LIBERTY NATIONAL EXCLUSIVE AGENCY OPERATION (In millions, except %) HEALTH  LIFE ANNUALIZED PREMIUM ISSUED  56 55 12 11 UNDERWRITING MARGIN PREMIUM INCOME 302 297 160 156 POLICY OBLIGATIONS 141 47% 134 45% 118 74% 112 72% ACQUISITION EXPENSES 90 30% 91 31% 28 18% 28 18% UNDERWRITING MARGIN 70 23% 72 24% 14 9% 16 10% 2001 $ 2002 $ %* %* 2001 $ %* 2002 $ %* * PERCENT OF PREMIUM Annualized premium issued increased 4% to $68 million. Premium income increased 2% to $461 million, and underwriting margin declined 5% to $84 million. Although we continued to experience modest growth in our sales force, up 2% to 2,203  agents, and in our sales, underwriting margin results were disappointing. Health underwriting margin continues to be pressured by our cancer business subject to the 1994 class action settlement. This block of business represents about 50% of our health insurance premium income, and incurred claims are running just over 100% of premiums. Although we will continue to implement rate increases, it’s unlikely the claims loss ratio will decline. Nonetheless, this block of business should gradually shrink as a percentage of our total health insurance business. With respect to our life insurance business, our lapse rates in the early years after issue are too high. Although we are no longer in the “debit” business, we generate too much business in the lower-income market. The higher lapse rate in this market adversely impacts the underwriting margin and the survival rate of new agents that we recruit. Going forward, we will concentrate our efforts in improving the quality of new business by focusing more on the middle-income market. UNITED AMERICAN GENERAL AGENCY AND BRANCH OFFICE OPERATIONS (In millions, except %) HEALTH  LIFE ANNUALIZED PREMIUM ISSUED 31 29 171 189 UNDERWRITING MARGIN: PREMIUM INCOME 70 67 786 787 POLICY OBLIGATIONS 31 45% 27 40% 504 64% 504 64% ACQUISITION EXPENSES 31 44% 30 44% 150 19% 147 19% UNDERWRITING MARGIN 8 12% 11 16% 132 17% 136 17% 2001 $ 2002 $ %* 2001 $ %* %* 2002 $ %* * PERCENT OF PREMIUM Annualized premium issued declined 7% to $203 million. Premium income increased slightly to $856 million, and underwriting margin declined 5% to $140 million. Medicare supplement sales declined 40% to $93 million. We implemented an overall rate increase of 16% in 2001, and over 10% in 2002. These increases were needed in order to maintain acceptable claims loss Torchmark Corporation • Letter to Shareholders 12