Note D—Investments

Portfolio Composition:

A summary of fixed maturities and equity securities available for sale by cost or amortized cost and estimated fair value at September 30, 2014 is as follows.

Portfolio Composition as of September 30, 2014


	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, guaranteed, and government-sponsored enterprises	$	367,261	$	310	$	(21,059	)	$	346,512		2	%
States, municipalities, and political subdivisions		1,277,882		147,783		(1,438	)		1,424,227		10
Foreign governments		32,441		939		(1	)		33,379		0
Corporates		10,455,610		1,334,690		(83,030	)		11,707,270		83
Collateralized debt obligations		66,889		4,313		(8,352	)		62,850		1
Other asset-backed securities		30,996		3,033		(31	)		33,998		0
Redeemable preferred stocks		497,117		53,677		(5,986	)		544,808		4

Total fixed maturities		12,728,196		1,544,745		(119,897	)		14,153,044		100	%

Equity securities		776		641		0			1,417

Total fixed maturities and equity securities	$	12,728,972	$	1,545,386	$	(119,897	)	$	14,154,461

*	At fair value

A schedule of fixed maturities by contractual maturity date at September 30, 2014 is shown below on an amortized cost basis and on a fair value basis. Actual maturity dates could differ from contractual maturities due to call or prepayment provisions.


	Amortized Cost		Fair Value
Fixed maturities available for sale:
Due in one year or less	$	208,876	$	213,937
Due from one to five years		507,648		571,735
Due from five to ten years		928,917		1,014,462
Due from ten to twenty years		3,480,370		3,953,820
Due after twenty years		7,501,878		8,299,386
Mortgage-backed and asset-backed securities		100,507		99,704

	$	12,728,196	$	14,153,044

Selected information about sales of fixed maturities is as follows.


For the nine months ended September 30,
	2014			2013
Proceeds from sales	$	56,447		$	78,751
Gross realized gains		16,473			4,310
Gross realized losses		(1,701	)		(788	)

Fair Value Measurements:

The following table represents assets measured at fair value on a recurring basis.

Fair Value Measurements at September 30, 2014 Using:


Description	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value
Fixed maturities available for sale:
Bonds:
U.S. Government direct, guaranteed, and government-sponsored enterprises	$	0		$	346,512		$	0		$	346,512
States, municipalities, and political subdivisions		0			1,424,227			0			1,424,227
Foreign governments		0			33,379			0			33,379
Corporates		51,852			11,150,849			504,569			11,707,270
Collateralized debt obligations		0			0			62,850			62,850
Other asset-backed securities		0			33,998			0			33,998
Redeemable preferred stocks		23,073			521,735			0			544,808

Total fixed maturities		74,925			13,510,700			567,419			14,153,044
Equity securities		584			0			833			1,417

Total fixed maturities and equity securities	$	75,509		$	13,510,700		$	568,252		$	14,154,461

Percent of total		0.5	%		95.5	%		4.0	%		100.0	%

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

Analysis of Changes in Fair Value Measurements Using

Significant Unobservable Inputs (Level 3)


	For the nine months ended September 30, 2014
	Asset- backed securities			Collateralized debt obligations			Corporates ⁽¹⁾			Equities			Total
Balance at January 1, 2014	$	0		$	58,205		$	300,300		$	776		$	359,281
Total gains or losses:
Included in realized gains/losses		0			15,924			1			0			15,925
Included in other comprehensive income		0			3,929			19,667			57			23,653
Acquisitions		0			0			186,365			0			186,365
Sales		0			(16,049	)		(1	)		0			(16,050	)
Amortization		0			4,072			10			0			4,082
Other ⁽²⁾		0			(3,231	)		(1,773	)		0			(5,004	)
Transfers in and/or out of Level 3 ⁽³⁾		0			0			0			0			0

Balance at September 30, 2014	$	0		$	62,850		$	504,569		$	833		$	568,252

Percent of total fixed maturity and equity securities		0.0	%		0.4	%		3.6	%		0.0	%		4.0	%

	For the nine months ended September 30, 2013
	Asset- backed securities			Collateralized debt obligations			Corporates ⁽¹⁾			Equities			Total
Balance at January 1, 2013	$	7,981		$	46,571		$	231,072		$	739		$	286,363
Total gains or losses:
Included in realized gains/losses		0			0			0			0			0
Included in other comprehensive income		426			3,173			(13,613	)		37			(9,977	)
Acquisitions		0			0			65,507			0			65,507
Sales		0			0			0			0			0
Amortization		(57	)		3,329			3			0			3,275
Other ⁽²⁾		0			0			(759	)		0			(759	)
Transfers in and/or out of Level 3 ⁽³⁾		(8,350	)		0			(42,455	)		0			(50,805	)

Balance at September 30, 2013	$	0		$	53,073		$	239,755		$	776		$	293,604

Percent of total fixed maturity and equity securities		0.0	%		0.4	%		1.9	%		0.0	%		2.3	%

(1)	Includes redeemable preferred stocks.

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

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

Other-Than-Temporary Impairments:

During the first quarter of 2013, Torchmark wrote down investment real estate in the amount of $2.7 million pretax ($1.7 million after tax) because of other-than-temporary impairment. There were no additional other-than-temporary impairments during the nine-month periods ended September 30, 2014 or 2013.

Unrealized Loss Analysis:

The following table discloses unrealized investment losses by class of investment at September 30, 2014 for the period of time in a loss position. Torchmark considers these investments not to be other-than-temporarily impaired.

Analysis of Gross Unrealized Investment Losses

At September 30, 2014


	Less than Twelve Months					Twelve Months or Longer					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Fixed maturities available for sale:
Bonds:
U.S. Government direct, guaranteed, and government-sponsored enterprises	$	15,478	$	(229	)	$	301,161	$	(20,830	)	$	316,639	$	(21,059	)
States, municipalities and political subdivisions		10,847		(253	)		35,852		(1,185	)		46,699		(1,438	)
Foreign governments		834		(1	)		0		0			834		(1	)
Corporates		767,413		(12,446	)		1,058,596		(70,584	)		1,826,009		(83,030	)
Collateralized debt obligations		0		0			12,107		(8,352	)		12,107		(8,352	)
Other asset-backed securities		0		0			2,852		(31	)		2,852		(31	)
Redeemable preferred stocks		9,962		(38	)		60,045		(5,948	)		70,007		(5,986	)

Total fixed maturities		804,534		(12,967	)		1,470,613		(106,930	)		2,275,147		(119,897	)
Equity securities		0		0			0		0			0		0

Total fixed maturities and equity securities	$	804,534	$	(12,967	)	$	1,470,613	$	(106,930	)	$	2,275,147	$	(119,897	)

Additional information about investments in an unrealized loss position is as follows.


	Less than Twelve Months		Twelve Months or Longer		Total
Number of issues (Cusip numbers) held:
As of September 30, 2014		133		267		400
As of December 31, 2013		462		130		592

Torchmark’s entire fixed-maturity and equity portfolio consisted of 1,604 issues at September 30, 2014 and 1,619 issues at December 31, 2013. The weighted average quality rating of all unrealized loss positions as of September 30, 2014 was A-. Although Torchmark’s fixed-maturity investments are available for sale, Torchmark’s management generally does not intend to sell and does not believe it will be required to sell any securities which are temporarily impaired before they recover due to the strong and stable cash flows generated by its insurance products.