The UA Independent Agency consists of independent agencies appointed with Torchmark who may also sell for other companies. The UA Independent Agency was Torchmark’s largest health agency in terms of health premium income. In 2015, premium income was $345 million, representing 37% of Torchmark’s total health premium. Net sales were $72 million, or 46% of Torchmark’s health sales. This agency is Torchmark’s largest producer of Medicare Supplement insurance, with Medicare Supplement premium income of $330 million. The UA Independent Agency represents approximately 71% of all Torchmark Medicare Supplement premium and 93% of Medicare Supplement net sales. Medicare Supplement premium in this agency rose 15%. Total health premium increased 13% in 2015 and 2% in 2014. Medicare Supplement net sales decreased 15% in 2015 from prior year. Individual sales were up 36% due to the high volume of sales in late 2014 and 2015. As previously discussed, group sales significantly increased in late 2014 resulting in a 42% decline in the current year, which is consistent with historical fluctuation from period to period.
Insurance administrative expenses were up 6.5% in 2015 when compared with the prior year after declining slightly during 2014. As a percentage of total premium, insurance administrative expenses were flat during 2015 when compared to 2014 at 6.2% and down when compared to 2013 which stood at 6.4%. Total operating expenses increased 2.9%, consistent with the 2014 increase over 2013. The primary reasons for the increase in administrative expenses are higher information technology and employee costs, including pension-related costs. The decline in stock compensation expense is primarily due to lower expense associated with performance share awards and lower option values on the 2015 grants. The decline in legal settlement expense was attributable to certain legal and administrative settlements that occurred in 2014. As described in Note 14-Business Segments in the Notes on the Consolidated Financial Statements, we recorded legal accruals involving non-insurance matters, partially offset by proceeds for investment litigation. Litigation not related to our direct insurance operations is not considered an insurance administrative expense by Torchmark management and is removed from its analysis of core insurance operations in its segment reporting.
Corporate securities are diversified over a variety of industry sectors and issuers.The total fixed maturity portfolio consists of 563 issuers, with 205 issuers within the financial, utility, and energy sectors.
As of December 31, 2015, we had no unconsolidated affiliates and no guarantees of the obligations of third party entities. All of our guarantees were guarantees of the performance of consolidated subsidiaries, as disclosed in Note 15-Commitments and Contingencies in the Notes to Consolidated Financial Statements.
The following tables present selected data related to our capital resources. Additionally, the tables present the effect of this accounting guidance on relevant line items, so that investors and other financial statement users may determine its impact on Torchmark’s capital structure.
In the third quarter of 2014, Standard and Poor's (S&P) revised its outlook on Torchmark's capital position to a negative outlook. That updated outlook was due to S&P's view at that time at certain internal components of Torchmark's capital position rather than a change in the capital position itself. However, during the fourth quarter of 2015, S&P formally reviewed our operations and financial outlook. Based on their review, they revised their outlook from negative to stable and confirmed our "AA-" financial strength ratings at our insurance subsidiaries and Torchmark Corporation's senior debt "A" credit rating. We intend to maintain adequate capital levels for S&P and any changes to our capital position to maintain such levels are not expected to have any significant impact on our share repurchase program or our financial results in future periods.
The great majority of Torchmark's fixed maturities are not actively traded and direct quotes are not generally available. Management therefore determines the fair values of these securities after consideration of data provided by third-party pricing services, independent broker/dealers, and other resources. At December 31, 2015, Torchmark's investments in fixed maturities were primarily composed of the following significant security types: Corporate securities, state and municipal securities, redeemable preferred stocks, and U.S. government securities. The remaining security types represented less than 1% of the total in the aggregate.
Deferred Acquisition Costs: Certain costs of acquiring new insurance business are deferred and recorded as an asset. These costs are essential for the acquisition of new insurance business and are directly related to the successful issuance of an insurance contract including sales commissions, policy issue costs, and underwriting costs. Additionally, deferred acquisition costs include the value of insurance purchased, which are the costs of acquiring blocks of insurance from other companies or through the acquisition of other companies. These costs represent the difference between the fair value of the contractual insurance assets acquired and liabilities assumed compared against the assets and liabilities for insurance contracts that the Company issues or holds measured in accordance with GAAP. Deferred acquisition costs and the value of insurance purchased are amortized in a systematic manner which matches these costs with the associated revenues. Policies other than universal life-type policies are amortized with interest over the estimated premium-paying period of the policies in a manner which charges each year’s operations in proportion to the receipt of premium income. Universal life-type policies are amortized with interest in proportion to estimated gross profits. The assumptions used to amortize acquisition costs with regard to interest, mortality, morbidity, and persistency are consistent with those used to estimate the liability for future policy benefits. For interest-sensitive and deposit-balance type products, these assumptions are reviewed on a regular basis and are revised if actual experience differs significantly from original expectations. For all other products, amortization assumptions are generally not revised once established. Deferred acquisition costs are subject to periodic recoverability and loss recognition testing to determine if there is a premium deficiency. These tests evaluate whether the present value of future contract-related cash flows will support the capitalized deferred acquisition cost asset. These cash flows consist primarily of premium income, less benefits and expenses taking inflation into account. The present value of these cash flows, less the benefit reserve, is then compared with the unamortized deferred acquisition cost balance. In the event the estimated present value of net cash flows is less, the deficiency would be recognized by a charge to earnings and either a reduction of unamortized acquisition costs or an increase in the liability for future benefits, as described under the caption Future Policy Benefits.
Goodwill: The excess cost of business acquired over the fair value of net assets acquired is reported as goodwill. Goodwill is subject to annual impairment testing based on certain procedures outlined by GAAP. These procedures include a qualitative assessment as to whether it is more likely than not that goodwill is impaired, and they also require consideration of a change in relevant events or circumstances that could possibly affect the valuation of a goodwill reporting unit. If it is determined that an impairment is likely, the procedures then involve measuring the carrying value of each reporting unit of Torchmark’s segments, including the goodwill of that unit, against the estimated fair value of the corresponding unit. If the carrying value of a unit including goodwill exceeds its estimated fair value, then the goodwill in that unit could potentially be impaired. In that event, further testing is required under the accounting guidance
Acquisitions of Level 3 investments in each of the years 2013 through 2015 are comprised of private-placement fixed maturities managed by an unaffiliated third-party. See Note 1-Significant Accounting Policies for more information on private placements.
Torchmark has net operating loss carryforwards of approximately $6.3 million at December 31, 2015 which will begin to expire in 2032 if not otherwise used to offset future taxable income. A valuation allowance is to be provided when it is more likely than not that deferred tax assets will not be realized by the Company. No valuation allowance has been recorded relating to Torchmark’s deferred tax assets as management believes Torchmark will more likely than not have sufficient taxable income in future periods to fully realize its existing deferred tax assets.