What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-11-04 compared with 2020-08-05 · 329 added, 344 removed, 420 unchanged (62% of the section changed)

6 unchanged sentences

Factors that might cause such differences include, but are not limited to, those discussed in Part II, Item 1A .

of this Form 10-Q and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019 under the heading “Risk Factors,” which are incorporated herein by reference.

of this Form 10-Q as well as in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019 under the heading “Risk Factors,” which are incorporated herein by reference.

Additionally, the effects of the COVID-19 pandemic could cause our actual results to differ significantly for reasons such as:

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Through our insurance subsidiaries, we pursue a strategy of offering traditional insurance products in niche markets where we believe we are able to achieve competitive advantages.

We had approximately $1.8 billion of assets at June 30, 2020 and approximately $4.6 billion of direct insurance in force.

We had approximately $1.8 billion of assets at September 30, 2020 and approximately $4.6 billion of direct insurance in force.

Our core insurance operations include:

• Life Insurance segment - U.S.

dollar-denominated ordinary whole life insurance and endowment policies predominantly sold to foreign residents, located principally in Latin America and the Pacific Rim, through independent marketing consultants;

• Home Service Insurance segment - final expense and limited liability property policies sold to middle and lower income households in Louisiana, Mississippi and Arkansas, through independent agents in our home service insurance distribution channel and through funeral homes.

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dollar-denominated ordinary whole life insurance and endowment policies predominantly sold to non-U.S.

residents, located principally in Latin America and the Pacific Rim, through independent marketing consultants;

• Home Service Insurance segment - final expense life insurance and limited liability property insurance policies sold to middle and lower income households in Louisiana, Mississippi and

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MANAGEMENT'S DISCUSSION & ANALYSIS

As part of the continued strategic review of our operations, effective August 2020, we began to operate our Home Service Insurance segment through independent agents, rather than employee agents, which involved converting employee agents to independent agents.

For an additional discussion of the potential impacts on the business from the conversion, see Part II, Item 1A – Risk Factors .

Arkansas, through independent agents in our home service distribution channel and through funeral homes.

STRATEGIC INITIATIVES

The Company remains committed to cultivating enduring value for its key stakeholders through the execution of a customer-centric growth strategy.

In 2017, the Company's executive management team, in cooperation with its Board of Directors, began a strategic realignment of its Life and Home Service Insurance segments in order to set a course for long-term profitable growth.

During 2020, we are focused on the following clearly defined priorities:

• continuing to build operational excellence, as our high impact and values-based culture takes root,

• growth initiatives within the markets in which we operate, as we set targets for growing premium revenues and implementing growth strategies, and

• building new capabilities that will create business opportunities aligned with our essential purpose.

As we seek to optimize value for the Company, its customers and its collaborators, we believe our efforts will continue to put the Company on a stronger financial footing and drive sustainable growth.

CURRENT FINANCIAL HIGHLIGHTS

Our results of operations for the three months ended June 30, 2020 were negatively impacted by the acceleration in intensity of the COVID-19 pandemic in the U.S.

and other countries where we do business.

While it is difficult to quantify the full impact that the COVID-19 pandemic had on our business in the second quarter, we believe that the COVID-19 pandemic primarily negatively impacted our product sales (and thus first year premium revenue), claims in our Home Service Insurance segment and net investment income.

In the three months ended March 31, 2020, our first year premiums in the Life Insurance segment had increased 19% over the same prior year period.

We believe these increases were primarily due to our strategic initiatives to make changes in our products and distribution, including investments made in our sales and marketing activities and increased sales of higher average premium policies.

First year premiums in our Life Insurance segment declined 40.5% in the three months ended June 30, 2020 from the same period in 2019.

We believe this was due primarily to the disruption in our sales processes and challenging economic conditions during the COVID-19 pandemic.

Prior to the second quarter of 2020, claims experience in our Home Service Insurance segment had fluctuated from period to period but were within the range of expected levels.

We believe that because of the demographics of our policyholders in our Home Service Insurance segment and their reduced ability to sequester and avoid an airborne contagion, the COVID-19 pandemic had a negative impact on claims in that segment, driving the 32% increase in claims for the second quarter of 2020 compared to the same period in 2019.

The COVID-19 pandemic also negatively impacted our net investment income during the second quarter.

Continued economic turmoil due to the COVID-19 pandemic has led to historically low treasury yields.

Although we have begun to diversify into other asset classes, our investment portfolio is weighted heavily towards fixed maturity assets.

While the stabilization in equity and fixed maturity markets from March 31, 2020 to June 30, 2020 resulted in a marked improvement in our shareholders' equity in the same period, the low treasury yields made identifying and executing on attractive risk-adjusted purchases for our fixed maturity portfolio more difficult.

Thus while we recorded $80.3 million in unrealized investment gains and $1.4 million in realized investment gains during the second quarter, contributing to a 34.3% increase in our shareholders’ equity from March 31, 2020, our net

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As we have previously stated, we entered 2020 with clearly defined priorities in order to set a course for long-term profitable growth.

• We are focused on continuing to build operational excellence, as our high impact and values-based culture takes root.

• We are focused on growth initiatives within the markets in which we operate, as we set targets for growing premium revenues and implementing growth strategies.

• We are focused on building new capabilities that will create business opportunities aligned with our essential purpose.

We are focused on growth primarily through expanding and/or refining our products to tailor them to our markets, creating sales promotions and campaigns to incentivize the agents in our distribution channels, developing training and guidelines that promote safe, yet effective sales practices, and implementing process and technology improvements to remove friction in the sales cycles.

During the third quarter of 2020, we continued to execute on our strategic initiatives and focus on growth initiatives that build on our expertise, all while navigating through significant internal and external disruptions, uncertainties and challenges including a change in control, the resignation of our chief executive officer and appointment of an interim chief executive officer, litigation involving our Board of Directors and controlling shareholder arising from the change in control, and a global pandemic.

These topics are discussed in more detail under Part II, Item 1 – Legal Proceedings and Part II, Item 1A – Risk Factors of this Form 10-Q.

Despite these challenges, we made progress on many of our strategic initiatives during the third quarter of 2020, including the following:

Planned for Expansion of Life Insurance Segment into Hispanic US Market in 2021.

Because we have developed the ability to complete insurance transactions end-to-end in Spanish and Portuguese and understand the needs of the Hispanic market due to over 50 years of doing business in Latin America, we plan to expand our Life Insurance segment to the Hispanic market in the U.S and expect to begin selling in this market during 2021.

Reorganized our Home Service Insurance Distribution System.

In our Home Service Insurance segment, as part of the continued strategic review of our operations, effective August 2020, we began to operate our distribution system through independent agents, rather than employee agents, which involved converting employee agents to independent agents.

For an additional discussion of the potential impacts on the business from the conversion, see Part II, Item 1A – Risk Factor s .

Launched New Marketing Campaigns in our Life Insurance and our Home Service Insurance segments.

In our Life Insurance segment, we created an enticing sales campaign that helped lead to 39% higher premiums in the third quarter as compared to the second quarter of 2020.

In the Home Service Insurance segment, we launched a sales campaign that resulted in an increase in the amount of in-force insurance for our current customer base.

See below in "Our Operating Segments" for more detail on these campaigns and their impact on our business during the third quarter.

Implemented Operational Improvements.

We updated our underwriting processes to remove barriers to sales with a more frictionless process for agents and applicants and to reduce underwriting expense.

We also focused on

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CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

investment income and portfolio yield declined from recent quarters.

Investments in the notes to our consolidated financial statements for a discussion of these unrealized gains.

We continued to see quarantines, “stay-at-home” orders and similar mandates for many individuals and businesses requiring them to substantially restrict daily activities and to curtail or cease normal operations, in both Texas and Louisiana, where our home offices are located, and globally where we do business.

In response, we began accelerating operational changes and sales practices in order to account for the impact of the COVID-19 pandemic and to ensure business continuity while adhering to federal and local government work guidelines.

These changes included the following.

• implemented virtual sales training for international agents

• prioritized sales of lower face amount policies with reduced underwriting requirements

• discontinued and replaced certain products that no longer fall within acceptable levels of risk

• adopted new practices to virtually serve customers

• implemented new payment methods

◦ announced our international policyholders can now pay U.S.

Dollar-denominated premiums in their local currencies, along with a transaction fee to minimize currency fluctuations and our exchange rate risks

◦ expanded digital payment options to policyholders in our Home Service Insurance segment

• revised resource structure to improve virtual collection efforts in historical door-to-door collection model

• continued remote working arrangements

We describe below in more detail areas of our results in which we believe our business may have been impacted by the COVID-19 pandemic during the quarter.

We do foresee some adverse impact to near-term sales activity, premiums, claims, policy benefits, invested assets and regulatory capital as a result of the COVID-19 pandemic.

Although the extent to which the COVID-19 pandemic may impact our future financial results and business remains uncertain as of the date of this Form 10-Q, we are closely monitoring developments related to the COVID-19 pandemic to assess its impact on our future results and business.

For an additional discussion of the potential impacts on our business from the COVID-19 pandemic, see Part II, Item 1A – Risk Factors .

We had net loss of $1.0 million and $4.6 million in the three and six months ended June 30, 2020, respectively, compared to a net loss of $4.6 million and $8.4 million in the respective prior year periods, leading to a $0.07 and $0.08 per share improvement, respectively.

Our total revenues of $58.3 million for the three months ended June 30, 2020 increased 2.6% from $56.9 million in the prior year period, and decreased by 4.4%, from $119.3 million in the first six months of 2019 to $114.1 million in the six months ended June 30, 2020.

The decrease in the six month period was primarily due to lower premiums, which were affected by the COVID-19 pandemic as discussed above.

In the three month period, the lower premiums were offset by realized investment gains in the current period versus a one-time realized loss related to a real estate transaction in the prior year period, as described below.

Our total cost for benefits and expenses continued to decrease despite the higher claims, due in part to our strategic efforts to lower general expenses.

This resulted in overall better net income in the three and six months ended June 30, 2020 compared to the prior periods.

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continued training for virtual sales and collections in both our Life Insurance and our Home Service Insurance segments and expanded our alternative payment methods for our Home Service Insurance segment to accept credit cards and debit card payments.

CURRENT FINANCIAL HIGHLIGHTS

In the three months ended September 30, 2020, we had a net loss of $7.9 million compared to net income of $2.0 million in the prior year period.

In the nine months ended September 30, 2020, we had a net loss of $12.5 million compared to a net loss of $6.3 million in the prior year period.

Accordingly, our earnings (losses) per share declined by $0.20 and $0.12 in the three and nine months ended September 30, 2020, respectively, compared to prior year periods.

The $10.0 million decrease in net income in the three months ended September 30, 2020 compared to the prior year period was primarily driven by a $7.9 million increase in our general expenses related to executive severance costs and professional fees in connection with a change in control of the Company.

As we previously announced on July 29, 2020, a change in control of the Company occurred when the Harold E.

Riley Foundation became the beneficial owner of 100% of the Company’s Class B common stock (the “Change in Control”).

Holders of the Company's Class B common stock have the right to nominate a simple majority of our Board of Directors.

The Change in Control, and its trigger of related payments to our former Chief Executive Officer upon his resignation under his employment agreement, materially impacted our general expenses for the three and nine months ended September 30, 2020.

Expenses related to the Change in Control for the third quarter include (i) payment of $8.8 million to a Rabbi Trust for the benefit of our former Chief Executive Officer, Geoffrey Kolander, following his resignation pursuant to the terms of his employment agreement and the Chief Executive Officer Separation of Service and Consulting Agreement dated July 29, 2020 (the “Separation and Consulting Agreement”), (ii) $1.2 million of expense related to the accelerated vesting of Mr.

Kolander’s Restricted Stock Units following his resignation upon a change in control pursuant to his employment agreement, and (iii) legal fees related to Change in Control, including defense costs for the litigation brought by the Foundation against the Company and its Board, as described in Part II, Item 1.

Legal Proceedings of this Quarterly Report on Form 10-Q.

The increase in general expenses due to the Change in Control was partially offset by previous quarter strategic efforts to lower general expenses.

In addition to the higher general expenses, a $1.9 million decrease in premium revenue and a $4.2 million increase in claims and surrenders expense also contributed to the decrease in net income for the third quarter of 2020.

See below in “Revenue Highlights” and in “Benefits and Expenses Highlights” for an explanation of these changes.

The $6.2 million increase in net loss in the nine months ended September 30, 2020 as compared to the same period in 2019 primarily reflects:

• a $5.4 million decrease in premium revenue for the reasons explained in “Revenue Highlights” below;

• a $2.5 million decrease in realized investment gains primarily due to a realized gain of $5.5 million in the first quarter of 2019 related to the sale of our former corporate headquarters in Austin, Texas;

• an $8.4 million increase in claims and surrenders for the reasons discussed in “Benefits and Expenses Highlights” below;

• a $4.4 million increase in general expenses, driven by our former Chief Executive Officer's severance package and the Change in Control, partially offset by previous strategic efforts to lower general expenses.

These decreases to revenues and increases to benefits and expenses in the nine months ended September 30, 2020 as compared to the same period in 2019 were partially offset by:

• a $6.3 million decrease in future policy benefit reserves driven primarily by the release of reserves resulting from the decreases in our in force business;

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MANAGEMENT'S DISCUSSION & ANALYSIS

Financial highlights for the three and six months ended June 30, 2020 compared to the same periods in 2019 were:

• a $2.9 million decrease in commissions paid which primarily reflect lower sales of new policies, which have significantly higher commission rates than renewals;

• lower capitalization and amortization of deferred policy acquisition costs, which also reflect lower sales of new policies;

• a $4.6 million lower federal income tax expense.

While it is difficult to quantify the full impact that the COVID-19 pandemic has had on our business in the three and nine months ended September 30, 2020, as we have previously disclosed, our results of operations for the three and nine months ended September 30, 2020 were negatively impacted by the COVID-19 pandemic in the U.S.

and other countries where we do business.

The COVID-19 pandemic primarily negatively impacted our product sales (and thus first year premium revenue), and our claims and surrenders expenses.

We describe below in more detail areas of our results in which we believe our business may have been impacted by the COVID-19 pandemic.

While we have implemented operational changes and sales practices to mitigate the impact of the COVID-19 pandemic on our business, because the COVID-19 pandemic continues to cause quarantines, “stay-at-home” orders and similar mandates for many individuals and businesses requiring them to substantially restrict daily activities and to curtail or cease normal operations globally where we do business, we continue to foresee some adverse impact to near-term sales activity, premiums, claims, policy benefits, invested assets and regulatory capital as a result of the COVID-19 pandemic and we continue to closely monitor developments related to the COVID-19 pandemic to assess its impact on our future results and business.

For an additional discussion of the potential impacts on our business from the COVID-19 pandemic, see Part II, Item 1A – Risk Factors , in this Quarterly Report on Form 10-Q.

Financial highlights for the three and nine months ended September 30, 2020 compared to the same periods in 2019 were:

REVENUE HIGHLIGHTS

• For the three months ended June 30, 2020, insurance premiums declined 5.3% to $41.5 million from $43.8 million for the same period in 2019.

The decline was driven primarily by lower first year and renewal premiums in our Life Insurance segment.

First year premiums in our Life Insurance segment declined 40.6% from the second quarter of 2019 as our sales processes were materially disrupted by the COVID-19 pandemic.

The decrease in renewal premiums primarily reflects the changes we have made to our products and distribution, primarily:

(1) in 2017, we repriced certain products in response to a prolonged low interest rate environment and (2) we terminated agreements with independent producers who did not align with our vision, values and culture, both of which decreased persistency.

• For the six months ended June 30, 2020, insurance premiums declined 4.0% to $82.8 million from $86.3 million for the same period in 2019.

The decline was driven by lower renewal premiums in our Life Insurance segment for the six months and lower first year premiums for the second quarter of 2020.

• Net investment income declined 2.6% for the second quarter ended June 30, 2020 compared to the same period of 2019, totaling $14.9 million and $15.3 million, respectively.

The COVID-19 pandemic negatively impacted our second quarter performance as explained above.

• We recorded realized gains of $1.4 million during the second quarter of 2020 related to fair value changes in our equity securities owned on June 30, 2020, as equity markets rebounded sharply during the period as compared to March 31, 2020.

An impairment loss of $3.1 million was recorded during the second quarter of 2019 in our Other Non-Insurance enterprises related to our Citizens Academy training facility located near Austin, Texas.

• For the three months ended September 30, 2020, insurance premiums declined 4.1% to $44.1 million from $46.0 million for the same period in 2019.

The decline was driven primarily by lower first year premiums in our Life Insurance segment, which, while increasing from the previous quarter, declined 34.1% to $2.2 million from $3.4 million in the third quarter of 2019 as our new policy sales continue to be negatively impacted by the COVID-19 pandemic.

Renewal premiums in our Life Insurance segment also contributed to the overall decrease, declining 3.1% to $30.1 million in the third quarter of 2020 from $31.0 million in the same period in 2019.

The decrease in renewal premiums resulted from a decline in our in force business in this segment over the year, which is due in part to changes we made to our products and distribution over the last few years.

• For the nine months ended September 30, 2020, insurance premiums declined 4.0% to $126.9 million from $132.3 million for the same period in 2019.

The decline was driven by our Life Insurance segment as renewal premiums for the nine months ended September 30, 2020 and first year premiums for the second and third quarters of 2020 fell compared to the comparable periods in 2019.

• Net investment income was $15.0 million for both the three months ended September 30, 2020 and 2019, and slightly increased to $45.1 million from $44.2 million in the nine months ended September 30, 2020 from the same period in 2019.

BENEFITS AND EXPENSES HIGHLIGHTS

• Claims and surrenders expense increased 2.7% for the second quarter of 2020 and 8.3% for the six months ended June 30, 2020 compared to the same periods in 2019.

The increase was driven primarily by an increase in matured endowments in the Life Insurance segment during the six months, which were within expected levels, and higher COVID-19 related claims in the second quarter in our Home Service Insurance segment.

We are closely monitoring claim volumes to evaluate whether there is a delay in reporting or filing for benefits as a result of the COVID-19 pandemic in both of our segments.

• Future policy benefit reserves decreased 13.0% for the second quarter of 2020 and 18.7% for the six months ended June 30, 2020 compared to the same periods in 2019, driven primarily by the release of reserves resulting from increased matured endowments in the Life Insurance segment and increased claims in the Home Service Insurance segment during the period.

• As a result of lower product sales in the second quarter primarily due to the impact of the COVID-19 pandemic, capitalization of deferred policy acquisition costs decreased, as these costs are directly related to first year premium production.

• General expenses decreased 6.8% for the second quarter of 2020 and 13.3% for the six months ended June 30, 2020, compared to the same periods in 2019.

The reduction for both periods was driven primarily by reduced audit and consulting expenses, while first half expenses were also positively impacted by reduced stock compensation expenses during the first quarter.

After addressing prior deficiencies in our internal control environment, we are benefiting from reductions in external audit fees and outside consulting expenses.

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• Claims and surrenders expense increased 14.6% and 10.6% for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019.

The increases were driven primarily by an increase in surrendered policies in the Life Insurance segment during the third quarter primarily as a result of policies nearing their maturities.

The increases were also due to higher claims in the second and third quarters in our Home Service Insurance segment due primarily to COVID-19 deaths.

Additionally, we incurred unusually large property claims in our

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MANAGEMENT'S DISCUSSION & ANALYSIS

Home Service Insurance segment in the third quarter of 2020 due to the impacts of Hurricane Laura, a Category 4 hurricane which caused significant damage in Louisiana.

• Future policy benefit reserves decreased 35.1% and 22.4% for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019.

The declines were driven primarily by the release of reserves resulting from the decreases in our in force business.

• General expenses increased 68.2% and 11.7% for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019.

The increase for both periods was driven primarily by the Change in Control as described above in "Current Financial Highlights".

Excluding the effects of the executive severance charges incurred in connection with the Change in Control, our general expenses decreased for the three and nine month periods in 2020, reflecting reductions in external audit fees and outside consulting expenses as well as a $2.3 million decrease due to a reduction of our tax compliance liability under Sections 7702 and 72(s) of the Internal Revenue Code for our Life Insurance segment, as discussed in Note 8.

Commitments and Contingencies of the notes to our consolidated financial statements.

OUR OPERATING SEGMENTS

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• Home Service Insurance

Our insurance operations are the primary focus of the Company, as those operations generate most of our income.

Our insurance operations are the primary focus of the Company, as these operations generate most of our income.

See the discussion under Segment Operations below for detailed analysis.

The amount of insurance, number of policies, and average face amounts of ordinary life policies issued during the periods indicated are shown below.

Six Months Ended June 30, 2020 2019

Nine Months Ended September 30, 2020 2019

Issued Number of

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Home Service Insurance 103,456,413 20,261 5,106 124,529,689 17,288 7,203

The number of policies issued decreased 11.2% and 20.9%, respectively, for the Life Insurance and Home Service Insurance segments for the six months ended June 30, 2020 compared to the same period in 2019.

The decrease in new business applications in both our Life Insurance and Home Service Insurance segments was driven primarily by disruptions in our sales practices caused by the COVID-19 pandemic.

The number of new business applications for our Life Insurance segment declined during April and May of this year and increased in June of this year as compared to the number of new business applications in the same months in 2019.

The increase in June of this year, compared to April and May, was primarily due to adjustments to our business operations and sales practices to account for the impact of the COVID-19 pandemic, such as focused training on virtual selling and strategically prioritizing selling lower face amount policies as many of our markets remain in lockdown.

Lower face amount policies typically have less underwriting requirements and, in some cases, may not require the completion of medical tests, which would otherwise be difficult to obtain during the COVID-19 pandemic.

Due to these adjustments, average policy face amount declined by 5.5% during the six months ended June 30, 2020 compared to the same period in 2019 for the Life Insurance segment.

Home Service Insurance segment production for the first six months of 2020 was negatively affected by the impact of the COVID-19 pandemic, as a couple of our offices in Louisiana were forced to temporarily close during the month of March and because we discontinued and replaced certain products that no longer fall within acceptable levels of risk and rolled out new policies offering value to the policyholder without disproportionate exposure to the Company.

Additionally, certain product offerings that require extensive person to person sales interaction were temporarily ceased during the second quarter.

Other changes to our Home Service Insurance operations and collection processes were made, including limiting or reducing face to face interactions between our agents and our policyholders and emphasizing to our policyholders the availability of payment options such as debit/credit cards and traditional mail that obviate such personal interaction.

We continue to monitor the impact of the COVID-19 pandemic on our business and may have to implement additional operational changes.

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The number of policies issued in the nine months ended September 30, 2020 decreased 12.1% in the Life Insurance segment.

We believe that the decrease in new business applications in our Life Insurance segment was driven primarily by disruptions in our sales practices that began in the second quarter of 2020 due to the COVID-19 pandemic.

While the number of new business applications for our Life Insurance segment decreased during the nine months ended September 30, 2020 compared to the same period in 2019, third quarter new business applications increased 23% and 56% from the first and second quarters of 2020, respectively, despite the continuation of strict quarantine protocols in many of the markets in which we operate.

The increase in applications in the third quarter was primarily due to enhancements to our business operations and sales practices to account for the impact of the COVID-19 pandemic, including sales promotions and campaigns, focused training on virtual selling and strategically prioritizing selling lower face amount policies, which typically have less stringent underwriting requirements and, in some cases, may not require the completion of medical tests, as many of our markets remain in lockdown due to COVID-19 pandemic.

Although applications increased in the third quarter from the second quarter, due to these enhancements, average policy face amount declined by 2.7% and the amount of insurance issued declined by 14.5% during the nine months ended September 30, 2020 compared to the same period in 2019 for the Life Insurance segment.

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MANAGEMENT'S DISCUSSION & ANALYSIS

The number of policies issued in the nine months ended September 30, 2020 increased 17.2% in the Home Service Insurance segment compared to the same period in 2019.

The increase in new business applications in our Home Service segment was driven primarily by the introduction of a new sales campaign targeted at existing policyholders in the third quarter that emphasized higher volume selling at lower average face amounts.

In doing so, we focused on sales of additional benefits for our existing policyholders, which have lower face values, thus leading to a 29.1% decline in average policy face values and a 16.9% decline in amount of insurance issued as compared to the same period in 2020.

Despite the increase in policies issued in the third quarter of 2020 compared to the second quarter, our Home Service Insurance segment has continued to be negatively impacted by the COVID-19 pandemic.

We continued to have temporary office closures in Louisiana during the third quarter due to the COVID-19 pandemic and Hurricane Laura, and we have also had to curtail the sales of certain product offerings that require extensive person-to-person sales interaction due to the COVID-19 pandemic.

We continue to monitor the impact of the COVID-19 pandemic on our business and may have to implement additional operational changes.

CONSOLIDATED RESULTS OF OPERATIONS

A discussion of consolidated results is presented below, followed by a discussion of segment operations and financial results by segment.

Revenues are generated primarily by insurance premiums and investment income on invested assets.

Three Months Ended Six Months Ended

June 30, June 30,

Revenues are generated primarily by insurance renewal premiums and investment income on invested assets.

Three Months Ended Nine Months Ended

September 30, September 30,

(In thousands) 2020 2019 2020 2019

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Premium Income.

Premium income derived from life, accident and health, and property insurance sales decreased 5.3% and 4.0% for the second quarter and six months ended June 30, 2020 compared to the same periods in 2019.

The overall decrease in premium income was driven primarily by a decline throughout the first six month of 2020 in renewal premiums for the reasons described above in “Current Financial Highlights” and a COVID-19-related decline in first year premiums during the second quarter, in our Life Insurance segment.

Premium income derived from life, accident and health, and property insurance sales decreased 4.1% and 4.0% for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019.

The overall decrease in premium income was driven primarily by a decline throughout the first nine months of 2020 in renewal premiums for the reasons described above in “Revenue Highlights” and a decline in first year premiums during the second and third quarters, in our Life Insurance segment, which is attributable in large part to the COVID-19 pandemic.

See the detail distribution of premiums within Segment Operations discussed below.

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Net Investment Income.

Net investment income performance is summarized as follows.

June 30, December 31, June 30,

September 30, December 31, September 30,

(In thousands, except for %) 2020 2019 2019

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Annualized yield on average invested assets 4.26 % 4.36 % 4.34 %

The annualized yield slightly decreased during the first six months of 2020 compared to the same period in 2019, as overall market yields for fixed maturity securities declined to historic lows during the first six months of 2020.

As a substantial proportion of our fixed maturity investments continue to be called or mature, we faced challenges in the second quarter in finding investments with comparable yields in the continued low interest rate environment.

In addition, concerns about potential negative COVID-19-related impacts on our liquidity, while not ultimately realized, resulted in us holding more cash than usual during the first half of 2020, which negatively impacted yields.

The annualized yield decreased during the first nine months of 2020 compared to the same period in 2019, due in part to a decline in overall market yields for fixed maturity securities this year.

As a substantial proportion of our fixed maturity investments continue to be called or mature, we have faced challenges in finding investments with comparable yields in the continued low interest rate environment.

As part of the ongoing process of managing our portfolio and optimizing performance, we are continuing to identify, consider, and invest in new asset classes.

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MANAGEMENT'S DISCUSSION & ANALYSIS

Investment income from fixed maturity securities accounted for approximately 88.0% of total investment income for the six months ended June 30, 2020.

Three Months Ended Six Months Ended

June 30, June 30,

Investment income from fixed maturity securities accounted for approximately 87.4% and 87.8% of total investment income for the three and nine months ended September 30, 2020, respectively.

Three Months Ended Nine Months Ended

September 30, September 30,

(In thousands) 2020 2019 2020 2019

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Net investment income $ 14,997 15,039 45,081 44,150

Fixed maturity securities income decreased 1.7% for the second quarter of 2020 and increased 4.3% for the six months ended June 30, 2020, compared to the same periods in 2019.

We continue to adjust our investment management strategy to increase our investment yields while maintaining a prudent risk profile.

Equity securities income increased as we were able to take advantage of market dislocations and identify and execute on some attractive equities purchases during the first quarter of 2020.

In addition, the increase in policy loans, which represents policyholders utilizing their accumulated policy cash value to pay for premiums, contributed to the increase in investment income.

Fixed maturity securities income decreased 0.3% for the third quarter of 2020 and increased 2.7% for the nine months ended September 30, 2020, compared to the same periods in 2019.

Equity securities income increased for the nine month period as we were able to take advantage of market dislocations and identify and execute on attractive equities purchases during the first quarter of 2020.

In addition, the increase in policy loans, which represents policyholders utilizing their accumulated policy cash value to pay for premiums, contributed to the increase in investment income in both the three and nine months ended September 30, 2020.

Realized Investment Gains (Losses), Net.

We recorded realized gains of $1.3 million during the second quarter of 2020 related to fair value changes in our equity securities owned at June 30, 2020, as equity markets rebounded sharply during the second quarter as compared to the first quarter.

An impairment loss of $3.1 million was recorded for the second quarter of 2019 in connection with classifying the Citizens Academy training facility near Austin, Texas as real estate held-for-sale.

We recorded realized gains of $0.5 million during the third quarter of 2020 related to fair value changes in our equity securities owned at September 30, 2020.

An impairment loss of $3.1 million was recorded for the first nine months of 2019 in connection with classifying the Citizens Academy training facility near Austin, Texas as real estate held-for-sale.

In addition, we recorded a realized gain of $5.5 million in the first quarter of 2019 relating to the sale of our former corporate headquarters.

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BENEFITS AND EXPENSES

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

(In thousands) 2020 2019 2020 2019

11 unchanged sentences

Total benefits and expenses $ 67,996 59,335 183,856 179,922

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Claims and Surrenders.

A detail of claims and surrender benefits is provided below.

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

(In thousands) 2020 2019 2020 2019

8 unchanged sentences

Total claims and surrenders $ 32,958 28,751 87,161 78,808

• Death claims increased 18.6% and 9.7% for the second quarter and six months ended June 30, 2020 compared to the same periods in 2019.

The increase was concentrated in our Home Service Insurance segment and primarily reflected differing socioeconomic levels and related ability to mitigate exposure to COVID-19 for policyholders in this segment.

Mortality experience and the COVID-19 impacts will continue to be closely monitored by the Company.

• Surrenders decreased 20.5% and 1.9% for the second quarter and six months ended June 30, 2020 compared to the same periods in 2019.

Surrenders represented less than 2% of total direct ordinary whole life insurance in force of $4.6 billion as of June 30, 2020.

The decrease in surrender expense is primarily related to our international business, and reflects changes in the relative maturities of our policies and resulting tendency to surrender in the second quarter of 2020 compared to recent quarters.

In addition, we saw an unusually high percentage of policyholders in our Life Insurance segment select the reduced paid up insurance ("RPU") option instead of surrendering their policies in the second quarter of 2020.

• Matured endowments increased 66.9% and 55.6% for the second quarter and six months ended June 30, 2020 compared to the same periods in 2019.

We anticipated this increase based upon the dates of when our endowment contracts were sold and their expected maturities as set forth in the contracts.

• Death claims increased 33.2% and 17.2% for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019.

The increase was concentrated in our Home Service Insurance segment and reflected increased mortality due to COVID-19 in our customer base in this segment.

Mortality experience and COVID-19 impacts will continue to be closely monitored by the Company.

• Surrenders increased 15.6% and 4.7% for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019.

Surrenders represented 0.8% of total direct ordinary whole life insurance in force of $4.6 billion as of September 30, 2020.

The increase in surrender benefit expense is primarily related to our international business, and partly reflects policies nearing their maturities.

Surrender activity will continue to be closely monitored by the Company.

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• Matured endowments increased 5.7% and 35.7% for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019.

We anticipated this increase based upon the dates when our endowment contracts were sold and the maturity dates in the contracts.

Increase in Future Policy Benefit Reserves.

The change in future policy benefit reserves decreased 13.0% and 18.7% for the second quarter and six months ended June 30, 2020 compared to the same periods in 2019 as a result of changes in maturity activity between periods.

Commission expense for the second quarter and six months ended June 30, 2020 was slightly lower compared to the same periods in 2019 and primarily reflects the impact of the COVID-19 pandemic on our new sales generation, especially in the second quarter of 2020.

Commission expense fluctuates directly with changes in first year and renewal premiums.

The change in future policy benefit reserves decreased 35.1% and 22.4% for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019 driven primarily by the release of reserves resulting from the decrease in our in force business.

Commission expense for the three and nine months ended September 30, 2020 decreased 13.1% and 11.4%, respectively, compared to the same periods in 2019, which reflects lower new product sales in the 2020 periods.

Commission expense fluctuates directly with changes in premiums and is more heavily weighted towards first year premiums, which pay higher commission levels than renewal premiums.

Other General Expenses.

Expenses for the second quarter and six months ended June 30, 2020 decreased 6.8% and 13.3% compared to the same periods in 2019, driven primarily by lower audit, consulting and employee-related expenses.

We continue to execute on our strategic cost savings initiatives.

Expenses for the three and nine months ended September 30, 2020 increased 68.2% and 11.7%, respectively, compared to the same periods in 2019, driven primarily by expenses related to the Change in Control of the Company as described in "Current Financial Highlights" above.

Capitalization and Amortization of Deferred Policy Acquisition Costs.

Costs capitalized include certain commissions, policy issuance costs, and underwriting and agency expenses that relate to successful sales efforts for insurance

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Capitalized costs decreased during the second quarter and the six months ended June 30, 2020 compared to the same periods in 2019 as we experienced a decrease in first year premium production as previously noted.

Amortization of deferred policy acquisition costs was lower during the second quarter and the six months ended June 30, 2020 compared to the same periods last year.

Amortization is impacted by persistency, surrenders, and new sales production and thus they may fluctuate from quarter to quarter.

Costs capitalized include certain commissions, policy issuance costs, and underwriting and agency expenses that relate to successful sales efforts for insurance contracts.

Capitalized costs decreased during the three and nine months ended September 30, 2020 compared to the same periods in 2019 as we experienced a decrease in first year premium production as previously discussed.

Amortization of deferred policy acquisition costs was lower during the three and the nine months ended September 30, 2020 compared to the same periods in the prior year.

Amortization is impacted by persistency, surrenders, and new sales production and thus it may fluctuate from quarter to quarter.

Federal Income Tax.

Tax expense decreased for the six months ended June 30, 2020 compared to the same period in 2019 resulting in effective tax rates of (156.7)% and (536.3)%, respectively.

For the six months ended June 30, 2019, the Company's federal income tax expense was impacted by the gain realized on the sale of our former corporate headquarters.

Tax expense decreased for the nine months ended September 30, 2020 compared to the same period in 2019 resulting in effective tax rates of (25.8)% and 873.7%, respectively.

For the nine months ended September 30, 2019, the Company's federal income tax expense was impacted by the gain realized on the sale of our former corporate headquarters.

The Company's tax rate was impacted by differences between our effective tax rate and the statutory tax rate resulting from income and expense items that are treated differently for financial reporting and tax purposes.

In addition, CICA Ltd., a wholly-owned subsidiary of Citizens, is considered a controlled foreign corporation for federal tax purposes and CICA Ltd.'s activity gives rise to taxable income in the U.S.

In addition, CICA Ltd., a wholly-owned Bermuda subsidiary of Citizens, is considered a controlled foreign corporation for federal tax purposes and CICA Ltd.'s activity gives rise to taxable income in the U.S.

as Subpart F Income, which is treated as a permanent tax difference and therefore included in the Company's effective tax rate calculation.

4 unchanged sentences

These segments are reported in accordance with U.S.

The Company also operates other non-insurance portions of the Company, which primarily include the Company's IT and corporate-support functions, which are included in the table presented below to properly reconcile the segment information with the consolidated financial statements of the Company.

The Company evaluates profit and loss performance of its segments based on income (loss) before federal income taxes.

The Company's other non-insurance enterprises include non-insurance operations such as IT and corporate-support functions, which are included in the table presented below to properly reconcile the segment information with the consolidated financial statements of the Company.

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evaluates profit and loss performance of its segments based on income (loss) before federal income taxes.

The following table shows income (loss) before federal income taxes by segments during the periods indicated.

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

(In thousands) 2020 2019 2020 2019

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LIFE INSURANCE

Our Life Insurance segment issues ordinary whole life insurance in the U.S.

Our Life Insurance segment issues ordinary whole life insurance in U.S.

Dollar-denominated amounts to non-U.S.

3 unchanged sentences

We operate this segment internationally through CICA Ltd.

and domestically through our CICA and CNLIC insurance subsidiaries.

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(a Bermuda company) and domestically through our CICA and CNLIC insurance subsidiaries.

INTERNATIONAL SALES

4 unchanged sentences

• larger face amount policies issued when compared to our U.S.

operations, which results in lower underwriting and administrative costs per unit of coverage;

operations, which results in lower underwriting and administrative costs per dollar of coverage;

• premiums paid annually at the beginning of each policy year rather than monthly or quarterly, which reduces our administrative expenses, accelerates cash flow and results in lower policy lapse rates than premium payment options with more frequently scheduled payments;

10 unchanged sentences

• lifetime income guarantees for an insured or for surviving beneficiaries.

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Our international products have both living and death benefit features.

7 unchanged sentences

Computershare administers the CISIP in accordance with the terms and conditions of the CISIP, which is available on the Computershare website and as part of the Company’s registration statement on file with the SEC.

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The following table sets forth, by country, our direct premiums from the top five premium producing countries in our international life insurance business for the six months ended June 30, 2020 and 2019 as indicated below.

Three Months Ended Six Months Ended

June 30, June 30,

The following table sets forth, by country, our direct premiums from the top five premium producing countries in our international life insurance business for the nine months ended September 30, 2020 and 2019 as indicated below.

Three Months Ended Nine Months Ended

September 30, September 30,

(In thousands) 2020 2019 2020 2019

7 unchanged sentences

Total $ 31,270 33,263 90,027 94,855

We reported declines in premiums during the second quarter and the six months ended June 30, 2020 compared to the same periods in 2019 due primarily to a decrease in first year premiums in the second quarter as previously noted, and lower renewal premiums throughout the first half of 2020.

We continue to monitor key indicators in these markets including COVID-19 pandemic impacts.

All of our top five countries listed above experienced a decline in premium levels during the second quarter and six months ended June 30, 2020 compared to the same periods in 2019.

Renewal premiums declined for the reasons described above in "Current Financial Highlights".

DOMESTIC SALES

Most of our domestic inforce business results from blocks of business of insurance companies we have acquired over the years.

We discontinued new sales of domestic ordinary whole life and endowment life insurance products within our Life Insurance segment in 2017 while we evaluate our domestic life strategy;

therefore, the majority of the premium recorded is related to renewal business.

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We reported declines in premiums during the three and nine months ended September 30, 2020 compared to the same periods in 2019 due primarily to decreases in first year premiums in the second and third quarters as previously discussed, and lower renewal premiums throughout the year.

We continue to monitor key indicators in these markets including the COVID-19 pandemic and other economic impacts.

All of our top five countries listed above experienced a decline in premium levels during the three and nine months ended September 30, 2020 compared to the same periods in 2019.

Renewal premiums declined for the reasons described above in "Revenue Highlights".

DOMESTIC SALES

Our domestic in force business results from blocks of business of insurance companies we have acquired over the years.

We discontinued new sales of domestic ordinary whole life and endowment life insurance products within our Life Insurance segment in 2017 while we evaluated our domestic life strategy;

therefore, the majority of the premium recorded is related to renewal business.

As discussed above in "Strategic Initiatives", we intend to begin selling again in the U.S.

The results of operations for the Life Insurance segment for the periods indicated are as follows:

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

(In thousands) 2020 2019 2020 2019

3 unchanged sentences

Other income 189 349 1,195 1,146

Total revenue 42,280 44,434 84,838 91,157

Total revenues 44,094 46,135 128,932 137,292

Benefits and expenses:

10 unchanged sentences

Total benefits and expenses 38,586 43,825 119,219 130,464

Income (loss) before federal income tax expense $ 2,119 (119) 4,205 4,518

Premium revenues declined 6.5% and 5.0% for the second quarter and six months ended June 30, 2020 compared to the same periods in 2019 due to a decrease in renewal business throughout the first half of 2020 and a decline in first year premiums during the second quarter primarily related to the impact of the COVID-19 pandemic.

We have taken and will continue to take countermeasures to reduce the impact of the COVID-19 pandemic on our premiums, including emphasizing virtual selling and tailoring our sales efforts to products whose sales processes are less impacted by the pandemic.

Life insurance premium breakout is detailed below.

Three Months Ended Six Months Ended

June 30, June 30,

Income before federal income tax expense $ 5,508 2,310 9,713 6,828

We derive most of our premium revenue in the Life Insurance segment from renewal premiums.

Premium revenues declined 6.2% and 5.4% for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019.

These declines were due in large part to decreases in renewal premiums throughout the year.

We experienced decreases in renewal premium as a result of a decline in our in force business.

Our in force business, in terms of policy counts and amount of in force insurance, has been declining for several years due to changes we made to our products and distribution over the last few years, which resulted in

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MANAGEMENT'S DISCUSSION & ANALYSIS

the pace of new policies issued lagging the number of policies terminated from death, surrender or lapse.

A decline in first year premiums during the second and third quarters also contributed to the overall decrease.

The declines in first year premiums were primarily related to the impact of the COVID-19 pandemic.

We have taken and will continue to take countermeasures to reduce the impact of the COVID-19 pandemic on our premiums, including holding sales promotions and campaigns, emphasizing virtual selling and tailoring our sales efforts to products whose sales processes are less impacted by the pandemic.

Life Insurance segment premium breakout is detailed below.

Three Months Ended Nine Months Ended

September 30, September 30,

(In thousands) 2020 2019 2020 2019

3 unchanged sentences

Net Investment Income .

Net investment income declined in the second quarter of 2020 compared to the same period in 2019 primarily due to the impact of the COVID-19 pandemic and the resulting historically low market yields

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available to us for reinvestment, and the need to hold more cash than usual.

Net investment income increased during the first half of 2020 compared to the same period in 2019 primarily due to the growth in average invested assets and a strategic focus on increasing yields in a prudent manner.

June 30, December 31, June 30,

Net investment income increased in the nine months ended September 30, 2020 compared to the same period in 2019 and the twelve months ended December 31, 2020.

September 30, December 31, September 30,

(In thousands, except for %) 2020 2019 2019

2 unchanged sentences

Annualized yield on average invested assets 4.31 % 4.41 % 4.37 %

The annualized yield in the first six months of 2020 increased slightly compared to the same period in 2019.

We are continually adjusting our investment management strategy to identify opportunities to improve our yields while maintaining a prudent risk profile.

This continues to be a challenge in the current low interest rate environment.

The annualized yield in the first six months of 2020 declined compared to the three months ended December 31, 2019 as we faced a particularly challenging investment environment this year.

The annualized yield in the first nine months of 2020 decreased compared to the same period in 2019 and from December 31, 2019.

Realized Investment Gains (Losses), Net.

The realized gain for the second quarter and first six months ended June 30, 2020 were primarily due to the appreciation in the value of a preferred stock exchange traded fund purchase we made during the first quarter as we were able to take advantage of the market dislocation to identify an attractive risk-adjusted opportunity.

The realized gains for the three and nine months ended September 30, 2020 were primarily due to the appreciation in the value of a preferred stock exchange traded fund purchase we made during the first quarter as we were able to take advantage of the market dislocation to identify an attractive risk-adjusted opportunity.

We recorded a realized gain of $5.5 million during the first quarter of 2019 related to the sale of our former corporate headquarters in Austin, Texas.

Claims and Surrenders.

These amounts fluctuate from period to period but were within anticipated ranges based upon management's expectations.

Neither death claims nor surrenders were materially impacted by the COVID-19 pandemic.

The decline in surrender benefits in the second quarter reflects changes in the relative maturities of our policies as previously noted.

The following table shows the claims and surrenders incurred within the Life Insurance segment for the six months ended June 30, 2020 compared to the same period in 2019.

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Three Months Ended Six Months Ended

June 30, June 30,

The following table shows the claims and surrenders incurred within the Life Insurance segment for the nine months ended September 30, 2020 compared to the same period in 2019.

Three Months Ended Nine Months Ended

September 30, September 30,

(In thousands) 2020 2019 2020 2019

7 unchanged sentences

Total claims and surrenders $ 25,023 22,533 66,071 61,011

• Death claims expense was favorable for the second quarter and six months ended June 30, 2020 compared with the same periods in 2019.

• Death claims expense was unfavorable for the three months ended September 30, 2020 increasing 27.7% from the same period in 2019, while remaining flat for the nine months ended September 30, 2020 compared with the same period in 2019.

Mortality experience is closely monitored by the Company as a key performance indicator and these amounts were within expected levels.

We are closely monitoring claim volumes to evaluate whether there is a delay in reporting or filing for benefits as a result of the COVID-19 pandemic.

• Surrenders decreased 19.7% and 0.2% for the second quarter and six months ended June 30, 2020 compared to the same periods in 2019, reflecting changes in the relative maturities of our policies as noted above and more policyholders selecting the RPU option.

• Endowment benefits primarily result from the election by policyholders of a product feature providing an annual guaranteed benefit.

This is a fixed benefit over the life of the contract, thus this expense will vary with new sales and persistency of the business.

• Matured endowments increased 69.1% and 57.2% for the second quarter and six months ended June 30, 2020 compared to the same periods in 2019, as a large number of our endowment contracts reached maturity in the current period.

• Surrenders increased 17.9% and 6.6% for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019, primarily as a result of policies nearing their maturities, as noted above, and fell within anticipated range.

Surrender activity will continue to be closely monitored by the Company.

• Matured endowments increased 5.4% and 36.3% for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019, as a large number of our endowment contracts reached maturity in the current period.

We anticipate this trend will continue as endowment products sold reach their stated maturities.

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Increase in Future Policy Benefit Reserves.

The lower increase in policy benefit reserves for the second quarter and six months ended June 30, 2020 compared to the same periods last year was due primarily to increases in maturity activity in the current period as described above.

Policyholders' Dividends.

Policyholders' dividends were slightly lower for the second quarter and six months ended June 30, 2020 compared to the same periods in 2019.

The decrease was due to changes in persistency and production.

Commission expense decreased substantially during the second quarter and six months ended June 30, 2020 as we experienced lower first year premiums compared to the same periods in 2019.

The lower increase in policy benefit reserves for the three and nine months ended September 30, 2020 compared to the same periods in 2019 was primarily due to premium decreases and benefit increases as discussed above.

Commission expense decreased substantially during the three and nine months ended September 30, 2020 as we experienced lower first year premiums compared to the same periods in 2019.

Commission expense is driven primarily, but not exclusively, by new business as commission rates paid are higher on first year premium sales.

1 unchanged sentence

Expenses are allocated by segment based upon an annual expense study performed by the Company.

Expenses decreased for the second quarter and six months ended June 30, 2020 due to lower audit, consulting and employee-related expenses compared to the same periods in 2019.

Capitalization of Deferred Policy Acquisition Costs.

Capitalized costs fluctuate in direct relation to commissions, decreasing for the second quarter and six months ended June 30, 2020, based upon first year and renewal premiums and commissions paid compared to the same periods in 2019.

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Amortization of Deferred Policy Acquisition Costs.

Amortization costs fluctuate with changes in first year premium activity, surrenders, and persistency in general.

As previously noted, persistency is monitored closely by the Company.

Expenses decreased for the three and nine months ended September 30, 2020 due to lower audit, consulting and employee-related expenses compared to the same periods in 2019 and the release of the tax compliance liability under Sections 7702 and 72(s) of the Internal Revenue Code as described above.

HOME SERVICE INSURANCE

We operate in the Home Service Insurance market through our subsidiaries SPLIC, MGLIC and SPFIC, and focus on the life insurance needs of the middle and lower income markets, primarily in Louisiana, Mississippi and Arkansas.

Our policies are sold and serviced through a home service insurance marketing distribution system of agents who work on a debit route system and through funeral homes that sell policies, collect premiums and service policyholders.

Our policies are sold and serviced through a home service insurance marketing distribution system of independent agents who work on a debit route system and through funeral homes that sell policies, collect premiums and service policyholders.

The following table sets forth our direct premiums by state for the periods indicated.

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

(In thousands) 2020 2019 2020 2019

7 unchanged sentences

To a much lesser extent, our Home Service Insurance segment sells limited-liability, named-peril property policies covering dwellings and contents.

We provide $30,000 maximum coverage on any one dwelling and contents, while content only coverage and dwelling only coverage is limited to $20,000, respectively.

We provide $30,000 maximum coverage on any one dwelling and contents, while content only coverage and dwelling only coverage are both limited to $20,000.

We provide final expense ordinary life insurance and annuity products primarily to middle and lower income individuals and families in Louisiana, Mississippi and Arkansas, a demographic that has been disproportionally impacted by the COVID-19 pandemic.

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CITIZENS, INC.

1 unchanged sentence

The results of operations for the Home Service Insurance segment for the periods indicated are as follows:

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

(In thousands) 2020 2019 2020 2019

2 unchanged sentences

Realized investment gains (losses), net 388 3 (405) 639

Other income — 1 18 2

Total revenue 15,614 15,142 28,745 30,263

Other income (loss) 1 (2) 19 —

Total revenues 15,432 14,934 44,177 45,197

Benefits and expenses:

10 unchanged sentences

Total benefits and expenses 16,458 14,007 47,374 44,939

Loss before federal income tax expense $ (26) (335) (2,171) (669)

Premiums declined for the second quarter and six months ended June 30, 2020 compared to the same periods in 2019 as sales of new policies and in-person premium collections were negatively impacted by COVID-19-related temporary office closures and social distancing requirements, as noted in our “Current Financial Highlights” above and in our Risk Factors discussed in Part II, Item 1A herein.

Income (loss) before federal income tax expense $ (1,026) 927 (3,197) 258

Premiums increased slightly in the three months and were flat for the nine months ended September 30, 2020 compared to the same periods in 2019, despite the COVID-19 pandemic.

Third quarter premiums increased compared to the prior period due to increases in renewal premiums, which was attributable to changes we made in our Home Service Insurance operations and collection processes, leading to increased use of alternative payment methods, such as debit and credit cards, which assisted with the agents’ collection levels.

While first year premiums increased in the three months and decreased slightly in the nine months ended September 30, 2020, the introduction of a new sales campaign in the third quarter targeted at existing policyholders boosted first year premium revenue.

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Net Investment Income.

Net investment income for the six months ended June 30, 2020 increased compared to the same period in 2019 as average invested assets rose from the previous period.

Annualized yield on invested assets declined during the six months ended June 30, 2020 compared to the same period in 2019 as we faced challenges in locating attractive risk-adjusted opportunities in the current low interest rate environment.

Net investment income for the nine months ended September 30, 2020 increased slightly compared to the same period in 2019 due to an increase in average invested assets.

Net investment income yield for our Home Service Insurance segment is summarized below.

Six Months Ended Year Ended Six Months Ended

June 30, December 31, June 30,

Nine Months Ended Year Ended Nine Months Ended

September 30, December 31, September 30,

(In thousands, except for %) 2020 2019 2019

2 unchanged sentences

Annualized yield on average invested assets 4.37 % 4.45 % 4.49 %

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Realized Investment Gains (Losses), Net.

Realized net losses for the six months ended June 30, 2020 were primarily related to equity securities fair value adjustments of $0.8 million during the period, as we faced an historically challenging equities market in the first quarter of 2020.

Changes in realized gains/losses were primarily due to overall market fluctuations and the related fair value adjustments on equity securities.

Claims and Surrenders.

As discussed above, the overall increase in claims and surrenders during the three and six months ended June 30, 2020 compared to the same periods in 2019 was due primarily to the increase in death claims due to the COVID-19 pandemic.

Claims and surrenders expense is summarized as follows:

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

(In thousands) 2020 2019 2020 2019

9 unchanged sentences

• Death claims expense fluctuates based upon reported claims.

We experienced an increase in reported claims and the average dollar amount of claims in the second quarter and six months ended June 30, 2020 compared to the same periods in 2019, due in part to the COVID-19 pandemic as indicated above.

We experienced an increase in reported claims and the average dollar amount of claims in the three and nine months ended September 30, 2020 compared to the same periods in 2019, due primarily to the COVID-19 pandemic as indicated above.

Mortality experience is closely monitored by the Company as a key performance indicator and amounts were within the range of expected levels.

• Surrender benefits decreased for the second quarter and six months ended June 30, 2020 but were within anticipated ranges based on management expectations.

• Property claims increased in the second quarter and six months ended June 30, 2020 as we experienced higher average claim payouts and more claim activity compared to the same periods last year.

Commission expense decreased for the second quarter and six months ended June 30, 2020 compared to the same period in 2019, consistent with premium collection levels.

• Property claims increased in the three and nine months ended September 30, 2020 compared to the same periods in 2019 for the reasons described below.

During the third quarter of 2020, SPFIC was impacted by Hurricane Laura, a Category 4 hurricane that caused significant damage in Louisiana.

The Company has a reinsurance agreement that covers catastrophic events such as Hurricane Laura.

The reinsurance agreement specifies a maximum coverage per event of $11.0 million and a retention level of $0.5 million per event.

We have paid the $0.5 million retention in claim amounts for this storm and do not believe we will exceed the maximum coverage;

however, any claims in excess of $11.0 million would have to be paid by SPFIC.

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After the third quarter of 2020, SPFIC was impacted by Hurricanes Delta and Zeta, both of which were Category 2 storms that also hit Louisiana.

Hurricane Delta is expected to be a less significant event and we are still evaluating the impact of Hurricane Zeta.

At this point, we do not expect the impact of either storm to have a material effect on our consolidated financial statements.

Our catastrophic event reinsurance agreement only allows coverage on a maximum of two catastrophic events per calendar year per reinsurance layer.

If Hurricane Delta turns out to be a more significant event than we anticipate and claims exceed our retention amount so that we need to use our reinsurance to cover for losses arising from Hurricane Delta, our current reinsurance will not cover all of an additional catastrophic event in 2020.

Thus, if any additional catastrophic events occur in the fourth quarter of 2020, SPFIC may have to absorb more of the cost of the claims arising from such events or incur additional catastrophe reinsurance premiums for coverage, either of which could adversely affect the Company’s results of operations.

Increase in Future Policy Benefit Reserves.

The change in future policy benefit reserves for the three and nine months ended September 30, 2019 was lower due primarily to the impact of our actuarial valuation system conversion which resulted in a decrease in reserves of $2.3 million in the prior year.

Other General Expenses.

Expenses are allocated by segment based upon an annual expense study performed by the Company.

Expenses decreased for the second quarter and six months ended June 30, 2020 compared to the same periods in 2019 due primarily to lower audit and employee-related expenses.

Capitalization of Deferred Policy Acquisition Costs ("DAC").

Capitalized costs decreased for the second quarter and six months ended June 30, 2020 compared to the same periods in 2019.

DAC capitalization is directly correlated to fluctuations in new business and commissions.

Expenses decreased for the three and nine months ended September 30, 2020 compared to the same periods in 2019 due primarily to lower audit and employee-related expenses.

Amortization of DAC.

Amortization decreased for the three and nine months ended September 30, 2020 compared to the same period in 2019 due primarily to the impact of the conversion to a new actuarial valuation system in our Home Service Insurance segment in the third quarter of 2019 which increased amortization by $0.9 million in the prior year.

OTHER NON-INSURANCE ENTERPRISES

This represents the administrative support entities to the insurance operations whose revenues are primarily intercompany and have been eliminated in consolidation under GAAP, which typically results in a loss.

Losses reported for the second quarter and six months ended June 30, 2020 and 2019, respectively, are also impacted by general expenses.

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CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

As described above in “Segment Operations”, Other Non-Insurance Enterprises consists of the Company's non-insurance operations, which primarily include the Company's IT and Corporate-support functions who provide services to the insurance operations.

In the three and nine months ended September 30, 2020, the Other Non-Insurance Enterprises had revenues of $0.3 million and $0.8 million, respectively, which is primarily intercompany and is eliminated in consolidation under GAAP.

Losses reported for the three and nine months ended September 30, 2020 were $12.7 million and $16.5 million, respectively, and were driven primarily by the expenses related to the Change in Control, as described above in “Current Financial Highlights.”

The administration of our investment portfolios is handled by our management and a third-party investment manager pursuant to board-approved investment guidelines, with all trading activity approved by each board of Citizens and its insurance subsidiaries.

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The invested assets are intended to mature in accordance with the average maturity of our insurance products and provide the cash flow for our insurance company subsidiaries to meet their respective policyholder obligations.

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CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

The following table shows the carrying value of each invested asset and the percentage to total cash and invested assets.

Carrying Value June 30, 2020 December 31, 2019

Carrying Value September 30, 2020 December 31, 2019

(In thousands, except for %) Amount % Amount %

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Total cash and invested assets $ 1,614,192 100.0 % $ 1,526,459 100.0 %

(1) Includes $168.7 million and $188.1 million of securities guaranteed by third parties at June 30, 2020 and December 31, 2019, respectively.

(1) Includes $167.8 million and $188.1 million of securities guaranteed by third parties at September 30, 2020 and December 31, 2019, respectively.

(2) Includes $141.6 million and $130.1 million of U.S.

Government-sponsored enterprises at June 30, 2020 and December 31, 2019, respectively.

Cash and cash equivalents increased as of June 30, 2020 compared to December 31, 2019 due to timing of cash inflows and investments of cash into marketable securities.

At June 30, 2020, investments in fixed maturity and equity securities were 90.6% of our total invested assets.

All of our fixed maturities were classified as available-for-sale securities at June 30, 2020 and December 31, 2019.

We had no fixed maturity or equity securities that were classified as trading securities at June 30, 2020 or December 31, 2019.

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Government-sponsored enterprises at September 30, 2020 and December 31, 2019, respectively.

Cash and cash equivalents decreased as of September 30, 2020 compared to December 31, 2019 due to timing of cash inflows and investments of cash into marketable securities.

Investments in the notes to our consolidated financial statements for a discussion of the increase in real estate and other long-term investments.

At September 30, 2020, investments in fixed maturity and equity securities were 90.8% of our total invested assets.

All of our fixed maturities were classified as available-for-sale securities at September 30, 2020 and December 31, 2019.

We had no fixed maturity or equity securities that were classified as trading securities at September 30, 2020 or December 31, 2019.

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CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

The following table shows the distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of June 30, 2020 and December 31, 2019.

Carrying Value June 30, 2020 December 31, 2019

The following table shows the distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of September 30, 2020 and December 31, 2019.

Carrying Value September 30, 2020 December 31, 2019

(In thousands, except for %) Amount % Amount %

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We are closely monitoring credit ratings for potential downgrades due to the COVID-19 pandemic.

The Company has no direct sovereign European debt exposure as of June 30, 2020.

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The Company has no direct sovereign European debt exposure as of September 30, 2020.

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MANAGEMENT'S DISCUSSION & ANALYSIS

As of June 30, 2020, the Company held municipal fixed maturity securities that include third-party guarantees.

Detailed below is a presentation by NRSRO rating of our municipal holdings by funding type as of June 30, 2020.

As of September 30, 2020, the Company held municipal fixed maturity securities that include third-party guarantees.

Detailed below is a presentation by NRSRO rating of our municipal holdings by funding type as of September 30, 2020.

General Obligation Special Revenue Other Total % Based on Amortized

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Total $ 128,561 121,158 285,039 264,033 19,119 16,661 432,719 401,852 100.0 %

The table below shows the categories in which the Company held investments in special revenue bonds that were greater than 10% of fair value based upon the Company's portfolio of municipal fixed maturity securities at June 30, 2020.

(In thousands) Fair

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Education 70,227 64,901 16.2 %

The Company's municipal holdings are spread across many states, however, municipal fixed maturity securities from Texas comprise the most significant concentration of the total municipal holdings portfolio as of June 30, 2020.

The Company holds 17.1% of its municipal holdings in Texas issuers as of June 30, 2020.

There were no other states or individual issuer holdings that represented or exceeded 10% of the total municipal portfolio as of June 30, 2020.

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The Company holds 19.2% of its municipal holdings in Texas issuers as of September 30, 2020.

There were no other states or individual issuer holdings that represented or exceeded 10% of the total municipal portfolio as of September 30, 2020.

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CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

The table below represents the Company's detailed exposure to municipal holdings in Texas at June 30, 2020.

June 30, 2020 General Obligation Special Revenue Other Total

The table below represents the Company's detailed exposure to municipal holdings in Texas at September 30, 2020.

September 30, 2020 General Obligation Special Revenue Other Total

(In thousands) Fair

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IMPAIRMENT CONSIDERATIONS RELATED TO INVESTMENTS IN FIXED MATURITY AND EQUITY SECURITIES

For the three and six months ended June 30, 2020, the Company recorded no credit valuation losses on fixed maturity securities and recognized no fixed maturity investment impairments for the three and six months ended June 30, 2019.

For the three and nine months ended September 30, 2020, the Company recorded no credit valuation losses on fixed maturity securities and recognized no fixed maturity investment impairments for the three and nine months ended September 30, 2019.

Information on both unrealized and realized gains and losses by category is set forth in Note 5.

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states of domicile which subject insurance operations to significant regulatory restrictions.

These laws and regulations require, among other things, that our insurance subsidiaries maintain minimum solvency requirements,

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These laws and

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which limit the amount of dividends that can be paid to the holding company.

regulations require, among other things, that our insurance subsidiaries maintain minimum solvency requirements, which limit the amount of dividends that can be paid to the holding company.

The regulations also require approval of our service agreements with the applicable regulatory authority in order to prevent insurance subsidiaries from moving large amounts of cash to the unregulated holding company.

As we discussed in Note 11.

Subsequent Events , upon the regulatory approval of the transfer of the Citizens, Inc.

Class B common stock from the Harold E.

Riley Trust to the Harold E.

Riley Foundation, the "Change in Control" clause in the Employment Agreement by and between the Company and Geoffrey M.

Kolander, our Chief Executive Officer and President, was triggered.

Following the change in control, Mr.

Kolander announced his intention to resign as Chief Executive Officer and President and a member of the Board of Directors, effective no later than August 10, 2020.

Pursuant to the terms of the Employment Agreement, Mr.

Kolander is entitled to the cash severance amount totaling $8.8 million.

Additionally, Citizens entered into a new lease for its headquarters space in Austin, Texas, and expects to spend cash for build-out costs primarily during the third quarter of 2020.

We believe we have the appropriate liquidity to meet such cash commitments.

As we discussed in "Current Financial Highlights", Citizens had significant expenses in the third quarter of 2020 related to executive severance costs due to our former Chief Executive Officer under his employment agreement upon his resignation in August 2020 following the Change in Control.

These expenses included payment of $8.8 million to a Rabbi Trust for the benefit of Mr.

Kolander representing the severance payments due to him under his employment agreement in connection with his resignation following a change in control.

During the third quarter of 2020, Citizens sold approximately $5.7 million of fixed maturity securities held in our investment portfolio in order to fund a portion of the $8.8 million severance payment to the Rabbi Trust for the benefit of Mr.

We are closely monitoring the impact that the COVID-19 pandemic may have on our liquidity and capital resources.

To the extent that we continue to experience significant decreases in sales and collections of premiums, decreases in our investment income and/or increases in claim payments as a result of the COVID-19 pandemic, our liquidity would be negatively impacted and would likely result in the sale of our investments to meet operational cash flow requirements.

To the extent that we experience decreases in sales or collections of renewal premiums, increases in surrenders, decreases in our investment income and/or increases in claim payments as a result of the COVID-19 pandemic, our liquidity would be negatively impacted and we may have to sell some of our investments to meet operational cash flow requirements.

INSURANCE COMPANY SUBSIDIARY LIQUIDITY AND CAPITAL RESOURCES

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Primary uses of these funds are investment purchases, payments of policy benefits to policyholders, and operating expenses.

Historically, we have not had to liquidate investments to provide cash flow, and there were no liquidity issues during the six months ended June 30, 2020.

Cash flows from operating activities were $28.6 million and $31.4 million for the six months ended June 30, 2020 and 2019, respectively.

Historically, we have not had to liquidate investments to provide cash flow for our insurance operations, and there were no liquidity issues during the nine months ended September 30, 2020.

Cash flows from operating activities were $34.0 million and $50.9 million for the nine months ended September 30, 2020 and 2019, respectively.

We have traditionally also had significant cash flows from both scheduled and unscheduled investment security maturities, redemptions, and prepayments.

These cash flows, for the most part, are reinvested in fixed income securities.

Net cash outflows from investing activities totaled $22.8 million and $41.4 million for the six months ended June 30, 2020 and 2019, respectively.

However, during the third quarter of 2020, the Company paid $6.0 million to the IRS for the tax compliance matter described in Note 8.

Commitments and Contingencies in the notes to our consolidated financial statements.

As noted in Note 8.

Commitments and Contingencies , our payment does not represent closure of the matter or IRS acceptance of the tax liability shown on the submitted withholding tax returns, and the IRS reserves the right to revise our total tax liability for the covered period.

In addition, the Company invested in private equity funds and other alternate investments in 2020 as detailed in Note 5.

Investments of the notes to our consolidated financial statements.

Net cash outflows from investing activities totaled $39.2 million and $48.1 million for the nine months ended September 30, 2020 and 2019, respectively.

The investing activities fluctuate from period to period due to timing of securities activities such as calls and maturities and reinvestment of those funds.

The Company's net cash inflow and outflow from financing activities were $0.4 million and $1.0 million for the six months ended June 30, 2020 and 2019, respectively.

The Company's net cash inflows and outflows from financing activities were $1.3 million and $1.1 million for the nine months ended September 30, 2020 and 2019, respectively.

Our investments consist of 91.9% of marketable fixed maturity securities classified as available-for-sale and 1.3% of equity securities that could be readily converted to cash for liquidity needs.

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This could result in a decrease in our spread between our policy liability crediting rates and our investment earned rates which could also negatively impact our liquidity.

Our investment portfolio (and, specifically, the valuations of investment assets we hold) has also been, and may continue to be, adversely affected as a result of market developments from the COVID-19 pandemic and uncertainty regarding its outcome.

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uncertainty regarding its outcome.

Moreover, changes in interest rates, reduced liquidity or a continued slowdown in the U.S.

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We include provisions in our insurance policies, such as surrender charges, that help limit and discourage early withdrawals.

Since these contractual withdrawals, as well as the level of surrenders experienced, have been largely consistent with our assumptions in asset liability management, our associated cash outflows historically have not

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MANAGEMENT'S DISCUSSION & ANALYSIS

had an adverse impact on our overall liquidity.

We have not experienced any measurable increases in surrenders due to the COVID-19 pandemic, however we continue to monitor surrenders and early withdrawals.

Although we experienced an increase in surrenders in the Life Insurance segment during the third quarter of 2020 compared to the same period in 2019, we believe that such surrenders were not materially impacted by the COVID-19 pandemic.

However, policyholders' surrender behavior is unknown and may change in unexpected ways in response to a prolonged COVID-19 pandemic and related economic uncertainty.

To the extent that we continue to experience an increase in surrenders in our Life Insurance segment, whether due to the COVID-19 pandemic or otherwise, our liquidity could be negatively impacted.

We continue to monitor surrenders and early withdrawals.

Individual life insurance policies are less susceptible to withdrawal than annuity reserves and deposit liabilities because policyholders may incur surrender charges and undergo a new underwriting process in order to obtain a new insurance policy.

For reasons described above, we have experienced increased claims in our Home Service Insurance segment in the second quarter of 2020.

For reasons previously discussed, we have experienced increased death claims in our Home Service Insurance segment in the third quarter of 2020 compared to the same period in 2019.

Additionally, we are closely monitoring claim volumes to evaluate whether there is a delay in reporting or filing for benefits as a result of the COVID-19 pandemic in our Home Service Insurance segment and Life Insurance segment.

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Cash flow projections and cash flow tests under various market interest rate scenarios are performed annually to assist in evaluating liquidity needs and adequacy.

As described above in "Home Service Insurance", in the third quarter of 2020, we experienced substantial increases in property claims due in large part to the impact of Hurricane Laura.

While we do not believe that SPFIC will reach its maximum reinsurance levels for Hurricane Laura under its catastrophe reinsurance policy, any claims in excess of the maximum coverage would have to be paid by SPFIC.

Additionally, higher-than-expected claims from Hurricane Delta or additional catastrophic events that hit in the fourth quarter of 2020 may cause us to pay out-of-pocket on claims arising from such catastrophic events or obtain additional catastrophe reinsurance.

We believe we have the appropriate liquidity to meet such potential cash commitments, although we may need to provide a capital contribution to SPFIC.

Our whole life and endowment products provide the policyholder with alternatives once the policy matures.

The policyholder can choose to take a lump sum payout or leave the money on deposit at interest with the Company.

As of June 30, 2020, 41% of the Company's total insurance in force was in endowment products.

As of September 30, 2020, 41% of the Company's total insurance in force was in endowment products.

Approximately 13% of the endowments in force will mature in the next five years.

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We currently anticipate that available liquidity sources and future cash flows will be adequate to meet our needs for funds, but we will monitor closely our policyholder behavior patterns.

We have established a liability of $ 10.0 million, net of tax, as of June 30, 2020 for probable liabilities and expenses associated with a tax compliance matter as described in Note 7.

Commitments and Contingencies in the notes to our consolidated financial statements, which represents management’s estimate of this contingent liability.

This estimate and range include projected settlement amounts payable to the IRS, as well as estimated increased payout obligations to current and former holders of non-compliant domestic life insurance policies expected to result from remediation of those policies.

The amount of our liabilities and expenses depends on a number of uncertainties, including the number of prior tax years for which we may be liable to the IRS, the number of domestic life insurance policies we will be required to remediate, and the methodology applicable to the calculation of the tax liabilities for policies.

Given the range of potential outcomes and the significant variables assumed in establishing our estimates, actual amounts incurred may exceed our reserve and exceed the high end of our estimated range of liabilities and expenses.

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MANAGEMENT'S DISCUSSION & ANALYSIS

As discussed above, we are subject to regulatory capital requirements that could affect the Company’s ability to access capital from our insurance operations or cause the Company to have to put additional cash in our wholly-owned subsidiaries.

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RBC considers the type of business written by an insurance company, the quality of its assets, and various other aspects of an insurance company's business to develop a minimum level of capital called "Authorized Control Level Risk-Based Capital".

This level of capital is then compared to an adjusted statutory capital that includes capital and surplus as reported under statutory accounting principles, plus certain investment

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MANAGEMENT'S DISCUSSION & ANALYSIS

This level of capital is then compared to an adjusted statutory capital that includes capital and surplus as reported under statutory accounting principles, plus certain investment reserves.

Should the ratio of adjusted statutory capital to control level RBC fall below 200% for our domestic companies, a series of remedial actions by the affected company would be required.

Additionally, we have a parental guarantee between Citizens and CICA, Citizens' wholly-owned subsidiary domiciled in Colorado, to maintain a RBC level above 350%.

At June 30, 2020, our domestic insurance subsidiaries were above the required minimum RBC levels.

At September 30, 2020, our domestic insurance subsidiaries were above the required minimum RBC levels.

is a Bermuda domiciled company.

The Bermuda Monetary Authority ("BMA") requires Bermuda insurers to maintain available statutory economic capital and surplus at a level equal to or in excess of its enhanced capital requirement (“ECR”).

As described in Note 4.

Stockholders' Equity and Restrictions , because of the disruption that the COVID-19 pandemic had on the worldwide economy in March 2020, the fair value of our assets had decreased and interest rates also had decreased which increased the fair value of our statutory economic insurance liabilities.

As a result, CICA Ltd.’s statutory economic capital and surplus at March 31, 2020 was below the Target Capital Level ("TCL") by $8.9 million.

Pursuant to the insurance laws in Bermuda, CICA Ltd.

notified the BMA of this shortfall and filed a written report containing details of the circumstances leading to the shortfall.

The fair value of our assets has increased significantly since March 31, 2020 and CICA Ltd.

has rectified the failure as of June 30, 2020.

Although we continue to hold discussions with the BMA, there have been no capital or management actions required.

As of September 30, 2020, CICA Ltd.

was above the TCL threshold.

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

There have been no material changes in contractual obligations from those reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

The Company does not have off-balance sheet arrangements at June 30, 2020.

As of September 30, 2020, the Company is committed to fund investments up to $95 million related to private equity funds and other investments.

The Company is also committed to pay $8.8 million to our former Chief Executive Officer, Geoffrey Kolander, in February 2021 representing the severance payments due to him under the terms of his employment agreement in connection with his resignation following a change in control of the Company.

There have been no other material changes in contractual obligations from those reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

The Company does not have off-balance sheet arrangements at September 30, 2020.

We do not utilize special purpose entities as investment vehicles, nor are there any such entities in which we have an investment that engage in speculative activities of any nature, and we do not use such investments to hedge our investment positions.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis