What changed in this filing

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Item 1. Business

2021-03-10 compared with 2020-03-11 · 287 added, 120 removed, 144 unchanged (74% of the section changed)

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("Citizens" or the "Company") is an insurance holding company incorporated in Colorado serving the life insurance needs of individuals in the United States since 1969 and internationally since 1975.

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.

Through our insurance subsidiaries, we provide insurance benefits to residents in 31 U.S.

states and more than 75 different countries.

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 December 31, 2020 and approximately $4.1 billion of insurance in force.

Our core insurance operations include:

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;

ordinary whole life insurance policies to middle income households concentrated in the Midwest, Mountain West and southern United States through independent marketing consultants;

final expense and limited liability property policies to middle and lower income households in Louisiana, Mississippi and Arkansas through employee and independent agents in our home service distribution channel and funeral homes.

We operate in two business segments:

• Life Insurance segment - U.S.

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, sold through independent consultants in various countries;

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

As an insurance provider, we collect premiums on an ongoing basis from our policyholders and invest the majority of the premiums to pay future benefits, including claims, surrenders and policyholder dividends.

Accordingly, the Company derives its revenues principally from:

(1) life insurance premiums earned for insurance coverages provided to insureds;

and (2) net investment income.

In addition to paying and reserving for insurance benefits that we pay to our policyholders, our expenses consist primarily of the costs of selling our insurance products (e.g., commissions, underwriting, marketing expenses), operating expenses and income taxes.

Because collection of premiums is the primary source of our revenues, our overall financial performance depends primarily upon the pricing of our insurance products and the accuracy of our pricing assumptions.

The Company seeks to price our insurance policies such that insurance premiums and future net investment income earned on premiums received will cover our expenses and the ultimate cost of paying claims reported on the policies and provide for a profit margin.

Pricing adequacy depends on a number of factors, including proper evaluation of underwriting risks, the ability to project future losses based on historical loss experience adjusted for known trends, the Company’s response to competitors, the ability to obtain regulatory approval for rate changes if applicable, expectations about regulatory and legal developments and expense levels.

In order to manage the risks related to pricing, we employ medical underwriting procedures to assess and quantify risks before we issue policies.

Insurance applications are reviewed to determine eligibility based on underwriting guidelines we establish, as well as to determine the applicable premium.

We periodically review our underwriting requirements and may make changes as needed.

We also seek to manage pricing risk through:

• favorable risk selection and diversification;

• management of claims;

• use of reinsurance;

• careful monitoring of our mortality and morbidity experience;

• management of our expense ratio.

In addition to insurance premiums, the investment return, or yield, on invested assets is an important element of the Company’s earnings since insurance products are priced with the assumption that premiums received can be invested for a period of time before benefits are paid.

Most of the Company’s invested assets have been held in available for sale ("AFS") fixed maturity securities, primarily in asset classes of corporate bonds, municipal bonds, and government obligation bonds.

The interest rate environment has a significant impact on the determination of insurance contract liabilities, our investment rates and yields, and our asset/liability management.

The profitability

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of fixed annuities, riders and other "spread-based" product features depends largely on the Company’s ability to earn target spreads between earned investment rates on assets and interest credited to policyholders.

The primary investment objective for the Company is to maximize economic value, consistent with acceptable risk parameters, including the management of credit risk and interest rate sensitivity of invested assets, while generating sufficient after-tax income to meet policyholder and corporate obligations.

The Company maintains a prudent investment strategy that may vary based on a variety of factors including business needs, regulatory requirements and tax considerations.

CHANGE IN CONTROL;

AGREEMENT TO PURCHASE THE CLASS B SHARES;

ANTICIPATED DIVESTITURE OF CONTROL

On July 29, 2020, the Harold E.

Riley Foundation (the “Foundation”) became the owner of 100% of the Company’s outstanding Class B common stock (the “Class B Shares”).

Because the Company’s Restated and Amended Articles of Incorporation provide that the holders of the Class B Shares shall have the exclusive right to elect a simple majority of the members of the Board of Directors (the “Board”) of the Company, as of such date, the Foundation controlled the Company (the “change in control”).

Following the change in control, several material events occurred that impacted us:

• On August 5, 2020, Geoffrey M.

Kolander, our President and Chief Executive Officer and a member of the Board, resigned, triggering the change in control severance provision in his employment agreement with the Company;

• On the same date, Gerald W.

Shields, our Vice Chairman of the Board, was appointed as the Interim Chief Executive Officer and President of the Company, to serve in such position while the Board conducted a search to find a permanent replacement for Mr.

• On August 13, 2020, the Foundation delivered an Action by Written Consent of the Foundation to the Company, purporting to remove the Company’s directors elected by the Class B Shares ("Class B directors") and add five director nominees to the Company’s Board;

• The Board disputed the Foundation's action, on the basis that the Foundation did not follow the required procedures for director appointments mandated by the Company's Corporate Governance Guidelines and Nominating and Corporate Governance Committee charter;

• As described in Item 3.

Legal Proceedings , on September 2, 2020, the Foundation filed suit against the Company and its eight directors in the District Court for Arapahoe County, Colorado (the “Colorado Litigation”,

• and on September 28, 2020, the Foundation and the Company entered into a mutually agreed Status Quo Stipulation, whereby the Board and its committees agreed not to direct or permit anyone on their or the Company’s behalf to take any significant action that is outside the ordinary course of business without the consent of the Foundation;

• The two sole charitable beneficiaries of the Foundation, Baylor University and Southwestern Baptist Theological Seminary (the “Foundation Beneficiaries”), subsequently filed a lawsuit against the Foundation and its Chief Executive Officer / President, Michael C.

Hughes (who was also one of the purported nominees submitted to the Company by the Foundation), claiming, among other things, that the Foundation’s board of trustees breached their fiduciary duties to the Foundation and misused Foundation monies for personal benefit, including the litigation against the Company in an attempt to seat themselves on the Company’s board (the “Texas Third-Party Litigation”);

• The Texas Attorney General intervened on behalf of the Foundation Beneficiaries in the Texas Third-Party Litigation;

• On December 7, 2020, the Company filed counterclaims and third-party claims in the Colorado Litigation against the Foundation and two of its officers or trustees, Charles W.

Hott and Michael C.

Hughes alleging that Mr.

Hughes and Mr.

Hott, as trustees or officers of the Foundation, among other things:

(i) defrauded state insurance regulators in order to seize control of the Company, (ii) breached their fiduciary duties to all of the Company’s shareholders, and (iii) violated the Colorado Consumer Protection Act (collectively, the “Counterclaims").

On February 6, 2021, the Foundation Beneficiaries settled the Texas Third-Party Litigation with the Foundation in which they alleged that the Foundation trustees, including Mr.

Hughes and Mr.

Hott, breached their fiduciary duties

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to the Foundation and misused Foundation monies for personal benefit, including the filing of the Colorado Litigation (see Item 3, Legal Proceedings - “Texas Suit filed by the Foundation’s Beneficiaries against the Foundation”).

As a result of their settlement, Mr.

Hughes and Mr.

Hott were removed as trustees from the Foundation.

The Foundation Beneficiaries, upon gaining control of the Foundation through their appointed trustees to the Foundation, agreed to dismiss the Colorado Litigation and entered into a Mutual Agreement for Compromise, Settlement and Release with the Company and its individual directors (the “Foundation Settlement Agreement”).

As a result of the Foundation Settlement Agreement:

• The Company, its directors and the Foundation dismissed all claims at issue in the Colorado Litigation and the parties agreed to mutual releases for conduct prior to February 5, 2021;

• The Company:

(a) restored its Board to its form as of August 12, 2020 consisting of a nine-seat Board comprised of four directors elected by the Company's Class A common stock (Christopher W.

Davis, Jr., Gerald W.

Shields, and Frank A.

Keating II), four Class B directors (E.

Dean Gage, Robert B.

Sloan, Terry S.

Maness, and Constance K.

Weaver), and one Class B vacancy;

and (b) restored the Company’s Amended and Restated Bylaws to the form in which they existed on August 12, 2020;

• The Foundation withdrew the Foundation nominees who had been submitted pursuant to the August 13, 2020 Action by Written Consent of the Foundation and approved the restoration of the four Class B directors named above;

• The Foundation agreed to sell, and the Company agreed to purchase, 100% of the Company’s Class B Shares from the Foundation for $9.1 million.

On February 6, 2021, pursuant to the Foundation Settlement Agreement, the Company entered into an agreement with the Foundation to purchase all of the Class B Shares for a purchase price of $9.1 million (the “B Share Transaction”).

As required by the insurance holding company systems laws that govern our insurance subsidiaries, the Company and the Foundation are in the process of acquiring the necessary regulatory approvals to consummate the B Share Transaction.

On March 5, 2021, the Company paid the purchase price to the Foundation to hold in escrow until the regulatory approval has been obtained.

As of the date that all such required regulatory approvals are obtained, the Foundation will deliver the Class B Shares to the Company and divest its control of the Company.

In accordance with Colorado law, the Class B Shares will then be classified as authorized, but unissued shares.

Once the Class B Shares are classified as unissued shares:

• the Company will only have one class of stock outstanding:

the Class A common stock, which is registered under the Securities Exchange Act of 1934, as amended, and listed on the New York Stock Exchange (“NYSE”);

• the Class B Shares will not have any voting rights;

• the holders of the Class A shares will be entitled to elect all of the directors at the Company’s annual meetings (after any annual meeting for which the record date has already occurred);

• the Company will no longer be a “controlled” company as defined under the NYSE rules and therefore will be obligated to comply with certain additional listing standards.

Due to the settlement of the Colorado Litigation and the B Share Transaction, the Company believes that it will be better positioned to hire a new Chief Executive Officer and offer stability to our management team, employees and independent sales force in order to move forward with our business and Strategic Initiatives, as described below.

STRATEGIC INITIATIVES

We are implementing our enduring value customer-centric growth strategy, in cooperation with our Board of Directors.

In doing so, we are focused on our core strengths, as we strategically realign our Life and Home Service Insurance segments.

We anticipate significant transformation with an emphasis on people, processes and technology.

In our current operational environment, change is seen as a positive and is now taking root in our culture, creating the best atmosphere for value creation and value capture for all our stakeholders.

As a result of the Company’s continued strategic review of its technology systems, we converted the ordinary whole life policies of Security Plan Life Insurance Company ("SPLIC") to a new actuarial valuation software solution that provides enhanced modeling capabilities as of July 1, 2019.

This system conversion, which impacted the Home Service Insurance segment, resulted in changes in estimates due to refinements reflected as a decrease in policyholder benefit reserves of $2.3 million and a decrease in deferred acquisition costs of $1.4 million, before tax as of and for the year ended December 31, 2019.

The Company reviews its investment strategies routinely to monitor the portfolio's rate of return as compared to the product features in our insurance policies and strive to maximize returns on our investment portfolio within our conservative investment guidelines.

The Company is looking for opportunities in other asset classes to increase our yields while maintaining a prudent risk profile.

The following pages describe the operations of our two business segments:

Life Insurance and Home Service Insurance.

CICA Life Insurance Company of America ("CICA"), CICA Life Ltd.

("CICA Ltd.") and Citizens National Life Insurance Company ("CNLIC") constitute the Life Insurance segment, and Security Plan Life Insurance Company ("SPLIC"), Security Plan Fire Insurance Company ("SPFIC") and Magnolia Guaranty Life Insurance Company ("MGLIC") constitute the Home Service Insurance segment.

In addition to the Life Insurance and Home Service Insurance segments, the Company also has other non-insurance operations ("Other Non-Insurance Enterprises") which primarily include the Company's IT and Corporate-support functions.

Citizens had over 400 employees as of December 31, 2019 , over half of which worked in the Home Service Segment.

Revenues derived from any single customer did not exceed 10% of consolidated revenues in any of the last three years.

For more information about the financial performance of our business segments, see Note 8.

Segment and Other Operating Information of the notes to our consolidated financial statements.

During 2020, the COVID-19 pandemic shifted customer, agent and employee needs, habits and expectations and forced virtualization of our operations.

When the pandemic emerged, we took immediate steps to ensure business continuity and stability.

Towards the end of 2020 and as we head into 2021, we accelerated longer-term recovery efforts and pivoted to reemphasize growth in order to cultivate enduring value for our key stakeholders.

We entered 2021 with clearly defined priorities in order to set a course for long-term profitable growth.

Our growth strategy consists of focusing on our customers’ needs, our sales force, and use of technology to improve our processes:

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• Customers .

We are focusing on our customer needs by making changes to enhance existing products, repricing products and introducing new offerings.

• Sales Force .

We are focused on implementing sales promotions and campaigns in order to align our sales consultant compensation opportunities with our premium revenue goals and growth initiatives.

• Technology .

We are implementing process improvements and new technologies in order to get products to our customers faster, help our sales force by promoting safe, yet effective sales practices, and help our employees work more effectively and efficiently.

We believe this 3-prong growth strategy will help us grow premium revenues in existing markets and allow us to expand into new markets.

We are executing on this strategy as follows:

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 45 years of doing business in Latin America, we have expanded our Life Insurance segment to the Hispanic market in the U.S.

and expect to begin selling in this market during early 2021.

We have developed a whole life insurance product for this expansion that has already been approved in the state of Florida and are partnering with a marketing agency to build out a sales force to sell this product.

Transformation of our Home Service Insurance Segment .

The Home Service Insurance business is a focus of transformation to drive sales growth for the Company in 2021.

Prior to mid-2020, the focus of this segment was collections, i.e.

renewal premiums.

We reorganized our sales force, hired a new director of sales in 2020 and expect to update our product portfolio, to bring attractive and highly competitive offerings to market in early 2021.

Launched New Marketing Campaigns.

In 2020, we recognized the value that having different sales campaigns throughout the year had on our sales force and launched sales campaigns throughout 2020 that incentivized agents at all levels of seniority.

The incentives were different depending on the campaign, however they all created competition within the sales force, which we believe drove more sales per independent consultant / agent.

• In our Life Insurance segment, we created a sales campaign that helped lead to 75% higher first year premiums in the fourth quarter of 2020 as compared to the third quarter of 2020 and 15% higher first year premiums when compared to the fourth quarter of 2019.

The amount of first year premiums in our Life Insurance segment in the fourth quarter of 2020 were the highest since the fourth quarter of 2017.

We believe the reason this campaign worked so well was because of the various levels of detail included in the incentives, as well as our execution of the campaign.

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

Multiple campaigns are scheduled to occur during 2021 in order to continue incentivizing and motivating our sales force.

Implemented Operational Improvements.

As the world became more digital in 2020 due to the COVID-19 pandemic, we implemented technological improvements to make our operations more effective and efficient.

We updated our underwriting processes and introduced a revised policy application for our international business in order to remove barriers to sales with a more frictionless process for agents and applicants and to reduce underwriting expense.

We enhanced our policyholder and agent self-services with new capabilities to make it easier to do business with us including expanding our alternative payment methods for our Home Service Insurance segment to accept credit card and debit card payments.

We also focused on training our sales force to sell our policies and service our policyholders virtually.

As we seek to optimize value for the Company, its customers and its distributors, we believe our efforts to develop and enhance our products, incentivize our sales force and make process and technology improvements will continue to put the Company on a stronger financial footing and drive sustainable growth.

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LIFE INSURANCE

Our Life Insurance segment issues U.S.

Dollar-denominated endowment contracts internationally, which are principally accumulation contracts that incorporate an element of life insurance protection, and ordinary whole life insurance in U.S.

Dollar-denominated amounts sold to foreign residents.

These contracts are designed to provide a fixed amount of insurance coverage over the life of the insured and may utilize rider benefits to provide additional coverage and annuity benefits to enhance accumulations.

For the majority of our business, we retain the first $0.1 million of risk on any one life, reinsuring the remainder of the risk.

Historically we have operated this segment through our CICA and CNLIC insurance subsidiaries.

Since July 1, 2018, we operate the novated international business in this segment through CICA Ltd.

We operate our domestic business in this segment through CICA and CNLIC.

Our Life Insurance segment primarily operates through CICA Life Ltd.

("CICA Ltd."), a Bermuda company, which issues ordinary whole life insurance in U.S.

dollar-denominated amounts to non-U.S.

These products are designed to provide a fixed amount of insurance coverage over the life of the insured and can include rider benefits to provide additional coverage and annuity benefits to enhance accumulations.

Additionally, CICA Ltd.

issues endowment contracts, which are principally accumulation contracts that incorporate an element of life insurance protection.

INTERNATIONAL SALES

We focus our sales of U.S.

We focus our international sales of U.S.

dollar-denominated ordinary whole life insurance and endowment policies to residents in Latin America and the Pacific Rim.

We have participated in the foreign marketplace since 1975.

As of December 31, 2020, we had insurance policies in force in more than 75 foreign countries, with Colombia, Venezuela, Taiwan, Ecuador and Argentina as our top producing countries.

International direct premiums comprised approximately 96% of total direct premiums in the Life Insurance segment and 71% of our total direct premiums in 2020.

We believe positive attributes of our international insurance business typically include:

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

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

premiums paid annually rather than monthly or quarterly, which reduces our administrative expenses, accelerates cash flow and results in lower policy lapse rates than premiums with more frequently scheduled payments;

persistency experience and mortality rates that are comparable to U.S.

As of December 31, 2019 , we had insurance policies in force in almost 20 countries, including Colombia , Venezuela , Taiwan , Ecuador and Argentina as our top producing countries.

International direct premiums comprised approximately 96% of total direct premiums in the Life Insurance segment and 71% of our total direct premiums in 2019 .

Our independent marketing firms and consultants specialize in marketing life insurance products and generally have several years of insurance marketing experience.

We maintain contracts with the independent marketing firms pursuant to which they provide recruitment, training and supervision of their managers and associates in the service and placement of our products.

However, all associates of these firms also contract directly with us as independent contractors and receive their compensation directly from us.

Accordingly, should an arrangement between any independent marketing firm and us be terminated for any reason, we expect we would seek to continue the existing marketing arrangements with the associates of these firms.

Our agreements with independent marketing firms and consultants typically provide that they are independent contractors responsible for their own operational expenses and are the representative of the prospective insured.

In addition, the marketing firms guarantee any debts of their associates to us.

The marketing firms receive commissions on all new and renewal policies serviced or placed by them or their associates.

All of these contracts provide that the independent marketing firms and consultants are aware of and responsible for compliance with local laws.

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

• high persistency and low mortality charges due to our customer demographics;

• 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.

Our international sales force consists of independent marketing agencies and consultants who specialize in marketing life insurance products and generally have several years of insurance marketing experience.

We enter into contracts with the independent marketing agencies pursuant to which they recruit, train and supervise their managers and associates in the sales and service of our products.

These agencies receive commissions for products they sell, as well as commission overrides on the business that their agents produce and in return for the override, they guarantee any debt their agents owe to us.

Their sales agents also contract directly with us as independent consultants and receive commission compensation directly from us.

This allows us to develop a relationship with their associates so if an agency contract is terminated for any reason, we may seek to continue the existing independent consultant marketing arrangements with the associates of such agency.

Our agreements typically provide that the agencies and their agents are independent consultants responsible for their own operational expenses and are the representative of the prospective insured.

Our contracts require the independent marketing agencies and consultants to understand and comply with all laws applicable to sales of our products in their country.

INTERNATIONAL PRODUCTS

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policyowners.

These policies have been structured to provide:

Dollar-denominated cash values that accumulate, beginning in the first policy year, to a policyholder during his or her lifetime;

premium rates that are competitive with most foreign local companies;

a hedge against local currency inflation;

protection against devaluation of foreign currency;

These products have premium rates that are competitive with most foreign local companies and have been structured to provide the policyowners with:

dollar-denominated cash values that accumulate, beginning in the first policy year, throughout a policyholder’s lifetime;

• protection against devaluation of the policyowners' local currency;

• capital investment in a more secure economic environment (i.e., the U.S.);

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

Our international products have living benefit features.

Most policies contain guaranteed cash values and are participating (i.e., provide for cash dividends as apportioned by the Board).

Once a policyowner pays the annual premium and the policy is issued, the owner becomes entitled to policy cash dividends as well as annual premium

Our international products have both living and death benefit features.

Most policies contain guaranteed cash values and are participating (i.e., provide for cash dividends as apportioned by our Board of Directors).

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benefits if the annual premium benefit was elected.

According to the policy language, the policyowner has several options with regard to the policy dividends and annual premium benefits, which include, among other things, electing to receive cash, crediting such amounts towards the payment of premiums on the policy, leaving such amounts on deposit with the Company to accumulate at a defined interest rate or assigning them to a third-party.

policyowner pays the annual premium and the policy is issued, the owner becomes entitled to policy cash dividends as well as annual premium benefits if the annual premium benefit is elected.

The policyowner has several options with regards to the policy dividends and annual premium benefits, which include, among other things, electing to receive cash, crediting such amounts towards the payment of premiums on the policy, leaving such amounts on deposit with the Company to accumulate at a defined interest rate or assigning them to a third-party.

Under the "assigned to a third-party" provision, the Company has historically allowed policyowners, after receiving a copy of the Citizens, Inc.

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The Company has registered the shares of Class A common stock issuable to participants under the CISIP on a registration statement under the Securities Act of 1933, as amended (the "Securities Act") that is on file with the SEC.

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.

In 2019, the Company repriced products sold internationally in response to the continued low interest rate environment in order to increase profits in our international markets.

We also expect to expand distribution and will issue newly enhanced products in 2020.

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

INTERNATIONAL COMPETITION

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We compete with a number of stock and mutual life insurance companies internationally and domestically, as well as with financial institutions that offer insurance products.

We face competition primarily from companies formed and operated in the country in which the insureds reside, from companies that operate in the same manner as we do and from companies that are foreign to the countries in which policies are sold, but issue insurance policies denominated in the local currency of those countries.

Some companies may be deemed to have a competitive advantage over us due to their significantly greater financial resources, histories of successful operations and larger marketing forces.

We face competition primarily from other insurance companies that operate in the same manner as we do, as well as companies formed and operated in the country in which an insured resides, and from companies foreign to the countries in which their products are sold, but issue insurance policies denominated in the local currency of those countries.

Some companies may have a competitive advantage over us due to their significantly greater financial resources, histories of successful operations and larger marketing forces.

Because premiums on our international policies are paid in U.S.

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dollars, we provide life insurance solutions that we believe are different from and superior to those offered by foreign-domiciled companies.

We believe our international policies are usually acquired by individuals in the upper middle class in their respective countries and those with significant net worth and earnings that place them in the upper income brackets of their respective countries.

We believe our international products are usually purchased by individuals in the upper-middle class in their respective countries and those with significant net worth and earnings that place them in the upper income brackets of their respective countries.

The policies sold by our foreign competitors are generally offered broadly and are priced using the mortality of the entire population of the geographic region.

Our mortality charges are typically lower due to our customer demographics, which provides a competitive advantage.

Additionally, the assets backing the reserves for our foreign competitors' policies must be substantially invested in their respective countries and, therefore, are exposed to the inflationary risks and social or economic crises that have been more common in these foreign countries.

Additionally, the assets backing the reserves for our foreign competitors' policies must be substantially invested in their respective foreign countries and, therefore, are exposed to the inflationary risks and social or economic crises that have been more common in these foreign countries.

DOMESTIC SALES

Domestic whole life insurance policies are sold to U.S.

citizens and certain U.S.

visa holders through our CICA Life Insurance Company of America ("CICA") and Citizens National Life Insurance Company ("CNLIC") insurance subsidiaries.

In 2020, domestic direct premiums comprised approximately 4% of total direct premiums in the Life Insurance segment and 3% of our total direct premiums overall.

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

We discontinued new sales of our non-Home Service domestic ordinary whole life insurance and endowment products beginning January 1, 2017.

Under the direction of our President and Chief Executive Officer and Chief Marketing Officer, we are evaluating our domestic strategy.

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

CICA and CNLIC issued ordinary whole life, credit life and disability and accident and health related policies throughout the Midwest and Southern U.S.

until they ceased most domestic sales beginning January 1, 2017.

As discussed above under “Strategic Initiatives”, we plan to begin marketing our products again domestically in early 2021, beginning in Florida.

We believe that our experience in developing and selling products in Latin America will help us expand into the large Hispanic market in the U.S.

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DOMESTIC LIFE INSURANCE PRODUCTS

Our domestic life insurance products have historically focused primarily on living needs and provided benefits focused toward accumulating financial benefits for the policyowner.

Our domestic life insurance products have historically focused primarily on living needs and providing benefits focused toward accumulating financial benefits for the policyowner.

The features of our domestic life insurance products include:

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The primary purpose of our current product portfolio is to help the insured create capital for needs such as retirement income, children's higher education, business opportunities, emergencies and health care needs.

In addition, our insurance products offer financial benefits like savings protection and immediate funds in event of the insureds death.

In addition, our insurance products offer financial benefits like savings protection and immediate funds in event of the insured's death.

Through detailed research and analysis, the Company has recognized the opportunity to re-enter the domestic life insurance market.

We believe that we hold a strong competitive edge in the fast-growing Latin American and Hispanic segments because of our insights and expertise from doing business for over 45 years in Latin America.

We have developed competitive and attractive products that we believe will allow us to succeed in the domestic market.

HOME SERVICE INSURANCE

Our domestic Home Service Insurance segment operates through our subsidiaries SPLIC, MGLIC and SPFIC, and focuses 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 marketing distribution system of 223 employee-agents who work on a route system and through over 221 funeral homes and independent agents who sell policies, collect premiums and service policyholders.

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

In 2019 , our Home Service Insurance segment comprised 25% of our total direct premiums.

We operate our domestic Home Service Insurance segment only in the U.S.

through our subsidiaries Security Plan Life Insurance Company ("SPLIC"), Magnolia Guaranty Life Insurance Company ("MGLIC") and Security Plan Fire Insurance Company ("SPFIC").

These companies focus on final expense life insurance needs of middle- and lower-income markets, primarily in Louisiana, Mississippi and Arkansas.

Our policies are sold and serviced through a home service marketing distribution system of about 240 independent agents as of December 31, 2020, who work on a route system and through over 175 funeral homes, all of whom sell policies, collect premiums and service policyholders.

We also sell limited liability, named peril property policies covering dwelling and contents through SPFIC.

In 2020, our Home Service Insurance segment comprised 27% of our total consolidated direct premiums.

HOME SERVICE PRODUCTS AND COMPETITION

Our Home Service Insurance products consist primarily of small face amount ordinary whole life and pre-need policies, which are designed to fund final expenses for the insured, primarily funeral and burial costs.

The average life insurance policy face amount issued in 2019 was approximately $7,200 .

Our Home Service Insurance products consist primarily of small face amount ordinary whole life and pre-need policies, which are designed to fund final expenses for the insured (e.g.

funeral and burial costs).

The average life insurance policy face amount issued in 2020 was approximately $5,400 per policy.

Due to the lower risk associated with small face amount polices, the underwriting performed on these applications is limited.

Our property coverages are limited to $30,000 maximum coverage on any one dwelling and contents, while content-only coverage and dwelling-only coverage is limited to $20,000 .

We face competition in Louisiana, Mississippi and Arkansas from other companies specializing in home service insurance.

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

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.

We face competition in Louisiana, Mississippi and Arkansas from other companies specializing in final expense insurance.

We seek to compete based upon our emphasis on personal service to our customers.

We intend to continue premium growth within this segment via direct sales.

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We follow the industry practice of reinsuring a portion of our insurance risks with unaffiliated reinsurers.

In a reinsurance transaction, a reinsurer agrees to indemnify another insurer for part or all of its liability under a policy or policies it has issued for an agreed upon premium.

We participate in reinsurance activities in order to minimize exposure to significant risks, limit losses, and provide additional capacity for future growth.

We enter into various agreements with reinsurers that cover individual risks, group risks or defined blocks of business, primarily on a coinsurance, yearly renewable term, excess of loss or catastrophe excess basis.

These reinsurance agreements spread risk and minimize the effect of losses.

For the majority of our business, we retain the first $100,000 of risk on any one life and reinsure the remainder of the risk.

Therefore, under the terms of the reinsurance agreements, the reinsurers agree to reimburse us for the ceded amount (i.e., the death benefit amount less our retained risk) in the event a claim is paid.

Cessions under reinsurance agreements do not discharge our obligations as the primary insurer.

In the event reinsurers do not meet their obligations under the terms of the reinsurance agreements, reinsurance recoverable balances could become uncollectible.

Our amounts recoverable from reinsurers represent receivables from and/or reserves ceded to reinsurers.

The amounts recoverable from reinsurers were $5.8 million as of December 31, 2020.

We focus on obtaining reinsurance from a diverse group of well-established reinsurers.

We have restructured our reinsurance relationships as of January 1, 2021 and reinsure our international business with three different reinsurers and our domestic business with two reinsurers.

We regularly evaluate the financial condition of our reinsurers and monitor concentration risk with our reinsurers.

OTHER NON-INSURANCE ENTERPRISES

Other Non-Insurance Enterprises includes the results of the parent company, Citizens, Inc., and Computing Technology, Inc., which provides data processing services to the Company.

Other Non-Insurance Enterprises includes the results of the parent company, Citizens, Inc.

and our non-insurance subsidiary, Computing Technology, Inc., which entities primarily provide the Company's information technology and corporate-support functions to the insurance operations.

OPERATIONS AND TECHNOLOGY

Our administrative operations principally serve our Life Insurance segment and are conducted primarily at our executive offices in Austin, Texas through 103 administrative, operating and underwriting personnel.

Our Home Service business is conducted, to a large degree, from our district offices in Louisiana, Arkansas and Mississippi, as well as our service center in Donaldsonville, Louisiana.

At our executive offices, we also perform policy design, marketing oversight, underwriting, accounting and reporting, actuarial, customer service, claims processing, administrative and investing activities.

At our Bermuda office, we have 3 personnel that perform underwriting, policy issuance and claims processing related to CICA Ltd.'s international policies.

Our administrative operations principally serve our Life Insurance segment and are conducted primarily at our executive offices in Austin, Texas where our administrative, operating and underwriting personnel are located.

Our executive offices are also the base for our policy design, marketing oversight, underwriting, accounting and reporting, actuarial, customer service, legal, human resources, claims processing, administrative and investing activities.

Our Home Service Insurance segment is conducted, to a large degree, from our district offices in Louisiana, Arkansas and Mississippi, as well as our service center in Donaldsonville, Louisiana.

At our Bermuda office, we perform underwriting, policy issuance, claims processing, accounting and reporting related to CICA Ltd.'s policies.

We have a single integrated information technology system for our entire Company, which is a centrally-controlled, mainframe-based administrative system.

Functions of our policy administrative system include policy set-up, administration, billing and collections, commission calculation, valuation, automated data edits, storage backup, image

Functions of our policy administrative system include policy set-up, administration, billing and collections, commission calculation, valuation, automated data edits, storage backup, image management and other related functions.

Each company and block of business we have acquired has been converted onto our administrative system.

This system has been in place for more than 30 years and has been updated on an ongoing basis as technology has evolved.

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management and other related functions.

Each company we acquire has been converted onto our administrative system.

This system has been in place for more than 30 years and has been updated on an ongoing basis as technology has evolved.

We are currently reviewing technology options to transition from our legacy administration system to an upgraded, modernized technology platform that will service our policy administration needs into the future.

We have outsourced the operations and maintenance of our legacy system that manages the administration and accounting of our current block of insurance contracts to a third-party provider.

ENTERPRISE RISK MANAGEMENT

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Effective risk oversight is an important priority for the Company’s Board and senior management team.

While it is the job of the President and Chief Executive Officer and senior management to assess and manage the Company’s risk exposure through ERM, the Audit Committee of the Board is charged with discussing guidelines and policies to govern the process by which ERM is handled.

While it is the job of the Chief Executive Officer and senior management to assess and manage the Company’s risk exposure through ERM, the Audit Committee of the Board is charged with discussing guidelines and policies to govern the process by which ERM is handled.

The Audit Committee periodically discusses the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures.

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• Strategic risk, including international business risks;

Insurance risk, including those arising out of catastrophes and acts of terrorism;

• Insurance risk, including those arising out of unforeseen events (such as the COVID-19 pandemic), catastrophes and acts of terrorism;

• Financial risk, including market, credit and liquidity risks;

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The Board satisfies this responsibility through full reports by each committee chair regarding the committees’ considerations and actions, as well as through regular reports directly from officers responsible for oversight of particular risks within the Company.

The insurance industry is heavily regulated and both Citizens and our insurance subsidiaries are subject to regulation and supervision by the U.S.

states in which they do business and for CICA Ltd., by Bermuda.

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Our insurance subsidiaries are subject to regulation and supervision by the U.S.

states and Bermuda.

insurance operations are subject to a wide variety of laws and regulations.

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insurance businesses, and our insurance subsidiaries are regulated by the insurance departments of each state in which they are licensed.

In addition, U.S.

laws, such as the USA Patriot Act of 2001, the Foreign Corrupt Practices Act ("FCPA"), the Gramm-Leach-Bliley Act of 1999, the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") and the Tax Cuts and Jobs Act, are examples of U.S.

regulations that affect our business.

In addition to insurance-specific laws, U.S.

laws, such as the USA Patriot Act of 2001, the Foreign Corrupt Practices Act, the Gramm-Leach-Bliley Act of 1999, the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Tax Cuts and Jobs Act, are examples of U.S.

laws that affect our business.

We are subject to comprehensive regulations under the USA Patriot Act and the U.S.

Bank Secrecy Act ("BSA") with respect to money laundering, as well as federal regulations regarding privacy and confidentiality.

Our insurance products and thus our businesses also are affected by U.S.

Bank Secrecy Act with respect to money laundering, as well as federal regulations regarding privacy and confidentiality.

Our U.S.-based insurance products and thus our businesses also are affected by U.S.

federal, state and local tax laws.

The purpose of the laws and regulations that affect our insurance business is primarily to protect our insureds and not our stockholders.

The laws and regulations that affect our insurance business are enacted primarily to protect our insureds and not our stockholders.

Many of the laws and regulations to which we are subject are regularly re-examined, and existing or future laws and regulations may become more restrictive or otherwise adversely affect our operations.

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In addition, insurance regulators may prohibit the payment of ordinary dividends or other payments by our insurance subsidiaries to us (such as a payment under a tax sharing agreement or for employee or other services) if they determine such payment could be adverse to policyholders or insurance contract holders of the subsidiary.

The laws and regulations of the jurisdictions in which our U.S.

insurance subsidiaries are domiciled require that a controlling party obtain the approval of the insurance commissioner of the insurance company's jurisdiction of domicile prior to acquiring or divesting control of the insurer and may delay, deter or prevent a transaction our

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The laws and regulations of the jurisdictions in which our U.S.

insurance subsidiaries are domiciled require that a controlling party obtain the approval of the insurance commissioner of the insurance company's jurisdiction of domicile prior to acquiring control of the insurer and may delay, deter or prevent a transaction our shareholders might consider desirable.

shareholders might consider desirable.

As described above, the Company and the Foundation are in the process of obtaining such regulatory approval in order for the Company to purchase the Class B common stock from the Foundation.

Risk-based capital ("RBC") requirements are imposed on life and property and casualty insurance companies.

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INTERNATIONAL REGULATION

CICA Ltd., our Bermuda domiciled subsidiary, is subject to regulation and supervision by the Bermuda Monetary Authority (the "BMA") and compliance with all applicable Bermuda law and Bermuda insurance statutes and regulations, including but not limited to Bermuda’s Insurance Act 1978 (the "Insurance Act").

CICA Ltd., our Bermuda domiciled subsidiary, is subject to regulation and supervision by the Bermuda Monetary Authority (the "BMA") and compliance with all applicable Bermuda laws and insurance statutes and regulations, including but not limited to Bermuda’s Insurance Act of 1978 (the "Insurance Act").

CICA Ltd., which is incorporated to conduct long-term business, is registered as a Class E insurer, which is the license class for long-term insurers and reinsurers with total assets of more than $500 million that are not registrable as a single-parent or multi-owner long-term captive insurer or reinsurer.

is not licensed to conduct any business other than an insurance business.

is not licensed to conduct any business other than life insurance business.

The Insurance Act regulates the insurance business of CICA Ltd.

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limitations on dividends and distributions that CICA Ltd.

may make to Citizens, Inc., its parent company;

may make to Citizens, its parent company;

preparation of an annual Financial Condition Report providing details of measures governing the business operations, corporate governance framework, solvency and financial performance;

preparation of an assessment of an insurer's own risk and solvency requirements, referred to as a Commercial Insurer’s Solvency Self-Assessment;

the establishment and maintenance of a head and principal office in Bermuda (with certain officers, a principal representative and a director to reside in Bermuda);

the establishment and maintenance of a head and principal office in Bermuda;

appointment of an independent auditor;

appointment of an actuary approved by the BMA;

and compliance with restrictions on certain changes in control of regulated insurers.

Bermuda’s regulatory regime provides a risk-based capital model, termed the Bermuda Solvency Capital Requirement (“BSCR”), as a tool to assist the BMA both in measuring risk and in determining appropriate levels of capitalization.

and appointment of an actuary approved by the BMA.

The BMA measures an insurer’s risk and determines appropriate levels of capitalization by using a risk-based capital model called the Bermuda Solvency Capital Requirement (“BSCR”), which CICA Ltd.

uses to calculate its solvency requirements.

The BSCR employs a standard mathematical model that correlates the risk underwritten by Bermuda insurers to their capital.

The BSCR framework applies a standard measurement format to the risk associated with an insurer's assets, liabilities and premiums, including a formula to take into account catastrophe risk exposure.

The BMA established risk-based regulatory capital adequacy and solvency margin requirements for Bermuda insurers mandate that a Bermuda domiciled subsidiary’s Enhanced Capital Requirement ("ECR") be calculated by either (a) BSCR, or (b) an internal capital model which the BMA has approved for use for this purpose.

uses the BSCR in calculating its solvency requirements.

The Economic Balance Sheet (“EBS") framework is embedded as part of the BSCR and forms the basis of our ECR.

In order to minimize the risk of a shortfall in capital arising from an unexpected adverse deviation, and to facilitate the implementation of a risk-based capital approach, the BMA has established a threshold capital level (termed the Target Capital Level ("TCL")), set at 120% of ECR, that serves as an early warning tool for the BMA.

Failure to maintain statutory capital at least equal to the TCL would likely result in increased BMA regulatory oversight.

In order to minimize the risk of a shortfall in capital arising from an unexpected adverse deviation or excess risk, the BMA has established a threshold capital level (termed the Target Capital Level ("TCL")), which is set at 120% of a company’s enhanced capital requirement.

The TCL serves as an early warning tool for the BMA.

For the quarter ended March 31, 2020, because of the disruption that the COVID-19 pandemic had on the worldwide economy, the fair value of our assets decreased and interest rates also 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 TCL by $8.9 million.

While the failure to meet the minimum threshold was rectified as of April 30, 2020, the BMA conducted a review of CICA Ltd.

in the third and fourth quarter of 2020 in order to assess CICA Ltd.’s compliance with the Insurance Act and other relevant rules applicable to CICA Ltd.

(the “Prudential Review”).

As a result of the 2020 Prudential Review by the BMA, on January 14, 2021, the BMA issued a letter to CICA Ltd.

that, among other things, requires Citizens to enter into a “Keepwell Agreement” by September 30, 2021.

A Keepwell Agreement is a contract between a parent company and its subsidiary to maintain solvency and financial

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backing throughout the term set in the agreement.

The Keepwell Agreement should include a specific target solvency level at which a capital injection would be required to be made into CICA Ltd.

to ensure compliance with the Insurance Act and related rules.

Bermuda law distinguishes between those companies that are at least 60% owned and controlled by Bermudians, which are "local companies", and those which are owned and controlled by non-Bermudians, which are "exempted companies".

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The ES Act, as amended, and the regulations promulgated thereunder (collectively, "ES Law"), apply to any "relevant entity" that conducts any "relevant activity" in a "relevant financial period".

Under the ES Law, insurance and holding entities are each defined as a "relevant activity" and thus the ES Act applies to CICA Ltd.

Under the provisions of the ES Law, a relevant entity that conducts a relevant activity must satisfy the economic substance requirements under the ES Law (the "ES Requirements") in relation to the relevant activity and where a relevant entity is conducting more than one relevant activity, it must meet the ES Requirements with respect to each relevant activity that it conducts.

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and (e) there is adequate operating expenditure incurred in Bermuda in relation to each relevant activity.

Under the ES Law, insurance and holding entities are each defined as a "relevant activity".

will be required to demonstrate compliance with the ES Requirements by filing an annual economic substance declaration with the Registrar of Companies in Bermuda no later than six months after the last day of the relevant financial period.

is required to demonstrate compliance with the ES Requirements by filing an annual economic substance declaration with the Registrar of Companies in Bermuda no later than six months after the last day of the relevant financial period.

Companies that conduct insurance as a relevant activity are deemed to comply with the ES Requirements, with respect to their insurance business, if they comply with the existing regulatory requirements under the Insurance Act and the corporate governance provisions of the Companies Act 1981.

is in compliance with these requirements.

is in compliance with these requirements as of December 31, 2020.

Other International Regulation

Generally, all foreign countries in which we offer insurance products require a license or other authority to conduct insurance business in that country.

Some of these countries also require that local regulatory authorities approve the terms of any insurance product sold to residents of that country.

We have never qualified to do business in any foreign country or jurisdiction, except with respect to Bermuda, where CICA Ltd.

is domiciled, and have never submitted our insurance policies issued to residents of foreign countries for approval by any foreign or domestic insurance regulatory agency.

We sell our policies to residents of foreign countries using foreign independent marketing firms and independent consultants, and we rely on our independent consultants to comply with laws applicable to them in marketing our insurance products in their respective countries.

We have never qualified to do business in any foreign country or jurisdiction and have never submitted our insurance policies issued to residents of foreign countries for approval by any foreign or domestic insurance regulatory agency.

As described above, we sell our policies to residents of foreign countries through independent marketing agencies and independent consultants located in those countries, and we rely on our independent consultants to comply with laws applicable to them in marketing our insurance products in their respective countries.

We have undertaken a comprehensive compliance review of risks associated with the potential application of foreign laws to our sales of insurance policies in foreign countries.

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There is a lack of uniform regulation, lack of clarity in certain regulations and lack of legal precedent in addressing circumstances similar to ours.

Our compliance review has confirmed the previously disclosed risks related to foreign insurance laws associated with our current business model, at least in certain jurisdictions, as described in detail in Item 1A.

Risk Factors - "Risks Relating to our Business".

We are exploring alternatives to our current business model in one or more jurisdictions.

Our compliance review has confirmed certain risks related to foreign insurance laws associated with our current business model, at least in certain jurisdictions, as described in detail in Item 1A.

R i s k F a c t o r s .

HUMAN CAPITAL RESOURCES

Our employees and independent consultants are critical to selling our insurance products and providing services to our global base of policyholders.

As of December 31, 2020, we had 245 employees.

We currently do not utilize captive employee agents to distribute our products and thus contract with almost 1,000 independent consultants internationally and 415 independent agencies and agents domestically to sell and service our insurance products.

Independent agents work for themselves and may sell insurance policies for a variety of insurers and make most of

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their money through sales commissions and bonuses.

None of our employees are subject to a collective bargaining agreement.

In order to continue to develop, administer and sell our products, it is crucial that we continue to attract and retain both experienced employees and independent agents.

Compensation and Benefits Program.

Our compensation program is designed to attract and reward talented individuals who possess the skills necessary to support our business objectives, assist in the achievement of our strategic goals and create long-term value for our stockholders.

We provide employees with compensation packages that include base salary, annual incentive bonuses, and long-term equity awards ("RSUs") for certain employees tied to the value of our stock price.

We believe that a compensation program with both short-term and long-term awards provides fair and competitive compensation and aligns employee and stockholder interests, including by incentivizing business and individual performance (pay for performance), motivating based on long-term company performance and integrating compensation with our business plans.

In addition to cash and equity compensation, we also offer standard employee benefits such as life and health (medical, dental & vision) insurance, paid parental leave, and a 401(k) plan.

We attract and retain our independent agent sales force through the use of our commission structure and agent campaigns and promotions.

We believe that our standard commission structure is attractive and competitive in the market.

In our Life Insurance segment, our campaigns and promotions provide an extra incentive to agents that not only promote first year premium growth, but also create improvements within policyholder retention.

In our Home Service Insurance segment, our agent campaigns and promotions are critical in attracting and retaining our independent agent sales force.

This business contains a large block of existing in force policies.

To ensure we maintain this book of business, the agent campaigns and promotions provide an extra incentive to not only grow the business but to collect on the existing policies.

We believe that providing agent campaigns and promotions with additional incentives that provide long-term value creates an advantage for Citizens over our competition.

Diversity and Inclusion.

We derive a great deal of strength from our diverse workforce.

We believe that an equitable and inclusive environment with diverse teams produces more creative solutions, results in better, more innovative products and services and is crucial to our efforts to attract and retain key talent.

We are focused on building on the existing executive team's work to foster diversity and inclusion in the workplace.

Health and Safety.

In response to the COVID-19 pandemic, we implemented significant operating environment changes that we determined were in the best interest of the health of our employees and independent agents, as well as the communities in which we operate, and which comply with government regulations.

These changes included having the vast majority of our employees work from home, while implementing additional safety measures for employees continuing critical on-site work.

We also created training programs to assist our independent agents with online sales efforts in order to minimize face-to-face interactions with potential customers and our policyholders.

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-K

Item 1. Business