its senior executives under the Torchmark Corporation 1998 Stock Incentive Plan (the “Incentive Plan”). The Incentive Plan, which has been approved by the stockholders of the Company, allows the Compensation Committee to act in a responsible manner regarding executive incentive compensation to promote the alignment of management’s interests with those of all shareholders while meeting the Company’s need to attract and retain senior executives who contribute to the Company’s continued success. The existing Incentive Plan allows the Compensation Committee a variety of equity-based vehicles to achieve these goals, including stock options, restricted stock, stock appreciation rights and deferred stock awards. The Incentive Plan gives the Compensation Committee broad discretion to fix the terms and conditions for the granting, vesting and exercise of each of these compensation tools. After careful deliberation, the Compensation Committee can select the form of equity-based incentive compensation with the terms and conditions that best serves corporate objectives and shareholder interests. The flexibility of the Compensation Committee to structure incentive compensation awards in a way to benefit both the Company and its shareholders is a valuable asset.

Also, certain portions of the proposal, specifically the dividend limitation provision, violate the provisions of the existing Incentive Plan.

For these reasons, the Board of Directors believes the rigid implementation required by this proposal would not serve the best interests of the Company or its shareholders.

The Board of Directors recommends a vote AGAINST the proposal.

PROPOSAL NUMBER 4

Shareholder Proposal

Torchmark received the following resolution submitted by CHRISTUS Health and co-sponsored by Catholic Health Initiatives and the Congregation of the Sisters of Charity of the Incarnate Word and is including

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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.

INVESTMENTS IN TOBACCO COMPANIES

WHEREAS—as shareholders, we are concerned about investing in the tobacco industry by any health care 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 quality health care. 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, 2005.

Supporting Statement

In commenting on the huge equities of health insurers and health providers, 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.

The Board of Directors OPPOSES the above resolution for the following reasons:

The Company does not currently have and has not had investments in tobacco equities in any of the investment portfolios under its direct control. The Board does not believe that it is advisable to limit the flexibility of available portfolio investments particularly given the difficulty in determining what would constitute a “tobacco equity” in the present environment of rapidly changing diversified companies.

The Board recommends that stockholders vote AGAINST the proposal.

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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	61	Executive Vice President and Chief Administrative Officer of Company since September, 1999. (Vice President of Company, January, 1997-September, 1999).
Gary L. Coleman	51	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	50	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	54	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	54	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).
Roger C. Smith	51	President and Chief Executive Officer of American Income since December, 2003. (President—American Income Marketing Division, January, 2002-December, 2003; Executive Vice President and Sales Director of American Income, October, 1999-January, 2002).
Russell B. Tucker	56	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, 2003.

	Company Common Stock or Options Beneficially Owned as of December 31, 2003(1)
Name	Directly(2)	Indirectly(3)
Charles E. Adair	7,000	0
Montgomery, AL
David L. Boren	19,198	0
Norman, OK
Joseph M. Farley	161,383	4,800
Birmingham, AL
C. B. Hudson	1,634,612	841,836
Plano, TX
Joseph L. Lanier, Jr.	195,603	18,912
Lanett, AL
Mark S. McAndrew	494,893	10,202
McKinney, TX
Harold T. McCormick	0	110,189
Panama City, FL
George J. Records	119,760	0
Oklahoma City, OK
R. K. Richey	1,008,805	1,331,623
Plano, TX
Lamar C. Smith	29,204	0
Fort Worth, TX
Paul J. Zucconi	12,500	0
Plano, TX
Tony G. Brill	385,686	3,529
Plano, TX
Gary L. Coleman	344,032	14,871
Plano, TX
Larry M. Hutchison	259,439	10,191
Duncanville, TX
Anthony L. McWhorter	361,829	10,546
Birmingham, AL
Rosemary J. Montgomery	293,633	547
Parker, TX
Roger C. Smith	45,200	150
Waco, TX
Russell B. Tucker	94,287	8,433
Arlington, TX
All Directors, Nominees and Executive Officers as a group:(4)	5,467,064	2,365,856

(1) No directors, director nominees or executive officers other than R. K. Richey (1.9%) and C.B. Hudson (2.1%) beneficially own 1% or more of the common stock of the Company.

(2) Includes: for Charles Adair, 6,000 shares; for David Boren, 16,467 shares; for Joseph Farley, 82,485 shares; for Joseph Lanier, 130,010 shares; for Mark McAndrew, 409,846 shares; for Lamar Smith, 26,005 shares; for George Records, 99,110 shares; for R. K. Richey, 497,883 shares; for Paul Zucconi, 10,500 shares; for C. B. Hudson, 1,255,893 shares; for Tony Brill, 308,414 shares; for Anthony McWhorter, 296,378 shares; for Gary Coleman, 243,930 shares; for Larry Hutchison, 228,104 shares; for Rosemary Montgomery, 241,388 shares; for Russell Tucker, 80,064 shares; for Roger Smith, 45,000 shares and for all directors, executive officers and nominees as a group, 3,977,477 shares, that are subject to presently exercisable Company stock options.

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(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 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 19,765 shares, 10,202 shares, 2,922 shares, 8,718 shares, 14,871 shares, 8,433 shares, 10,191 shares, 150 shares and 547 shares calculated based upon conversion of stock unit balances held in the accounts of Messrs. Hudson, McAndrew, Brill, McWhorter, Coleman, Tucker, Hutchison and Roger Smith 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 102,587 shares subject to stock options transferred to his spouse. Indirect ownership for Mr. McWhorter also includes approximately 1,828 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 6.5% of the common stock of the Company.

During 2003, the Board of Directors met four times. In 2003, all of the directors attended at least 75% of the meetings of the Board and the committees on which they served.

Torchmark has a long standing policy that the members of its Board of Directors be present at the Annual Meeting of Shareholders, unless they have an emergency, illness or an unavoidable conflict. At the April 24, 2003 Annual Meeting of Shareholders, ten of the then eleven directors were present.

CORPORATE GOVERNANCE

Director Independence Determinations

The New York Stock Exchange (NYSE) rules require that Torchmark have a majority of independent directors. The rules provide that no director will qualify as “independent” unless the Board of Directors affirmatively determines that the director has no material relationship with Torchmark and its subsidiaries (collectively, Torchmark), either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company. In order to assist in the making of these determinations, the Board has adopted certain categorical standards described below to assist it in making determinations of independence.

The categorical standards for independence determinations adopted by the Board of Directors are:

i. A director who is an employee, or whose immediate family member is an executive officer, of the company is not “independent” until three years after the end of such employment relationship.

ii. A director who receives, or whose immediate family member receives, more than $100,000 per year in direct compensation from Torchmark other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service), is not independent until three years after he or she ceases to receive more than $100,000 per year in such compensation.

iii. A director who is affiliated with or employed by, or whose immediate family member is affiliated with or employed in a professional capacity by, a present or former internal or external auditor of the Company is not “independent” until three years after the end of the affiliation or the employment or auditing relationship.

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iv. A director who is employed, or whose immediate family member is employed, as an executive officer of another company where any of Torchmark’s present executives serve on that company’s compensation committee is not “independent” until three years after the end of such service or the employment relationship.

v. A director who is an executive officer or an employee, or whose immediate family member is an executive officer, of a company that makes payments to, or receives payments from, Torchmark for property or services in an amount which, in any single fiscal year, exceeds the greater of $1 million, or 2% of such other company’s consolidated gross revenues, is not “independent” until three years after falling below such threshold.

All directors other than those deemed not “independent” under the foregoing standards will be deemed to be “independent” upon a Board determination.

Based on these categorical standards, after review and deliberation at their February 26, 2004 meeting, the Board determined that the following independent directors meet the standards set by the Board: Charles E. Adair, David L. Boren, Joseph M. Farley, Louis T. Hagopian (who will retire in April 2004), Joseph L. Lanier, Jr., Harold T. McCormick, George J. Records and Paul J. Zucconi.

Executive Sessions

Torchmark’s non-management directors have since October 2002 met in regularly scheduled executive sessions without any management participation by officers or employee directors. These executive sessions are currently held either before, after or otherwise in conjunction with the Board’s four regularly scheduled meetings per year. Additional executive sessions can be scheduled at the request of the non-management directors. Beginning in 2004, at least one executive session per year will be conducted with only independent directors present.

The director who presides over the executive sessions is selected annually based upon tenure of service on the Board. If that director is not an independent director, another independent director will be chosen by the executive session to preside over the one executive session where only independent directors are present.

You may communicate with Torchmark’s non-management directors by writing to the Executive Session of the Torchmark Corporation Board of Directors in care of the Corporate Secretary, Torchmark Corporation, 2001 Third Avenue South, Birmingham, Alabama 35233.

Governance Guidelines and Codes of Ethics

Torchmark has adopted Corporate Governance Guidelines, a Code of Ethics for the CEO and Senior Financial Officers, and a Code of Business Conduct and Ethics for its directors, officers and employees which comply with the requirements of securities law, applicable regulations and New York Stock Exchange rules. These documents are available on the Company’s website by going to www.torchmarkcorp.com and clicking on the Investor Relations page. They are located under the Corporate Governance heading. Printed copies of these documents may be obtained at no charge by writing the Corporate Secretary, Torchmark Corporation, 2001 Third Avenue South, Birmingham, 35233.

Committees of the Board of Directors

The Board of Directors has the following standing Committees more fully described below: Executive, Finance, Compensation, Governance, Nominating and Audit.

Executive Committee—The executive committee is comprised of Messrs. Richey (2003 Chairman), Hudson and McAndrew. This 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 2003 although Mr. Richey, in his capacity as a consultant to the Company, held numerous strategic direction meetings with Mr. Hudson and/or Mr. McAndrew.

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Finance Committee—The finance committee is comprised of Messrs. Lamar Smith (2003 Chairman), Farley, Lanier, McCormick and Records. This committee serves as the pricing committee in connection with capital financing by the Company. The finance committee did not meet in 2003.

Compensation Committee—The compensation committee is comprised of Messrs. Hagopian (2003 Chairman) (serving until his April 2004 retirement), Farley and Lanier. All members of the compensation committee are independent under the rules of the NYSE, Section 16 of the Securities Exchange Act of 1934 and Section 162(m) of the Internal Revenue Code. The compensation committee determines the Company’s stated general compensation philosophy and strategy; reviews and determines the compensation of senior management of the Company and its subsidiaries, including establishing goals and objectives for the Chief Executive Officer’s compensation, evaluating the CEO’s performance in light thereof, and setting his compensation; establishes the annual bonus pool; administers the Company’s Section 162(m) bonus plan and stock incentive plan; and makes recommendations to the Board with respect to non-CEO compensation, incentive compensation plans and equity based plans. The compensation committee met six times in 2003.

The compensation committee has a written charter, a copy of which is available on Torchmark’s website by going to www.torchmarkcorp.com and clicking on the Investor Relations page. The committee charter is located under the Corporate Governance heading. You may also obtain a printed copy of the committee charter at no charge by writing the office of the Corporate Secretary at Torchmark Corporation, 2001 Third Avenue South, Birmingham, Alabama 35233.

Governance and Nominating Committee—The governance and nominating committee, (formerly the nominating committee) was renamed and its duties and responsibilities were redefined in February 2003. Its membership in 2003 was comprised of Messrs. Richey (2003 Chairman), Adair, Boren, Farley, Hagopian (serving until his April 2004 retirement), Lanier, McCormick, Records, Lamar Smith and Zucconi. In February 2004, Messrs. Richey and Lamar Smith resigned from the governance and nominating committee and Mr. Richey resigned as committee chairman. Accordingly, as of the date of this Proxy Statement, all members of the governance and nominating committee are independent under the NYSE rules.

The governance and nominating committee has the following duties and responsibilities: (1) receiving and evaluating the names and qualifications of potential director candidates; (2) identifying individuals qualified to become Board members consistent with criteria set by the Board of Directors and recommending to the Board director nominees; (3) recommending the directors to be appointed to Board committees; (4) developing and recommending to the Board a set of governance guidelines for the Company; (5) monitoring and annually evaluating how effectively the Board and Company have implemented the corporate governance guidelines and (6) overseeing evaluations of the Board and Company management. The governance and nominating committee met two times in 2003.

The governance and nominating committee will receive, evaluate and consider the names and qualifications of any potential director candidates from all sources, including shareholders of the Company. Recommendations of potential director candidates and supporting material may be directed to the Governance and Nominating Committee in care of the Corporate Secretary at Torchmark Corporation, 2001 Third Avenue South, Birmingham, Alabama 35233.

The governance and nominating committee has a written charter, a copy of which is available on Torchmark’s website by going to www.torchmarkcorp.com and clicking on the Investor Relations page. The committee charter is located under the Corporate Governance heading. You may also obtain a printed copy of the committee charter at no charge by writing the office of the Corporate Secretary at the Torchmark address set out above.

Audit Committee—The audit committee is comprised of Messrs. Zucconi (2003 Chairman), Farley, Hagopian (serving until his April 2004 retirement) and McCormick. All members of the audit committee are independent under the definition contained in the NYSE rules and fully comply with SEC rules and regulations. The audit committee reviews and discusses with management and the independent auditors the Company’s audited financial statements and quarterly financial statements prior to filing, the Company’s earnings press

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releases and financial information and earnings guidance, and the Company’s policies for risk assessment and management; selects, appoints, reviews and, if necessary, discharges the independent auditors; reviews the scope of the independent auditors audit plan and pre-approves audit and non-audit services; reviews the adequacy of the Company’s system of internal controls over financial reporting; periodically reviews pending litigation and regulatory matters; reviews the performance of the Company’s internal audit function and reviews and appropriately treats complaints and concerns regarding accounting, internal accounting controls or auditing matters pursuant to a confidential “whistleblower” policy. Additionally, the audit committee meets with the Company’s independent accountants and internal auditors both with and without management present. The audit committee met twelve times in 2003 (four physically-held meetings and eight teleconference meetings).

The audit committee has had a written charter since 2000, which is annually reviewed and updated if necessary. The audit committee charter is posted on the Company’s website and can be viewed by going to www.torchmarkcorp.com and clicking on the Investor Relations page. The committee charter is located under the Corporate Governance heading. You may also obtain a printed copy of the committee charter at no charge by writing the office of the Corporate Secretary at the Torchmark address set out above.

Director Qualification Standards

Torchmark’s Corporate Governance Guidelines discuss the following director qualification standards:

1. Board Membership Criteria, including independence, limits on the number of boards on which a director serves, a former chief executive officer’s Board membership and directors who change their present job responsibilities;

2. Size of the Board;

3. Term Limits;

4. Retirement Policy; and

5. Selection of the Chairman of the Board.

More detail regarding these director qualification standards can be found in the Corporate Governance Guidelines by going to the Company’s website at www.torchmarkcorp.com and clicking on the Investor Relations page. The Guidelines are located under the Corporate Governance heading. Printed copies of the Guidelines may be obtained at no charge by writing the Corporate Secretary, Torchmark Corporation, 2001 Third Avenue South, Birmingham, AL 35233.

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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	2003	800,000	0	0	95,000	7,218
Chairman and CEO	2002	800,000	0	0	138,431	7,302
	2001	800,000	0	0	657,182	5,381
Mark S. McAndrew	2003	722,753	300,000	0	95,000	6,000
President and CEO of	2002	700,000	270,000	0	100,000	6,000
United American, Globe and	2001	680,000	250,000	0	185,398	5,100
American Income
Tony G. Brill	2003	590,016	140,000	0	65,000	6,000
Executive Vice President and	2002	569,016	130,000	0	70,000	6,000
Chief Administrative Officer	2001	549,000	126,000	0	130,124	5,100
Anthony L. McWhorter	2003	445,016	102,000	0	55,000	6,000
President and Chief	2002	425,048	136,000	0	70,000	6,000
Executive Officer of Liberty	2001	399,048	136,000	0	133,252	5,100
and UILIC
Gary L. Coleman	2003	390,000	140,000	0	55,000	6,000
Executive Vice President	2002	370,000	120,000	0	60,000	6,000
and Chief Financial Officer	2001	344,000	110,000	0	156,376	5,100

(1) Messrs. Hudson, McAndrew and Brill received 2003 bonuses of $300,000, $300,000 and $140,000 respectively, under the Torchmark Corporation Annual Management Incentive Plan (the “Section 162(m) Plan”). These bonuses were certified by the Compensation Committee of the Board of Directors on January 8, 2004 and promptly paid thereafter. Mr. Hudson elected to be paid his $300,000 bonus in the form of non-qualified stock options on 23,666 shares granted January 8, 2004 with an exercise price of $45.60 (fair market value on the grant date). Messrs. McAndrew and Brill were paid their bonuses in cash.

Mr. Hudson elected to defer all $400,000 and $400,000 of his 2002 and 2001 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 2003, Messrs. McAndrew, McWhorter and Brill held 12,000, 7,500 and 12,000 restricted shares, respectively, valued at $546,480, $341,550 and $546,480 (based on a year-end closing price of $45.54 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 11, 2003, Messrs. Hudson, McAndrew, Brill, McWhorter and Coleman received stock option grants pursuant to the 1998 Incentive Plan on 95,000, 95,000, 65,000, 55,000 and 55,000 shares, respectively, with a market value exercise price of $44.89 per share.

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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.

(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 2003 and 2002 and of $5,100 in 2001, and 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 $1,218, $1,302, and $1,281, respectively, in 2003, 2002, and 2001.

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	95,000		44.89	12-13-13	0	2,681,954	6,796,592
Mark S. McAndrew	95,000		44.89	12-13-13	0	2,681,954	6,796,592
Tony G. Brill	65,000		44.89	12-13-13	0	1,835,021	4,650,300
Anthony L. McWhorter	55,000		44.89	12-13-13	0	1,552,710	3,934,869
Gary L. Coleman	55,000		44.89	12-13-13	0	1,552,710	3,934,869

(1) Options expiring on 12-13-13 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 12-13-13 are not exercisable during the first two years after the grant date and vest as to 50% of the shares two years after the grant date and as to the remaining 50% of the shares three years after the grant date.

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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	1,255,893	416,193	$	10,098,696	$	3,401,560
Mark S. McAndrew	0		0	409,846	245,000	$	4,205,612	$	1,238,750
Tony G. Brill	0		0	308,414	175,379	$	3,206,334	$	931,249
Anthony L. McWhorter	0		0	296,378	165,002	$	3,044,104	$	920,187
Gary L. Coleman	35,336	(1)	157,025	243,930	151,569	$	2,191,174	$	843,276

(1) Cashless option exercise; No shares retained

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 2003, 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 29 years, 24 years, seven years and 22 years of credited service under the TMK Pension Plan, respectively. Mr. McWhorter has 29 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 2003 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 nine 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 2003 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 nine years less of credited service under the Supplemental Retirement Plan than under the LNL Pension Plan.

Effective January 1, 2004, the TMK Pension Plan, LNL Pension Plan and a third existing Liberty National pension plan covering commissioned employees were merged into a single plan, the TMK Pension Plan. No changes in benefits to participants resulted or will result from the merger since benefits, definitions and formulas from the prior plans were amended into the TMK Pension Plan and continue to cover the same classes of employees.

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 $2,000 for each physically attended Board or Board Committee meeting, a fee of $500 for each telephonic Board or Board Committee meeting in which they participate, and an annual retainer of $45,000, 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. In April 2003, the Board awarded stock options with fair market value exercise prices on this non-formula basis for 6,000 shares to each of Charles E. Adair and Paul J. Zucconi.

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

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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 2002, Messrs. Hagopian, Lanier, McCormick, Records and Richey chose to make such deferrals of 2003 compensation. In 2003 Messrs. Hagopian, Lanier and Records converted their 2003 deferral account balances into options on 5,001, 4,424 and 4,280 shares, respectively, with fair market value exercise prices. Messrs. McCormick and Smith elected in 2003 to convert their 2003 deferral account balances into options on 2,918 and 2,662 shares, respectively, with exercise prices at 75% of market value.

(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 2003 as Chairman of the Executive Committee.

(4) Beginning in April 2003, the director serving as Chairman of the Audit Committee receives a $5,000 annual retainer for service as chairman.

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 2003 of $84,434.

In 2003, the Company paid MidFirst Bank $110,000 in fees as the servicing agent for portions of the Company subsidiaries’ commercial real estate portfolios. George J. Records is an officer and director of Midland Financial Co., the parent corporation of MidFirst Bank, and was, until December 31, 2003, a 38.33% beneficial owner of Midland Financial Co. After that date, he no longer has a beneficial ownership interest in Midland Financial Co.

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 572 home office 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 2003, that company received commission payments of $59,408,000 for sales of life insurance on behalf of Torchmark subsidiaries, which comprised approximately 29.6% of First Command’s 2003 revenues.

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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 2003, Liberty paid $1,588,931 to First Command Life in premiums and received $140,750 in expense reimbursements, $43,750 in benefit repayments and $1,438,211 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 (now First Command) in 1998 and a 7.55% construction 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 2003 was $21,913,209 and as of January 31, 2004, the outstanding balance of the collateral loan was $12,560,299. 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 $21,666,657 at February 25, 2004. The largest aggregate indebtedness to Liberty from First Command under the construction loan during 2003 was $22,315,276.

R.K. Richey is a 25% owner (50% owner as of December 31, 2003) 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 in the amount of $12.4 million to Torchmark. Elgin Development made all interest payments and reduced the outstanding balance of the Note by $2.3 million in principal payments to $10.1 million through December 31, 2002. In 2003, Elgin Development defaulted on the note and as a result, Torchmark foreclosed on the collateral which consisted of real estate with a value of $5.7 million.

In 2003, Torchmark and its subsidiaries paid $67,846 in real estate commissions to New Century Development Company, LLC, an indirect subsidiary of Stonegate Realty, Co., LLC, an entity in which Mr. Richey has the ownership interest shown above.

R. K. Richey is also a one-third owner of Stonegate Management Company, LLC (Stonegate Management) (two-thirds owner as of December 31, 2003). In 2003, pursuant to contractual agreements, Torchmark subsidiaries paid $683,350 to a Stonegate Management subsidiary, Commercial Real Estate Services, for building management and maintenance services on Liberty, Globe, and United American real estate and $261,053 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 Anthony McWhorter reported late one 2002 sale on his 2003 Form 5, C.B. Hudson reported late one 2002 gift of stock to charity on his 2003 Form 5, Rosemary Montgomery filed a late Form 4 reporting a sale of stock, R.K. Richey filed a late Form 4 reporting a sale of stock and Ronald Watts filed a late Form 4 reporting three sales of indirectly held shares in a Company benefit plan trust.

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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, to determine any senior executives eligible to participate in the executive deferred compensation stock option program under the 1998 Incentive Plan and to determine participants in the Section 162(m) Plan and fix annual bonus goals and targets for those participants.

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 2003, 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 2003 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.

In February 2003, the Board of Directors adopted the Torchmark Corporation Annual Management Incentive Plan (the Section 162(m) Plan), subject to shareholder approval which was obtained on April 24, 2003. Compensation paid pursuant to the Section 162(m) Plan is intended to the extent reasonable to qualify as “performance-based compensation” not subject to the limitations of Internal Revenue Code Section 162(m) on tax deductability of executive compensation in excess of $1 million. In addition to bonus compensation paid under the Section 162(m) Plan, Torchmark may compensate its executives and key employees in the form of salaries, bonuses and other benefits for which the Company may or may not receive a tax deduction.

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, whether paid under the Section 162(m) Plan or outside that Plan, focus on a number of factors, including growth in net operating income per share, pre-tax operating income and/or return on equity for holding company executives and on growth in insurance operating income, underwriting income and/or 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 paid under the Section 162(m) Plan or otherwise deductible under Section 162(m) of the Internal Revenue Code. The Compensation Committee will consider various

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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 Compensation Committee, with input from the Company’s Chairman and Chief Executive Officer, calculates a pool to fund current year bonuses and subsequent year salaries for all executives whose combined cash compensation exceeds $150,000 per year. The salary/bonus pool is determined by taking a percentage not to exceed 1%, of Torchmark’s pre-tax operating income for the performance period (typically a calendar year). Pre-tax operating income is defined 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. Both bonuses paid under the Section 162(m) Plan and discretionary bonuses paid outside that Plan are paid from this pool. The actual percentage used to establish the pool is based on the percentage derived by dividing the aggregate amount of the target amount of the target bonus amounts of all executives of Torchmark and its subsidiaries who are eligible to receive a bonus (including bonuses paid outside the Plan) by the amount of Torchmark’s projected pre-tax operating income for the year.

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.

Section 162(m) Bonus Plan

Each year, the Compensation Committee determines within the first 90 days, those executives who are eligible to participate in the Section 162(m) Plan for that year from among the Chief Executive Officer, the four other highest paid executive officers other than the chief executive officer (the covered employees), and any other executive officer of the Company or its subsidiaries they may select. Also within this 90 day period, the Compensation Committee establishes performance criteria and target awards for each participating executive. Performance criteria which may be selected are set out above in the Compensation Principles section. Actual performance relative to the selected performance criteria and targets determines the extent to which a target bonus amount may be paid. The maximum amount of the bonus pool which can be paid under the Plan to the CEO and the four “covered” executives cannot exceed 40% of the total pool, with not more than a maximum 15% payable to the CEO and the individual bonuses in total to the four other “covered” executives may not exceed 25% of the pool.

At the end of the performance period, the Compensation Committee must determine and certify that the performance criteria/objectives have been met by a participant before any bonus is paid. While the Compensation Committee has the discretion to reduce a bonus to be paid for any reason, it may not increase a bonus payment above the objectively-determined amount.

On March 12, 2003, the Compensation Committee determined that C.B. Hudson, Mark S. McAndrew and Tony G. Brill would be participating in the Plan for 2003. On that same date, the Compensation Committee determined the maximum pool would be .60% of 2003 pre-tax operating income. They also established the respective maximum percentages of the bonus pool that Messrs. Hudson, McAndrew and Brill, respectively, could receive and fixed growth in net operating income per share from 2002 to 2003 above an established threshold as the applicable performance criteria for each participant. That threshold must have been met before any bonus could be paid to a participant; if it was not, no bonus would be paid. If the threshold was met, the participant would be eligible for a bonus equal to his maximum percentage of the bonus pool, subject to the Compensation Committee’s discretion regarding any reduction in a bonus.

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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 2003 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.

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 2003.

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.

On January 8, 2004 the Compensation Committee certified attainment of his bonus goals and targets and awarded Mr. Hudson a 2003 bonus of $300,000 under the Section 162(m) Plan. Mr. Hudson elected to receive that bonus in the form of non-qualified options on 23,666 shares of Torchmark common stock with a grant date of January 8, 2004 and an exercise price of $45.60 (fair market value on the grant date).

Mr. Hudson’s 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. The Compensation Committee granted Mr. Hudson market value stock options on 95,000 shares in December 2003.

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Mr. Hudson’s base salary 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 2001-2003, which is covered by the Summary Compensation Table on page 14, Torchmark’s diluted operating earnings per share grew from $2.94 per share in 2000 to $3.87 per share in 2003. Return on equity decreased to 16.3% in 2003 from 16.9% in 2000. Torchmark repurchased 15.0 million shares in the 2001-2003 period under its share repurchase program, 11.9% 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 bonus, either paid upon certified attainment of previously-established performance goals under the Section 162(m) Plan or on a discretionary basis outside that Plan, which may be impacted by a number of factors, more particularly described in the Compensation Principles section above. 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 discretionary bonus award to such an executive is then recommended by the Chairman and Chief Executive Officer based upon an evaluation of a number of factors, including those listed above, to the Compensation Committee for its decision. Determination of any bonus paid to such executives who have been selected to participate in the Section 162(m) Bonus Plan is made by the Compensation Committee based on such executive’s attainment of the pre-established bonus goals and targets fixed by the Committee.

Mr. McAndrew serves as Chairman of Insurance Operations of the Company and as President and Chief Executive Officer of United American and Globe. He is responsible for the Company’s direct response insurance marketing. On January 8, 2004 the Compensation Committee certified attainment of his bonus goals and targets and awarded a 2003 bonus of $300,000 under the Section 162(m) Plan to Mr. McAndrew, 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. On January 8, 2004, the Compensation Committee certified attainment of his bonus goals and targets and awarded a 2003 bonus under the Section 162(m) Plan to Mr. Brill of $140,000, which was paid 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 $102,000 discretionary bonus by the Compensation Committee for 2003, 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 $140,000 discretionary bonus for 2003, 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. Pre-tax operating income was $679 million in 2003, an increase of 6% over 2002. Diluted operating earnings per share grew from $3.51 per share in 2002 to $3.87 per share in 2003, a 10% change. Return on equity was 16.3% in 2003 compared to 16.5% in 2002. Premium income, which made up 81% of the Company’s total revenues, rose to $2.38 billion in 2003 from $2.28 billion in 2002. Underwriting income comprised 55% of the Company’s pre-tax operating income for 2003. Underwriting income increased from $359 million to $372 million in 2003 from 2002.

23

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 14. Cash compensation paid persons who are listed in that table increased 3.1% in 2003 over 2002.

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 32% and rose from $2.94 in 2000 to $3.87 in 2003.

Louis T. Hagopian, Chairman

Joseph M. Farley

Joseph L. Lanier, Jr.

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 four directors: Paul J. Zucconi, who currently serves as Committee Chairman; Louis T. Hagopian, Harold T. McCormick and Joseph M. Farley. All of the Audit Committee members are independent as that term is defined in the rules of the New York Stock Exchange. All members of the Audit Committee were financially literate as that qualification has been interpreted by the Company’s Board of Directors in its business judgment and at least one member of the Audit Committee has accounting or related financial management expertise. In October 2003, the Board of Directors, after review and deliberation, determined that Paul J. Zucconi is the audit committee financial expert serving on the audit committee in accordance with the definition and qualifications for an audit committee financial expert set out in SEC Regulation S-K, Item 401. Mr. Zucconi is independent as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934.

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 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, 2003 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, 2003 for filing with the Securities and Exchange Commission.

Paul J. Zucconi, Chairman

Joseph M. Farley

Louis T. Hagopian

Harold T. McCormick

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.

24

PRINCIPAL ACCOUNTING FIRM FEES

The following table sets forth the aggregate fees, including out-of-pocket expenses, billed to Torchmark for the fiscal years ended December 31, 2003 and 2002 by the Company’s principal accountants, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu and their respective affiliates (collectively, the Deloitte Entities).

	2003		2002
Audit Fees (a)	1,195,543		1,087,913
Audit Related Fees
Pension Plan	97,000		89,000
Sarbanes-Oxley Act, Section 404 Advisory Services	278,511
Total Audit and Audit Related Fees		1,571,054		1,176,913
Tax Fees (b)		309,140		275,745
All Other Fees
Actuarial Fees	38,000		50,870
Insurance Department Examinations	63,097		99,016
Total All Other Fees		101,097		149,886
Total Fees		1,981,291		1,602,544

(a) Fees for audit services billed in 2003 and 2002 consisted of:

(i) Audit of Company’s annual financial statements and insurance subsidiaries statutory financial statements;

(ii) Review of the Company’s quarterly financial statements; and

(iii)  Services related to Securities and Exchange Commission filings and regulatory matters.

(b) Fees for tax services provided in 2003 and 2002 consisted primarily of fees for assistance with tax audits and appeals.

Pre-approval Policy

The audit and non-audit services performed by Deloitte in 2003 were pre-approved in accordance with the Policy Regarding the Approval of Audit and Non-Audit Services Provided by the Independent Auditor adopted by the Audit Committee at its April 23, 2003 meeting, as amended at its October 13-14, 2003 meeting. The Policy requires that all services provided by Deloitte, both audit and non-audit must be pre-approved by the Audit Committee or a Designated Member thereof except for certain de minimus exceptions. After discussions with Deloitte and Company management, the Audit Committee has determined that the provision of certain designated audit-related, tax and all other services do not impair the independence of Deloitte. The Policy describes the permitted audit, audit-related, tax and all other services (collectively, the Disclosure Categories) that Deloitte may perform. Pre-approvals of audit and non-audit services may be given at any time up to a year before commencement of the specific service.

A description of the services expected to be provided by Deloitte in each of the Disclosure Categories (a Service List) is presented to the Audit Committee for approval. Upon receipt of approval of these services by the Audit Committee or a Designated Member, the services are provided by Deloitte for the duration of the pre-approved period. Any requests for audit, audit-related, tax and other services not on the pre-approved Service List must be separately pre-approved by the Audit Committee or the Designated Member and cannot be commenced until such pre-approval is obtained. If the Designated Member pre-approves permitted services, a report of this specific pre-approval must be made to the Audit Committee at its next regularly scheduled meeting. The Chief Financial Officer or his designee may engage Deloitte to provide any permitted service if the expected fee does not exceed $50,000 after obtaining approval of the Chairman of the Audit Committee as the Designated Member. The Audit Committee may also periodically establish fee thresholds for pre-approved services.

At each regularly scheduled Audit Committee meeting, the Audit Committee reviews a summary of the services provided including fees, a listing of new pre-approved services since the Committee’s last meeting, a list of any de minimus services approved by the Chief Financial Officer and the Audit Committee Chairman and an updated projection for the current fiscal year of estimated annual fees to be paid to Deloitte.

25

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.

26

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 2005, the proposal must be received by the Company at its home office, 2001 Third Avenue South, Birmingham, Alabama 35233, on or before November 24, 2004. 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 7, 2005.

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 2003, 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, 2003 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 22, 2004

27

TORCHMARK CORPORATION		YOUR VOTE IS IMPORTANT VOTE BY INTERNET / TELEPHONE 24 HOURS A DAY, 7 DAYS A WEEK
INTERNET https://www.proxyvotenow.com/tmk	OR	TELEPHONE 1-866-361-3802	OR	MAIL
•      Go to the website address listed above. •      Have your proxy card ready. •      Follow the simple instructions that appear on your computer screen.		•      Use any touch-tone telephone. •      Have your proxy card ready. •      Follow the simple recorded instructions.		•      Mark, sign and date your proxy card. •      Detach your proxy card. •      Return your proxy card in the postage-paid envelope provided.

1-866-361-3802

¨ CALL TOLL-FREE TO VOTE

Ú DETACH PROXY CARD HERE IF YOU ARE NOT VOTING BY TELEPHONE OR INTERNET Ú

x Votes must be indicated (x) in Black or Blue ink.
This proxy when properly executed will be voted in the manner directed herein. If no direction is made, this proxy will be voted FOR election of directors, FOR Proposal 2 and AGAINST Proposals 3 and 4.
1. Election of Directors				FOR	AGAINST	ABSTAIN
FOR ALL         ¨	WITHHOLD FOR ALL         ¨	* EXCEPTIONS ¨	3. Shareholder Proposal	¨	¨	¨
Nominees: (01) Charles E. Adair, (02) Joseph M. Farley,                   (03) C. B. Hudson, (04) Joseph L. Lanier, Jr.,                   (05) R. K. Richey			4. Shareholder Proposal	¨	¨	¨
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark the “Exceptions” box and write that nominee’s name in the space provided below.)			Mark here if you wish to discontinue receiving more than one annual report.			¨
* Exceptions _____________________________________			To change your address, please mark this box.			¨
	FOR      AGAINST       ABSTAIN
2. Ratification of Auditors	¨¨¨		To include any comments, please mark this box.			¨
			S C A N   L I N E
			Please sign exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such.
			Date      Share Owner sign here		Co-Owner sign here

Dividend Reinvestment: Torchmark maintains a Dividend Reinvestment Plan for all holders of its common stock. Under the plan, shareholders may reinvest all or part of their dividends in additional shares of common stock and may also make periodic additional cash payments of up to $3,000 toward the purchase of Torchmark stock. Participation is entirely voluntary. More information on the plan can be obtained by calling 1-866-557-8699.

Direct Deposit of Dividends: Torchmark makes direct deposit of cash dividends available to its shareholders. To obtain information and materials for participation in this service, please call 1-866-557-8699.

www.torchmarkcorp.com: Torchmark’s web site, https://www.torchmarkcorp.com, contains financial information about the company, information regarding our insurance subsidiaries and corporate governance information. The Company’s Shareholder Rights Policy is also posted on the web site.

Multiple Annual Reports: Securities and Exchange Commission rules require that an annual report precede or be included with proxy materials. If you have multiple Torchmark accounts, you may be receiving more than one Torchmark annual report, which is costly to Torchmark and may be inconvenient to you. You may authorize Torchmark to discontinue mailing extra reports by marking the appropriate box on the reverse side of the proxy card for selected accounts. At least one account MUST continue to receive an annual report. Eliminating these duplicate mailings will not affect receipt of future proxy statements, proxy cards or dividend checks. To resume the mailing of an annual report to an account, please call 1-866-557-8699.

P R O X Y

TORCHMARK CORPORATION

Proxy/Direction Card for Annual Meeting on April 29, 2004

This Proxy/Direction is solicited by the Board of Directors of The Company.

The undersigned hereby appoints C. B. Hudson and Larry M. Hutchison, jointly and severally with full power of substitution, to vote all shares of common stock which the undersigned holds of record and is entitled to vote at the Annual Meeting of Shareholders to be held at the Hilton Suites Dallas North, 14302 Noel Road, Dallas Texas on the 29th day of April, 2004 at 10:00 a.m. (CDT), or any adjournment thereof. All shares votable by the undersigned including shares held of record by agents or trustees for the undersigned as a participant in the Dividend Reinvestment Plan (DRP), Torchmark Corporation Savings and Investment Plan (TTP), Waddell & Reed Financial, Inc. 401-K and Savings and Investment Plan (WR 401K), Liberty National Life Insurance Company 401K Plan (LNL401K) and the Profit Sharing and Retirement Plan of Liberty National Life Insurance Company (LNL PS&R) will be voted in the manner specified and in the discretion of the persons named above or such agents or trustees on such other matters as may properly come before the meeting.

(change of address/comments)
	TORCHMARK CORPORATION P.O. BOX 11173 NEW YORK, N.Y. 10203-0173

You are encouraged to specify your choices by marking the appropriate boxes, SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance with the Board of Directors’ recommendations. The Proxy Committee cannot vote your shares unless you sign and return this card.

EX-23.(A)-(H)

Exhibit 23

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 March 5, 2004, appearing in this Annual Report on Form 10-K of Torchmark Corporation for the year ended December 31, 2003.

/S/  DELOITTE & TOUCHE LLP

DELOITTE & TOUCHE LLP

Dallas, Texas

March 12, 2004

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, 2003. Without limiting the generality of the foregoing, the powers granted include the power and authority to execute and file the Form 10-K, any and all amendments to the Form 10-K and any and all instruments or documents submitted as a part of or in conjunction with the Form 10-K. The undersigned hereby ratifies and confirms his signature as it may be signed by said attorneys and all that said attorneys and agents shall do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the date indicated below his name.

/s/ Charles E. Adair

Charles E. Adair, Director

Date: March 5, 2004

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, 2003. 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: March 8, 2004

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, 2003. 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: March 9, 2004

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, 2003. 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: March 5, 2004

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, 2003. 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, Chairman, Chief

Executive Officer and Director

Date: March 5, 2004

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, 2003. 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: March 5, 2004

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, 2003. 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: March 5, 2004

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, 2003. 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: March 11, 2004

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, 2003. 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: March 2, 2004

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, 2003. 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: March 5, 2004

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, 2003. 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 26, 2004

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, 2003. 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: March 5, 2004

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, 2003. 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: March 5, 2004

EX-31.1

Exhibit 31.1

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 we 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 11, 2004	/s/ C.B. Hudson
	C.B. Hudson
	Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Gary L. Coleman, Executive Vice President and Chief Financial 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 11, 2004	/s/ Gary L. Coleman
	Gary L. Coleman
	Executive Vice President and
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF PERIODIC REPORT

We, C. B. Hudson, Chairman and Chief Executive Officer of Torchmark Corporation, and 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 our knowledge:

(1) the Annual Report on Form 10-K of the Company for the period ended December 31, 2003 (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 11, 2004

/s/ C.B. Hudson

C. B. Hudson

Chairman and Chief Executive Officer

/s/ Gary L. Coleman

Gary L. Coleman

Executive Vice President and

Chief Financial Officer