Good day everyone and welcome to the Torchmark Corporation Second Quarter 2016 Earnings Release Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mike Majors, VP, Investor Relations. Please go ahead.

Thank you. Good morning, everyone. Joining the call today are Gary Coleman and Larry Hutchison, our Co-Chief Executive Officers; Frank Svoboda, our Chief Financial Officer; and Brian Mitchell, our General Counsel. Some of our comments or answers to your questions may contain forward-looking statements that are provided for general guidance purposes only. Accordingly, please refer to our 2015 10-K and any subsequent forms 10-Q on file with the SEC. Some of our comments may also contain non-GAAP measures. Please see our earnings release and website for discussion of these terms and reconciliations to GAAP measures. I will now turn the call over to Gary Coleman.

Thank you, Mike, and good morning everyone. In the second quarter, net income was $138 million or $1.13 per share, a 13% increase on a per share basis. Net operating income from continuing operations for the quarter was $137 million or $1.11 per share, a per share increase of 8% from a year ago. On a GAAP reported basis, our return on equity as of June 30 was 11.8% and book value per share was $39.87, an increase of 17% from a year ago. Excluding unrealized gains and losses on fixed maturities, our return on equity was 14.6%, and our book value per share was $31.11, an 8% increase from a year ago. In our life insurance operations, premium revenue grew 5% to $549 million, while life underwriting margin was $144 million, up 3% from a year ago. Growth in underwriting margin lagged premium growth due primarily to higher-than-expected direct response claims. For the full year, we expect life underwriting margin to increase 1% to 2% over 2015. Net life sales were $110 million, up 2% from the year ago quarter. On the health side, premium revenue grew 2% to $237 million, and health underwriting margin was also up 2% to $53 million. For the full year, we expect health underwriting margin to grow 1% to 2%. Health sales increased 6% to $33 million. Individual health sales grew 8% to $30 million. Administrative expenses were $48 million for the quarter, up 6% from a year ago, and in line with our expectations. The primary reason for the increase in administrative expenses is increased investments in information technology. As a percentage of premiums from continuing operations, administrative expenses were 6.2% compared to 6.0% a year ago. For the full year, we anticipate the administrative expenses will also be around 6.2% in premium. I will now turn the call over to Larry Hutchison for his comments on the marketing operations.

Thank you, Gary. At American Income, life premiums were up 9% to $226 million, and life underwriting margin was up 13% to $72 million. Net life sales were $55 million, up 10% due primarily to increased agent productivity. The average agent count for the second quarter was 6,599, approximately the same as a year ago, and up 6% from the first quarter. The producing agent count at the end of the second quarter was 6,773. We expect the producing agent count to be in a range of 6,650 to 6,850 at the end of 2016. We expect 7% to 9% life sales growth for the full year of 2016 [ph]. In our direct response operation at Globe Life, life premiums were up 5% to $199 million. Life underwriting margin declined 10% to $33 million. Net life sales were down 9% to $40 million due primarily to decreases in circulation. We expect life sales to be down 5% to 7% for the full year 2016. At Liberty National, life premiums were $68 million, down 1% from the year ago quarter, while life underwriting margin was $19 million, up 6%. Net life sales increased 12% to $10 million, while net health sales increased 13% to $5 million. The sales increases were driven primarily by improvements in agent count. The average producing agent count for the second quarter was 1,739, up 12% from a year ago, and up 13% compared to the first quarter. The producing agent count at Liberty National ended the quarter at 1,812. We expect the producing agent count to be in a range of 1,700 to 1,800 at the end of 2016. Life net sales growth is expected to be within a range of 9% to 12% for the full year of 2016. Health net sales growth is expected to be within a range of 6% to 10% for the full year 2016. At Family Heritage, health premiums increased 7% to $59 million. Our Health underwriting margin increased 16% to $12 million. Health net sales grew 1% to $14 million. The average producing agent count for the second quarter was 933, down 3% from a year ago, but up 13% from the first quarter. The producing agent count at the end of the quarter was 955. We expect the producing agent count to be in a range of 975 to 1000 at the end of 2016. We expect Health sales growth to be in the range from 2% to 4% for the full-year 2016. At United American General Agency, health premiums increased 2% to $90 million. Net health sales were $10 million, up 6% compared to the year ago quarter. Individual Medicare supplement sales grew 14% to $8 million. Our group sales declined 13% to $2 million. For the full year 2016, we expect growth in Individual Medicare supplement sales to be around 7% to 9%. I will now turn the call back to Gary.

I want to spend a few minutes discussing our investment operations. First, excess investment income; excess investment income, which we define as net investment income less the required interest on net policy liabilities and debt, was $55 million, a 4% decrease compared to the year ago quarter. On a per share basis, reflecting the impact of our share repurchase program, excess investment income declined 2%. On April 5th, we issued $300 million of junior subordinated debt, primarily to refinance the $250 million debt issue that matured on June 15th. Issuing a new debt 70 days before the debt maturity resulted in a negative carry of $30 million [ph]. Excluding the negative carry, excess investment income in dollars and per share would have been up 1% and 4% respectively. As discussed on previous calls, the Part D segment has a negative impact on excess investment income due to negative cash flows that occurred during the year, including the long delay in receiving reimbursements from CMS for excess claims paid by the company. The impact of the lost investment income from the delayed receipt of reimbursements is reflected in income from continuing operations rather than in discontinued operations in accordance with applicable accounting rules. In the second quarter, Part D had a negative impact on excess investment income of approximately $2.5 million compared to negative impact of $2.3 million in the year ago quarter. For the full year 2016, we expect excess investment income to grow by about 1% to 2%. However on a per share basis, we should see an increase of about 5% to 6%. At the midpoint of our 2016 guidance, we're expecting a drag on excess investment income from Part D of approximately $9 million compared to a drag of $8 million in 2015. Now regarding the investment…

Thanks, Garry. First, I want to spend a few minutes discussing our share repurchases and capital position. In the second quarter, we spent $83 million to buy 1.4 million Torchmark shares at an average price of $57.77. So far in July, we have used $10.6 million to purchase 174,000 shares. For the full year through today, we have spent $174 million of parent company cash to acquire more than 3.1 million shares at an average price of $55.77. These are being made from the parent’s free cash flows. The parent’s free cash flows, as we define it, results primarily from the dividends received by the parent from the subsidiaries less the interest paid on debt and the dividends paid to Torchmark's shareholders. We expect free cash flow in 2016 to be around $320 million. With $174 million spent on share repurchases thus far, we can expect to have around $146 million available for the remainder of the year from our free cash flow, plus other assets available at the parent. As noted on previous calls, we will use our cash as efficiently as possible. If market conditions are favorable, we expect that share repurchases will continue to be of primary use of those funds. We also expect to retain approximately $50 million to $60 million of parent assets at the end of 2016, absent the need to utilize any of these funds to support our insurance company operations. Now regarding RBC at our insurance subsidiaries; we currently plan to maintain our capital at the level necessary to retain our current ratings. For the past several years that level has been around an NAIC RBC ratio of 325% on a consolidated basis. This ratio is lower than some peer companies, but is sufficient for our companies in light of our consistent…

Thank you, Frank. For 2016, we expect our net operating income from continuing operations be within a range of $4.40 per share to $4.50 per share, an 80% increase over 2015 at the midpoint. Those are our comments. We will now open the call for questions.

Thank you. [Operator Instructions] And our first question will come from Jimmy Bhullar with JPMorgan.

Hi, good morning. My first question is just on direct response life margins. Frank, you mentioned benefit to ratio guidance of I think 54.5% that's better than the 55.7% you had in the second quarter. So just wondering what gives you the confidence that trends in the business will get better from where they were in the second quarter?

Yes, Jimmy, we do see some higher claims in the first half of the year just due to some regular seasonality. That typically adds probably about 1% to the policy obligation percentage in the first couple of quarters of the year, so we don't see that continuing on to the second half of the year. And then just with the additional claims experience that we are seeing here now in the first half of the year, we are getting that little bit more experience with the 2011, 2012 and more on the 2013, we just had that little bit better experience to feel more comfortable with where we are going here for the remainder of the year.

Okay, and then on sales in direct response I think you mentioned that you are expecting sales to be down 5% to 7%, they are down 9% in the first half so I am assuming your - does your guidance imply that you are going to be seeing a pickup in circulation volumes in the second half of the year or is there something else that's going on there?

I think you will see a slowing of sale decreases, Jimmy, in the third quarter, we’ll have a stronger sales decrease in the fourth quarter would be slightly down and flat from the fourth quarter.

Jimmy, it's more because of the comparison in the third and fourth quarter are easier during the first couple of quarters.

Okay, and then lastly on the increase in EPS guidance you raised a midpoint by about $0.02, what was the driver there?

Yes, Jimmy, on the $0.02 is in the basic increase being from the increased expectations with regard to the new accounting guidance. But the decreases that we are expecting in direct response are really being offset by really some improved outlook in several other areas of the company with respect to some of our other life operations at American Income and Liberty National as well as just a little bit better expectations with our investment income and as well as a little bit of an impact from a lower federal income tax rate as well. All those tend to offset each other, the net impact ends up being a little bit from this accounting guidance change.

And lastly if I could ask one more, on Family Heritage your results have been strong and the margins have improved in each of the last two quarters. I think this quarter was the highest margin that you've had since you have been reporting that business. So what's, is it just an aberration or have you made any changes in the product mix or anything else that are driving the improvement in margins?

Jimmy, there hasn't been a change in the product mix, but what we’re seeing is, we are seeing improvement in the claims and we expect that it continue for the rest of the year. Also the amortization is slightly higher than in past, that should continue. In other words we were at 21% for the quarter and year-to-date and we expect that to follow through for the year.

Okay, thank you.

And the next question will come from Yaron Kinar with Deutsche Bank.

Good morning everybody. Just so I want to follow-up on Jimmy's question on direct response. What is it about the 2011 to 2015 vintages that's tracking maybe below your original estimates?

Well, as we've talked about on some of the prior calls, we had used - we started introducing the use of prescription drug database in our underwriting, starting with that 2011 year. As we understand, we were really the first to use that with respect to simplified underwriting as well as in the direct response, and to where we had expected to see some mortality improvements. Now that the claims are coming in the claims are just not coming in as favorable. Our actual experience just is not as favorable as what we had originally anticipated from the use of that prescription drug database.

Right, and I do remember you discussing this in previous calls, but in previous discussions I think you were so low, I'm curious where precisely this higher claims experience was coming from if you saw any specific or you couldn't identify specific trends would then be the vintages. Are you getting maybe better clarity now as to whether it's a certain type of disease or issue that that seems to be recurring?

No. We are definitely seeing certain segments where we're still getting some benefits and we're definitely seeing some segments where we are not seeing the benefits that we had anticipated. And we're able to take that knowledge and put that into play as we think about our marketing efforts going forward, in our mortality assumptions as well.

Okay. And so, I think you started to take some action last year already. Are the actions that you took last year self-sufficient in your view or given the fact that claims experiences deteriorated a little more than you initially expected does that means that there's maybe additional corrective action that you need to take?

Well, we will continue to tweak as always when we see more, get more experience and get more information we'll continue to tweak how we utilize that information, and how we think about that, what's in our pricing and our reserve assumptions on it going forward basis. At this point in time we're comfortable with the assumptions that we've put into place with respect to the 2015 and then our 2016 business.

And then with regards to headcount, I think both American Income and Liberty National showed some nice trends in the last few quarters and as I look at your guidance for it of year end, seems like maybe a little bit of flattening there. Okay, maybe talk about why you don't see the continued growth that we saw earlier.

Yes, we look at our historical data, we believe that recurring was slow in the third quarter for both American Income and Liberty National. In the fourth quarter, really that's just seasonality, we have the holidays to deal with, so if you look at the fourth quarter over the last several years, they're showing a decline in the number of agents at the end of the fourth quarter. We're very happy with the results about the American Income, Family Heritage, and Liberty National. We've had good agent growth in the first and second quarters.

Okay, thank you very much.

And the next question will come from Ryan Krueger with KBW.

Hi, thanks, good morning. Regarding the debt issuance, you issued $50 million of debt in excess of the maturity. What would you expect to be the use of that $50 million of additional capital at the holding company?

Yes, we are anticipating using that additional just to finance certain activities going on down at the insurance companies. We have some additional investments so we're making in our IT systems as well as continued growth supporting our agencies, and we anticipate to use it in that fashion.

Okay. So you would contribute it to the subsidiaries likely?

In some form or fashion.

Okay. And then on the $9 million drag on excess investment income from Part D, is that something we should expect to get back in 2017 given the sale of the operation?

Yes, we really should, you know, I had indicated that we expect the receivables as of the end of this year to be a little less than $100 million. We anticipate receiving those fairly ratably over the first three quarters of 2017. So, we really estimate that the drag that we'll see in 2017 to be more in the $1 million to $2 million range rather than the $8 million to $9 million that we're seeing this year.

And then, Ryan in 2018, there'll be no drag.

Okay, got it. Thank you.

[Operator Instructions] Our next question will come from Bob Glasspiegel with Janney.

Good morning, Torchmark. As we think about statutory earnings, run rate, I think you said you're growing a little faster so that's a pressure - how is credit write-offs trending through the first seven months of the year and could stat earnings grow just a little bit slower than GAAP earnings? Is my guess?

Yes, we do, Bob. We do anticipate our statutory earnings will grow a little bit. I'm trying to think whether how to compare, how we look at that compared to the growth in the GAAP earnings but might be just a little bit slower than the GAAP earnings in 2016, we really haven't - we'll be in the process here over the next quarter to kind of look at that a little bit more closely and be able to give some guidance on that on the next call. But as far as the impairments are concerned, we do not have any impairments for the first six months of the year for statutory or GAAP purposes and right now we don't foresee any that would impact us here for the remainder of the year.

Okay. Go ahead.

Bob, I was just going to say we also, first quarter we had a fair amount of downgrades but we've seen improvement in the second quarter. So downgrades not maybe the issue that some people thought they would have been earlier.

Okay. So you're feeling more relaxed about that issue on the margin?

Yes.

Run rate for interest costs, I calculated about 18.8, when you get rid of the double debt costs in Q3, is that in the order of magnitude?

I think on a going forward basis, we would anticipate that interest expense to be closer to probably $20 million.

$20 million?

Yes.

Okay. Appreciate it.

And there are no further questions.

All right. Thank you for joining us this morning. Those are our comments, and we'll talk to you again next quarter.