Investments

Portfolio Composition:

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

Portfolio Composition as of September 30, 2017



	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value⁽¹⁾		% of Total Fixed Maturities⁽²⁾
Fixed maturities available for sale:
U.S. Government direct, guaranteed, and government-sponsored enterprises	$	387,985	$	12,800	$	(1,098	)	$	399,687	2
States, municipalities, and political subdivisions	1,160,537		127,675		(108		)	1,288,104		8
Foreign governments	20,939		1,607		—			22,546		—
Corporates, by sector:
Financial	3,199,469		426,345		(25,880		)	3,599,934		22
Utilities	1,948,519		324,060		(2,655		)	2,269,924		14
Energy	1,602,054		185,296		(28,070		)	1,759,280		11
Other corporate sectors	6,025,262		666,120		(22,670		)	6,668,712		40
Total corporates	12,775,304		1,601,821		(79,275		)	14,297,850		87
Collateralized debt obligations	59,204		19,558		(8,994		)	69,768		—
Other asset-backed securities	145,224		5,018		(17		)	150,225		1
Redeemable preferred stocks, by sector:
Financial	336,822		60,159		(3,030		)	393,951		2
Utilities	28,565		2,333		(116		)	30,782		—
Total redeemable preferred stocks	365,387		62,492		(3,146		)	424,733		2
Total fixed maturities	$	14,914,580	$	1,830,971	$	(92,638	)	$	16,652,913	100

(1) Amounts reported on the balance sheet.

(2) At fair value.

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



	September 30, 2017
	Amortized Cost		Fair Value
Fixed maturities available for sale:
Due in one year or less	$	140,702	$	143,863
Due after one year through five years	660,487		705,847
Due after five years through ten years	1,430,894		1,604,091
Due after ten years through twenty years	4,397,807		5,084,516
Due after twenty years	8,079,191		8,893,450
Mortgage-backed and asset-backed securities	205,499		221,146
	$	14,914,580	$	16,652,913

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Proceeds from sales	$	52,951	$	24,000	$	52,951	$	75,299
Gross realized gains	4,851		2,577		4,851		6,133
Gross realized losses	—		—		—		(214		)

Fair Value Measurements:

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



Fair Value Measurements at September 30, 2017 using:
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value
Bonds:
U.S. Government direct, guaranteed, and government-sponsored enterprises	$	—		$	399,687		$	—		$	399,687
States, municipalities, and political subdivisions	39,100			1,249,004			—			1,288,104
Foreign governments	—			22,546			—			22,546
Corporates, by sector:
Financial	—			3,537,728			62,206			3,599,934
Utilities	—			2,114,600			155,324			2,269,924
Energy	—			1,717,538			41,742			1,759,280
Other corporate sectors	3,225			6,340,276			325,211			6,668,712
Total corporates	3,225			13,710,142			584,483			14,297,850
Collateralized debt obligations	—			—			69,768			69,768
Other asset-backed securities	—			135,842			14,383			150,225
Redeemable preferred stocks, by sector:
Financial	—			393,951			—			393,951
Utilities	—			30,782			—			30,782
Total redeemable preferred stocks	—			424,733			—			424,733
Total fixed maturities	$	42,325		$	15,941,954		$	668,634		$	16,652,913
Percent of total	0.3		%	95.7		%	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)



	Nine Months Ended September 30, 2017
	Asset- Backed Securities			Collateralized Debt Obligations			Corporates⁽¹⁾			Total
Balance at January 1, 2017	$	—		$	63,503		$	559,600		$	623,103
Total gains or losses:
Included in realized gains/losses	—			—			—			—
Included in other comprehensive income	595			7,787			10,614			18,996
Acquisitions	14,000			—			21,666			35,666
Sales	—			—			—			—
Amortization	—			3,705			14			3,719
Other⁽²⁾	(212		)	(5,227		)	(7,411		)	(12,850		)
Transfers in and/or out of Level 3⁽³⁾	—			—			—			—
Balance at September 30, 2017	$	14,383		$	69,768		$	584,483		$	668,634
Percent of total fixed maturities	0.1		%	0.4		%	3.5		%	4.0		%

	Nine Months Ended September 30, 2016
	Asset- Backed Securities			Collateralized Debt Obligations			Corporates⁽¹⁾			Total
Balance at January 1, 2016	$	—		$	70,382		$	530,806		$	601,188
Total gains or losses:
Included in realized gains/losses	—			—			788			788
Included in other comprehensive income	—			(3,879		)	33,365			29,486
Acquisitions	—			—			33,662			33,662
Sales	—			—			—			—
Amortization	—			3,511			14			3,525
Other⁽²⁾	—			(6,732		)	(10,882		)	(17,614		)
Transfers in and/or out of Level 3⁽³⁾	—			—			—			—
Balance at September 30, 2016	$	—		$	63,282		$	587,753		$	651,035
Percent of total fixed maturities	—		%	0.4		%	3.7		%	4.1		%

(1) Includes redeemable preferred stocks.

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

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

Other-Than-Temporary Impairments:

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

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

Unrealized Loss Analysis:

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



	Less than Twelve Months	Twelve Months or Longer	Total
Number of issues (CUSIP numbers) held:
As of September 30, 2017	151	109	260
As of December 31, 2016	407	94	501

Torchmark’s entire fixed maturity portfolio consisted of 1,514 issues at September 30, 2017 and 1,565 issues at December 31, 2016. The weighted average quality rating of all unrealized loss positions as of September 30, 2017 was BBB compared with BBB+ as of December 31, 2016.

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

Analysis of Gross Unrealized Investment Losses

At September 30, 2017



	Less than Twelve Months					Twelve Months or Longer					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Investment grade securities:
Bonds:
U.S. Government direct, guaranteed, and government-sponsored enterprises	$	97,370	$	(610	)	$	5,422	$	(488	)	$	102,792	$	(1,098	)
States, municipalities and political subdivisions	10,115		(70		)	691		(2		)	10,806		(72		)

Corporates, by sector:
Financial	94,944		(1,024		)	65,729		(2,271		)	160,673		(3,295		)
Utilities	101,687		(1,643		)	40,075		(1,012		)	141,762		(2,655		)
Energy	37,009		(512		)	93,841		(6,555		)	130,850		(7,067		)
Other corporate sectors	369,323		(6,254		)	247,324		(11,047		)	616,647		(17,301		)
Total corporates	602,963		(9,433		)	446,969		(20,885		)	1,049,932		(30,318		)
Other asset-backed securities	9,983		(17		)	—		—			9,983		(17		)
Redeemable preferred stocks, by sector:
Utilities	5,947		(116		)	—		—			5,947		(116		)
Total redeemable preferred stocks	5,947		(116		)	—		—			5,947		(116		)
Total investment grade securities	726,378		(10,246		)	453,082		(21,375		)	1,179,460		(31,621		)
Below investment grade securities:
Bonds:
States, municipalities and political subdivisions	269		(36		)	—		—			269		(36		)
Corporates, by sector:
Financial	—		—			83,164		(22,585		)	83,164		(22,585		)
Energy	—		—			78,721		(21,003		)	78,721		(21,003		)
Other corporate sectors	—		—			45,330		(5,369		)	45,330		(5,369		)
Total corporates	—		—			207,215		(48,957		)	207,215		(48,957		)
Collateralized debt obligations	—		—			11,006		(8,994		)	11,006		(8,994		)
Redeemable preferred stocks, by sector:
Financial	—		—			24,080		(3,030		)	24,080		(3,030		)
Total redeemable preferred stocks	—		—			24,080		(3,030		)	24,080		(3,030		)
Total below investment grade securities	269		(36		)	242,301		(60,981		)	242,570		(61,017		)
Total fixed maturities	$	726,647	$	(10,282	)	$	695,383	$	(82,356	)	$	1,422,030	$	(92,638	)