Summary of Operations. Torchmark's operations are segmented into its insurance underwriting and investment operations as described in Note F-Business Segments. The measures of profitability described in Note F are useful in evaluating the performance of the segments and the marketing groups within each insurance segment, because each of our distribution units operates in a niche market. These measures enable management to view period-to-period trends, and to make informed decisions regarding future courses of action.

The tables in Note F-Business Segments demonstrate how the measures of profitability are determined. Those tables also reconcile our revenues and expenses by segment to major income statement line items for the nine-month periods ended September 30, 2008 and 2007. Additionally, a table in that note, Analysis of Profitability by Segment, provides a summary of the profitability measures that demonstrates year-to-year comparability and which reconciles those measures to our net income. That summary represents our overall operations in the manner that management views the business, and is a basis of the following highlights discussion.

A discussion of operations by each segment follows later in this report. These discussions compare the first nine months of 2008 with the same period of 2007, unless otherwise noted.

Highlights, comparing the first nine months of 2008 with the first nine months of 2007. Net income per diluted share declined 15% to $3.49. Net income for the 2008 period reflects an after-tax charge of $.90 per share for realized investment losses, of which $.86 was attributable to writedowns of securities determined to be other-than-temporarily impaired. These writedowns, including a writedown of $.78 per share during the third quarter of bonds issued by Lehman Brothers and Washington Mutual and perpetual preferred stock issued by the Federal National Mortgage Association, are discussed in detail under the caption Realized gains and losses in this report. Net income per share during the 2007 period reflected an after tax gain of $.06 per share for investment gains. Additionally, as explained in Note F-Business Segments, differences in our estimate of interim results for Medicare Part D as we view this product for segment purposes and GAAP resulted in a $8 million after-tax charge to 2008 earnings or $.08 per share, compared with a charge of $3 million after-tax or $.03 per share in the prior period. We expect our 2008 full year benefit ratios to be approximately the same as those for interim periods, as was the case in 2007. For this reason, there should be no differences in segment versus GAAP reporting by year end 2008.

We use three statistical measures as indicators of product sales: "annualized premium in force," "net sales" and "first-year collected premium." Annualized premium in force is defined as the premium income that would be received over the following twelve months at any given date on all active policies if those policies remain in force throughout the twelve-month period. Annualized premium in force is an indicator of potential growth in premium revenue. Net sales is defined as annualized premium issued, net of cancellations in the first

thirty days after issue, except for Direct Response, where net sales is annualized premium issued at the time the first full premium is paid after any introductory offer has expired. Annualized premium issued is the gross premium that would be received during the policies' first year in force, assuming that none of the policies lapsed or terminated. Although lapses and terminations will occur, we believe that net sales is a useful indicator of the rate of acceleration of premium growth. First-year collected premium is the premium collected during the reporting period for all policies in their first policy year. First-year collected premium takes lapses into account in the first policy year when lapses are more likely to occur, and thus is a useful indicator of how much new premium is expected to be added to premium income in the future.

Total premium income declined 3% for the nine months to $2.1 billion, as health premium declined 10%. Total net sales, excluding Medicare Part D net sales, declined 12% to $330 million. Also excluding Part D, first-year collected premium declined 9% to $267 million for the period.

Life insurance premium income grew 3% to $1.2 billion. Life net sales increased in each of Torchmark's major distribution groups, increasing 13% in total to $221 million. First-year collected life premium increased 5% to $156 million. Life underwriting margins increased 4% to $320 million.

Health insurance premium income, excluding Medicare Part D premium, decreased 7% to $726 million. Health net sales, excluding Part D, declined 40% to $109 million, as a result of the increased turnover of agents in our United American (UA) Branch Office Agency. This Agency is a key distributor of our health products, but has been facing increased competition in recent periods. First-year collected health premium, excluding Part D, declined 24% to $111 million. Underwriting income of $131 million remained at 18% of premium in 2008. We are addressing the turnover in the UA Branch Office Agency by offering the agents new lines of products with new compensation incentives focused on marketing these products.

Our Medicare Part D prescription drug business is a component of the health insurance segment. In the manner we view our Medicare Part D business as described in Note F-Business Segments, policyholder premium was $133 million in 2008. This 18% decrease was a result of a decline in the number of enrollees year over year. Underwriting income declined 4% to $17 million.

Excess investment income per diluted share increased 10% to $2.78, while excess investment income increased 3% to $251 million. Net investment income increased 4% or $17 million, but was partially offset by a $15 million increase in interest cost on net insurance policy liabilities. Investment income was also impacted by our additional investment in 2007 of $256 million in tax-exempt fixed maturities, which reduced net investment income but also effectively reduced taxes. Financing costs declined 10% in the period primarily as a result of lower short-term rates and a lower average balance outstanding on our commercial paper facility.

In the 2008 period, we invested new money at an effective annual yield on new investments of 7.12%. This yield compares with an average portfolio yield of 6.97% (at September 30, 2008). The fixed-maturity portfolio at fair value accounted for 94% of total investments at September 30, 2008 and had an average rating of BBB+. The fixed maturity portfolio contains no securities backed by subprime mortgages. We are not a party to any counterparty risk, with no credit default swaps or other derivative contracts. We do not engage in securities lending.

We have an on-going share repurchase program which began in 1986 and was reaffirmed at the October 30, 2008 Board of Directors' meeting. With no specified authorization amount, we determine the amount of repurchases based on the amount of our excess cash flow, general market conditions, and other alternative uses. In the first nine months of 2008, we acquired 6.4 million shares of the Company's common stock in the open market at a cost of $379 million ($59.26 average price per share). Of the $379 million, $351 million was from excess operating cash flow, which was used to repurchase 5.9 million shares, and $28 million was from the cash received from stock option exercises by current and former employees. Proceeds from these option exercises were used to repurchase 470 thousand shares in order to offset dilution from the exercises. We will continue to purchase shares when market conditions are favorable. During the month ended October 31, 2008, we acquired 1.4 million shares at a cost of $65 million and an average price of $46.27 per share.

A detailed discussion of our operations by component segment follows.

Life insurance, comparing the first nine months of 2008 with the first nine months of 2007. Life insurance is our predominant segment, representing 58% of premium income and 68% of insurance underwriting margin in the first nine months of 2008. In addition, investments supporting the reserves for life business generate the majority of excess investment income attributable to the Investment segment. Life insurance premium income increased 3% to $1.2 billion. The following table presents Torchmark's life insurance premium by distribution method.

                                 Life Insurance

                         Premium by Distribution Method

                         (Dollar amounts in thousands)



                                               Nine months ended September 30,                     Increase
                                                2008                        2007                  (Decrease)
                                                        % of                        % of
                                        Amount          Total         Amount        Total      Amount         %

Direct Response                       $   385,232           32      $   363,966       31      $  21,266        6
American Income Exclusive Agency          354,873           29          326,513       28         28,360        9
Liberty National Exclusive Agency         216,019           18          221,606       19        (5,587)      (3)
Other Agencies                            259,430           21          264,393       22        (4,963)      (2)


Total Life Premium                    $ 1,215,554          100      $ 1,176,478      100      $  39,076        3

Net sales, defined earlier in this report as an indicator of new business production, grew 13% to $221 million. Each of our three primary distribution groups had growth in net sales. An analysis of life net sales by distribution group is presented below.

                                 Life Insurance

                        Net Sales by Distribution Method

                         (Dollar amounts in thousands)



                                             Nine months ended September 30,                   Increase
                                              2008                      2007                  (Decrease)
                                                     % of                      % of
                                       Amount        Total       Amount        Total       Amount         %
Direct Response                       $  91,766         41      $  85,311         43      $   6,455        8
American Income Exclusive Agency         80,125         36         68,080         35         12,045       18
Liberty National Exclusive Agency        35,209         16         26,676         14          8,533       32
Other Agencies                           14,394          7         15,851          8        (1,457)      (9)


Total Life Net Sales                  $ 221,494        100      $ 195,918        100      $  25,576       13

First-year collected life premium, defined earlier in this report, was $156 million in the 2008 period, rising 5% over the prior-year period. First-year collected life premium by distribution group is presented in the table below.

                                 Life Insurance

              First-Year Collected Premium by Distribution Method

                         (Dollar amounts in thousands)



                                             Nine months ended September 30,                   Increase
                                              2008                      2007                  (Decrease)
                                                     % of                      % of
                                       Amount        Total       Amount        Total       Amount         %
Direct Response                       $  60,800         39      $  57,175         38      $   3,625        6
American Income Exclusive Agency         60,934         39         54,884         37          6,050       11
Liberty National Exclusive Agency        21,809         14         22,153         15          (344)      (2)
Other Agencies                           12,817          8         14,629         10        (1,812)     (12)


Total                                 $ 156,360        100      $ 148,841        100      $   7,519        5

The Direct Response operation consists of two primary components: insert media and direct mail. Insert media, which targets primarily the adult market, involves placing insurance solicitations as advertising inserts into a variety of media, such as coupon packets, newspapers, bank statements, and billings. Direct mail targets primarily young middle-income households with children. The juvenile life insurance policy is a key 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 policyholders. Parents and grandparents of these juvenile policyholders are more likely to respond favorably to a Direct Response solicitation for life

coverage on themselves than is the general adult population. Also, both the juvenile policyholders and their parents are low acquisition-cost targets for sales of additional coverage over time. We expect that sales to this demographic group will continue as one of Direct Response's premier markets.

Direct Response's life premium income rose 6% to $385 million, representing 32% of Torchmark's total life premium, the largest contribution to premium of any distribution system. Net sales of $92 million rose 8% and first-year collected premium of $61 million rose 6% over the prior year period.

The American Income Exclusive Agency markets primarily to members of labor unions, but also to credit unions and other associations. This agency produced premium income of $355 million, an increase of 9%. American Income's $28 million increase in life premium was the largest of any of Torchmark's agencies, accounting for 73% of Torchmark's total life premium growth. Net sales increased 18% to $80 million while first-year collected premium rose 11% to $61 million. Growth in sales in our captive agencies is highly dependent on growing the size of the agency force. The American Income agent count was 2,887 at September 30, 2008, 10% higher than a year earlier (2,616). The American Income agency continues to emphasize the recruiting and retention of new agents, focusing on an incentive program to reward growth in both recruiting and production.

The Liberty National Exclusive Agency markets life insurance to middle-income customers primarily in the Southeast. Life premium income was $216 million, compared with $222 million in the 2007 period, a 3% decline. Liberty's net sales increased 32% to $35 million, the largest percentage gain of any life distribution group. First-year collected premium declined 2% to $22 million. Annualized life premium in force has increased in each of the last two quarters over the prior quarter. The increase in net sales, a lead indicator, is indicative of the recent growth in the size of this agency. The Liberty Agency had 3,476 producing agents at September 30, 2008, compared with 2,051 a year earlier, an increase of 69%. Prior to 2007, Liberty had experienced a steep decline in agent count as a result of organizational changes implemented in 2006, involving a reorganization of this agency's marketing leadership and a restructuring of its agent compensation system to provide greater sales incentives and to establish production minimums for agents. These changes led to terminations and resignations of agents not meeting these production minimums. While these changes led to a decline in agent count and sales, they resulted in improved margins and lowered insurance administrative expenses. Management believes that the production incentives and rewards of this compensation system have allowed the agency to attract more successful agents and that these changes will result in a more productive agency over the long term.

The Other Agencies distribution systems offering life insurance include the Military Agency, the UA Independent and Branch Office Agencies (both of which predominantly write health insurance), United Investors, and various minor distribution channels. The Other Agencies distribution group contributed $259 million of life premium income, or 21% of Torchmark's total in the 2008 period, but contributed only 7% of net sales.

                                 Life Insurance

                               Summary of Results

                         (Dollar amounts in thousands)



                                     Nine months ended September 30,
                                   2008                          2007                      Increase
                                            % of                          % of
                            Amount         Premium        Amount         Premium       Amount          %

Premium and policy
charges                   $ 1,215,554         100       $ 1,176,478         100       $  39,076         3
Net policy
obligations                   504,251          42           491,960          42          12,291         2
Commissions and
acquisition expense           391,578          32           375,906          32          15,672         4

Insurance
underwriting income
before other income
and administrative
expense                   $   319,725          26       $   308,612          26       $  11,113         4

Life insurance underwriting income before insurance administrative expense was $320 million, increasing 4%. This margin growth was caused primarily by premium growth but also by a reduction in American Income's obligation ratios in 2008. As a percentage of life premium, underwriting margin remained steady at 26%.

Health insurance, comparing the first nine months of 2008 with the first nine months of 2007. Health premium accounted for 41% of our total premium in the 2008 period, while the health underwriting margin accounted for 31% of total underwriting margin, reflective of the lower underwriting margin as a percent of premium for health compared with life insurance. Our health products are supplemental health plans that include a variety of limited-benefit health plans including hospital/surgical, cancer and accident plans sold to customers under age 65, as well as Medicare Supplements sold to Medicare enrollees. We also provide coverage under the Medicare Part D prescription plan. Medicare Part D business is shown as a separate health component and will be discussed separately in the analysis of the health segment.

As explained in Note F-Business Segments, management does not view the government risk-sharing premium for Medicare Part D as a component of premium income. Excluding this risk-sharing premium, health insurance premium for the 2008 period was $859 million, declining 9%. A reconciliation between segment reporting for Medicare Part D and GAAP is presented in the chart in Note F-Business Segments, and those differences are fully discussed in that note.

The table below is an analysis of our health premium by distribution method.

                                          Nine months ended September 30,                   Increase
                                           2008                      2007                  (Decrease)
                                                  % of                      % of
                                    Amount        Total       Amount        Total        Amount         %
United American Independent
Agency
Limited-benefit plans              $  61,294                 $  70,240                 $  (8,946)     (13)
Medicare Supplement                  210,295                   224,710                   (14,415)      (6)

                                     271,589         37        294,950         38        (23,361)      (8)
United American Branch Office
Agency
Limited-benefit plans                138,443                   151,932                   (13,489)      (9)
Medicare Supplement                  124,978                   139,067                   (14,089)     (10)

                                     263,421         36        290,999         37        (27,578)      (9)
Liberty National Exclusive
Agency
Limited-benefit plans                101,864                   106,656                    (4,792)      (4)
Medicare Supplement                       54                        65                       (11)     (17)

                                     101,918         14        106,721         14         (4,803)      (5)
American Income Exclusive
Agency
Limited-benefit plans                 54,408                    51,388                      3,020        6
Medicare Supplement                      980                     1,078                       (98)      (9)

                                      55,388          8         52,466          7           2,922        6
Direct Response
Limited-benefit plans                    369                       405                       (36)      (9)
Medicare Supplement                   33,665                    31,449                      2,216        7

                                      34,034          5         31,854          4           2,180        7
Total Premium (Before Part D)
Limited-benefit plans                356,378         49        380,621         49        (24,243)      (6)
Medicare Supplement                  369,972         51        396,369         51        (26,397)      (7)

Total Premium (Before Part D)        726,350        100        776,990        100        (50,640)      (7)

Medicare Part D*                     132,677                   162,370                   (29,693)     (18)

Total Health Premium*              $ 859,027                 $ 939,360                 $ (80,333)      (9)

* Health premium per the segment analysis will not agree with health premium on the Consolidated Statement of Operations because of the Part D government risk-sharing premium adjustment, explained in Note F - Business Segments.

Presented below is a table of health net sales by distribution method.

                                                  Nine months ended September 30,                     Increase
                                                  2008                        2007                   (Decrease)
                                                         % of                        % of
                                          Amount         Total        Amount         Total         Amount         %
United American Independent Agency
Limited-benefit plans                    $  18,581                   $  26,225                   $  (7,644)     (29)
Medicare Supplement                          8,310                       7,929                          381        5

                                            26,891           25         34,154           19         (7,263)     (21)
United American Branch Office Agency
Limited-benefit plans                       55,179                     118,718                     (63,539)     (54)
Medicare Supplement                          5,572                       7,632                      (2,060)     (27)

                                            60,751           56        126,350           70        (65,599)     (52)
Liberty National Exclusive Agency
Limited-benefit plans                        8,459                       7,103                        1,356       19
Medicare Supplement                             82                         119                         (37)     (31)

                                             8,541            8          7,222            4           1,319       18
American Income Exclusive Agency
Limited-benefit plans                        8,923                       8,356                          567        7
Medicare Supplement                              0                           0                            0        0

                                             8,923            8          8,356            5             567        7
Direct Response
Limited-benefit plans                          306                         130                          176      135
Medicare Supplement                          3,237                       4,049                        (812)     (20)

                                             3,543            3          4,179            2           (636)     (15)
Total Net Sales (Before Part D)
Limited-benefit plans                       91,448           84        160,532           89        (69,084)     (43)
Medicare Supplement                         17,201           16         19,729           11         (2,528)     (13)


Total Premium (Before Part D)              108,649          100        180,261          100        (71,612)     (40)


Medicare Part D*                            12,079                      16,184                      (4,105)     (25)


Total Health Net Sales*                  $ 120,728                   $ 196,445                   $ (75,717)     (39)

* Net sales for Medicare Part D represents only new first-time enrollees. Net sales for Medicare Part D in 2007 was restated for comparability.

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

                                Health Insurance

              First-Year Collected Premium by Distribution Method

                         (Dollar amounts in thousands)



                                          Nine months ended September 30,                   Increase
                                           2008                      2007                  (Decrease)
                                                  % of                      % of
                                    Amount        Total       Amount        Total        Amount         %
United American Independent
Agency
Limited-benefit plans              $  16,259                 $  20,752                 $  (4,493)     (22)
Medicare Supplement                   11,086                     9,550                      1,536       16

                                      27,345         25         30,302         21         (2,957)     (10)

United American Branch Office
. . .