What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2022-03-11 compared with 2021-03-10 · 483 added, 496 removed, 1526 unchanged (39% of the section changed)

CONTROLS AND PROCEDURES

(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES [To be updated]

(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosures.

Our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of December 31, 2021, the end of the period covered by this Annual Report on Form 10-K.

Based on such evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2020.

(b) MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act.

The Company’s internal control over financial

Based on such evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2021 to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and such information is accumulated and reported to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding disclosure.

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reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.

(b) MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act.

The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

2 unchanged sentences

Based on this evaluation, management concluded that our internal control over financial reporting as of December 31, 2021 was effective.

Deloitte & Touche LLP, an independent registered public accounting firm, audited the effectiveness of our internal control over financial reporting as of December 31, 2020.

Grant Thornton LLP, an independent registered public accounting firm, audited the effectiveness of our internal control over financial reporting as of December 31, 2021.

Their attestation report is included in Item 9A(c) of this Annual Report.

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Citizens, Inc.

Board of Directors and Stockholders

Citizens, Inc.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Citizens, Inc.

and consolidated subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report dated March 10, 2021, expressed an unqualified opinion on those consolidated financial statements.

(a Colorado corporation) and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in the 2013 Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control — Integrated Framework issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the consolidated financial statements of the Company as of and for the year ended December 31, 2021, and our report dated March 11, 2022, expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

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become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ DELOITTE & TOUCHE LLP

Austin, Texas

/s/ GRANT THORNTON LLP

Miami, Florida

March 11, 2022

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EXECUTIVE COMPENSATION

Item 11 of this Annual Report on Form 10-K incorporates by reference the information in the sections entitled "Directors - Director Compensation," "Executive Compensation" and "Corporate Governance - Compensation Committee Interlocks and Insider Participation" in our Proxy Statement.

Item 11 of this Annual Report on Form 10-K incorporates by reference the information in the sections entitled "Directors - Director Compensation," "Executive Compensation" and "Board Matters - Compensation Committee Interlocks and Insider Participation" in our Proxy Statement.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Item 13 of this Annual Report on Form 10-K incorporates by reference the information in the sections entitled "Corporate Governance - Director Independence" and "Corporate Governance - Certain Relationships and Related Party Transactions" in our Proxy Statement.

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PRINCIPAL ACCOUNTING FEES AND SERVICES

Item 13 of this Annual Report on Form 10-K incorporates by reference the information in the sections entitled "Board Matters - Director Independence" and "Board Matters - Certain Relationships and Related Party Transactions" in our Proxy Statement.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Item 14 of this Annual Report on Form 10-K incorporates by reference the information in the section entitled "Audit Matters" in our Proxy Statement.

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Index to Consolidated Financial Statements and Financial Statement Schedules Page

Report of Independent Registered Public Accounting Firm 73

Reports of Independent Registered Public Accounting Firm - Auditor Name:

Grant Thornton LLP Auditor Firm ID:

248 Auditor Location:

Reports of Independent Registered Public Accounting Firm - Auditor Name:

Deloitte & Touche LLP Audit Firm ID:

34 Auditor Location:

Consolidated Balance Sheets at December 31, 2021 and 2020

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Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Citizens, Inc.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheet of Citizens, Inc.

(a Colorado corporation) and subsidiaries (the “Company”) as of December 31, 2021, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for the year ended December 31, 2021, and the related notes and financial statement schedules included under Item 15(a) (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 11, 2022 expressed an unqualified opinion.

Basis for opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical audit matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Development of Assumptions for Future Policy Benefit Reserves Loss Recognition Testing and Deferred Acquisition Costs Recoverability Testing

As described further in notes 1 and 4 to the financial statements, the Company develops assumptions that are used for several key estimates.

These estimates include, but are not limited to, the loss recognition testing for future policy benefit reserves for life insurance contracts and deferred policy acquisition costs and their related recoverability estimate.

The most significant assumptions include mortality, persistency, expense, and investment experience.

These assumptions are based upon the Company’s experience, modified as necessary to reflect

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anticipated trends and to include provisions for possible adverse deviations.

Management’s estimate of future policy benefits for life insurance contracts was $1.28 billion as of December 31, 2021, while the balance of deferred policy acquisitions costs which was subject to recoverability testing was $140.4 million as of December 31, 2021.

We identified the development of assumptions for future policy benefit reserves loss recognition testing and deferred acquisition costs recoverability testing as a critical audit matter.

The principal considerations for our determination that the development of assumptions for future policy benefit reserves loss recognition testing and deferred acquisition costs recoverability testing is a critical audit matter are that the development of these assumptions requires management to make significant estimates regarding mortality, persistency, expense, and investment experience based on historical experience and future expectations.

As such, auditing the development of such assumptions involved subjective and complex auditor judgment and the involvement of specialists.

Our audit procedures related to the development of assumptions for future policy benefit reserves loss recognition testing and deferred acquisition costs recoverability testing included the following, among others.

• We tested the design and operating effectiveness of management's review control over the mortality, persistency, expense, and investment experience assumption development process.

• We utilized a specialist in evaluating management's process, methodologies and judgments in the development of the assumptions of mortality, persistency, expense, and investment experience, that were used in management's testing of future policy benefit reserves loss recognition and deferred acquisition costs recoverability testing.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2021.

Miami, Florida

March 11, 2022

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Citizens, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Citizens, Inc.

and consolidated subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and the schedules listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 10, 2021, expressed an unqualified opinion on the Company’s internal control over financial reporting.

We have audited the accompanying consolidated balance sheet of Citizens, Inc.

and consolidated subsidiaries (the “Company”) as of December 31, 2020, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2020, and the related notes and the schedules listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

5 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Future Policy Benefit Reserves and Amortization of Deferred Policy Acquisition Costs for Life Insurance Contracts — Refer to Notes 1 and 4 to the consolidated financial statements

Critical Audit Matter Description

The Company’s management sets assumptions used in (1) recording a liability for policy benefit payments that will be made in the future (future policy benefit reserves), (2) amortization of deferred policy acquisition costs, (3)

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deferred policy acquisition costs recoverability testing and (4) loss recognition testing.

The most significant assumptions include mortality, lapse and interest rate.

Assumptions are based upon the Company’s experience, modified as necessary to reflect anticipated trends and to include provisions for possible adverse deviations.

Management’s estimate of future policy benefits for life insurance contracts was $1.25 billion as of December 31, 2020.

Total amortization of deferred policy acquisition costs for life insurance contracts was $24 million for the year ended December 31, 2020.

Given the inherent uncertainty in selecting the mortality, lapse and interest rate assumptions and sensitivity of these significant assumptions, auditing the development of such assumptions involved especially subjective judgment and the involvement of our actuarial specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to management’s judgments regarding the mortality, lapse and interest rate assumptions used in the development of future policy benefit reserves, the amortization of deferred policy acquisition costs, and performing annual deferred policy acquisition costs recoverability testing and loss recognition testing included the following, among others:

• We tested the operating effectiveness of the Company’s controls over the assumption development process, the valuation of future policy benefit reserves and amortization of deferred policy acquisition costs.

• We tested the underlying data of management’s experience studies used in the development of the assumptions.

• With the assistance of our actuarial specialists, we evaluated management’s selected actuarial assumptions, including consideration of management’s process, methodologies and judgments used to develop the assumptions.

• With the assistance of our actuarial specialists, we evaluated whether the assumptions used for future policy benefit reserves and amortization of deferred policy acquisition costs calculations were consistent with assumptions determined by management in their experience studies and assumption setting process.

• With the assistance of our actuarial specialists, we evaluated loss recognition and deferred policy acquisition costs recoverability projections for consistency with assumptions determined by management in their experience studies and assumption setting process.

Goodwill — Refer to Note 1 to the consolidated financial statements

Critical Audit Matter Description

The Company’s evaluation of goodwill for impairment involves the comparison of the estimated fair value of the reporting unit to its carrying value.

The Company’s determination of the estimated fair value of the reporting unit incorporates significant judgments, including discounted cash flow calculations based on assumptions that market participants would make in valuing the reporting unit, including discount rate and projections of production levels and profitability of new business.

Changes in these assumptions could have an impact on either the fair value, the amount of any goodwill impairment charge, or both.

The goodwill balance was $12.6 million as of December 31, 2020, all of which was allocated to the Life Insurance segment reporting unit.

The fair value of the Life Insurance segment exceeded its carrying value by 8% as of the measurement date and, therefore, no impairment was recognized.

Given the significant judgments made by management to estimate the fair value of the reporting unit, and the difference between its fair value and carrying value, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to selection of the discount rate and projections of production levels and profitability of new business required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists and actuarial specialists.

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How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures performed to evaluate the reasonableness of management’s estimates and assumptions related to the discount rate and production levels and profitability of new business used by management to estimate the fair value of the reporting unit, included the following, among others:

• We tested the operating effectiveness of the Company’s controls related to its goodwill impairment assessment, including controls related to management’s selection of the discount rate and projections of production levels and profitability of new business.

• With the assistance of our fair value specialists, we evaluated the discount rate, which included developing a range of independent estimates of discount rate assumptions and comparing those to the discount rate selected by management.

• We evaluated the reasonableness of management’s projections of production levels and profitability of new business by comparing the projections to internal communications to management and the Board of Directors and sales targets included in compensation plans approved by the Board of Directors.

• With the assistance of our actuarial specialists, we evaluated whether mortality, lapse and interest rate assumptions used in the projections of production levels and profitability of new business were consistent with assumptions determined by management in their experience studies and assumption setting process.

• We tested the underlying data used in the discounted cash flow calculations and the mathematical accuracy of the discounted cash flow calculations.

/s/ DELOITTE & TOUCHE LLP

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March 10, 2021

We have served as the Company’s auditor since 2017.

We began serving as the Company's auditor in 2017.

In 2021, we became the predecessor auditor.

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Real estate held-for-sale — 2,571

Other long-term investments (portion measured at fair value $ 11,923 in 2020;

less allowance for losses of $ 11 in 2020)

Short-term investments — 1,301

Other long-term investments (portion measured at fair value $ 56,038 and $ 11,923 in 2021 and 2020, respectively;

less allowance for losses of $ — and $ 11 in 2021 and 2020, respectively)

57,399 27,294

Total investments 1,623,167 1,624,668

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Goodwill and other intangible assets 941 13,570

Federal income tax receivable 762 —

Property and equipment, net 14,074 16,312

Due premiums 10,748 11,309

Other assets (less allowance for losses of $ 297 in 2020)

Other assets (less allowance for losses of $ 111 and $ 297 in 2021 and 2020, respectively)

Total assets $ 1,854,511 1,843,420

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Common stock:

Class A, no par value, 100,000,000 shares authorized, 52,654,016 and 52,364,993 shares issued and outstanding in 2020 and 2019, respectively, including shares in treasury of 3,135,738 in 2020 and 2019

Class A, no par value, 100,000,000 shares authorized, 53,170,413 and 52,654,016 shares issued and outstanding as of December 31, 2021 and 2020, respectively, including shares in treasury of 3,135,738 as of December 31, 2021 and 2020

265,561 262,869

Class B, no par value, 2,000,000 shares authorized, 1,001,714 shares issued and outstanding in 2020 and 2019

Class B, no par value, 2,000,000 shares authorized, 1,001,714 shares issued and outstanding as of December 31, 2021 and 2020, including shares in treasury of 1,001,714 as of December 31, 2021

Accumulated deficit ( 45,565 ) ( 82,352 )

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Net investment income 61,495 60,197 59,531

Realized investment gains (losses), net 1,502 5,249 108

Investment related gains (losses), net 10,991 1,502 5,249

Other income 3,332 1,828 1,418

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Amortization of cost of insurance acquired 1,206 1,816 1,546

Goodwill impairment 12,624 — —

Total benefits and expenses 257,234 251,173 244,800

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Net income (loss) 36,787 ( 10,988 ) ( 1,370 )

Per Share Amounts:

Basic and diluted earnings (losses) per share of Class A common stock $ ( 0.22 ) ( 0.03 ) ( 0.22 )

Basic and diluted earnings (losses) per share of Class B common stock ( 0.11 ) ( 0.01 ) ( 0.11 )

Basic Earnings Per Share:

Class A common stock $ 0.74 ( 0.22 ) ( 0.03 )

Class B common stock 0.37 ( 0.11 ) ( 0.01 )

Diluted Earnings Per Share:

Class A common stock 0.73 ( 0.22 ) ( 0.03 )

Class B common stock 0.36 ( 0.11 ) ( 0.01 )

Other Comprehensive Income (Loss):

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Unrealized holding gains (losses) arising during period ( 5,055 ) 48,642 78,825

Reclassification adjustment for losses (gains) included in net income 111 ( 1,927 ) ( 953 )

Reclassification adjustment for losses (gains) included in net income (loss) ( 243 ) 111 ( 1,927 )

Unrealized gains (losses) on fixed maturity securities, net ( 5,298 ) 48,753 76,898

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Balance at December 31, 2018 $ 259,793 3,184 ( 69,599 ) 5,366 ( 11,011 ) 187,733

Accounting standards adopted January 1, 2018 (1)

— — ( 4,162 ) 4,162 — —

Comprehensive income (loss):

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Unrealized investment gains (losses), net — — — 71,751 — 71,751

Unrealized gain from held-to-maturity securities transferred to available-for-sale, net — — — 3,370 — 3,370

Total comprehensive income (loss) — — ( 1,370 ) 71,751 — 70,381

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Balance at December 31, 2019 261,515 3,184 ( 70,969 ) 77,117 ( 11,011 ) 259,836

Accounting standards adopted January 1, 2020 (1)

— — ( 395 ) — — ( 395 )

Comprehensive income (loss):

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Balance at December 31, 2020 262,869 3,184 ( 82,352 ) 128,255 ( 11,011 ) 300,945

Accounting standards adopted January 1, 2020 (1)

— — ( 395 ) — — ( 395 )

Comprehensive income (loss):

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Total comprehensive income (loss) — — 36,787 ( 10,763 ) — 26,024

Acquisition of treasury stock — — — — ( 9,090 ) ( 9,090 )

Stock-based compensation 2,692 — — — — 2,692

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Net income (loss) $ 36,787 ( 10,988 ) ( 1,370 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Realized investment (gains) losses on sale of investments and other assets ( 1,502 ) ( 5,249 ) ( 108 )

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Investment related gains (losses), net on sales of investments and other assets ( 10,991 ) ( 1,502 ) ( 5,249 )

Net deferred policy acquisition costs 2,212 6,964 6,013

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Deferred federal income tax expense (benefit) 427 ( 402 ) 1,573

Goodwill impairment 12,624 — —

Accrued investment income ( 60 ) 1,316 1,014

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Maturities and calls of fixed maturity securities, available-for-sale 53,089 220,397 181,618

Maturities and calls of fixed maturity securities, held-to-maturity — — 20,699

Purchases of fixed maturity securities, available-for-sale ( 94,265 ) ( 271,474 ) ( 329,627 )

Purchases of equity securities — ( 4,473 ) —

Sales of equity securities 7,383 — —

Principal payments on mortgage loans 10 9 9

Increase in policy loans, net ( 1,313 ) ( 1,180 ) ( 7,090 )

Funding of mortgage loans ( 1,000 ) — —

Change in policy loans, net 3,011 ( 1,313 ) ( 1,180 )

Sales of other long-term investments and real estate 24,238 3,671 6,983

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Annuity withdrawals ( 7,763 ) ( 5,759 ) ( 8,505 )

Issuance of common stock 2,255 — —

Acquisition of treasury stock ( 9,090 ) — —

Other ( 456 ) ( 869 ) ( 377 )

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During 2021, 2020 and 2019, various fixed maturity issuers exchanged securities with book values of $ 12.1 million, $ 9.1 million and $ 16.8 million, respectively, for securities of equal value.

The Company recognized right-of-use assets of $ 12.0 million in exchange for new operating lease liabilities during 2020.

The Company recognized right-of-use assets of $ 12.0 million in exchange for new operating lease liabilities during 2020 and none during 2021 and 2019.

The Company accrued purchases of property and equipment of $ 0.8 million as of December 31, 2020, which is reflected in other liabilities on the Consolidated Balance Sheets and recorded none as of December 31, 2021 and 2019.

The Company also had $ 5.3 million of unsettled securities trades as of December 31, 2020 and none as of December 31, 2019 and 2018.

The Company also had $ 5.3 million of unsettled security trades as of December 31, 2020 and none as of December 31, 2021 and 2019.

See accompanying Notes to Consolidated Financial Statements.

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("Citizens" or the "Company"), a Colorado corporation, and its wholly-owned subsidiaries, CICA Life Insurance Company of America ("CICA"), CICA Life Ltd.

("CICA Ltd."), Citizens National Life Insurance Company ("CNLIC"), Security Plan Life Insurance Company ("SPLIC"), Security Plan Fire Insurance Company ("SPFIC"), Magnolia Guaranty Life Insurance Company ("MGLIC"), and Computing Technology, Inc.

("CICA International"), Citizens National Life Insurance Company ("CNLIC"), Security Plan Life Insurance Company ("SPLIC"), Security Plan Fire Insurance Company ("SPFIC"), Magnolia Guaranty Life Insurance Company ("MGLIC"), and Computing Technology, Inc.

All significant inter-company accounts and transactions have been eliminated.

Citizens and its wholly-owned subsidiaries are collectively referred to as the "Company," "we," "us," or "our".

Our Life Insurance segment operates through CICA Ltd., CICA and CNLIC.

Our international life insurance business, which operates through CICA Ltd., issues U.S.

Our Life Insurance segment operates through CICA International, CICA and CNLIC.

Our international life insurance business, which operates through CICA International, 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.

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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 increasing or decreasing coverage and annuity benefits to enhance accumulations.

Our domestic life insurance business, which operates through CICA and CNLIC, primarily focused on living needs and provided benefits toward accumulating financial benefits for the policyowners throughout the Midwest and southern U.S.

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

Our domestic life insurance business operates through CICA and CNLIC.

CICA issues credit life and disability policies and CNLIC issues ordinary whole life policies mainly in Texas and Florida and services whole life and accident and health policies primarily in the Southern U.S., Midwest and Mountain West.

Our 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 products in this segment consist primarily of small face amount ordinary whole life, industrial life and pre-need policies, which are designed to fund final expenses for the insured, primarily consisting of funeral and burial costs as well as limited liability, named peril property policies covering dwelling and contents.

Our products in this segment consist primarily of small face amount ordinary whole life, industrial life and pre-need policies, which are designed to fund final expenses for the insured, primarily consisting of funeral and burial costs as well as property insurance policies, which cover dwelling and contents.

CTI provides data processing systems and services to the Company.

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Securities not classified as HTM are classified as AFS and are carried at fair value, with the unrealized holding gains and losses, net of tax, reported in other comprehensive income and are not reported in earnings until realized.

Fixed maturity securities consist primarily of bonds classified as AFS or HTM.

The Company does not classify any fixed maturity securities as trading and, beginning September 30, 2018, the Company no longer classifies any fixed maturity securities as HTM.

Equity securities are measured at fair value beginning January 1, 2018, with the change in fair value recorded through net income.

Prior to 2018, changes in equity security fair values were a component of accumulated other comprehensive income.

Our fixed maturity securities consist primarily of bonds classified as AFS.

The Company does not classify any fixed maturity securities as trading or as HTM.

Equity securities are measured at fair value with the change in fair value recorded through net income.

Unrealized gains (losses) of fixed maturity securities held as AFS are shown as a separate component of stockholders' equity, net of tax, and is a separate component of comprehensive income.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Beginning January 1, 2020 in connection with the adoption of a new accounting standard, the Company assesses AFS fixed maturity securities in an unrealized loss position for expected credit losses.

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For AFS fixed maturity securities that do not meet either criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors.

In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors.

In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

specifically related to the security, among other factors.

If management deems a credit loss has occurred, the impairment is recorded through an allowance for credit losses rather than as a write-down.

Changes in the allowance for credit losses are recorded through realized investment gains and losses.

Changes in the allowance for credit losses are recorded through investment related gains and losses.

Any impairment that has not been recorded through an allowance for credit losses is recognized in accumulated other comprehensive income on our consolidated balance sheets.

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Policy loans are reported at unpaid principal balances.

Real estate held for sale consists of the Citizens Academy training facility located near Austin, Texas.

This asset is recorded at fair value, less estimated sales costs and is no longer being depreciated.

Other long-term investments at December 31, 2020, consisted primarily of investments in private equity funds, a Rabbi Trust established for the benefit of the former Chief Executive Officer for the severance payment that was made to him on February 8, 2021, Federal Home Loan Bank ("FHLB") common stock and mortgage loans.

We initially estimate the fair value of investments in private equity funds by reference to the transaction price.

Other long-term investments at December 31, 2021, consisted primarily of investments in limited partnerships, Federal Home Loan Bank ("FHLB") common stock and mortgage loans.

At December 31, 2020, this balance also included a Rabbi Trust established for the benefit of the former Chief Executive Officer for the severance payment that was made to him on February 8, 2021.

We initially estimate the fair value of investments in limited partnerships by reference to the transaction price.

Subsequently, we obtain the fair value of these investments from net asset value information provided by the general partner or manager of the investments, the financial statements of which are audited annually.

Recognition of investment income on these funds is delayed due to the availability of the related financial statements, which are generally obtained from the partnerships' general partners.

As a result, our private equity funds are generally reported on a three-month delay.

As a result, our limited partnerships are generally reported on a three-month delay.

We are a member of the FHLB of Dallas and such membership requires members to own stock in the FHLB.

1 unchanged sentence

Mortgage loans on real estate are reported at unpaid principal balances.

The Rabbi trust is carried at amortized cost which approximates fair value.

The Company had cash equivalents and fixed maturity securities with an aggregate fair value of $ 10.1 million and $ 10.8 million at December 31, 2021 and 2020, respectively, on deposit with various state regulatory authorities to fulfill statutory requirements.

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CASH AND CASH EQUIVALENTS

4 unchanged sentences

These securities are carried at fair value.

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REINSURANCE RECOVERABLE

6 unchanged sentences

DEFERRED POLICY ACQUISITION COSTS

Acquisition costs consist of commissions and policy issuance, underwriting and agent convention expenses that are directly related to and vary with the successful production of new business are deferred.

Policy acquisition costs consist of commissions and policy issuance, underwriting and agent convention expenses that are directly related to and vary with the successful production of new business and are deferred.

These deferred amounts, referred to as deferred policy acquisition costs ("DAC"), are recorded as an asset on the consolidated balance sheets and amortized to income in a systematic manner, based on related contract revenues or gross profits as appropriate.

12 unchanged sentences

Those costs generally include costs related to the production, underwriting and issuance of new business.

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DAC is subject to recoverability testing at the time of policy issuance and loss recognition testing on an annual basis, or when an event occurs that might require loss recognition testing.

4 unchanged sentences

DAC related to investment-oriented products is also adjusted to reflect the effect of unrealized gains or losses on AFS fixed maturity securities with related changes recognized through other comprehensive income (shadow DAC).

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The adjustment is made at each balance sheet date, as if the securities had been sold at their stated aggregate fair value and the proceeds reinvested at current yields.

2 unchanged sentences

Similar to other loss recognition on long-duration insurance contracts, such shortfall is first reflected as a reduction in DAC and secondly as an increase in liabilities for future policy benefits.

The change in these adjustments, net of tax, is included with the change in net unrealized appreciation of investments that is credited or charged directly to other comprehensive income.

The change in these adjustments, net of tax, is included with the change in net gains (losses) on available-for-sale fixed maturity securities that is credited or charged directly to other comprehensive income.

The components of DAC from year to year are summarized as follows:

7 unchanged sentences

Balance at end of period $ 140,380 104,913 149,249

We converted to a new actuarial valuation software solution that provided enhanced modeling capabilities for the ordinary whole life policies of SPLIC as of July 1, 2019 and the ordinary whole life and endowment policies of CICA and CICA Ltd.

as of July 1, 2018.

The total impact of these system conversions, which impacted both the Home Service Insurance and Life Insurance segments, reflect changes in actuarial valuation estimates associated with the

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We converted to a new actuarial valuation software solution that provided enhanced modeling capabilities for the ordinary whole life policies of CNLIC as of April 1, 2021 and of SPLIC as of July 1, 2019.

The total impact of these system conversions, which impacted both the Home Service Insurance and Life Insurance segments, reflect changes in actuarial valuation estimates associated with the conversion.

The impact is reflected in the accompanying consolidated financial statements and summarized in the table below.

18 unchanged sentences

These annual recoverability tests are based initially on an estimate of the available premium (gross premium less the benefit and expense portion of premium) for the next 50 years.

Management believes that our COIA is recoverable for the years ended December 31, 2020 and 2019.

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believes that our COIA is recoverable for the years ended December 31, 2021 and 2020.

This belief is based upon the analysis performed on estimated future results of the block and our annual recoverability testing.

7 unchanged sentences

Balance at end of period $ 10,611 11,541 13,455

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Estimated amortization of COIA in each of the next five years and thereafter is as follows.

15 unchanged sentences

We have the option of performing an assessment of certain qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value or proceeding directly to a quantitative impairment test.

We elected to apply the quantitative assessment for the goodwill in our reporting units within each of our operating segments as of December 31, 2020 and 2019.

We performed our annual goodwill impairment test and the fair value was in excess of the segment's carrying value for the years ended 2020, 2019 or 2018, respectively.

As of December 31, 2020, the Company had $ 12.6 million of goodwill allocated to the Life Insurance segment.

We elected to apply the quantitative assessment for the goodwill in our reporting units within the Life Insurance segment as of December 31, 2021 and 2020.

The Company completes its annual goodwill assessment for the individual reporting units within the Life Insurance segment as of December 31 each year.

We apply significant judgement when determining the estimated fair value of our reporting unit.

These judgments incorporate multiple inputs including discounted cash flow calculations based on assumptions that market participants would make in valuing the reporting unit, levels of economic capital, production levels and profitability of new business, pricing changes, spread compression, value of in force, discount rate and earnings projections.

Estimates of fair value are inherently uncertain and represent management’s reasonable expectations regarding future developments.

Unfavorable changes to assumptions or factors that decrease the fair value and could result in future impairment include, but are not limited to, lower expectations for future sales, higher maintenance expenses, unfavorable mortality, higher discount rates and market-based inputs.

Increases in the carrying value of the segment caused by recognition of uncertain tax benefits could also result in future impairment.

December 31, 2021 | 10-K 80

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Goodwill is summarized as follows:

production levels and profitability of new business, pricing changes, spread compression, value of in force, discount rate and earnings projections.

Estimates of fair value are inherently uncertain and represent management’s reasonable expectations regarding future developments.

The following is a summary of changes in goodwill in our Life Insurance segment:

Years ended December 31,

1 unchanged sentence

2021 2020 2019

Life Insurance Segment:

Balance at January 1, $ 12,624 12,624 12,624

Balance at beginning of period $ 12,624 12,624 12,624

Impairment 12,624 — —

Balance at December 31, $ 12,624 12,624 12,624

Balance at end of period $ — 12,624 12,624

We recorded an impairment of $ 12.6 million in 2021 in our Life Insurance segment caused by increases in our carrying value of the segment due to recognition of an $ 43.8 million uncertain tax position in the fourth quarter of 2021, following the expiration of the statute of limitations on the tax year ended December 31, 2017.

This impairment is recorded on the Consolidated Statement of Operations.

There was no impairment of goodwill in the years ended 2020 or 2019.

PROPERTY AND EQUIPMENT

Property and equipment are carried at cost less accumulated depreciation.

Depreciation of property and equipment is computed using the straight-line method over the useful lives of the assets, ranging from three to thirty years.

Depreciation of property and equipment is computed using the straight-line method over the useful lives of the assets, ranging from three years to thirty years .

The following is a summary of property and equipment.

6 unchanged sentences

Real estate and equipment leases (See Note 7 )

10,827 11,973

Total property and equipment 23,461 24,956

9 unchanged sentences

The accrued account balance for non-traditional life insurance and investment contracts is computed as deposits net of withdrawals made by the contract holder, plus amounts credited based on contract specifications, less contract fees and charges assessed, plus any additional interest.

Annuity interest crediting rates range from 2.5 % to 5.5 % annually.

Annuity interest crediting rates range from 2.5 %

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to 5.5 % annually.

Benefits and expenses are charged against the account balance to recognize costs as incurred over the estimated lives of the contracts.

2 unchanged sentences

The liability for incurred but not reported claims includes estimates for additional claim amounts due related to reported claims.

Liabilities for

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unpaid claims are estimated using individual case basis valuations and statistical analysis.

Liabilities for unpaid claims are estimated using individual case basis valuations and statistical analysis.

Those estimates are subject to the effects of trends in claim severity and frequency.

11 unchanged sentences

Earnings and dividends on participating policies are allocated based on policies in force.

Policyholder dividends are determined based on the discretion of the Board of the policy issuing subsidiary.

Policyholder dividends are determined based on the discretion of the board of directors of the policy issuing subsidiary.

Policyholder dividends are accrued over the premium paying periods of the insurance contract.

9 unchanged sentences

We do not allow the recognition of a gain contingency prior to settlement of the underlying event.

If we were to have a material gain contingency, we would disclose it in the notes to the consolidated financial statements.

There were none for the years ended December 31, 2021, 2020 and 2019.

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PREMIUM REVENUE AND RELATED EXPENSES

2 unchanged sentences

Premiums on accident and health policies are recognized as revenue over the contract period on a pro rata basis.

Benefits and expenses are associated with earned premiums so as to result in the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

recognition of profits over the estimated lives of the contracts.

Benefits and expenses are associated with earned premiums resulting in the recognition of profits over the estimated lives of the contracts.

This matching is accomplished by means of a provision for future policy benefits and the capitalization and amortization of deferred policy acquisition costs.

7 unchanged sentences

In addition, the Company must record a tax valuation allowance with respect to deferred tax assets if it is more-likely-than-not that the tax benefit will not be realized.

The Company releases stranded tax effects in accumulated other comprehensive income on an aggregate portfolio basis.

EARNINGS PER SHARE

11 unchanged sentences

No individual amounts were material.

ACCOUNTING PRONOUNCEMENTS

ACCOUNTING STANDARDS RECENTLY ADOPTED

In January 2016, the Financial Accounting Standards Board ("FASB") released Accounting Standards Update ("ASU") No.

2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities .

This ASU requires equity investments, except those accounted for under the equity method of accounting, that have readily determinable fair values to be measured at fair value with any changes in fair value recognized in net income.

Equity securities that do not have readily determinable fair values may be measured at estimated fair value or cost less impairment, if any, adjusted for subsequent observable price changes, with changes in the carrying value

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

recognized in net income.

A qualitative assessment for impairment is required for equity investments without readily determinable fair values.

The updated guidance also eliminates the requirement to disclose the method and significant assumptions used to estimate the fair value of financial instruments measured at amortized cost on the consolidated financial statements.

The Company adopted the updated guidance effective January 1, 2018.

The adoption of this guidance resulted in the recognition of $ 0.6 million of net after-tax unrealized gains on equity investments as a cumulative effect adjustment that decreased retained deficit as of January 1, 2018 and decreased accumulated other comprehensive income ("AOCI") by the same amount.

The Company elected to report changes in the fair value of equity investments in realized investment gains (losses), net.

In February 2018, the FASB issued ASU No.

2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income .

This ASU allows a reclassification from AOCI to retained earnings of the stranded tax effects that occurred due to the enactment of the Tax Cuts and Jobs Act of 2017 (the "Tax Act").

The updated guidance was effective for reporting periods beginning after December 15, 2018 and is to be applied retrospectively to each period in which there are items impacted by the Tax Act remaining in AOCI or at the beginning of the period of adoption.

The Company adopted the updated guidance effective January 1, 2018 and elected to reclassify the income tax effects of the Tax Act from AOCI to accumulated deficit as of January 1, 2018.

This reclassification resulted in an increase in accumulated deficit of $ 4.7 million as of January 1, 2018 and an increase in AOCI by the same amount.

The Company’s accounting policy for the release of stranded tax effects in AOCI is on an aggregate portfolio basis.

In June 2016, the FASB issued ASU No.

ACCOUNTING PRONOUNCEMENTS

ACCOUNTING STANDARDS RECENTLY ADOPTED

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

2016-13, Financial Instruments-Credit Losses (Topic 326) , with the main objective to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.

16 unchanged sentences

The adoption had no impact on our consolidated financial statements.

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ACCOUNTING STANDARDS NOT YET ADOPTED

14 unchanged sentences

For calendar-year public companies, the changes will be effective on January 1, 2023, however, early adoption is permitted.

The Company is evaluating the impact of this new guidance, and it is expected to have a material impact on our consolidated financial statements.

No other new accounting pronouncement issued or effective during the year had, or is expected to have, a material impact on our consolidated financial statements.

We will adopt this ASU effective January 1, 2023, with a transition date of January 1, 2021, using a

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modified retrospective approach.

We continue to make progress in our implementation process that includes, but is not limited to, making significant accounting policy decisions, employing appropriate internal controls, building and updating actuarial models and systems, revising reporting processes and developing informative qualitative and quantitative disclosures.

In 2022, we will begin the process of recording our transition adjustments and restating applicable periods.

We are currently evaluating the impact of adopting this ASU on our consolidated financial condition and results of operations and will be able to better assess the effects as we progress with our implementation efforts.

While it is not possible to estimate the expected impact of adoption at this time, the Company believes there is a reasonable possibility that implementation of this ASU may result in a material impact to accumulated other comprehensive income and future earnings patterns.

No other new accounting pronouncement issued or effective during 2021 had, or is expected to have, a material impact on our consolidated financial statements.

(2) INVESTMENTS

8 unchanged sentences

Real estate and other long-term investments 57,399 3.5 29,865 1.8

Short-term investments — — 1,301 0.1

Cash and cash equivalents 27,294 1.7 34,131 2.1

Total cash and invested assets $ 1,650,461 100.0 % $ 1,658,799 100.0 %

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The following table represents the amortized cost, gross unrealized gains and losses and fair value of fixed maturity securities as of December 31, 2021 and 2020.

10 unchanged sentences

All Other 302,141 29,855 1,181 330,815

Commercial mortgage-backed 225 — 4 221

Residential mortgage-backed 117,755 16,046 6 133,795

2 unchanged sentences

Total fixed maturity securities $ 1,343,755 129,896 3,034 1,470,617

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December 31, 2020

14 unchanged sentences

Total fixed maturity securities $ 1,321,487 169,806 1,910 1,489,383

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Most of the Company's equity securities are diversified stock and bond mutual funds.

20 unchanged sentences

Quantitative review includes information received from third-party sources such as financial statements, pricing and rating changes, liquidity and other statistical information.

Qualitative factors include judgments related to business strategies, economic impacts on the issuer, overall judgment related to estimates and industry factors as well as the Company's intent to sell the security, or if it is more likely than not that the Company would be required to sell a security before recovery of its amortized cost.

Qualitative factors include judgments related to business strategies, economic impacts on the issuer, overall judgment related to estimates and industry factors

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as well as the Company's intent to sell the security, or if it is more likely than not that the Company would be required to sell a security before recovery of its amortized cost.

The Company's best estimate of future cash flows involves assumptions including, but not limited to, various performance indicators, such as historical and projected default and recovery rates, credit ratings, and current delinquency rates.

7 unchanged sentences

Recoveries of amounts previously written off relating to improvements in cash flows after January 1, 2020 will be recorded in earnings when received.

The Company recorded no credit valuation losses on fixed maturity securities for the year December 31, 2020 and recognized no fixed maturity investment impairments for the year ended December 31, 2019.

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For fixed maturity security investments that have unrealized losses as of December 31, 2020, the gross unrealized losses that have been in a continuous unrealized loss position for less than 12 months, gross unrealized losses that have been in a continuous unrealized loss position for 12 months or longer and fair value are as follows.

The Company recorded no credit valuation losses on fixed maturity securities for the years ended December 31, 2021 and 2020.

For fixed maturity security investments that have unrealized losses as of December 31, 2021 and 2020, the gross unrealized losses that have been in a continuous unrealized loss position for less than 12 months, gross unrealized losses that have been in a continuous unrealized loss position for 12 months or longer and fair value are as follows.

December 31, 2021 Less than 12 months Greater than 12 months Total

7 unchanged sentences

Available-for-sale:

Treasury securities $ 72 1 2 — — — 72 1 2

States and political subdivisions 21,715 692 15 — — — 21,715 692 15

3 unchanged sentences

All Other 33,384 781 30 4,523 400 4 37,907 1,181 34

Commercial mortgage-backed 221 4 1 — — — 221 4 1

Residential mortgage-backed 1,084 6 6 — — — 1,084 6 6

1 unchanged sentence

Total fixed maturity securities $ 110,267 2,423 115 8,832 611 7 119,099 3,034 122

In each category of our fixed maturity securities described below, we do not intend to sell our investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases.

While the losses are currently unrealized, we continue to monitor all fixed maturity securities on an on-going basis as future information may become available which could result in an allowance being recorded.

States and political subdivisions.

The Company's investments in states and political subdivisions were purchased at a premium, relative to their face amount, and the contractual cash flows are guaranteed by the respective state or political subdivision.

Accordingly, it is expected that the securities will not be settled at a price less than the amortized cost bases of the Company's investments.

We did not recognize credit losses on corporate securities with unrealized losses that were due to interest rate sensitivity and changes in credit spreads.

We believe that fluctuations caused by movements in interest rates and credit spreads have little bearing on the recoverability of our investments.

While we are experiencing unrealized losses across several corporate sectors, the energy and automobile sectors have been impacted the most by recent economic pressures and some issuers within these sectors have been downgraded to below investment grade.

We have assessed our exposure in the energy sector and believe our investments have access to sufficient liquidity to meet their debt obligations.

The auto industry has been able to issue debt which has increased the liquidity of the component companies in the sector significantly.

The automobile sector is included in the Consumer subtotal above.

Asset-backed.

Our asset-backed securities are primarily collateralized loan obligations.

We do not expect to realize any losses for these securities and see the current valuations as a result of general market conditions.

All of the active asset-backed securities are rated investment grade.

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1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the fair values and gross unrealized losses of fixed maturity securities that are not deemed to have OTTI, aggregated by investment category and length of time that individual securities have been in a continuous loss position at December 31, 2019.

December 31, 2020 Less than 12 months Greater than 12 months Total

16 unchanged sentences

Total fixed maturity securities $ 86,960 1,894 80 2,661 16 2 89,621 1,910 82

We have reviewed the securities in an unrealized loss position for the period ended December 31, 2019 and determined that no OTTI exists that has not been recognized based on our evaluation of the credit worthiness of the issuers and the fact that we do not intend to sell the investments nor is it likely that we will be required to sell the securities before recovery of their amortized cost bases which may be at maturity.

The unrealized losses on fixed maturity securities detailed in the previous tables are due to noncredit-related factors, including interest rate sensitivity and other market conditions, which have little bearing on the recoverability of our investments, hence they are not recognized as credit losses.

The fair value is expected to recover as the securities approach maturity or if market yields for such investments decline.

The amortized cost and fair value of fixed maturity securities at December 31, 2021 by contractual maturity are shown in the table below.

30 unchanged sentences

2021 2020 2019

Fixed maturity securities:

Proceeds $ 8,238 20,537 66,900

1 unchanged sentence

Gross realized losses 1 351 973

Equity securities:

Proceeds $ 7,383 — —

Gross realized gains — — —

Gross realized losses 149 — —

We sold 28 , 29 and 68 fixed maturity securities from our available-for-sale portfolio in 2021, 2020 and 2019, respectively, as part of a repositioning strategy recommended by our asset manager.

There were no securities sold from the held-to-maturity portfolio in 2018.

There were no sales of equity securities in 2020, 2019 and 2018.

Realized investment gains (losses) are as follows:

There was one sale of equity securities in 2021 and none in 2020 or 2019.

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I nvestment related gains (losses) are as follows:

Years ended December 31,

1 unchanged sentence

2021 2020 2019

Realized investment gains (losses):

Investment related gains (losses):

Sales, calls and maturities:

Fixed maturity securities $ 243 ( 112 ) 1,927

Equity securities ( 152 ) — —

Real estate 981 — 5,513

3 unchanged sentences

Change in fair value of equity securities 376 1,596 962

Other-than-temporary impairments ("OTTI")

Fixed maturity securities — — ( 776 )

Real estate held for sale — ( 3,105 ) —

Realized loss on OTTI — ( 3,105 ) ( 776 )

Net realized investment gains (losses) $ 1,502 5,249 108

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Change in fair value of limited partnerships 7,452 — —

Change in credit loss allowance 186 — —

Realized loss on OTTI - real estate held for sale — — ( 3,105 )

Net investment related gains (losses) $ 10,991 1,502 5,249

The Company sold its former training facility near Austin, Texas during 2021 for a gross sale price of $ 3.8 million, resulting in a gain on the sale of $ 1.0 million.

We had recorded an impairment loss of $ 3.1 million in 2019 on this facility in connection with reclassifying it as real estate held for sale.

The facility was owned by Citizens and was held in Other Non-Insurance Enterprises.

During 2019, the Company sold its former corporate office in Austin, Texas for a gross sale price of $ 7.5 million, resulting in a gain on the sale of $ 5.5 million.

The building was owned by CICA and was included in our Life Insurance segment.

An impairment loss of $ 3.1 million was recorded in 2019 in our Other Non-Insurance Enterprises segment in connection with reclassifying our Citizens Academy training facility located near Austin, Texas as real estate held for sale.

This facility is no longer being used by the Company and is being actively marketed for sale.

(3) FAIR VALUE MEASUREMENTS

1 unchanged sentence

We hold AFS fixed maturity securities, which are carried at fair value.

We also report our equity securities at fair value with changes in fair value reported through the consolidated statements of operations and comprehensive income (loss).

We also report our equity securities and certain other long-term investments at fair value with changes in fair value reported through the consolidated statements of operations and comprehensive income (loss).

Fair value measurements are generally based upon observable and unobservable inputs.

10 unchanged sentences

These pricing models are primarily industry-standard models that consider various inputs, such as interest rates, credit spreads and foreign exchange rates for the underlying financial instruments.

All significant inputs are observable or derived from observable information in the marketplace or are supported by observable levels at which transactions are executed in the marketplace.

All significant inputs are

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observable or derived from observable information in the marketplace or are supported by observable levels at which transactions are executed in the marketplace.

Financial instruments in this category primarily include corporate securities, U.S.

6 unchanged sentences

There were no transfers in or out of Level 3 during the years ended December 31, 2021 and 2020.

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The following tables set forth our assets that are measured at fair value on a recurring basis as of the dates indicated.

8 unchanged sentences

Corporate 51 892,957 — 893,008

Commercial mortgage-backed — 221 — 221

Residential mortgage-backed — 133,795 — 133,795

35 unchanged sentences

Non-redeemable preferred stock 281 — — 281

Non-redeemable preferred stock fund 5,150 — — 5,150

Total equity securities 22,102 — — 22,102

Other long-term investments (1)

Total financial assets $ 33,480 1,478,005 — 1,523,408

(1) In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet.

FINANCIAL INSTRUMENTS VALUATION

3 unchanged sentences

In addition, we obtain information annually relative to the third-party pricing models and review model parameters for reasonableness.

There were no Level 3 assets as of December 31, 2020.

For the period ended December 31, 2020, there were no material changes to the valuation methods or assumptions used to determine fair values, and no broker or third-party prices were changed from the values received.

There were no Level 3 assets as of December 31, 2021 and 2020.

For the year ended December 31, 2021, there were no material changes to the valuation methods or assumptions used to determine fair values, and no broker or third-party prices were changed from the values received.

Equity securities.

Our equity securities are classified as Level 1 assets as their fair values are based upon quoted market prices.

Private equity funds.

Limited partnerships.

The Company considers the net asset value ("NAV") to represent the value of the investment fund and is measured by the total value of assets minus the total value of liabilities.

The following table includes information related to our investments in private equity funds that calculate NAV per share.

The following table includes information related to our investments in limited partnerships that calculate NAV per share.

For these investments,

4 unchanged sentences

These investments are included in other long-term investments on the consolidated balance sheets.

December 31, 2020 Fair Value Using NAV Per Share Unfunded Commitments Life in years

(In thousands, except years) Description

Private equity funds

December 31, 2021 December 31, 2020

(In thousands, except years)

Fair Value Using NAV Per Share Unfunded Commit-

ments Remaining life

(In years) Fair Value Using NAV Per Share Unfunded Commit-

ments Remaining life

Limited partnerships

Middle market Investments in privately-originated, performing senior secured debt primarily in North America-based companies $ 21,947 18,712 10 $ 10,542 29,783 10

Global equity fund Investments in common stocks of U.S., international developed and emerging markets with a focus on long-term capital growth 10,607 — 0 — — 0

Term liquidity facility Investments in a facility established by the U.S.

3 unchanged sentences

Infrastructure Investments in climate infrastructure assets, focusing on renewable power generation in wind and solar energy 3,016 16,653 12 — 17,497 12

Total private equity funds $ 11,923 $ 63,571

Our private equity fund investments are not redeemable because distributions from the funds will be received when the underlying investments of the funds are liquidated.

Total limited partnerships $ 56,038 39,824 $ 11,923 63,571

The majority of our limited partnership investments are not redeemable because distributions from the funds will be received when the underlying investments of the funds are liquidated.

The life spans indicated above may be shortened or extended at the fund manager's discretion, typically in one or two-year increments.

The international equity fund is redeemable monthly.

FINANCIAL INSTRUMENTS NOT CARRIED AT FAIR VALUE

7 unchanged sentences

Policy loans $ 80,307 80,307 83,318 83,318

Mortgage loans 157 195 177 210

Short-term investments — — 1,301 1,301

Commercial mortgage loan 1,000 1,000 — —

Residential mortgage loans 148 169 157 195

Cash and cash equivalents 27,294 27,294 34,131 34,131

1 unchanged sentence

Annuity - investment contracts 64,384 72,352 60,861 71,547

Policy loans.

Policy loans had a weighted average annual interest rate of 7.7 % at both December 31, 2020 and 2019 and no specified maturity dates.

The aggregate fair value of policy loans approximates the carrying value

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

reflected on the consolidated balance sheets.

Policy loans.

Policy loans had a weighted average annual interest rate of 7.7 % at both December 31, 2021 and 2020 and no specified maturity dates.

The aggregate fair value of policy loans approximates the carrying value reflected on the consolidated balance sheets.

Policy loans are an integral part of the life insurance policies we have in force, cannot be valued separately and are not marketable.

Therefore, the fair value of policy loans approximates the carrying value and policy loans are considered Level 3 assets in the fair value hierarchy.

Mortgage loans.

Commercial mortgage loan.

We financed $ 1.0 million of the sale of our training facility at a 6.0 % interest rate.

The loan is due in less than 1 year.

Due to the short-term nature of the loan, the carrying value approximates fair value and is considered a Level 3 asset in the fair value hierarchy.

Residential mortgage loans.

Mortgage loans are secured principally by residential properties.

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Our mortgage loans are considered Level 3 assets in the fair value hierarchy.

The fair value of short-term investments and cash and cash equivalents approximate carrying value and are characterized as Level 1 assets in the fair value hierarchy.

Cash and cash equivalents.

The fair value of cash and cash equivalents approximate carrying value and are characterized as Level 1 assets in the fair value hierarchy.

Annuity liabilities.

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The following table summarizes the carrying amounts of other long-term investments.

Years ended December 31,

As of December 31,

(In thousands)

Other long-term investments:

Private equity funds $ 18,135 —

Limited partnerships $ 56,038 18,135

FHLB common stock 192 190

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Our FHLB stock is carried at amortized cost, which approximates fair value.

Included in all other investments at December 31, 2020 is a Rabbi Trust holding of $ 8.8 million for the benefit of our former Chief Executive Officer, Geoffrey M.

Kolander, representing the severance payment due to him under the terms of his employment agreement in connection with his resignation following a change in control of the Company.

Such amount was paid to him in February 2021.

Included in all other investments at December 31, 2020 was a Rabbi Trust holding $ 8.8 million for the benefit of our former Chief Executive Officer for the severance payment that was made to him on February 8, 2021.

(4) POLICY LIABILITIES AND SHORT DURATION CONTRACTS

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1,052 195 543

33,647 38,595 27,359

Deduct claims paid, related to:

5 unchanged sentences

Balance at December 31 $ 14,590 13,206 8,059

The Company experienced unfavorable development in 2020 and 2019 of $ 0.2 million and $ 0.5 million, respectively, and favorable development of $ 0.2 million in 2018.

No unusual claims or trends have been noted.

(1) This line is primarily impacted by the level of claim resolutions in the period compared to that which is expected by the reserve assumption.

A positive number implies an unfavorable result where claim resolutions were less favorable than assumed while a negative number implies a favorable result compared to assumptions.

Our claim assumptions will vary from actual experience in any one period, either favorably or unfavorably.

SHORT DURATION CONTRACTS

The Company's short duration contracts consist of credit life and credit disability in the Life Insurance segment and property insurance in the Home Service Insurance segment.

The credit insurance lines are an immaterial part of short duration contracts so the following disclosures cover only the property insurance line of business in the Home Service segment.

The credit insurance lines are an immaterial part of short duration contracts so the following disclosures cover only the property insurance line of business in the Home Service Insurance segment.

December 31, 2021 | 10-K 95

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The reconciliation of the net incurred and paid claims development tables to the liability for claims and claim adjustment expenses in the consolidated statement of financial position is as follows.

Years ended December 31,

The reconciliation of the net incurred and paid claims development tables to the liability for claims and claim adjustment expenses in the consolidated balance sheets are as follows:

As of December 31,

(In thousands)

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Catastrophe reinsurance is in place for our property policies.

In 2020 and 2019, this reinsurance provided $ 10.0 million of coverage above a $ 0.5 million deductible.

In both 2021 and 2020, this reinsurance provided $ 10.5 million of coverage above a $ 0.5 million deductible.

In consideration for a reinstatement premium, second event coverage is provided in excess of a $ 0.5 million deductible up to $ 10.5 million.

The annual premium was approximately $ 1.4 million in 2020 and $ 0.8 million in 2019 and 2018.

The annual premium was approximately $ 2.3 million in 2021 and $ 1.4 million and $ 0.8 million in 2020 and 2019, respectively.

Our health insurance policies are substantially all reinsured on a 100 % coinsurance basis.

30 unchanged sentences

Claims and surrenders ceded

During the third and fourth quarters of 2020, SPFIC was impacted by Hurricanes Laura, Delta and Zeta, all of which caused varying levels of damage in Louisiana.

$ ( 11,764 ) ( 1,575 ) ( 940 )

During the third quarter of 2021, SPFIC was impacted by Hurricane Ida, the second-most damaging and intense hurricane in Louisiana on record, behind Hurricane Katrina in 2005.

In addition, during the third and fourth quarters of 2020, SPFIC was impacted by Hurricanes Laura, Delta and Zeta, all of which caused varying levels of damage in Louisiana.

The Company has a reinsurance agreement that covers catastrophic events such as these hurricanes.

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In consideration for a reinstatement premium, second event coverage is provided in excess of a $ 0.5 million deductible up to $ 10.5 million.

We have paid the $ 0.5 million retention in claim amounts for both Laura and Delta and do not believe we will exceed the maximum coverage for either of them;

however, any claims in excess of $ 10.5 million would have to be paid by SPFIC.

All claims related to Zeta will be paid by SPFIC.

We expect the total of these claims to be less than $ 0.5 million.

We expect claims from Hurricane Ida to exceed our reinsurance of $ 11.0 million by approximately $ 0.3 million and thus the total claim impact to us is expected to be approximately $ 0.8 million in 2021.

We also paid the $ 0.5 million retention in claim amounts for Laura and Delta and did not exceed the maximum coverage for either of them.

All claims related to Zeta were paid by SPFIC and totaled less than $ 0.5 million.

(6) STOCKHOLDERS' EQUITY AND RESTRICTIONS

The two authorized classes of our common stock are equal in all respects, except (a) each Class A share is entitled to receive twice the cash dividends paid on a per share basis to the Class B common stock, if any;

and (b) the Class B common stock has the exclusive right to elect a simple majority of the Board of Directors of Citizens and the Class A common stock elects the remaining directors.

Our Restated and Amended Articles of Incorporation authorize the issuance of 127,000,000 shares, of which 100,000,000 shares shall be Class A common stock, 2,000,000 shares shall be Class B common stock, and 25,000,000 shall be preferred stock.

The two authorized classes of common stock are equal in all respects, except (a) each share of Class A common stock is entitled to receive twice the cash dividends paid on a per share basis to the Class B common stock, if any;

and (b) the holders of the Class B common stock have the exclusive right to elect a simple majority of the Board of Directors of Citizens.

In April 2021, we repurchased all of the outstanding Class B

December 31, 2021 | 10-K 98

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

common stock and it is now classified as treasury stock.

As a result, all of the directors are elected by the holders of the Class A common stock.

Citizens has never issued any preferred stock.

A summary of the change in number of shares of Class A and Class B common stock and treasury stock issued is as follows:

3 unchanged sentences

52,216 1,002 ( 3,136 )

Change 149 — —

Balance at December 31, 2019

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2021 2020 2019

Basic and diluted earnings per share:

Net loss $ ( 10,988 ) ( 1,370 ) ( 11,062 )

Net loss allocated to Class A common stock $ ( 10,878 ) ( 1,356 ) ( 10,950 )

Net loss allocated to Class B common stock ( 110 ) ( 14 ) ( 112 )

Net loss $ ( 10,988 ) ( 1,370 ) ( 11,062 )

Weighted average shares of Class A outstanding - basic 49,400 49,214 49,080

Weighted average shares of Class A outstanding - diluted 49,938 49,347 49,139

Weighted average shares of Class B outstanding - basic and diluted 1,002 1,002 1,002

Total weighted average shares outstanding - basic 50,402 50,216 50,082

Total weighted average shares outstanding - diluted 50,940 50,349 50,141

Basic and diluted loss per share of Class A common stock $ ( 0.22 ) ( 0.03 ) ( 0.22 )

Basic and diluted loss per share of Class B common stock ( 0.11 ) ( 0.01 ) ( 0.11 )

Net income (loss) $ 36,787 ( 10,988 ) ( 1,370 )

Numerator for Basic Earnings Per Share:

Net income (loss) allocated to Class A common stock $ 36,673 ( 10,878 ) ( 1,356 )

Net income (loss) allocated to Class B common stock 114 ( 110 ) ( 14 )

Net income (loss) $ 36,787 ( 10,988 ) ( 1,370 )

Denominator for Basic Earnings Per Share:

Weighted average shares of Class A outstanding 49,664 49,400 49,214

Weighted average shares of Class B outstanding 308 1,002 1,002

Total weighted average shares outstanding 49,972 50,402 50,216

Basic earnings (loss) per share of Class A common stock $ 0.74 ( 0.22 ) ( 0.03 )

Basic earnings (loss) per share of Class B common stock 0.37 ( 0.11 ) ( 0.01 )

Numerator for Diluted Earnings Per Share:

Net income (loss) allocated to Class A common stock $ 36,675 ( 10,878 ) ( 1,356 )

Net income (loss) allocated to Class B common stock 112 ( 110 ) ( 14 )

Net income (loss) $ 36,787 ( 10,988 ) ( 1,370 )

Denominator for Diluted Earnings Per Share:

Weighted average shares of Class A outstanding 50,337 49,938 49,347

Weighted average shares of Class B outstanding 308 1,002 1,002

Total weighted average shares outstanding 50,645 50,940 50,349

Diluted earnings (loss) per share of Class A common stock $ 0.73 ( 0.22 ) ( 0.03 )

Diluted earnings (loss) per share of Class B common stock 0.36 ( 0.11 ) ( 0.01 )

December 31, 2021 | 10-K 99

CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

STATUTORY CAPITAL AND SURPLUS

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All other domestic subsidiaries are owned by CICA.

Years ended December 31,

As of December 31,

(In thousands)

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Total combined statutory capital and surplus $ 48,436 44,443

December 31, 2020 | 10-K 107

CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31,

6 unchanged sentences

Generally, the net assets of the domestic insurance subsidiaries available for transfer to their immediate parent are limited to the lesser of the subsidiary's net gain from operations during the preceding year or 10 % of the subsidiary's net statutory surplus as of the end of the preceding year as determined in accordance with accounting practices prescribed or permitted by insurance regulatory authorities.

Under these practices, total surplus at December 31, 2020 was $ 39.6 million and net gain from operations was $ 3.1 million for CICA.

Based upon statutory net gain from operations and surplus of CICA as of and for the year ended December 31, 2020, a $ 3.1 million dividend could be paid to the Company without prior regulatory approval in 2021.

Under these practices, total surplus at December 31, 2021 was $ 40.0 million and net gain from operations was $ 0.2 million for CICA for the year ended December 31, 2021.

Based upon these amounts, a $ 0.2 million dividend could be paid to the Company without prior regulatory approval in 2022.

Payments of dividends in excess of such amounts would generally require approval by regulatory authorities.

CICA, CNLIC, SPLIC, MGLIC and SPFIC have calculated their risk-based capital ("RBC") in accordance with the National Association of Insurance Commissioners' ("NAIC") Model Rule and the RBC rules as adopted by their respective states of domicile.

As part of the novation transaction with CICA Ltd., the Company agreed to infuse capital into CICA as required by the Colorado Department of Insurance to maintain CICA's RBC above 350% in any future calendar year-end periods.

As part of the novation transaction with CICA International, the Company agreed to infuse capital into CICA as required by the Colorado Department of Insurance to maintain CICA's RBC above 350% in any future calendar year-end periods.

All insurance subsidiaries exceeded RBC minimum levels at December 31, 2021.

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In certain instances, the insurer would also be required to provide prior notice to the BMA in advance of the payment of dividends.

In the event that such an affidavit is submitted to the BMA in accordance with the Bermuda Insurance Act, and further subject to CICA Ltd.

meeting its MMS and ECR requirements, CICA Ltd.

would be permitted to distribute a dividend not exceeding 25 % of its prior year's total statutory capital and surplus.

In the event that such an affidavit is submitted to the BMA in accordance with the Bermuda Insurance Act, and further subject to CICA International meeting its MMS and ECR requirements, CICA International would be permitted to distribute a dividend not exceeding 25 % of its prior year's total statutory capital and surplus.

Distributions in excess of this amount require the approval of the BMA.

Further, CICA Ltd.

must obtain the BMA’s prior approval before reducing its total statutory capital as shown in its previous financial year statutory balance sheet by 15 % or more.

is also prohibited from declaring or paying any dividends unless the value of its long-term business assets exceeds its long-term business liabilities, as certified by its approved actuary, by the amount of the dividend and at least the MMS.

These restrictions on declaring or paying dividends and distributions under the Bermuda Insurance Act of 1978 are in addition to those under Bermuda’s Companies Act 1981 which apply to all Bermuda companies.

Based upon these rules, CICA Ltd.

can pay a dividend of $ 4.5 million without prior regulatory approval in 2021.

However, the BMA has requested that CICA Ltd.

notify the Authority in advance of any potential dividend payments and any intercompany related payments or transactions.

Years ended December 31,

(In thousands)

capital and surplus $ 158,447 94,322

Further, CICA International must obtain the

December 31, 2021 | 10-K 100

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

BMA’s prior approval before reducing its total statutory capital as shown in its previous financial year statutory balance sheet by 15 % or more.

CICA International is also prohibited from declaring or paying any dividends unless the value of its long-term business assets exceeds its long-term business liabilities, as certified by its approved actuary, by the amount of the dividend and at least the MMS.

Based upon these rules, CICA International can pay a dividend of $ 4.5 million without prior regulatory approval in 2022.

However, the BMA has requested that CICA International notify the Authority in advance of any potential dividend payments and any intercompany related payments or transactions.

As of December 31,

(In thousands)

CICA International capital and surplus $ 141,931 158,447

Years ended December 31,

1 unchanged sentence

2021 2020 2019

net income (loss) $ 9,000 7,649 9,100

CICA International net income (loss) $ 14,029 9,000 7,649

The BMA established risk-based regulatory capital adequacy and solvency margin requirements for Bermuda insurers that mandate that a Bermuda-domiciled subsidiary’s ECR be calculated by either:

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or (b) an internal capital model that the BMA has approved for use for this purpose.

uses the BSCR in calculating its solvency requirements.

CICA International 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 its ECR.

held capital in excess of the BSCR requirements at December 31, 2020.

The BMA is requiring Citizens and CICA Ltd.

to enter into a “Keepwell Agreement”, which would encumber certain assets of the Company.

The Keepwell Agreement will include a specific target solvency level at which the Company would be required to make a capital injection into CICA Ltd.

CICA International held capital in excess of the BSCR requirements at December 31, 2021.

At the request of the BMA, on April 15, 2021, Citizens and CICA International entered into a Keep Well Agreement.

The Keep Well Agreement requires Citizens to contribute up to $ 10 million in capital to CICA International as necessary to ensure that CICA International has a minimum capital level of 120 % (equal to the TCL).

Since CICA International's capital level currently exceeds 120 %, Citizens is not currently required to make a capital contribution.

On June 10, 2016, the NAIC Executive Committee and Plenary voted to adopt a recommendation for January 1, 2017 as the operative date for the implementation of Principles-Based Reserves (“PBR”) as a national standard for life insurance products.

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PBR was required effective January 1, 2020.

The Company filed a request for PBR exemption with the various state Departments of Insurance since all of our domestic insurance subsidiaries met the small company exemption outlined in the NAIC Valuation Manual, VM-20, for principle-based reserving.

(7) COMMITMENT AND CONTINGENCIES

The Company files annual requests for PBR exemption with the various state Departments of Insurance since all of our domestic insurance subsidiaries met the small company exemption outlined in the NAIC Valuation Manual, VM-20, for principle-based reserving.

(7) COMMITMENTS AND CONTINGENCIES

QUALIFICATIONS OF LIFE PRODUCTS

2 unchanged sentences

Further, we have determined that the structure of our policies sold to non-U.S.

persons, which were novated to CICA Ltd.

effective July 1, 2018, may have inadvertently generated U.S.

persons, which were novated to CICA International effective July 1, 2018, inadvertently generated U.S.

source income over time, which subjected the Company to certain tax withholding and information reporting requirements under Chapters 3 or 4 of the IRC.

For the novated policies sold to non-U.S.

persons, we expect to settle any liabilities with the Internal Revenue Service ("IRS") related to tax withholding and information reporting failures.

The Company has continued to refine its estimate of the tax, penalty and interest exposure and expenses related to these tax issues, as described below for the current reporting period.

The products have been and continue to be appropriately reported as life insurance under U.S.

GAAP for financial reporting.

To remediate the noncompliance matter for the novated policies sold to non-U.S.

persons as described above, the Company submitted withholding tax returns to the IRS in December 2019, followed by amended returns in August 2020.

These withholding tax returns establish a total tax liability for calendar years 2014 through 2019 ("the covered period") of $ 7.3 million for a failure to withhold tax and report the U.S.

source income generated by the novated policies, plus interest through August 28, 2020 in the amount of $ 0.7 million.

To date, the Company has paid $ 8.0 million to the IRS for the covered period , $ 6.0 million of which was paid during 2020.

Note that these payments do not represent closure of the matter or IRS acceptance of the tax liability shown on the submitted withholding tax returns.

The IRS is still reviewing our submission of the withholding tax returns relating to the novated policies and the IRS has the right to revise our total tax liability for the covered period.

Thus, the probability weighted range of estimated financial liabilities related to this issue remains at $ 7.3 million to $ 52.5 million, after tax.

This estimated range includes projected taxes and interest and penalties payable to the IRS, as

December 31, 2021 | 10-K 101

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

well as estimated increased payout obligations to current holders of non-compliant domestic life insurance policies expected to result from remediation of those policies.

Accruals for loss contingencies are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated.

The process of determining our best estimate and the estimated range is a complex undertaking including insight from external consultants and involved management’s judgment based upon a variety of factors known at the time.

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 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 could exceed the high end of our estimated range of liabilities and expenses.

To the extent the amount reserved by the Company is insufficient to meet the actual amount of our liabilities and expenses, or if our estimates of those liabilities and expenses change in the future, our financial condition and results of operations may be materially adversely affected.

Management believes that based upon current information, we have recorded the best estimate liability to date.

On May 17, 2017, we submitted an offer to enter into Closing Agreements with the IRS covering certain CICA and CNLIC domestic life insurance policies (the "Closing Agreements"), which was accepted by the IRS on June 7, 2019.

Pursuant to the Closing Agreements, CICA and CNLIC agreed to pay the IRS $ 123,779 and $ 4,118 , respectively, by August 6, 2019, and follow the corrective steps for the policies outlined in the Closing Agreements by September 5, 2019.

These payments were made to the IRS on July 12, 2019.

For certain life insurance policies that failed to satisfy the requirements of the cash value accumulation test of Section 7702 ("CVAT") of the IRC, we agreed to amend such policies retroactively to their original dates of issue by adding an endorsement (which provides that the death benefit of such policies will not be less than the amount of life insurance necessary to maintain CVAT compliance).

For the life insurance policies that failed to satisfy the premium requirements of the guideline premium test of Section 7702 of the IRC, we agreed as needed to refund each policyholder the amount of premiums paid that exceeded the guideline premium limitation plus interest thereon.

We completed these corrective steps prior to September 5, 2019, the deadline set forth in the Closing Agreements.

To satisfy the Internal Revenue Service ("IRS") tax withholding and information reporting requirements for the novated policies sold to non-U.S.

persons as described above, the Company submitted withholding tax returns to the IRS in December 2019, and amended returns in August 2020 and paid the associated withholding tax.

The IRS processed these withholding tax returns in 2021, and the Company considers this matter closed.

LITIGATION AND REGULATORY ACTIONS

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If we suffer an adverse judgment as a result of litigation claims, it could have a material adverse effect on our business, results of operations and financial condition.

CREDIT FACILITY

On May 5, 2021 , the Company entered into a $ 20 million senior secured revolving credit facility (the “Credit Facility”) with Regions Bank ("Regions").

The Credit Facility has a three-year term, maturing on May 5, 2024 , and allows the Company to borrow up to $ 20 million for working capital purposes, capital expenditures and other corporate purposes.

Revolving loans may be requested by the Company in aggregate minimum principal amounts of $ 0.5 million per loan.

At the Company's election, the revolving loans may either bear a base rate, which is 1.75 % plus a base rate (a fluctuating rate per annum) equal to the greatest of (a) Regions' prime rate, (b) the federal funds rate plus 0.50 %, (c) the one-month LIBOR rate plus 1 %, and (d) 0.75 %;

or an adjusted LIBOR rate, which is 2.75 % plus an adjusted LIBOR rate but cannot be less than 0.75 %.

The Company is required to pay Regions a quarterly commitment fee of 0.375 % of the unused portion of the Credit Facility, which the Company expenses as it is incurred.

Obligations under the Credit Facility are secured by substantially all of the assets of the Company other than the equity interests in all of the regulated insurance subsidiaries, real estate owned by the Company, and other limited exceptions.

The Credit Facility contains customary events of default and financial, affirmative and negative covenants, including but not limited to restrictions on indebtedness, liens, investments, asset dispositions and restricted payments.

As of December 31, 2021, the Company had no t borrowed any funds against the Credit Facility and was not in violation of any covenants.

CONTRACTUAL OBLIGATIONS

The Company leases home office space in Austin, Texas for Citizens and in Bermuda for CICA Ltd.

as well as several district office locations related to our Home Service Insurance segment across Louisiana, Mississippi and Arkansas, which are classified as operating leases.

The Company leases home office space in Austin, Texas for Citizens and in Bermuda for CICA International as well as several district office locations related to our Home Service Insurance segment across Louisiana, Mississippi and Arkansas, which are classified as operating leases.

Certain operating leases include renewal options that extend the lease term.

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The Company also has a minimal amount of finance leases regarding equipment.

Leases with an initial term of 12 months or less are immaterial to the consolidated financial statements and are recognized as lease expense on a straight-line basis over the lease term and not recorded on the consolidated financial statements.

The table below summarizes the number of weighted-average years remaining in our operating lease liabilities as of December 31, 2020.

(In years) Lease Term

Weighted-average remaining lease term

Operating leases 9.9

Our operating lease liabilities had a weighted-average lease term of 8.9 years remaining as of December 31, 2021.

December 31, 2021 | 10-K 102

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Present value of operating lease liabilities $ 10,826

We recorded the lease right-of-use asset in Other Assets and the lease liability in Other Liabilities using a weighted average discount rate of 4.19 %.

We record the lease right-of-use asset in Other Assets and the lease liability in Other Liabilities using a weighted average discount rate of 2.81 %.

Cash payments related to the operating lease liabilities were $ 1.4 million and $ 1.3 million for the years ended December 31, 2021 and 2020 and were reported in operating cash flows.

In January 2019, the Company entered into a long-term lease agreement with an unrelated party for its new home office in Austin, Texas.

The Company recognized the related lease right-of-use asset and liability of $ 11.9 million during the second quarter of 2020 and moved into its new home office in November 2020.

The Company does not engage in lease agreements among related parties.

As of December 31, 2020, CICA Ltd.

is committed to fund investments up to $ 68.6 million related to private equity funds.

We also paid $ 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.

As of December 31, 2021, CICA International is committed to fund investments up to $ 39.8 million related to limited partnership investments.

(8) SEGMENT AND OTHER OPERATING INFORMATION

2 unchanged sentences

Our Life Insurance segment primarily issues endowment contracts, which are principally accumulation contracts that incorporate an element of life insurance protection, and ordinary whole life insurance to non-U.S.

residents through CICA Ltd.

residents through CICA International.

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.

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.

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 over 175 funeral homes and 240 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.

CICA issues credit life and disability and accident and health related policies throughout the Midwest and southern U.S.

CNLIC issues ordinary whole life policies in Florida.

Our policies are sold and serviced through 169 funeral homes and 397 independent agents who sell policies, collect premiums and service policyholders.

Our Home Service Insurance segment also sells property insurance policies in Louisiana.

The Life Insurance and Home Service Insurance portions of the Company constitute separate businesses.

In addition to the Life Insurance and Home Service Insurance business, the Company also operates other non-insurance portions of the Company ("Other Non-Insurance Enterprises"), which primarily include the Company’s IT and Corporate-support functions that are included in the tables presented below to properly reconcile the segment information with the consolidated financial statements of the Company.

December 31, 2020 | 10-K 111

CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accounting policies of the reportable segments and Other Non-Insurance Enterprises are presented in accordance with U.S.

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GAAP net income before federal income taxes for its two reportable segments.

December 31, 2021 | 10-K 103

CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company's Other Non-Insurance Enterprises represents the only difference between segments and reported consolidated operations.

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Property insurance — 3,677 — 3,677

Net investment income 45,885 13,051 1,261 60,197

Realized investment gains (losses), net 1,340 223 ( 61 ) 1,502

Other income 1,806 19 3 1,828

Net investment income (loss) 47,216 13,224 1,055 61,495

Investment related gains (losses), net 9,176 618 1,197 10,991

Other income (loss) 3,362 7 ( 37 ) 3,332

Total revenue 185,812 62,519 2,215 250,546

10 unchanged sentences

Amortization of cost of insurance acquired 343 863 — 1,206

Goodwill impairment 12,624 — — 12,624

Total benefits and expenses 184,894 64,555 7,785 257,234

Income (loss) before income tax expense $ 9,894 ( 3,470 ) ( 18,741 ) ( 12,317 )

Income (loss) before federal income tax $ 918 ( 2,036 ) ( 5,570 ) ( 6,688 )

December 31, 2021 | 10-K 104

10 unchanged sentences

Property insurance — 3,982 — 3,982

Net investment income 44,779 13,058 1,694 59,531

Realized investment gains (losses), net 6,795 1,470 ( 3,016 ) 5,249

Other income 1,412 4 2 1,418

Net investment income (loss) 45,885 13,051 1,261 60,197

Investment related gains (losses), net 1,340 223 ( 61 ) 1,502

Other income (loss) 1,806 19 3 1,828

Total revenue 178,232 59,421 1,203 238,856

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Total benefits and expenses 168,338 62,891 19,944 251,173

Income (loss) before income tax expense $ 11,795 1,181 ( 7,231 ) 5,745

Income (loss) before federal income tax $ 9,894 ( 3,470 ) ( 18,741 ) ( 12,317 )

December 31, 2021 | 10-K 105

10 unchanged sentences

Property insurance — 4,613 — 4,613

Net investment income 39,985 13,125 1,095 54,205

Realized investment gains (losses), net 358 ( 46 ) ( 204 ) 108

Net investment income (loss) 44,779 13,058 1,694 59,531

Investment related gains (losses), net 6,795 1,470 ( 3,016 ) 5,249

Other income (loss) 1,412 4 2 1,418

12 unchanged sentences

Total benefits and expenses 178,857 60,032 5,911 244,800

Income (loss) before income tax expense $ 12,085 ( 2,496 ) ( 7,587 ) 2,002

Income (loss) before federal income tax $ 11,795 1,181 ( 7,231 ) 5,745

The table below summarizes assets by segment.

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Colombia 24,829 25,783 26,768

Venezuela 19,956 22,353 24,783

Taiwan 19,042 19,078 19,403

Venezuela 17,788 19,956 22,353

Ecuador 13,115 13,301 14,198

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(9) INCOME TAXES

CICA Ltd., a wholly-owned subsidiary of Citizens, is considered a controlled foreign corporation for federal income tax purposes.

As a result, the insurance activity of CICA Ltd.

is subject to Subpart F of the IRC and is included in Citizens’ taxable income and due to the 0 % enacted tax rate in Bermuda there are no deferred taxes recorded for CICA Ltd.'s temporary differences.

CICA International, a wholly-owned subsidiary of Citizens, is considered a controlled foreign corporation for federal income tax purposes.

As a result, the insurance activity of CICA International is subject to Subpart F of the IRC and is included in Citizens’ taxable income.

Due to the 0 % enacted tax rate in Bermuda there are no deferred taxes recorded for CICA International's temporary differences.

For the years ended December 31, 2021, 2020 and 2019, the Subpart F income inclusion generated $ 2.1 million, $ 2.2 million and $ 5.9 million of federal income tax expense, respectively.

December 31, 2020 | 10-K 115

CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation between the U.S.

12 unchanged sentences

Rate differential on net operating loss carryback claim 295 ( 4.4 ) ( 999 ) 8.1 — —

Tax reform re-measurement — — — — 68 3.4

Goodwill impairment 2,651 ( 39.6 ) — — — —

Other ( 1 ) — 41 ( 0.3 ) 281 5.2

Total federal income tax expense (benefit) $ ( 43,475 ) 650.0 % $ ( 1,329 ) 10.8 % $ 7,115 126.0 %

December 31, 2021 | 10-K 107

CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income tax expense (benefit) consists of:

2 unchanged sentences

2021 2020 2019

Current $ ( 927 ) 5,542 ( 49,569 )

Income tax expense (benefit):

Current - normal operations $ ( 68 ) ( 927 ) 5,542

Current - UTP release impact ( 43,834 ) — —

Deferred 427 ( 402 ) 1,573

Total income tax expense (benefit) $ ( 43,475 ) ( 1,329 ) 7,115

December 31, 2020 | 10-K 116

CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The components of deferred federal income taxes are as follows:

27 unchanged sentences

Balance December 31, $ ( 15,456 ) ( 9,564 )

December 31, 2021 | 10-K 108

CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company and our subsidiaries have net operating loss carryforwards of $ 6.3 million at December 31, 2021, which will begin expiring in 2036.

MGLIC joined the Company's consolidated tax return filing group in 2020 and had a $ 1.1 million net operating loss carryforward at January 1, 2020, which will begin expiring in 2036.

MGLIC joined the Company's consolidated tax return filing group in 2020 and had a $ 0.4 million net operating loss carryforward as of December 31, 2021, which will begin expiring in 2037.

The MGLIC net operating losses were incurred while it was owned by the Company;

thus, there will be no IRC Section 382 limit on the utilization of these net operating losses.

The Company and our subsidiaries had no capital loss carryforwards at December 31, 2020.

The Company and our subsidiaries had capital loss carryforwards of $ 1.0 million at December 31, 2021, which begin expiring in 2026.

At December 31, 2021 and 2020, we determined that as a result of our taxable capital gain income in carryback periods, the expected reversal of existing deferred tax liabilities, and tax planning strategies, it was more likely than not that the deferred tax assets would be realized.

Thus, the Company holds no valuation allowance in operations or other comprehensive income at December 31, 2021 and 2020.

December 31, 2020 | 10-K 117

CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company recognizes only the impact of tax positions that, based on their technical merits, are more likely than not to be sustained upon an audit by the taxing authority.

8 unchanged sentences

This unrecognized tax benefit is reported net in current federal income tax payable on the consolidated balance sheets.

Included in these amounts are $ 9.9 million, $ 9.9 million and $ 8.8 million of interest expense with respect to unrecognized tax benefits as of December 31, 2020, 2019 and 2018, respectively.

Included in these amounts are interest expense of $ 0.4 million and $ 9.9 million with respect to unrecognized tax benefits as of December 31, 2021 and 2020, respectively.

The Company’s unrecognized tax benefits at December 31, 2021 would affect the effective tax rate if recognized.

The Company believes it is reasonably possible that all but $ 1.0 million of the total amount of uncertain tax benefits will decrease within the next twelve months.

The Company accrued an uncertain tax position of $ 46.0 million at December 31, 2020.

However, the Company released $ 43.8 million of this uncertain tax position, including interest, during the fourth quarter of 2021 following the expiration of the statute of limitations on the tax year ended December 31, 2017.

The Company believes it is reasonably possible that $ 1.0 million of the uncertain tax benefits will decrease within the next twelve months.

The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense.

In the consolidated statements of operations and comprehensive income (loss), the amount of interest expense recorded was $ 0.0 million, $ 1.1 million and $ 2.3 million for the years ended December 31, 2020, 2019 and 2018, respectively.

In the consolidated statements of operations and comprehensive income (loss), the amount of interest income recorded was $ 9.5 million for the year ended December 31, 2021, and interest expense of $ 0.0 million and $ 1.1 million were recorded for the years ended December 31, 2020 and 2019, respectively.

The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020 in response to the COVID-19 pandemic.

The CARES Act, among other things, permits net operating losses incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes.

As a result of the CARES Act, it is anticipated that the Company will be able to claim a net refund for $ 1.0 million of taxes paid in preceding years.

The financial statements have been updated to reflect the benefit of the anticipated carryback claim accordingly.

The Consolidated Appropriations Act (the "CAA") was enacted on December 27, 2020.

The Company does not expect the CAA to have a material impact on the financial statements and will continue to analyze.

During the year ended December 31, 2020, the Company was able to claim a net refund for taxes paid in preceding years as a result of the CARES Act.

As of December 31, 2021, the Company has an accrued tax refund remaining of $ 2.6 million.

The Consolidated Appropriations Act was enacted on December 27, 2020 and the American Rescue Plan Act of 2021 was enacted March 11, 2021.

These Acts did not have a material impact on the Company's financial statements.

December 31, 2021 | 10-K 109

CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company's Federal income tax return is filed on a consolidated basis with the following entities:

6 unchanged sentences

Computing Technology, Inc.

The method of allocation among companies is subject to a written tax sharing agreement, approved by the Board of Directors, whereby allocation is made primarily on a separate return basis pursuant to the wait-and-see method.

The method of tax allocation among companies is subject to a written tax sharing agreement, approved by the Board of Directors, whereby allocation is made primarily on a separate return basis pursuant to the wait-and-see method.

Under this method, consolidated group members are not given current credit or refunds for net operating losses until taxable income on a separate return basis is generated.

2 unchanged sentences

federal jurisdiction and various U.S.

None of our subsidiaries are subject to examination by U.S.

tax authorities for years prior to 2017.

Our subsidiaries are subject to examination by U.S.

tax authorities for tax years 2013 - 2016 and 2018 - 2020.

December 31, 2021 | 10-K 110

24 unchanged sentences

Reclassification adjustment for (gains) losses included in net income ( 1,927 ) 405 ( 1,522 )

Unrealized gain from held-to-maturity transferred to available-for-sale 3,588 ( 218 ) 3,370

Effects on DAC ( 484 ) 102 ( 382 )

3 unchanged sentences

(11) STOCK COMPENSATION

In 2020, 2019 and 2018, the Company's Board of Directors approved awards of restricted stock units under the Citizens, Inc.

In 2021, 2020 and 2019, the Company's Board of Directors approved awards of restricted stock units ("RSUs") under the Citizens, Inc.

Omnibus Incentive Plan for non-employee directors and the executive management team.

Vesting of the units is subject to the recipient’s continued service or employment with the Company through the applicable vesting date, which is one year for directors and two years for employees.

In addition, the Board also approved equity grants for other employees with a delegation to the President and Chief Executive Officer to determine the participant and values to be awarded.

There are three million shares that may be granted under the plan.

The RSUs granted to the directors vest one year from the date of the annual shareholders meeting, subject to continued service on the Board.

RSUs to the executive management team are subject to achieving performance goals and once the goals are met, RSUs are awarded.

These awarded RSUs have a time-based vesting component, which was two years for the executive officers prior to 2021 and is now three years , in all cases, subject to continued employment.

In addition, the Board also approved an allotment of RSUs for other employees with a delegation to the Chief Executive Officer to determine the participants and number of RSUs to be awarded.

There were three million shares originally authorized to be granted under the plan.

December 31, 2021 | 10-K 111

2 unchanged sentences

The following table provides a rollforward of restricted stock activity:

Restricted Stock Units Units Weighted Average Exercise Price Weighted Average Remaining Contractual Life Aggregate Fair Value (1)

Restricted Stock Units Units Weighted Average Grant Price Weighted Average Remaining Contractual Life Aggregate Fair Value (1)

(In thousands) (In years) (In thousands)

9 unchanged sentences

(1) Fair value per share of restricted stock units was equal to Grant Date fair value per share, which was calculated based on the closing price of the Company's Class A common stock on the NYSE on the grant date, in accordance with ASC Topic 718.

As of December 31, 2020, we recognized $ 2.4 million of expense, while $ 0.5 million was unrecognized and is expected to be amortized up to 1.30 years.

As of December 31, 2021, we recognized $ 0.7 million of expense, while $ 0.8 million was unrecognized and is expected to be amortized up to three years .

Restricted stock unit awards give the participant the right to receive common stock in the future, subject to certain restrictions and a risk of forfeiture.

1 unchanged sentence

Compensation expense of $ 0.6 million, $ 2.2 million and $ 2.1 million was recognized as of December 31, 2021, 2020 and 2019, respectively, related to these awards.

Under the terms of an employment agreement in connection with his resignation following a change in control of the Company, all of the outstanding restricted stock units granted to our former Chief Executive Officer, Geoffrey Kolander, immediately vested during 2020.

(12) BENEFIT PLANS

4 unchanged sentences

There have been no profit sharing contributions since 2014.

On January 1, 2019, the 401(k) plan was amended to allow employees who have completed three months of service to participate in the plan.

Prior to that date, a year of service was required before participation.

Contributions are made by employees and the Company provides a matching contribution based upon the employee's level of contribution.

The 401(k) plan allows employees who have completed three months of service to participate.

Voluntary contributions are made by employees and the Company provides a matching contribution based upon the employee's level of contribution.

The Company's expense was $ 0.7 million, $ 0.8 million and $ 0.8 million in 2021, 2020 and 2019, respectively.

8 unchanged sentences

The Company has various routine related party transactions in conjunction with our holding company structure, such as a management service agreement related to costs incurred, a tax sharing agreement between entities, and inter-company dividends and capital contributions.

A reinsurance assumption and novation transaction was completed effective July 1, 2018 between CICA and CICA Ltd.

to transfer the international policies from CICA to CICA Ltd., the newly formed Bermuda entity.

There were no changes related to these relationships during the year ended December 31, 2020.

CHANGE IN CONTROL

On July 29, 2020, a change in control of the Company occurred, and the Harold E.

Riley Foundation (the “Foundation”), a charitable organization established under 501(c)(3) of the Internal Revenue Code, is now the owner of 100% of the Company’s Class B common stock.

Prior to the change in control, the Harold E.

Riley Trust (the “Trust”) was the beneficial owner of 100% of the Company’s Class B common stock.

The Trust documents provided that upon Harold Riley’s death, which occurred in 2017, the Class B common stock would transfer from the Trust to the Foundation.

Because the Class B common stock elects a simple majority of the Board of Directors of the Company, this transfer constitutes an acquisition of control by the Foundation, which requires prior regulatory approvals by the insurance regulators of Colorado, Louisiana, Mississippi and Texas, the states in which the Company's insurance subsidiaries are domiciled.

RESIGNATION OF CHIEF EXECUTIVE OFFICER

On July 29, 2020, following the change in control of the Company, Mr.

Kolander notified the Company of his intention to resign from his position as Chief Executive Officer and President and as a member of the Board of Directors, and terminated the Employment Agreement by and between the Company and Mr.

Kolander dated January 1, 2019 (the “2019 Employment Agreement”).

Pursuant to Sections 1(e) and 6(g) of the 2019 Employment Agreement, Mr.

Kolander terminated the 2019 Employment Agreement due to a “change in control,” which occurred upon the regulatory approval of the transfer of the Company’s Class B Shares from the Trust to the Foundation.

Kolander’s resignation and separation from employment and a member of the Board of Directors was effective August 5, 2020.

In connection with Mr.

Kolander’s resignation and separation from employment, Mr.

Kolander signed a Chief Executive Officer Separation of Service and Consulting Agreement (the “Separation and Consulting Agreement”) with the Company and the Release attached as Exhibit “A” thereto, each dated July 29, 2020.

Kolander signed the Release, pursuant to Sections 6(g) and (h) of the 2019 Employment Agreement, Mr.

Kolander was entitled to the cash severance amount set forth in Sections 6(g) and (h) of the 2019 Employment Agreement (which equaled $ 8.8 million), less required withholdings and deductions.

We perform an expense study on an annual basis, utilizing an enterprise-wide time study, and we adjust cost allocations among entities as needed based upon this review.

Any allocation changes are reflected in the segment operations, but do not impact consolidated expenses.

A reinsurance assumption and novation transaction was completed effective July 1, 2018 between CICA and CICA International to transfer the international policies from CICA to CICA International, the newly formed Bermuda entity.

There were no changes related to these relationships during the year ended December 31, 2021 and no additional related party transactions.

CERTAIN PAYMENTS FOLLOWING CHANGE IN CONTROL

For over 30 years, the Harold E.

Riley Trust (the “Trust”), a trust controlled by our founder, Harold E.

Riley, and his family, was the beneficial owner of 100% of the Company’s Class B common stock.

The Trust documents provided that upon Mr.

Riley’s death, which occurred in 2017, the Class B common stock would transfer from the Trust to the Harold E.

Riley Foundation (the “Foundation”).

Because our insurance subsidiaries are regulated entities, the transfer required regulatory approval by the insurance regulators of Colorado, Louisiana, Mississippi and Texas, the states in which the Company's insurance subsidiaries are domiciled.

On July 29, 2020, the final approval was obtained.

Because the Class B common stock elects a simple majority of the Board of Directors of the Company, the transfer of the shares from the Trust to the Foundation constituted a change in control of the Company.

Following the change in control of the Company, our then Chief Executive Officer, Geoffrey Kolander, resigned from his position as Chief Executive Officer and President and as a member of the Board of Directors, and terminated the Employment Agreement by and between the Company and Mr.

Kolander dated January 1, 2019 (the “2019 Employment Agreement”) due to the change in control.

Pursuant to Sections 6(g) and (h) of the 2019 Employment Agreement, Mr.

Kolander was entitled to a cash severance amount of $ 8.8 million, less required withholdings and deductions.

Additionally, all outstanding Restricted Stock Units held by Mr.

Kolander were fully vested on August 5, 2020.

Kolander were fully vested on August 5, 2020, the effective date of his resignation.

In accordance with the 2019 Employment Agreement, the cash severance amount was paid on February 8, 2021.

1 unchanged sentence

To assist in the orderly transition of his duties and responsibilities, Mr.

Kolander entered into the Separation and Consulting Agreement with the Company.

Kolander entered into a Separation and Consulting Agreement with the Company.

Under the Separation and Consulting Agreement, Mr.

Kolander agreed to provide leadership transition guidance and business continuity assistance to the Company as a consultant after the separation date through March 9, 2021.

Kolander provided no more than 14 hours of consulting services per week at a rate of $ 14,000 per week.

Kolander agreed to provide leadership transition guidance and business continuity assistance to the Company as a consultant, for up to 14 hours per week, after the separation date through March 9, 2021.

Kolander was paid at a rate of $ 14,000 per week.

The above summary of the Separation and Consulting Agreement is qualified by reference in its entirety to the Separation and Consulting Agreement, which was filed as an exhibit to our Current Report on Form 8-K filed on July 30, 2020.

APPOINTMENT OF INTERIM CHIEF EXECUTIVE OFFICER

On July 29, 2020, the Board of Directors appointed Gerald W.

Shields, a member of the Company’s Board of Directors, as Interim Chief Executive Officer, which became effective upon Mr.

Kolander’s separation from employment.

Following his appointment, Mr.

Shields continues to serve as Vice Chairman of the Board of Directors,

Shields, the Vice Chairman of the Board of Directors of the Company, was appointed Interim Chief Executive Officer and President effective August 5, 2020.

On such date, the Company entered into a Consulting Agreement with Mr.

Shields (the “Consulting Agreement”), pursuant to which Mr.

Shields provided consulting services to function as Interim Chief Executive Officer and President of the Company until a permanent Chief Executive Officer was hired by the Company.

Pursuant to the Consulting Agreement, Mr.

Shields was paid a consulting fee of $ 14,500 per week in 2020, a bonus of $ 125,000 for service performed in 2020, and in 2021, the Consulting Agreement was amended to provide a weekly payment of $ 15,500 .

The Consulting Agreement was terminated when Mr.

Shields became the permanent Chief Executive Officer effective January 1, 2022.

December 31, 2021 | 10-K 113

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

but stepped down from the Audit Committee, the Compensation Committee and the Executive Committee as of such date.

(14) QUARTERLY FINANCIAL INFORMATION (Unaudited)

9 unchanged sentences

Net income (loss) available to common shareholders 38,137 ( 2,799 ) 5,022 ( 3,573 )

Basic & Diluted earnings (losses) per share of Class A common stock 0.03 ( 0.16 ) ( 0.02 ) ( 0.07 )

Basic & Diluted earnings (losses) per share of Class B common stock 0.01 ( 0.07 ) ( 0.01 ) ( 0.04 )

(In thousands, except per share amounts) Fourth

Quarter Third

Quarter Second

Quarter First

Basic earnings (losses) per share of Class A common stock 0.77 ( 0.06 ) 0.10 ( 0.07 )

Basic earnings (losses) per share of Class B common stock 0.36 — 0.05 ( 0.04 )

Diluted earnings (losses) per share of Class A common stock 0.77 ( 0.06 ) 0.10 ( 0.07 )

Diluted earnings (losses) per share of Class B common stock 0.36 — 0.05 ( 0.04 )

Revenues 64,968 59,825 58,341 55,722

3 unchanged sentences

Net income (loss) available to common shareholders 1,538 ( 7,915 ) ( 1,027 ) ( 3,584 )

Basic & Diluted earnings (losses) per share of Class A common stock 0.10 0.04 ( 0.09 ) ( 0.08 )

Basic & Diluted earnings (losses) per share of Class B common stock 0.05 0.02 ( 0.04 ) ( 0.04 )

Basic earnings (losses) per share of Class A common stock 0.03 ( 0.16 ) ( 0.02 ) ( 0.07 )

Basic earnings (losses) per share of Class B common stock 0.01 ( 0.07 ) ( 0.01 ) ( 0.04 )

Diluted earnings (losses) per share of Class A common stock 0.03 ( 0.16 ) ( 0.02 ) ( 0.07 )

Diluted earnings (losses) per share of Class B common stock 0.01 ( 0.07 ) ( 0.01 ) ( 0.04 )

(15) SUBSEQUENT EVENTS

The Company has evaluated the impact of subsequent events as defined by the accounting guidance through the date this report was issued.

On February 6, 2021, Baylor University and Southwestern Baptist Theological Seminary, the two sole charitable beneficiaries of the Foundation ( the “Foundation Beneficiaries”) gained control of the Foundation and entered into a Mutual Agreement for Compromise, Settlement and Release with the Company and its individual directors (the “Foundation Settlement Agreement”) to resolve the litigation that had been filed by the Foundation against the Company and its eight individual board members captioned Harold E.

Riley Foundation v.

Claus, et al.

in the District Court (the “Colorado Court”) for Arapahoe County, Colorado (the “Colorado Litigation”).

On February 10, 2021, the Colorado Court entered an order granting final approval of the Foundation Settlement Agreement.

The Foundation Settlement Agreement, among other things, provided for certain governance arrangements, including certifying the Company's board membership as it existed as of August 12, 2020, as well as the repurchase by the Company of all of the Company's shares of Class B common stock held by the Foundation.

December 31, 2020 | 10-K 122

CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On February 5, 2021, the Company also entered into a Mutual Agreement for Compromise, Settlement and Release (the “Hughes-Hott-Boto Settlement Agreement”) with Michael C.

Hughes, Charles W.

Hott and David A.

Boto as officers or trustees of the Foundation.

The Hughes-Hott-Boto Settlement Agreement dismissed the counterclaims and third-party claims in the Colorado Litigation filed by the Company and resolved potential claims which could have been made against the Foundation, Mr.

Hughes and Mr.

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

The Company and the Foundation are seeking the required regulatory approvals in order to consummate the Class B Share Transaction.

On March 5, 2021, the Company paid the purchase price to the Foundation to hold in escrow until such regulatory approvals are obtained.

The Company has evaluated the impact of subsequent events as defined by the accounting guidance through the date this report was issued and determined that no subsequent events need to be recognized or disclosed.

December 31, 2021 | 10-K 114

10 unchanged sentences

Equity securities, at fair value 1,466 1,347

Mortgage loans on real estate 1,000 —

Real estate held-for-sale — 2,571

Other long-term investments — 8,790

Short-term investments — 1,301

Cash 3,399 3,102

12 unchanged sentences

Accumulated deficit ( 45,565 ) ( 82,352 )

Unrealized investment gains on securities held by parent and subsidiaries, net of tax 128,255 77,117

Unrealized investment gains (losses) on securities held by parent and subsidiaries, net of tax 117,492 128,255

Treasury stock ( 20,101 ) ( 11,011 )

20 unchanged sentences

Investment income 1,063 11,253 1,685

Realized investment gains (losses) ( 62 ) ( 3,013 ) ( 196 )

Other ( 37 ) 3 2

Investment related gains (losses), net 1,197 ( 62 ) ( 3,013 )

Total revenues 35,534 44,022 42,368

6 unchanged sentences

Equity in income (loss) of consolidated subsidiaries 37,767 ( 10,657 ) ( 2,063 )

Net loss ( 10,988 ) ( 1,370 ) ( 11,062 )

Net income (loss) 36,787 ( 10,988 ) ( 1,370 )

Other comprehensive income (loss) ( 10,763 ) 51,138 71,751

Total comprehensive income (loss) $ 40,150 70,381 ( 36,190 )

Total comprehensive income $ 26,024 40,150 70,381

(1) Eliminated in consolidation.

15 unchanged sentences

Net income (loss) $ 36,787 ( 10,988 ) ( 1,370 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Realized investment losses (gains), net 62 3,013 196

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Investment related gains (losses), net ( 1,197 ) 62 3,013

Equity in loss (income) of consolidated subsidiaries ( 37,767 ) 10,657 2,063

11 unchanged sentences

Purchases of fixed maturity securities, available-for-sale ( 2,678 ) ( 4,628 ) ( 12,970 )

Maturities of fixed maturity securities, available-for-sale 7,114 691 7,160

Maturities and calls of fixed maturity securities, available-for-sale 7,548 7,114 691

Purchase of equity securities — ( 250 ) —

1 unchanged sentence

Sales of property and equipment 14 11 14

Sale of other long-term investments 8,790 — —

Sale of real estate 3,552 — —

Funding of mortgage loans ( 1,000 ) — —

Purchases of other long-term investments — ( 8,790 ) —

4 unchanged sentences

Cash flows from financing activities:

Issuance of common stock 2,255 — —

Acquisition of treasury stock ( 9,090 ) — —

Other ( 456 ) ( 869 ) ( 377 )

58 unchanged sentences

Restated and Amended Articles of Incorporation dated March 4, 2004 (incorporated herein by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 15, 2004)

Amended and Restated Bylaws dated February 6, 2021 (incorporated herein by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K, filed on February 9, 2021)

Amended and Restated Bylaws dated June 2 , 2021 (incorporated herein by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K, filed on June 7 , 2021)

Description of Securities of Citizens, Inc.

Form of Indemnification Agreement for Executive Officers (incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on November 8, 2017)

Form of Indemnification Agreement for Directors (incorporated herein by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on November 8, 2017)

Form of Indemnification Agreement for Executive Officers (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on November 8, 2017)

Form of Indemnification Agreement for Directors (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on November 8, 2017)

Citizens, Inc.

Omnibus Incentive Plan (incorporated herein by reference to Exhibit 4.3 to the Registration Statement on Form S-8 filed by the Registrant on December 5, 2017)

Omnibus Incentive Plan (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-8 filed by the Registrant on December 5, 2017)

Form of Citizens, Inc.

Employee Restricted Stock Unit Agreement

Employee Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.6 to the Registrant's Annual Report on Form 10-K filed on March 29, 2018)

Form of Citizens, Inc.

Non-employee Director Restricted Stock Unit Agreement

Form of Executive Change in Leadership Agreement entered into by and between the Company and each of the following:

Conklin, James A.

Eliasberg, Robert M.

Mauldin III, Chad M.

Mellon and Harvey J.

Waite (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on April 16, 2020)

Chief Executive Officer Separation of Service and Consulting Agreement dated July 29, 2020 by and between the Company and Geoffrey M.

Kolander (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on July 30, 2020)

Non-employee Director Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.7 to the Registrant's Annual Report on Form 10-K filed on March 29, 2018)

Consulting Agreement by and Between the Company and Gerald W.

Shields dated August 5, 2020 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on August 11, 2020)

Shields dated August 5, 2020 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on July 30, 2020)

Amendment to Consulting Agreement by and between the Company and Gerald W.

Shields effective as of January 1, 2021

Mutual Agreement for Compromise, Settlement and Release with the Harold D.

Riley Foundation dated February 6 , 2021 (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 9, 2021)

Shields effective January 1, 2021 (incorporated by reference to Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K, filed on March 10, 2021)

Amendment to Gerald Shields Consulting Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on November 4, 2021)

Mutual Agreement for Compromise, Settlement and Release with the Harold E.

Riley Foundation dated February 6, 2021 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on February 9, 2021)

Mutual Agreement for Compromise, Settlement and Release with Michael C.

Hughes, Charles W.

Hott and David August Boto dated February 5, 2021 (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on February 9, 2021)

Hott and David August Boto dated February 5, 2021 (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed on February 9, 2021)

Purchase and Sale Agreement dated February 6, 2021 (incorporated herein by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on February 9, 2021)

Credit Agreement between the Company and Regions Bank dated May 5, 2021 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on August 4, 2021)

Pledge and Security Agreement dated May 5, 2021 by and between Citizens, Inc.

as obligor, and Regions Bank, as lender (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on August 4, 2021)

Separation Agreement between the Company and James A.

Eliasberg effective April 30, 2021 (incorporated by referenced to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed on August 4, 2021)

December 31, 2021 | 10-K 120

Form of Executive Change in Leadership Agreement entered into by and between the Company and each of the following:

Conklin, Sheryl Kinlaw, Robert M.

Mauldin III and Harvey J.L.

Waite (incorporated by referenced to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on November 4, 2021)

Subsidiaries of the Registrant

Consent of Independent Registered Public Accounting Firm - Grant Thornton LLP

Consent of Independent Registered Public Accounting Firm - Deloitte & Touche LLP

1 unchanged sentence

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act

December 31, 2020 | 10-K 129

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act

15 unchanged sentences

/s/ Gerald W.

Interim Chief Executive Officer and President

Chief Executive Officer and President

(Principal Executive Officer)

/s/ Jeffery P.

Vice President, Chief Financial Officer and Treasurer

Vice President, Chief Financial Officer, Chief Investment Officer and Treasurer

(Principal Financial and Accounting Officer)

1 unchanged sentence

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Gerald W.

Shields and James A.

Eliasberg, jointly and severally, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

Shields and Jeffery P.

Conklin jointly and severally, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated and on March 11, 2022.

12 unchanged sentences

/s/ Francis A.

Keating II /s/ Constance K.

Keating II, Director Constance K.

Weaver, Director

Keating II /s/ Cynthia H.

Keating II, Director Cynthia H.

Davis, Director

Keith Morgan /s/ Mary Taylor

Keith Morgan, Director Mary Taylor, Director

December 31, 2021 | 10-K 122

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 9A. Controls and Procedures