What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-05 · 255 added, 179 removed, 391 unchanged (53% of the section changed)

5 unchanged sentences

Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements.

Factors that might cause such differences include, but are not limited to, statements concerning any potential future impact of the coronavirus disease (“COVID-19”) pandemic on our business, as well as factors discussed in the "Risk Factors" contained in our Annual Report on Form 10-K for the year ended December 31, 2021, which are incorporated herein by reference.

Factors that might cause such differences include, but are not limited to, statements concerning any potential future impact of the coronavirus disease (“COVID-19”) pandemic on our business and the inflationary environment that has led to market volatility and rising interest rates, as well as factors discussed in the "Risk Factors" contained in our Annual Report on Form 10-K for the year ended December 31, 2021, which are incorporated herein by reference.

The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.

16 unchanged sentences

We refer to our Management’s Discussion and Analysis of Financial Condition and Results of Operations as our “MD&A”.

The objective of our MD&A is to provide investors with information in order to assess the material changes in our financial condition from December 31, 2021 to March 31, 2022 and the material changes in our results of operations from March 31, 2021 to March 31, 2022.

We also discuss in the MD&A any trends that we believe may materially affect our future operations or financial condition.

March 31, 2022 | 10-Q 25

The objective of our MD&A is to provide investors with information in order to assess the material changes in our financial condition from December 31, 2021 to June 30, 2022 and the material changes in our results of

June 30, 2022 | 10-Q 29

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

operations for the three and six months ended June 30, 2022 as compared to the same periods in 2021.

We also discuss in the MD&A any trends that we believe may materially affect our future operations or financial condition.

The Factors that Drive our Operating Results

5 unchanged sentences

• Operating expenses

As premium revenues and investment income are our two primary sources of income, both new sales and "resells" ( i.e .

retaining the policy) as well as our investments and the interest we receive on such investments, are key to our profitability.

Our premium revenue increased in the first three months of 2022 compared to 2021 as growth in renewal premiums in both segments more than offset lower first-year premiums in our Life Insurance segment, which in 2022 decreased by 19.8% compared to 2021.

Renewal premiums increased 2.4% in 2022 as compared to 2021, which we believe is due to strong first year sales in 2021 and continued retention and collection efforts.

While interest rates have recently started to increase, our yield declined 1 basis point to 4.20% in the first three months of 2022 as a substantial portion of our fixed maturity portfolio was called or matured over the past few years and we faced challenges in finding comparable yields.

Our net investment income increased by $0.2 million from the 2021 period to the 2022 period due to a growing asset base and positive returns from our middle market private equity investment.

As part of the ongoing process of managing our portfolio and optimizing performance we have been diversifying our investment portfolio in order to help mitigate the effects of the sustained low interest rate environment, however, this diversification comes with some volatility and accordingly, due to the general market decline in the first quarter of 2022, we incurred investment related losses of $0.6 million in the current period compared to gains of $0.3 million in prior year quarter.

Payment of policyholder benefits for death claims and surrenders is our largest expense and thus also key to our profitability.

In the first quarter of 2022, our death claims decreased.

Death claims in the 2021 period in our Life Insurance segment were negatively impacted by higher reported claims, including COVID-19 related deaths and the average dollar amount of claims incurred.

Our surrenders decreased in the first quarter of 2022 compared to the

March 31, 2022 | 10-Q 26

As premium revenues and investment income are our two primary sources of income, both new sales and "resells" ( i.e ., retaining the policy) as well as our investments and the interest we receive on such investments, are key to our profitability.

We experienced slight decreases, 1.4% and 0.3%, respectively, in premium revenue in the three and six months ended June 30, 2022 compared to the prior year periods.

In the three months ended June 30, 2022, premium revenue of $42.2 million decreased due primarily to lower renewal premiums in both of our segments, partially offset by increased first year premiums in our Life Insurance segment.

In the six months ended June 30, 2022, premium revenue of $81.6 million decreased as growth in renewal premiums was more than offset by lower first year premiums in both of our insurance segments.

Our net investment income increased during both the three and six months ended June 30, 2022 compared to the same prior year periods due primarily to a growing asset base, positive returns from our private equity investment and reinvestment into a higher interest rate environment.

Our yield increased 3 basis points to 4.25% in the first six months of 2022 compared to the prior year period, reflecting higher yields on new fixed maturity investments and positive returns from our private equity investment.

As part of the ongoing process of managing our portfolio and optimizing performance, we have been diversifying our investment portfolio over the last few years, however, this diversification comes with some volatility and accordingly,

June 30, 2022 | 10-Q 30

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MANAGEMENT'S DISCUSSION & ANALYSIS

same period in 2021, which we believe was in large part due to our retention initiatives.

due to the equity market decline in the first six months of 2022, we recorded investment related losses of $5.2 million in the current period compared to gains of $4.5 million in prior year period.

Payment of policyholder benefits for death claims and surrenders is our largest expense and thus also key to our profitability.

In both the first three and six months of 2022, our death claims decreased compared to the same prior year periods.

Death claims in the 2021 periods in both of our segments were negatively impacted by higher reported claims, including COVID-19 related deaths, and a higher average dollar amount of claims incurred.

Our surrenders decreased in the first three and six months of 2022 compared to the same periods in 2021, which we believe was in large part due to our retention initiatives.

Operating expenses are our second largest expense and thus drive our operating results.

Our general operating expenses decreased by $0.4 million in 2022 as compared to 2021.

Our general operating expenses in both the first three and six months of 2022 decreased as compared compared to prior year periods.

FINANCIAL HIGHLIGHTS

Financial Condition at March 31, 2022

Due to the market volatility and rising interest rates during the first six months of 2022, we had a net loss of $3.5 million and $4.9 million, respectively in the three and six months ended June 30, 2022, compared to net income of

June 30, 2022 | 10-Q 31

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

$5.0 million and $1.4 million, respectively, in the prior year periods.

As an insurance company, we hold significant invested assets in order to pay future policy liabilities.

Changes in the fair value of our limited partnership investments drove investment related losses of $5.0 million and $5.6 million, respectively, in the current year periods.

We did not sell these investments in the second quarter of 2022, but as discussed in Part I, Item 1, Note 5.

Investments , changes in fair values of our equity securities are reflected as investment related gains or losses, in addition to executed transactions that result in a gain or loss.

Due to these investment related losses driving our net loss, loss per share of Class A common stock was $0.10 for the six months ended June 30, 2022.

All other revenues (premiums, net investment income and other income) collectively increased in the three and six months ended June 30, 2022 as compared to the same prior year periods and our total benefits and expenses decreased by $0.6 million and $2.5 million, respectively, in the current year periods as compared to the same prior year periods.

Consolidated Revenue Highlights

Life insurance premiums and investment income are our primary sources of revenue.

In the three months ended June 30, 2022 compared to the same period in 2021:

• Insurance premiums decreased by $0.6 million due primarily to decrease in renewal premiums in both of our segments partially offset by an increase in first year premiums in our Life Insurance segment.

• Net investment income increased by $0.6 million, or 3.7%, from a higher average portfolio yield in the current year period, a growing asset base and strong results from our private equity investment.

In the six months ended June 30, 2022 as compared to the same period in 2021:

• Insurance premiums decreased by $0.3 million, or 0.3% as higher renewal premiums were more than offset by a decrease in first year premiums.

• Net investment income increased by $0.8 million, or 2.7% for the same reasons discussed above.

Consolidated Benefits and Expenses Highlights

The primary use of our funds is the payment of insurance benefits for claims and surrenders as well as our general operating expenses.

In the three months ended June 30, 2022 compared to the same period in 2021, total benefits and expenses decreased by $0.6 million due primarily to:

• $2.2 million decrease in claims and surrenders benefits.

This decrease was primarily related to lower death claims in both of our segments as 2021 included a higher number of reported death claims, including COVID-19 related deaths.

Surrender benefits decreased as we have focused efforts on retaining policyholders;

• $1.1 million decrease in other general expenses;

partially offset by

• $3.1 million increase in future policy benefit reserves as a result of improved first year sales and better persistency.

In the six months ended June 30, 2022 compared to the same period in 2021, total benefits and expenses decreased by $2.5 million due primarily to:

• $4.4 million decrease in claims and surrender benefits due primarily to a higher volume of reported claims in 2021, including those COVID-19 related, in addition to an increase in the average death claim amount in that year;

• $1.5 million decrease in other general expenses;

partially offset by

• $4.4 million increase in future policy benefit reserves as a result of sales and improved persistency.

June 30, 2022 | 10-Q 32

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

Financial Condition at June 30, 2022

• Total assets of $1.6 billion.

• Total investments of $1.4 billion;

fixed maturity securities comprised 88.7% of total investments.

• Total assets of $1.7 billion.

• Total stockholders' equity of $0.1 billion.

• $4.7 billion of direct insurance in force.

• Fully diluted loss per share of Class A common stock of $0.03.

Our net loss decreased by $2.2 million in the three months ended March 31, 2022 to $1.3 million compared to $3.6 million in prior year period.

The decrease in our net loss was primarily due to a decrease in death claims, federal income tax and other general expenses partially offset by investment losses reflecting changes in fair value of our equity investments, as discussed in Part I, Item 1, Note 5.

Investments , changes in fair values of our equity securities are reflected in investment gains or losses, in addition to executed transactions that result in a gain or loss.

March 31, 2022 | 10-Q 27

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

IMPACT OF INFLATION AND RISING INTEREST RATES

As mentioned above, the impact of inflation, which has led to market volatility and rising interest rates, has had a material impact on our results of operations and financial condition in the three and six months ended June 30, 2022.

In addition to the market volatility that affected the fair value of our equity securities, leading to the investment related losses, higher interest rates typically reduce the market values of fixed income assets, as the interest payments from existing fixed income assets become less competitive relative to newer higher rate fixed income instruments.

Because the vast majority of our total investments are invested in fixed maturity securities, we reported a pre-tax net unrealized loss of $125.4 million on our available-for-sale securities at June 30, 2022.

This compares to net unrealized gains of $126.9 million at December 31, 2021, with the year-over-year decrease primarily driven by higher interest rates.

In addition, we could experience higher surrenders and lapses and fewer sales in the coming months as our policyholders conserve cash due to concerns over inflation and rising costs, particularly in our Home Service Insurance segment , whose customer base is primarily middle- and lower-income individuals.

COVID-19 PANDEMIC

The overall impact of COVID-19 and its related economic conditions on the Company's financial results continue to be highly uncertain and unpredictable.

The overall impact of the COVID-19 pandemic and its related economic conditions on the Company's financial results continue to be highly uncertain and unpredictable.

While the Company has implemented new strategies and processes to mitigate this impact, the scope, duration and magnitude of the direct and indirect effects of COVID-19 are difficult or impossible to anticipate.

As a result, it is not possible to predict its impact on the Company's results in 2022 or beyond.

While we don't believe that COVID-19 materially impacted our results of operations for the quarter ended March 31, 2022, some of the most significant factors related to COVID-19 that could cause our future results to differ significantly from our prior results or expectations include:

While we don't believe that the COVID-19 pandemic materially impacted our results of operations for the three and six months ended June 30, 2022 , some of the most significant factors related to COVID-19 that could cause our future results to differ significantly from our prior results or expectations include:

• a higher level of claims due to COVID-19 deaths;

• decreased premium revenue due to disruption to our workforce or distribution channel resulting from required isolation, travel limitations and business restrictions;

• decreased premium revenue due to disruption to our workforce or distribution channels resulting from required isolation, travel limitations and business restrictions;

• higher surrenders and lapses due to cash needs our policyholders may have due to concerns over COVID-19 economic impacts;

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We manage our business in two operating segments, Life Insurance and Home Service Insurance.

June 30, 2022 | 10-Q 33

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

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

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

Three Months Ended March 31, 2022 2021

Six Months Ended June 30, 2022 2021

Issued Number of

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Total $ 268,469,238 15,983 $ 208,659,065 15,671

Total insurance issued increased by 2.5% in the three months ended March 31, 2022, from $95.0 million in the first three months of 2021 to $97.3 million in 2022.

The growth was driven by our Home Service Insurance segment.

Total insurance issued in our Home Service Insurance segment increased by $10.2 million, or 22.8% in the three months ended March 31, 2022 as compared to the same period in 2021, despite the decrease in the number of policies issued.

The increase in higher average policy face amounts issued is attributable to sales campaigns that focused on increasing the face amount of insurance sold as well as the introduction of our new whole life product in this segment, which has a higher maximum face value.

Despite higher average policy face values, total insurance issued in our Life Insurance segment decreased in the three months ended March 31, 2022 as compared to the prior year period as the number of policies issued decreased 26.7%.

We continue to prioritize recruiting new independent consultants.

March 31, 2022 | 10-Q 28

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

As we have previously disclosed, our strategic initiatives include the introduction of new products tailored to our specific markets.

These new products helped drive the 28.7% increase in total insurance issued in the six months ended June 30, 2022, from $208.7 million in the first six months of 2021 to $268.5 million in 2022.

The growth in insurance issued was a result of both a greater number of policies issued and higher average policy face amounts issued in both segments.

The growth in our Life Insurance segment is attributable to strong sales from our new international whole life product, which accounted for 45% of total insurance issued in this segment for the six months ended June 30, 2022.

In our Home Service Insurance segment, the increase in average policy face amounts issued is attributable to sales campaigns that focused on increasing the face amount of insurance sold as well as the introduction of our new whole life product in this segment, which has a higher maximum face value than our legacy products.

CONSOLIDATED RESULTS OF OPERATIONS

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

Our revenues are generated primarily by insurance renewal premiums and investment income from invested assets, both of which increased in the first quarter of 2022 as compared to the first quarter of 2021.

Three Months Ended

Our revenues are generated primarily by insurance renewal premiums and investment income from invested assets.

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands) 2022 2021 2022 2021

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Total revenues $ 53,734 63,558 109,091 119,041

June 30, 2022 | 10-Q 34

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

Premium Income.

Total premium income increased $0.3 million, or 0.9%, for the three months ended March 31, 2022 compared to the same period in 2021 due to higher renewal year premiums in both our segments.

Total premium income decreased $0.6 million and $0.3 million, or 1.4% and 0.3%, for the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021.

• Three months ended June 30, 2022 :

Total premiums decreased primarily due to lower renewal premiums in both of our segments partially offset by an increase in first year premiums in our Life Insurance segment.

Despite the increase in first year premiums in the Life Insurance segment, total first year premiums decreased by 5.4% year-over-year during the second quarter due to a decrease in the Home Service segment, which we believe is associated with a change in the mix of business sold as we introduce new products.

• Six months ended June 30, 2022:

Total premiums decreased slightly as higher renewal premiums were more than offset by a decrease in first year premiums.

We believe the increase in renewal premiums resulted primarily from strong sales in 2021 and continued retention and collection efforts.

The first year premiums decrease occurred in both of our segments.

In our Life Insurance segment, we believe the decline is attributed to lower average premiums related to strong sales from our new international whole life product while the Home Service segment decline we believe is associated with a change in the mix of business as we continue the introduction of new products.

Net Investment Income.

A summary of our net investment income and annualized net investment income performance are summarized as follows:

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands, except for %) 2022 2021 2022 2021

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Annualized yield on average invested assets 4.25 % 4.22 %

March 31, 2022 | 10-Q 29

Income from our fixed maturity securities constitutes the vast majority of our net investment income, as they comprise 88.7% of our investment portfolio based on fair value.

Our total investment income increased by 4.9% and 2.8% for the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021, primarily due to a higher average portfolio yield on our fixed maturity securities in the current year period.

The activity in the six months ended June 30, 2021 included income from a non-recurring "make-whole" call redemption.

Long-term investment income increased as our private equity investment asset base grew and we received some early distribution income.

Investment Related Gains (Losses), Net.

We recorded investment related losses of $5.0 million and $5.6 million during the three and six months ended June 30, 2022 as compared to investment related gains of $4.9 million and $5.2 million during the same prior year periods.

The gains and losses are primarily related to the fair value change

June 30, 2022 | 10-Q 35

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

Our total investment income increased by 0.8%.

Income from fixed maturity securities income decreased 1.5% for the three months ended March 31, 2022, compared to the same period in 2021 as the three months ended March 31, 2021 included a non-recurring "make-whole" call redemption.

Long-term investment income increased as our limited partnership investments asset base grew, in addition to some early distribution income.

Annualized net investment income increased by $1.0 million in the three months ended March 31, 2022 as compared to the same three months of 2021 despite a slightly lower annualized yield due to our growing asset base and to strong yields from our middle market private equity investment.

Investment Related Gains (Losses), Net.

We recorded investment related losses of $0.6 million during the three months ended March 31, 2022 as compared to investment gains of $0.3 million during the three months ended March 31, 2021.

The gains and losses are related to fair value change in our equity securities owned.

Other income consists primarily of policyholders in our Life Insurance segment selecting supplemental contracts upon the surrender or maturity of their original policies, which has been increasing over the past few quarters.

of our limited partnership and equity securities investments, mostly in our Life Insurance segment, due to the inflationary environment and volatility in equity markets.

Other Income.

Other income consists primarily of supplemental contracts issued to policyholders in our Life Insurance segment upon the surrender or maturity of their original policies.

We believe this income has been increasing over the past few quarters due to our retention initiatives.

BENEFITS AND EXPENSES

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands) 2022 2021 2022 2021

11 unchanged sentences

Total benefits and expenses $ 57,363 57,958 113,694 116,189

Claims and surrenders benefits and general expenses are our primary uses of cash, both of which decreased in the first quarter of 2022 as compared to the first quarter of 2021.

March 31, 2022 | 10-Q 30

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

Claims and surrenders benefits and other general expenses are our primary expenses, both of which decreased in the three and six months ended June 30, 2022 as compared to same periods in 2021.

Claims and Surrenders.

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands) 2022 2021 2022 2021

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Total claims and surrenders $ 27,097 29,296 55,531 59,885

Death claim benefits decreased 21.5% for the three months ended March 31, 2022 compared to the same period in 2021.

Death claims in our Life Insurance segment decreased 63.1% during the first three months of 2022 compared to the same period in 2021 and Home Service Insurance segment claims decreased 3.7%.

The decrease in both segments during the first three months of 2022 compared to the same period last year was due primarily a lower volume of reported death claims, including COVID-19 related deaths.

Surrender benefits decreased 4.3% for the three months ended March 31, 2022 compared to the same period in 2021.

Surrender benefits represented less than 0.3% of total direct ordinary whole life insurance in force of $4.6 billion as of March 31, 2022.

Death claim benefits decreased 10.3% and 16.8% for the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021.

Death claims in our Life Insurance segment decreased 17.8% and 44.7% during the three and six months ended June 30, 2022, respectively, and Home Service Insurance segment claims decreased 7.3% and 5.2% during the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021.

The decrease in both segments during the three and six months ended June 30, 2022

June 30, 2022 | 10-Q 36

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MANAGEMENT'S DISCUSSION & ANALYSIS

compared to the same periods last year was due primarily to a lower volume of reported death claims, including COVID-19 related deaths, and lower average death claim amounts.

Surrender benefits decreased 14.2% and 9.4% for the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021.

Surrender benefits represented less than 0.5% of total direct ordinary whole life insurance in force of $4.7 billion as of June 30, 2022.

We have focused our efforts on retaining policyholders and believe we have begun to see positive benefits from these efforts starting in the second half of 2021.

Matured endowment benefits increased 19.8% for the three months ended March 31, 2022, compared to the same period in 2021.

Matured endowment benefits increased 8.3% and 13.8% for the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021.

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

Property claims decreased 55.8% in the three months ended March 31, 2022 compared to the same period in 2021 due to lower hurricane property claims.

Other General Expenses.

General expenses decreased 3.1% in the three months ended March 31, 2022 compared to the same period in 2021.

In the first quarter of 2022 we had lower operating expenses primarily due to consulting fees paid to our former CEO and professional fees incurred in connection with the change in control of the Company, both in the first quarter of 2021, partially offset by higher current quarter expenses associated with our home office.

General expenses decreased 9.6% and 6.4% in the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021.

We had lower operating expenses primarily due to lower employee benefit costs in the three months ended June 30, 2022.

In the six months ended June 30, 2022 we had lower consulting fees paid to our former CEO and lower professional fees incurred in connection with the change in control of the Company in 2021, partially offset by higher expenses associated with our home office and travel and convention expenses as we return to pre-pandemic business operations.

Explanation of other benefits and expenses

Increase in Future Policy Benefit Reserves.

Future policy benefit reserves reflect the liability established to provide for the payment of policy benefits that we expect to pay in the future and thus increase when we have a higher in force block of business due to higher sales and persistency (i.e., more policies on which we expect to pay future benefits) and decrease when we have lower sales and persistency.

The change in future policy benefit reserves increased 25.6% for the three months ended March 31, 2022, compared to the same period in 2021 due to better persistency.

Future policy benefit reserves reflect the liability established to provide for the payment of policy benefits that we expect to pay in the future and thus increase when we have a higher in force block of business due to higher sales and better persistency (i.e., more policies on which we expect to pay future benefits) and decrease when we have lower sales and persistency.

The change in future policy benefit reserves increased 49.2% and 38.4% for the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021 due to better sales and persistency.

In addition, the change in future policy reserves for the three and six months ended June 30, 2021 was lower due to an $0.8 million adjustment for the conversion of a small block of policies to our new actuarial valuation system for our Life Insurance segment during the second quarter of 2021.

Commission expenses are a cost of acquiring business, as commissions are the primary compensation paid to our independent consultants and independent agents for selling our products.

First year commission rates are higher than renewal commission rates and thus commissions fluctuate directly in relation to first year sales.

March 31, 2022 | 10-Q 31

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

Capitalization and Amortization of Deferred Policy Acquisition Costs.

Costs capitalized include certain commissions, policy issuance costs, and underwriting and agency expenses that relate to successful sales efforts for insurance contracts and thus fluctuate primarily with first year sales.

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

Amortization is impacted by persistency, surrenders, and new sales production and thus it may fluctuate from period to period depending on these factors.

SEGMENT OPERATIONS

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

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

Three Months Ended

June 30, 2022 | 10-Q 37

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

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

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands) 2022 2021 2022 2021

6 unchanged sentences

LIFE INSURANCE

Income before federal income tax expense in our Life Insurance segment increased by $1.1 million in the first three months of 2022 as compared to the prior year period driven by higher net investment income and lower death benefits, partially offset by higher investment related losses and higher operating expenses.

March 31, 2022 | 10-Q 32

We had a net loss of $2.4 million and $1.3 million, respectively in the three and six months ended June 30, 2022 as compared to net income of $7.1 million and $7.0 million, respectively, in the prior year periods.

As discussed above in "Financial Highlights" this change was due primarily to investment related losses in the current year periods.

We recorded investment related losses of $4.0 million and $4.3 million during the three and six months ended June 30, 2022, respectively, as compared to investment related gains of $4.6 million and $4.5 million during the same prior year periods.

Total benefits and expenses in this segment benefited in each of the three and six months ended June 30, 2022 from lower claims and surrender benefits;

however, increased overall in both periods compared to the prior year periods due to the increase in insurance issued and better persistency, which led to a higher increase in future policy benefit reserves and commissions.

June 30, 2022 | 10-Q 38

CITIZENS, INC.

1 unchanged sentence

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

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands) 2022 2021 2022 2021

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Life Insurance segment premium breakout is detailed below.

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands) 2022 2021 2022 2021

2 unchanged sentences

Total premiums $ 29,834 30,138 56,765 57,201

We derive most of our premium revenue in the Life Insurance segment from renewal premiums, which increased 1.5% in the three months ended March 31, 2022 as compared to the same period in 2021.

Despite this increase, total premium revenues decreased slightly for the three months ended March 31, 2022 compared to the same period in 2021 due to a decrease in first year premiums.

We believe that the decline in first year premiums in our Life Insurance segment is primarily related to a reduction of sales in existing products in anticipation of our new whole life product, which was released March 10, 2022, as well as a continued decline in production in Venezuela due to one of our top distributors leaving our Company.

We discussed in Item 3 - Legal Proceedings in our Annual Report on Form 10-K for the year ended December 31, 2021 this agent who we believe is illegally competing with us and stealing our trade secrets and business.

March 31, 2022 | 10-Q 33

Total premiums for three and six months ended June 30, 2022 decreased 1.0% and 0.8%, respectively, compared to the same periods in 2021.

We derive most of our premium revenue in the Life Insurance segment from renewal premiums, which decreased 1.3% and increased slightly in the three and six months ended June 30, 2022, respectively, as compared to the same periods in 2021, which we believe was due to strong sales in 2021 and the success of our retention programs.

First year premiums increased slightly for three months ended June 30, 2022 compared to the same period in 2021, which we believe is due to sales campaigns and our new international whole life product launched in March 2022.

First year premiums decreased for the six months ended June 30, 2022 as compared to the same period in 2021.

We believe that the decline is primarily related to a decline in production in

June 30, 2022 | 10-Q 39

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

Taiwan due in part to COVID lock downs and continued decline in production in Venezuela due to one of our top distributors leaving our Company.

As we discussed in Item 3 - Legal Proceedings in our Annual Report on Form 10-K for the year ended December 31, 2021, we believe these distributors are illegally competing with us and stealing our trade secrets and business.

International Life Insurance Premiums.

The following graph sets forth, for our top five producing countries, our direct premiums from our international life insurance business for the three months ended March 31, 2022 and 2021.

Three Months Ended

The following table sets forth, for our top five producing countries, our direct premiums from our international life insurance business for the three and six months ended June 30, 2022 and 2021.

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands) 2022 2021 2022 2021

5 unchanged sentences

Other Non-U.S.

10,880 10,083 18,570 18,188

Total $ 31,662 31,099 57,631 58,049

Domestic Life Insurance Premiums.

Domestic premiums in our Life Insurance segment were $1.0 million in the three months ended March 31, 2022, compared to $1.2 million in the prior year period.

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

We discontinued new sales in these blocks in 2017 and therefore the majority of the premium recorded is related to renewal business that has been decreasing over the last several years.

Domestic premiums in our Life Insurance segment were $1.2 million and $2.2 million in the three and six months ended June 30, 2022, respectively, compared to $1.3 million and $2.5 million in the same prior year periods.

Our domestic in force business results primarily from blocks of business of insurance companies we have acquired over the years and ceased selling ordinary life in 2017.

We currently offer credit life, credit disability and critical illness products domestically.

Net Investment Income .

Annualized net investment income in our Life Insurance segment was as follows:

March 31, March 31,

(In thousands, except for %) 2022 2021

Net investment income, annualized $ 47,883 46,393

Average invested assets, at amortized cost 1,134,903 1,107,540

Annualized yield on average invested assets 4.22 % 4.19 %

Annualized net investment income in our Life Insurance segment increased in the three months ended March 31, 2022 compared to the same period annualized in 2021 due to continued growth in average invested assets,

March 31, 2022 | 10-Q 34

Our net investment income increased by 3.9% and 3.6% for the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021 from higher average portfolio yield in the current year period.

Fixed maturity securities income for the six months ended June 30, 2021 included a non-recurring "make-whole" call redemption.

Long-term investment income increased as our limited partnership investments asset base grew and we received some early distribution income.

Investment Related Gains (Losses), Net.

The investment related losses for the three and six months ended June 30, 2022 were a result of the change in estimated fair market value for our limited partnerships, as previously discussed.

June 30, 2022 | 10-Q 40

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

including strong results from our middle market private equity investment.

See " Investments " below for more detailed information on our investments.

Investment Related Gains (Losses), Net.

The investment related loss for the three months ended March 31, 2022 was due primarily to equity securities negatively impacted by fair value changes.

Claims and Surrenders.

The following table shows the primary claims and surrender benefits paid within the Life Insurance segment for the three months ended March 31, 2022 compared to the same period in 2021.

Three Months Ended

The following table shows the primary claims and surrender benefits paid within the Life Insurance segment for the three and six months ended June 30, 2022 compared to the same periods in 2021.

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands) 2022 2021 2022 2021

6 unchanged sentences

Total claims and surrenders $ 21,568 23,531 43,026 46,801

During the three months ended March 31, 2022 and 2021, the majority of our claims and surrender benefits in our Life Insurance segment were related to payment of surrender benefits.

Surrenders decreased 5.0% in the three months ended March 31, 2022, as compared to the prior year period, as we have instituted retention programs aimed at curbing surrenders.

The $1.8 million decrease in claims and surrenders expense drove our improved income in this segment in the three months ended March 31, 2022 as compared to the prior year period.

During the three and six months ended June 30, 2022 and 2021, the majority of our claims and surrender benefits in our Life Insurance segment were related to payment of surrender benefits and matured endowment benefits.

Surrenders decreased 17.0% and 11.2% in the three and six months ended June 30, 2022, as compared to the prior year periods.

We believe this improvement is due to the success of our retention programs aimed at curbing surrenders.

Matured endowment benefits have generally been increasing but can fluctuate, which we expected due to the timing of maturities.

Death claims benefits decreased for the three and six months ended June 30, 2022, as compared to the prior year periods.

We believe that the COVID-19 pandemic contributed to high death claims in the 2021 period.

The decrease in death claims and surrenders was partially offset by higher matured endowment benefits paid, which we expected due to the timing of maturities.

Increase in Future Policy Benefit Reserves.

The change in future policy benefit reserves increased 86.9% and 64.8% for the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021 due to better sales and persistency.

Other General Expenses.

General expenses increased in the three months ended March 31, 2022 compared to the same period in 2021 due primarily to expenses associated with our home office and convention expenses.

We did not have a convention in 2021 due to COVID-19.

March 31, 2022 | 10-Q 35

General expenses increased in the three and six months ended June 30, 2022 compared to the same periods in 2021 due primarily to expenses associated with our home office and travel related expenses including our convention.

We did not have a convention in 2021 due to the COVID-19 pandemic.

HOME SERVICE INSURANCE

Income before federal income tax expense in our Home Service Insurance segment decreased by $0.4 million and $0.9 million in the three and six months ended June 30, 2022, respectively, as compared to the prior year periods, driven by investment related losses due to the changes in the fair value of our equity securities.

The effect of the investment related losses on pre-tax net income was partially offset by lower death benefits, fewer hurricane property claims and lower operating expenses in the current year periods.

June 30, 2022 | 10-Q 41

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

HOME SERVICE INSURANCE

Investment related losses and higher general expenses led to an increase loss in the Home Service Insurance segment in the three months ended March 31, 2022 as compared to the 2021 period.

The current year period benefited from lower hurricane property claims.

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

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands) 2022 2021 2022 2021

16 unchanged sentences

Total benefits and expenses 14,643 15,599 31,318 31,896

Loss before federal income tax expense $ (1,240) (758)

Total premium revenue increased by 3.9% in the three months ended March 31, 2022, compared to the same period in 2021.

The increase is a result of higher renewal year premiums during the three months ended March 31, 2022 due to improvements in our collection and payment processes and strong collection efforts by our independent agents.

March 31, 2022 | 10-Q 36

Income (loss) before federal income tax expense $ 106 538 (1,134) (220)

Total premium revenue declined by 2.3% in the three months ended June 30, 2022 compared to the same period in 2021 which we believe is associated with the change in our business mix as we continue the strategic transformation of this business and introduce new products, which are lower cost to policyholders than some of our legacy products.

Premium revenue increased by 0.7% in the six months ended June 30, 2022 compared to the same period in 2021.

This increase is due to higher renewal premiums during the six months ended June 30, 2022 as a result of collection efforts by our independent agents as well as the impact from a pricing increase on our property casualty business products.

June 30, 2022 | 10-Q 42

CITIZENS, INC.

2 unchanged sentences

Claims and surrender benefits, which are the largest portion of our expenses in the Home Service Insurance segment, are summarized as follows:

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands) 2022 2021 2022 2021

8 unchanged sentences

The majority of claims and surrender benefits in our Home Service Insurance segment relate to death claim benefits.

Death claim benefits decreased 3.7% in the three months ended March 31, 2022, compared to the 2021 periods.

The decrease in death claim benefits was due primarily to a slightly lower volume of reported claims, including COVID-19 related deaths.

Death claim benefits decreased 7.3% and 5.2% in the three and six months ended June 30, 2022, respectively, compared to the same 2021 periods.

The decrease in death claim benefits was due primarily to a slightly lower volume of reported claims, including less COVID-19 related deaths.

Mortality experience is closely monitored by the Company as a key performance indicator and fluctuates from quarter-to-quarter based on reported claims.

Property claims decreased due to fewer hurricane property claims.

Property claims decreased due to a lower volume of reported claims and fewer hurricane property claims.

Other General Expenses.

General expenses increased in the three months ended March 31, 2022 compared to the same period in 2021, primarily due to higher employee health benefit costs and insurance department examination fees.

General expenses decreased in the three months ended June 30, 2022 compared to the same period in 2021, primarily due to lower employee health benefit costs.

OTHER NON-INSURANCE ENTERPRISES

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands)

2022 2021 2022 2021

Income (loss) before income tax expense $ (1,372) (2,065) (2,136) (3,949)

This operating unit represents the administrative support entities to the insurance operations whose revenues are primarily intercompany and have been eliminated in consolidation under U.S.

This operating unit represents the administrative support entities to the insurance operations.

Its revenues are primarily intercompany and have been eliminated in consolidation under U.S.

GAAP, which typically results in a segment loss.

Revenue in this operating unit consists primarily of net investment income and investment related gains or losses, while expenses consist of other general expenses related to corporate functions.

In the three months ended March 31, 2022, the Other Non-Insurance Enterprises had a loss of $0.8 million compared to a loss of $1.9 million for the same period in 2021, as other general expenses decreased in the current year period due to the change of control expenses paid in 2021.

In the three and six months ended June 30, 2022, the Other Non-Insurance Enterprises had a loss of $1.4 million and $2.1 million, respectively, compared to a loss of $2.1 million and $3.9 million for the same periods in 2021, as other general expenses decreased in the current year period due to payment of consulting fees to our former CEO and professional fees in connection with the change in control of the Company in 2021.

Our investments are an integral part of our business success.

Our cash and invested assets at March 31, 2022 were $1.5 billion, of which 88.4% was invested in fixed maturity securities, all of which are classified as available-for-sale.

Our cash and invested assets at June 30, 2022 were $1.4 billion, of which 87.4% was invested in fixed maturity securities, all of which are classified as available-for-sale.

We closely monitor the duration of our fixed maturity investments, and investment purchases and sales are executed with the objective of having adequate funds available to satisfy our insurance obligations.

March 31, 2022 | 10-Q 37

June 30, 2022 | 10-Q 43

CITIZENS, INC.

1 unchanged sentence

The following table shows the carrying value of our investments by investment category and cash, cash equivalents and the percentage of each to total cash and invested assets.

Carrying Value March 31, 2022 December 31, 2021

Carrying Value June 30, 2022 December 31, 2021

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

17 unchanged sentences

Total cash, cash equivalents and invested assets $ 1,416,710 100.0 % $ 1,650,461 100.0 %

(1) Includes $154.8 million and $161.8 million of securities guaranteed by third parties at March 31, 2022 and December 31, 2021, respectively.

(1) Includes $146.8 million and $160.6 million of securities guaranteed by third parties at June 30, 2022 and December 31, 2021, respectively.

(2) Includes $109.8 million and $136.5 million of U.S.

Government-sponsored enterprises at March 31, 2022 and December 31, 2021, respectively.

The carrying value of the Company’s fixed maturity securities investment portfolio at March 31, 2022 was $1.4 billion compared to $1.5 billion at December 31, 2021.

This decline reflects interest rate sensitivity on fixed maturity securities.

The distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of March 31, 2022 did not materially change from December 31, 2021 – the weighted average was “A” at both dates.

Our portfolio mix did not materially change during the three months.

Cash and cash equivalents decreased as of March 31, 2022 from December 31, 2021 due primarily to the reinvestment of funds in higher interest rate securities.

Other long-term investments increased by $6.5 million as of March 31, 2022 from December 31, 2021 due to additional contributions to our limited partnerships.

Government-sponsored enterprises at June 30, 2022 and December 31, 2021, respectively.

The carrying value of the Company’s fixed maturity securities investment portfolio at June 30, 2022 was $1.2 billion compared to $1.5 billion at December 31, 2021.

As discussed above, this decline reflects the impact of interest rate sensitivity on the fair value of our fixed maturity securities.

The distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of June 30, 2022 did not materially change from December 31, 2021 – the weighted average was “A” at both dates.

Our portfolio mix did not materially change during the six months.

Cash and cash equivalents decreased as of June 30, 2022 from December 31, 2021 due primarily to the reinvestment of funds in higher interest rate securities.

Other long-term investments increased by $8.6 million as of June 30, 2022 from December 31, 2021 due to additional funding of our limited partnership investments.

Obligations of States and Political Subdivisions

The Company’s fixed maturity securities investment portfolio at March 31, 2022 and December 31, 2021 included $358.4 million and $384.0 million, respectively, of securities that are obligations of states and political subdivisions, including municipalities (collectively referred to as the municipal bond portfolio).

March 31, 2022 | 10-Q 38

The Company’s fixed maturity securities investment portfolio at June 30, 2022 and December 31, 2021 included $343.4 million and $384.0 million, respectively, of securities that are obligations of states and political subdivisions, including municipalities (collectively referred to as the municipal bond portfolio).

June 30, 2022 | 10-Q 44

CITIZENS, INC.

1 unchanged sentence

The Company's municipal bond portfolio includes third-party guarantees.

Detailed below is a presentation by the Nationally Recognized Statistical Rating Organization ("NRSRO") rating of these holdings by funding type as of March 31, 2022.

Detailed below is a presentation by the Nationally Recognized Statistical Rating Organization ("NRSRO") rating of these holdings by funding type as of June 30, 2022.

General Obligation Special Revenue Other Total % Based on Amortized

12 unchanged sentences

State and political subdivision fixed maturity securities excluding third-party guarantees

AAA $ 1,873 1,862 — — — — 1,873 1,862 0.5 %

AA $ 30,307 29,432 44,434 46,949 6,845 6,518 81,586 82,899 23.1 %

3 unchanged sentences

Total $ 86,318 84,815 240,006 257,424 17,065 16,960 343,389 359,199 100.0 %

The table below shows the categories in which the Company held investments in special revenue bonds that were greater than 10% of fair value based upon the Company's municipal bond portfolio at March 31, 2022.

The table below shows the categories in which the Company held investments in special revenue bonds that were greater than 10% of fair value based upon the Company's total municipal bond portfolio at June 30, 2022.

(In thousands) Fair

4 unchanged sentences

Transportation 38,807 44,071 11.3 %

The Company's municipal bond portfolio is spread across many states, however, municipal bonds from Texas and California comprise the most significant concentration of the total municipal bond portfolio as of March 31, 2022.

The Company holds 21.2% and 12.8% of its municipal bond portfolio in Texas and California issuers, respectively, as of March 31, 2022.

There were no other states or individual issuer holdings that represented or exceeded 10% of the total municipal bond portfolio as of March 31, 2022.

March 31, 2022 | 10-Q 39

The Company holds 20.5% and 12.6% of its municipal bond portfolio in Texas and California issuers, respectively, as of June 30, 2022.

There were no other states or individual issuer holdings that represented or exceeded 10% of the total municipal bond portfolio as of June 30, 2022.

June 30, 2022 | 10-Q 45

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

The table below represents the Company's detailed exposure to municipal bond portfolio in Texas at March 31, 2022.

March 31, 2022 General Obligation Special Revenue Other Total

The table below represents the Company's detailed exposure to municipal bond portfolio in Texas at June 30, 2022.

June 30, 2022 General Obligation Special Revenue Other Total

(In thousands) Fair

11 unchanged sentences

Texas state and political subdivision fixed maturity securities excluding third-party guarantees

AAA $ 1,873 1,862 — — — — 1,873 1,862

AA $ 27,953 27,183 3,058 3,013 — — 31,011 30,196

3 unchanged sentences

Total $ 34,134 33,184 36,296 41,301 — — 70,430 74,485

The table below represents the Company's detailed exposure to municipal bond portfolio in California at March 31, 2022.

March 31, 2022 General Obligation Special Revenue Other Total

The table below represents the Company's detailed exposure to municipal bond portfolio in California at June 30, 2022.

June 30, 2022 General Obligation Special Revenue Other Total

(In thousands) Fair

7 unchanged sentences

BBB — — 866 865 — — 866 865

BB and other — — 3,787 3,777 — — 3,787 3,777

Total $ 2,896 3,224 37,909 43,556 2,559 2,730 43,364 49,510

5 unchanged sentences

Total $ 2,896 3,224 37,909 43,556 2,559 2,730 43,364 49,510

March 31, 2022 | 10-Q 40

June 30, 2022 | 10-Q 46

CITIZENS, INC.

1 unchanged sentence

IMPAIRMENT CONSIDERATIONS RELATED TO INVESTMENTS IN FIXED MATURITY AND EQUITY SECURITIES

For the three months ended March 31, 2022 and 2021, the Company recorded no credit valuation losses on fixed maturity securities.

The Company did not record any credit valuation allowances on fixed maturity securities in either of the three and six months ended June 30, 2022 or 2021.

Information on both unrealized and realized gains and losses by category is set forth in Part I, Item 1, Note 5.

3 unchanged sentences

(In thousands)

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Fixed maturity securities $ 1,237,004 1,470,617

3 unchanged sentences

We currently anticipate meeting our short-term and long-term cash needs with cash generated by our insurance operations and from our invested assets.

At March 31, 2022, we had $21.3 million in cash and cash equivalents and $1.5 billion in invested assets.

From time-to-time we may raise capital by selling shares in our SIP (as defined below) and we may also access our Credit Facility if needed (both as described below).

At June 30, 2022, we had $22.4 million in cash and cash equivalents and $1.4 billion in invested assets.

As described above, cash and cash equivalents decreased as of June 30, 2022 from December 31, 2021 due primarily to the reinvestment of funds in higher interest rate securities and the decline in the fair value of our fixed maturity securities is due to rising interest rates.

As discussed in Part I, Item 1 .

Investments in the notes to our consolidated financial statements herein, we expect the fair value to recover as the securities approach maturity.

We have only recorded a $0.3 million unrealized loss on securities due in 1 year or less.

From time-to-time we may raise capital by selling shares in our SIP (as defined below) and we may also access our Credit Facility if needed (also as described below).

PARENT COMPANY LIQUIDITY AND CAPITAL RESOURCES

3 unchanged sentences

cash generated from our operating subsidiaries and our invested assets.

Our ability to obtain cash from our insurance subsidiaries depends primarily upon the availability of statutorily permissible payments, including payments Citizens receives from service agreements with our life insurance subsidiaries and dividends from the subsidiaries.

Our ability to obtain cash from our insurance subsidiaries depends primarily upon the availability of statutorily permissible payments, including payments Citizens receives from service agreements with our insurance subsidiaries and dividends from the subsidiaries.

The ability to make payments to the holding company is limited by applicable laws and regulations of Bermuda and U.S.

7 unchanged sentences

Commitments and Contingencies in the notes to our consolidated financial statements, herein, for a description of the Credit Facility.

The Credit Facility provides additional liquidity to the Company for short-term and longer-term needs.

As of March 31, 2022, we have not borrowed any money under the Credit Facility and have no immediate plans to do so.

March 31, 2022 | 10-Q 41

June 30, 2022 | 10-Q 47

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

The Credit Facility provides additional liquidity to the Company for short-term and longer-term needs.

As of June 30, 2022, we have not borrowed any money under the Credit Facility and have no immediate plans to do so.

INSURANCE COMPANY SUBSIDIARY LIQUIDITY AND CAPITAL RESOURCES

2 unchanged sentences

Historically, cash flow from our operations has been sufficient to meet our cash needs.

We have not had to liquidate a material amount of investments to pay our expenses and we did not do so in the three months ended March 31, 2022.

We have not had to liquidate a material amount of investments to pay our expenses and we did not do so in the six months ended June 30, 2022.

We believe that we have adequate capital resources to support the liquidity requirements of our insurance operations if the cash flow from our insurance operations is insufficient to meet our cash needs.

See Contractual Obligations and Off-balance Sheet Arrangements in our Form 10-K and below for a discussion of known and estimated cash needs.

Cash from Operations.

Cash from Operating Activities.

Cash provided by or used in operating activities is an important liquidity metric because it reflects, during a given period, the amount of cash generated that is available to pay our operating expenses or make strategic acquisitions.

In the three months ended March 31, 2022, our operations provided $12.1 million in net cash.

Cash from/used in Investments.

In the six months ended June 30, 2022, our operations provided $22.3 million in net cash.

Cash from Investing Activities.

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

These cash flows, for the most part, are reinvested in new investments.

Net cash used in investing activities totaled $19.8 million for the three months ended March 31, 2022.

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

Net cash used in investing activities totaled $27.9 million for the six months ended June 30, 2022.

Due to the higher interest rate environment, we purchased $64.7 million in fixed maturity securities and we also used $14.7 million to purchase other long-term investments.

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

Cash from Financing Activities.

Cash provided by financing activities was $1.7 million in the three months ended March 31, 2022, due primarily to the issuance of shares under the SIP.

Cash provided by financing activities was $0.7 million in the six months ended June 30, 2022, due primarily to the issuance of shares under the SIP.

Trends, Demands and Restrictions on our Uses of Cash

1 unchanged sentence

In order to mitigate the risk of early policyholder surrenders, we include provisions in our insurance policies, such as surrender charges, that help limit and discourage early withdrawals.

As previously discussed, surrender benefits have been higher than usual the last several years as many of our policies have reached the age where surrender charges have expired and due to other reasons, like the loss of one of our biggest distributors in Venezuela (see Item 3.

Legal Proceedings).

However, we have been aggressively managing policyholder retention efforts and in the three months ended March 31, 2022, surrender benefits slightly decreased.

As previously discussed, surrender benefits had been higher than usual the last several years as many of our policies have reached the age where surrender charges have expired and due to other reasons, like the loss of one of our biggest distributors in Venezuela.

However, we have been aggressively managing policyholder retention efforts and in the six months ended June 30, 2022, surrender benefits slightly decreased.

Our whole life and endowment products provide the policyholder with alternatives once the policy matures - they can choose to take a lump sum payout or leave the money on deposit at interest with the Company.

As of March 31, 2022, 40% of the Company's total insurance in force was in endowment products.

As of June 30, 2022, 39% of the Company's total insurance in force was in endowment products.

Approximately 14% of the endowments in force will mature in the next five years.

3 unchanged sentences

We currently anticipate that our available operating cash flow and capital resources will be adequate to meet our needs for funds, but we will monitor closely our policyholder behavior patterns.

Death claims, which were high in 2021 due in part to COVID, have decreased to normal levels so far in 2022.

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

March 31, 2022 | 10-Q 42

June 30, 2022 | 10-Q 48

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

Death claims, which were high in 2021 due in part to COVID, have decreased to pre-pandemic levels during the first six months of 2022.

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

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

4 unchanged sentences

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

At March 31, 2022, our domestic insurance subsidiaries were above the required minimum RBC levels.

At June 30, 2022, our domestic insurance subsidiaries were above the required minimum RBC levels.

CICA International is a Bermuda domiciled company.

The BMA requires Bermuda insurers to maintain available statutory economic capital and surplus at a level equal to or in excess of the BMA's Enhanced Capital Requirement, which requires a certain Target Capital Level ("TCL").

As of March 31, 2022, CICA International was above the TCL threshold.

As of June 30, 2022, CICA International was above the TCL threshold.

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

3 unchanged sentences

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

As of March 31, 2022, we have no additional contractual obligations or off-balance sheet arrangements other than those described in Part I.

As of June 30, 2022, we have no additional contractual obligations or off-balance sheet arrangements other than those described in Part I.

Item 1, Note 7.

4 unchanged sentences

Summary of Significant Accounting Policies of our consolidated financial statements in our Form 10-K continue to describe the significant judgments and estimates used in the preparation of our consolidated financial statements.

March 31, 2022 | 10-Q 43

June 30, 2022 | 10-Q 49

CITIZENS, INC.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis