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 $2.0 million per life. Life insurance ceded represented 0.4% of total life insurance in force at December 31, 2015. Insurance ceded on life and accident and health products represented 0.3% of premium income for 2015. 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 represented 2.1% of life insurance in force at December 31, 2015 and reinsurance assumed on life and accident and health products represented 0.8% of premium income for 2015.

Leases: Torchmark leases office space, office equipment, and aviation equipment under a variety of operating lease arrangements.

Rental expense for operating leases for each of the three years ended December 31, 2015 is as follows:



	Year Ended December 31,
	2015		2014		2013
Rental expense	$	6,722	$	4,200	$	4,100

Future minimum rental commitments required under operating leases having remaining noncancelable lease terms in excess of one year at December 31, 2015 were as follows:



	Year Ended December 31,
	2016		2017		2018		2019		2020		Thereafter
Operating lease commitments	$	8,304	$	7,888	$	4,738	$	4,531	$	4,372	$	11,122

Low-Income Housing Tax Credit Interests: As described in Note 1—Significant Accounting Policies, Torchmark had $306 million invested in entities which provide certain tax benefits at December 31, 2015. As of December 31, 2015, Torchmark remained obligated under these commitments as follows:



	Year Ended December 31,
	2016		2017		2018		Thereafter
Low-Income housing commitments	$	36,702	$	26,592	$	4,500	$	1,154

Investments: As of December 31, 2015, Torchmark had committed to purchase $16 million of private placement fixed maturities managed by a third party.

Guarantees: At December 31, 2015, Torchmark had in place four guarantee agreements, of which were 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, 2015, Torchmark had no liability with respect to these guarantees.

Letters of Credit: Torchmark has guaranteed letters of credit in connection with its credit facility with a group of banks as disclosed in Note 11—Debt. 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 expires in 2019. The maximum amount of letters of credit available is $250 million. The Torchmark parent company would be liable to the extent that TMK Re, Ltd. does not pay the reinsured party. At December 31, 2015, $177 million of letters of credit were outstanding, compared with $198 million a year earlier.

Equipment leases: Torchmark has guaranteed performance of certain subsidiaries as lessees under three leasing arrangements which include two for aviation equipment and one for computer software, furniture, and equipment. One aviation lease expires in August 2022 and the second expires in September 2024. The office equipment lease expires in December 2017. At December 31, 2015, total remaining undiscounted payments under the leases were approximately $19 million. The 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.

Unclaimed Property Audits: Torchmark subsidiaries are currently the subject of audits regarding the identification, reporting and escheatment of unclaimed property arising from life insurance policies and a limited number of annuity contracts. These audits are being conducted by private entities that have contracted with forty-seven various states through their respective Departments of Revenue, and have not resulted in any financial assessment from any state nor indicated any liability. The audits are wide-ranging and seek large amounts of data regarding claims handling, procedures, and payments of contract benefits arising from unreported death claims. No estimate of range can be made at this time for loss contingencies related to possible administrative penalties or amounts that could be payable to the states for the escheatment of abandoned property.

Sanction: During the third quarter of 2015, Centers for Medicare & Medicaid Services (CMS) placed United American Life Insurance Company (UA) and First United American Life Insurance Company (FUA) on Enrollment Sanction. During this time, Torchmark is not permitted to enroll new individuals or groups into our Medicare Part D program. Torchmark is permitted to re-enroll existing individual members into our 2016 plans, as well as enroll new members of groups that were policyholders at the time the sanction was initiated. Torchmark has submitted a remediation plan that has been accepted by CMS, and Torchmark is proceeding with this plan in an effort to have the sanction lifted as soon as possible. As discussed in Note 6—Discontinued Operations, the Medicare Part D business is held for sale and reflected in discontinued operations.

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. 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. Torchmark’s management recognizes that large punitive damage awards bearing little or no relation to actual damages continue to be awarded by juries in jurisdictions in which Torchmark and its subsidiaries have substantial business, creating the potential for unpredictable material adverse judgments in any given punitive damage suit.

With respect to its current litigation, at this time management believes that the possibility of a material judgment adverse to Torchmark is remote, and no estimate of range can be made for loss contingencies that are at least reasonably possible but not accrued.