What changed in this filing

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Item 1. Financial Statements

2022-11-04 compared with 2022-08-04 · 175 added, 143 removed, 695 unchanged (31% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets

(In thousands) June 30, 2022 December 31, 2021

(In thousands) September 30, 2022 December 31, 2021

Assets (Unaudited)

6 unchanged sentences

62,717 57,399

Short-term investments 1,241 —

Total investments 1,314,880 1,623,167

5 unchanged sentences

Current federal income tax receivable — 762

Deferred tax asset 3,273 —

Property and equipment, net 13,310 14,074

3 unchanged sentences

See accompanying Notes to Consolidated Financial Statements.

June 30, 2022 | 10-Q 2

September 30, 2022 | 10-Q 2

CITIZENS, INC.

1 unchanged sentence

Consolidated Balance Sheets, Continued

(In thousands, except share amounts) June 30, 2022 December 31, 2021

Liabilities and Stockholders' Equity (Unaudited)

(In thousands, except share amounts) September 30, 2022 December 31, 2021

Liabilities and Stockholders' Equity (Deficit) (Unaudited)

Policy liabilities:

9 unchanged sentences

Commissions payable 1,772 2,285

Current federal income tax payable 469 —

Deferred federal income tax payable — 15,456

Payable for securities in process of settlement 3,291 —

Other liabilities 35,466 28,780

1 unchanged sentence

Commitments and contingencies ( Note 7 )

Stockholders' Equity:

Stockholders' Equity (Deficit):

Common stock:

6 unchanged sentences

Treasury stock, at cost ( 22,284 ) ( 20,101 )

Total stockholders' equity 76,239 320,571

Total liabilities and stockholders' equity $ 1,618,945 1,854,511

Total stockholders' equity (deficit) ( 14,228 ) 320,571

Total liabilities and stockholders' equity (deficit) $ 1,540,950 1,854,511

See accompanying Notes to Consolidated Financial Statements.

June 30, 2022 | 10-Q 3

September 30, 2022 | 10-Q 3

CITIZENS, INC.

1 unchanged sentence

Consolidated Statements of Operations and Comprehensive Income (Loss)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(In thousands, except per share amounts)

34 unchanged sentences

See accompanying Notes to Consolidated Financial Statements.

June 30, 2022 | 10-Q 4

September 30, 2022 | 10-Q 4

CITIZENS, INC.

AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Stockholders' Equity

Consolidated Statements of Stockholders' Equity (Deficit)

Common Stock Accumulated

19 unchanged sentences

Balance at June 30, 2022 267,850 3,184 ( 50,446 ) ( 122,948 ) ( 21,401 ) 76,239

Comprehensive income (loss):

Net income (loss) — — ( 5,131 ) — — ( 5,131 )

Unrealized investment gains (losses), net — — — ( 84,591 ) — ( 84,591 )

Total comprehensive income (loss) — — ( 5,131 ) ( 84,591 ) — ( 89,722 )

Acquisition of treasury stock — — — — ( 883 ) ( 883 )

Stock-based compensation 138 — — — — 138

Balance at September 30, 2022 $ 267,988 3,184 ( 55,577 ) ( 207,539 ) ( 22,284 ) ( 14,228 )

See accompanying Notes to Consolidated Financial Statements.

September 30, 2022 | 10-Q 5

CITIZENS, INC.

AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Stockholders' Equity (Deficit), cont.

Common Stock Accumulated

deficit Accumulated other

comprehensive

income (loss) Treasury

(In thousands) Class A Class B

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

12 unchanged sentences

Balance at June 30, 2021 263,060 3,184 ( 80,903 ) 103,885 ( 20,101 ) 269,125

Comprehensive income (loss):

Net income (loss) — — ( 2,799 ) — — ( 2,799 )

Unrealized investment gains (losses), net — — — ( 1,395 ) — ( 1,395 )

Total comprehensive income (loss) — — ( 2,799 ) ( 1,395 ) — ( 4,194 )

Stock-based compensation 100 — — — — 100

Balance at September 30, 2021 $ 263,160 3,184 ( 83,702 ) 102,490 ( 20,101 ) 265,031

See accompanying Notes to Consolidated Financial Statements.

June 30, 2022 | 10-Q 5

September 30, 2022 | 10-Q 6

CITIZENS, INC.

1 unchanged sentence

Consolidated Statements of Cash Flows

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands)

23 unchanged sentences

Principal payments on mortgage loans 1,097 7

Funding of mortgage loans — ( 1,000 )

(Increase) decrease in policy loans, net 2,222 3,216

1 unchanged sentence

Purchases of other long-term investments ( 18,150 ) ( 27,514 )

Sales of property and equipment — 14

Purchases of property and equipment ( 76 ) ( 847 )

2 unchanged sentences

See accompanying Notes to Consolidated Financial Statements.

June 30, 2022 | 10-Q 6

September 30, 2022 | 10-Q 7

CITIZENS, INC.

1 unchanged sentence

Consolidated Statements of Cash Flows, Continued

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands)

10 unchanged sentences

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

During the six months ended June 30, 2022 and 2021, various fixed maturity issuers exchanged securities with book values of $ 6.1 million and $ 6.4 million, respectively, for securities of equal value.

The Company had $ 3.3 million net unsettled security trades at June 30, 2022 and $ 0.9 million at June 30, 2021.

The Company recognized right-of-use assets of $ 0.4 million in exchange for new operating lease liabilities during the six months ended June 30, 2022 and none during the six months ended June 30, 2021.

During the nine months ended September 30, 2022 and 2021, various fixed maturity issuers exchanged securities with book values of $ 6.1 million and $ 10.9 million, respectively, for securities of equal value.

The Company had no net unsettled security trades during the nine months ended September 30, 2022 and $ 9.4 million during the nine months ended September 30, 2021.

The Company recognized right-of-use assets of $ 0.4 million in exchange for new operating lease liabilities during the nine months ended September 30, 2022 and none during the nine months ended September 30, 2021.

See accompanying Notes to Consolidated Financial Statements.

June 30, 2022 | 10-Q 7

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September 30, 2022 | 10-Q 8

CITIZENS, INC .

4 unchanged sentences

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

("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.

("CICA International"), CICA Life A.I., 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", "it", "we", "us" or "our".

The consolidated balance sheet as of June 30, 2022, the consolidated statements of operations and comprehensive income (loss) and stockholders' equity for the three and six months ended June 30, 2022 and June 30, 2021 and the consolidated statements of cash flows for the six months ended June 30, 2022 and June 30, 2021 have been prepared by the Company without audit and are not subject to audit.

In the opinion of management, all normal and recurring adjustments to present fairly the financial position, results of operations, and changes in cash flows at June 30, 2022 and for comparative periods have been made.

The consolidated balance sheet as of September 30, 2022, the consolidated statements of operations and comprehensive income (loss) and stockholders' equity (deficit) for the three and nine months ended September 30, 2022 and September 30, 2021 and the consolidated statements of cash flows for the nine months ended September 30, 2022 and September 30, 2021 have been prepared by the Company without audit and are not subject to audit.

In the opinion of management, all normal and recurring adjustments to present fairly the financial position, results of operations, and changes in cash flows at September 30, 2022 and for comparative periods have been made.

The consolidated financial statements have been prepared in accordance with U.S.

9 unchanged sentences

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 both companies service whole life and accident and health policies primarily in the Southern U.S., Midwest and Mountain West.

CICA issues credit life and disability policies and CNLIC issues ordinary whole life and critical illness policies mainly in Texas and Florida.

Both companies service 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.

2 unchanged sentences

We converted the small block of ordinary whole life policies of CNLIC from a legacy platform to our new actuarial valuation software solution which provides enhanced modeling capabilities as of April 1, 2021.

The impact of this system conversion reflected in the accompanying consolidated financial statements as of and for the three and six months ended June 30, 2021 was an increase to pretax income of $ 0.7 million consisting of a reduced increase in future policy benefit reserves of $ 0.8 million and increased amortization of deferred policy acquisition costs of $ 0.1 million.

June 30, 2022 | 10-Q 8

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The impact of this system conversion reflected in the accompanying consolidated financial statements as of and for the nine months ended September 30, 2021 was an increase to pretax income of $ 0.7 million consisting of a reduced increase in future policy benefit reserves of $ 0.8 million and increased amortization of deferred policy acquisition costs of $ 0.1 million.

September 30, 2022 | 10-Q 9

CITIZENS, INC .

28 unchanged sentences

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 have begun the process of calculating our transition adjustments and preparing for the restatement of 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

June 30, 2022 | 10-Q 9

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In 2022, we began the process of calculating our transition adjustments and preparing for the restatement of applicable periods.

We are currently refining our calculation of the impact of adopting this ASU on our consolidated financial condition and results of operations and will be able to finalize our calculation of the effects once we complete our implementation efforts.

September 30, 2022 | 10-Q 10

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

time, the Company believes there is a reasonable possibility that implementing this ASU may result in a material impact to accumulated other comprehensive income and future earnings patterns.

As of the January 1, 2021 transition date, we estimate the adoption of the new guidance will increase previously reported accumulated deficit by approximately $ 1.5 million to $ 2.5 million, net of tax, primarily from capping net premium ratios for certain policyholder benefit cohorts at 100% as of the transition date, and decrease accumulated other comprehensive income (loss) (“AOCI”) by approximately $ 0.3 billion to $ 0.4 billion, net of tax, primarily from remeasuring in-force contract liabilities using upper-medium grade fixed income instrument yields as of the transition date.

As of June 30, 2022, these estimates have declined, ranging from a decrease in AOCI of approximately $ 50.0 million to an increase in AOCI of $ 50.0 million primarily due to the increase in interest rates since the transition date.

All amounts assume a tax rate of 21%.

In addition to the impacts to the balance sheets, we also expect an impact to the pattern of earnings emergence following the transition date.

While we have substantially completed the necessary updates to its valuation models and other systems to implement the standard, our implementation of the new guidance is ongoing.

The actual impact of adoption, including the actual tax rate, will be updated as the model validation, system testing and parallel runs continue through the remainder of 2022;

therefore, our estimates are subject to change.

On June 30, 2022, the FASB issued ASU No.

2022-03, Fair Value Measurement (Topic 820:

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.

This standard clarifies that contractual restrictions on equity security sales are not considered part of the security unit of account and, therefore, are not considered in measuring fair value.

In addition, the amendments clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction.

Disclosures on such restrictions are also required.

The amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, and are required to be applied prospectively, with any adjustments from the adoption recognized in earnings and disclosed.

Early adoption is available.

Adoption of this standard will have no impact on our consolidated financial statements.

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

13 unchanged sentences

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

September 30, 2022 | 10-Q 11

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.

2 unchanged sentences

GAAP income or loss before federal income taxes for its two reportable segments.

June 30, 2022 | 10-Q 10

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CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Life Insurance Home Service Insurance Other Non-Insurance Enterprises Consolidated

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

(In thousands)

17 unchanged sentences

Income (loss) before federal income tax expense $ ( 2,931 ) ( 656 ) ( 1,200 ) ( 4,787 )

June 30, 2022 | 10-Q 11

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September 30, 2022 | 10-Q 12

CITIZENS, INC .

1 unchanged sentence

Life Insurance Home Service Insurance Other Non-Insurance Enterprises Consolidated

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

(In thousands)

17 unchanged sentences

Income (loss) before federal income tax expense $ ( 4,264 ) ( 1,790 ) ( 3,336 ) ( 9,390 )

June 30, 2022 | 10-Q 12

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September 30, 2022 | 10-Q 13

CITIZENS, INC .

1 unchanged sentence

Life Insurance Home Service Insurance Other Non-Insurance Enterprises Consolidated

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

(In thousands)

17 unchanged sentences

Income (loss) before federal income tax expense $ 1,686 ( 4,099 ) ( 314 ) ( 2,727 )

June 30, 2022 | 10-Q 13

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September 30, 2022 | 10-Q 14

CITIZENS, INC .

1 unchanged sentence

Life Insurance Home Service Insurance Other Non-Insurance Enterprises Consolidated

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

(In thousands)

17 unchanged sentences

Income (loss) before federal income tax expense $ 8,707 ( 4,319 ) ( 4,263 ) 125

June 30, 2022 | 10-Q 14

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September 30, 2022 | 10-Q 15

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(4) STOCKHOLDERS' EQUITY AND RESTRICTIONS

(4) STOCKHOLDERS' EQUITY (DEFICIT) AND RESTRICTIONS

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.

4 unchanged sentences

Citizens has never issued any preferred stock.

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

Six Months Ended June 30,

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

Nine Months Ended September 30,

(In thousands) Common Stock Treasury Common Stock Treasury

7 unchanged sentences

Balance at end of period 53,757 1,002 4,753 52,766 1,002 4,138

June 30, 2022 | 10-Q 15

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September 30, 2022 | 10-Q 16

CITIZENS, INC .

2 unchanged sentences

The following tables set forth the computation of basic and diluted earnings (loss) per share.

Three Months Ended June 30, 2022 2021

Three Months Ended September 30, 2022 2021

(In thousands, except per share amounts)

9 unchanged sentences

Basic and diluted earnings (loss) per share of Class B common stock — —

Six Months Ended June 30, 2022 2021

Nine Months Ended September 30, 2022 2021

(In thousands, except per share amounts)

13 unchanged sentences

National Association of Insurance Commissioners ("NAIC") and the Bermuda Monetary Authority ("BMA").

All insurance subsidiaries exceeded the minimum capital requirements at June 30, 2022.

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

June 30, 2022 | 10-Q 16

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All domestic insurance subsidiaries exceeded the minimum capital requirements at September 30, 2022.

Due to the rapidly rising interest rates that caused the increase in unrealized losses reported in Other Comprehensive Income (Loss), CICA International fell below the required long-term business minimum solvency margin at September 30, 2022.

As the Bermuda Insurance Act of 1978 permits, we have requested a modification under Section 6C to allow CICA International to use total statutory economic capital

September 30, 2022 | 10-Q 17

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

company’s enhanced capital requirement.

and surplus for purposes of calculating the minimum solvency margin in place of unconsolidated capital and surplus.

The BMA is currently evaluating our request and has not taken any action with respect to this matter.

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

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

As of September 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.

2 unchanged sentences

(5) INVESTMENTS

The Company invests primarily in fixed maturity securities, which totaled 87.4 % of total cash and invested assets at June 30, 2022, as shown below.

The Company invests primarily in fixed maturity securities, which totaled 86.9 % of total cash and invested assets at September 30, 2022, as shown below.

Carrying Value

(In thousands, except for %)

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Amount % Amount %

4 unchanged sentences

Other long-term investments 62,717 4.7 % 57,399 3.5 %

Short-term investments 1,241 0.1 % — — %

Cash and cash equivalents 21,007 1.6 % 27,294 1.7 %

Total cash and invested assets $ 1,335,887 100.0 % 1,650,461 100.0 %

September 30, 2022 | 10-Q 18

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables represent the amortized cost, gross unrealized gains and losses and fair value of fixed maturity securities as of the dates indicated.

June 30, 2022

September 30, 2022

(In thousands)

9 unchanged sentences

All other 184,197 669 32,737 152,129

Commercial mortgage-backed 50 — — 50

Residential mortgage-backed 110,610 8 9,807 100,811

2 unchanged sentences

Total fixed maturity securities $ 1,374,777 3,583 217,312 1,161,048

June 30, 2022 | 10-Q 17

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CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2021

14 unchanged sentences

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

September 30, 2022 | 10-Q 19

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(In thousands)

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Equity securities:

7 unchanged sentences

Available-for-sale ("AFS") fixed maturity securities are reported in the consolidated financial statements at fair value.

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

The Company recognized net investment related losses of $ 1.2 million and $ 2.0 million on equity securities held for the three and six months ended June 30, 2022 and gains of $ 0.3 million and $ 0.6 million for the same periods ended June 30, 2021, respectively.

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

The Company recognized net investment related losses of $ 0.9 million and $ 2.9 million on equity securities held for the three and nine months ended September 30, 2022 and losses of $ 0.4 million and gains of $ 0.2 million for the same periods ended September 30, 2021, respectively.

The Company considers several factors in its review and evaluation of individual investments, using the process described in Part IV, Item 15, Note 2.

Investments in the notes to the consolidated financial statements of our Form 10-K to determine whether a credit valuation loss exists.

For the three and six months ended June 30, 2022 and 2021, the Company recorded no credit valuation losses on fixed maturity securities.

June 30, 2022 | 10-Q 18

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For the three and nine months ended September 30, 2022 and 2021, the Company recorded no credit valuation losses on fixed maturity securities.

September 30, 2022 | 10-Q 20

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables present the fair values and gross unrealized losses of fixed maturity securities that are not deemed to have credit losses, aggregated by investment category and length of time that individual securities have been in a continuous loss position at June 30, 2022 and December 31, 2021.

June 30, 2022 Less than 12 months Greater than 12 months Total

September 30, 2022 Less than 12 months Greater than 12 months Total

(In thousands, except for # of securities) Fair

7 unchanged sentences

Treasury securities $ — — — 64 10 2 64 10 2

Government-sponsored enterprises 224 — 1 — — — 224 — 1

States and political subdivisions 202,975 35,836 255 627 386 2 203,602 36,222 257

4 unchanged sentences

All Other 142,448 31,285 183 2,799 1,452 2 145,247 32,737 185

Commercial mortgage-backed 49 — 1 — — — 49 — 1

Residential mortgage-backed 100,546 9,807 100 — — — 100,546 9,807 100

20 unchanged sentences

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 above, 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.

These unrealized losses on fixed maturity securities are due to noncredit-related factors, including widening credit spreads and rising interest rates since purchase, which have little bearing on the recoverability of

June 30, 2022 | 10-Q 19

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September 30, 2022 | 10-Q 21

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

As of June 30, 2022 and December 31, 2021, 97.6 % and 98.0 %, respectively, of the fair value of our fixed maturity securities portfolio was rated investment grade.

As of September 30, 2022 and December 31, 2021, 98.6 % and 98.0 %, respectively, of the fair value of our fixed maturity securities portfolio was rated investment grade.

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

The amortized cost and fair value of fixed maturity securities at June 30, 2022 by contractual maturity are shown in the table below.

The amortized cost and fair value of fixed maturity securities at September 30, 2022 by contractual maturity are shown in the table below.

Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Securities not due at a single maturity date have been reflected based upon final stated maturity.

June 30, 2022 Amortized

September 30, 2022 Amortized

(In thousands)

6 unchanged sentences

The Company uses the specific identification method of the individual security to determine the cost basis used in the calculation of realized gains and losses related to security sales.

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

(In thousands) 2022 2021 2022 2021

3 unchanged sentences

Gross realized losses $ 1 — 103 1

The Company sold 16 and 17 AFS fixed maturity securities during the three and six months ended June 30, 2022 and 0 and 18 during the three and six months ended June 30, 2021, respectively.

The Company sold 2 and 19 AFS fixed maturity securities during the three and nine months ended September 30, 2022 and 10 and 28 during the three and nine months ended September 30, 2021, respectively.

(6) FAIR VALUE MEASUREMENTS

3 unchanged sentences

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

Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our view of market assumptions in the absence of observable market information.

We utilize valuation techniques that maximize the use of

June 30, 2022 | 10-Q 20

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Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our view of market assumptions

September 30, 2022 | 10-Q 22

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

observable inputs and minimize the use of unobservable inputs.

in the absence of observable market information.

We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

All assets and liabilities carried at fair value are required to be classified and disclosed in one of the following three categories:

13 unchanged sentences

We have no investments in this category.

June 30, 2022 | 10-Q 21

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September 30, 2022 | 10-Q 23

CITIZENS, INC .

1 unchanged sentence

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

June 30, 2022 Level 1 Level 2 Level 3 Total

September 30, 2022 Level 1 Level 2 Level 3 Total

(In thousands)

5 unchanged sentences

Corporate 47 694,565 — 694,612

Commercial mortgage-backed — 50 — 50

Residential mortgage-backed — 100,811 — 100,811

12 unchanged sentences

(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 are not 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 consolidated balance sheet.

June 30, 2022 | 10-Q 22

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

September 30, 2022 | 10-Q 24

CITIZENS, INC .

22 unchanged sentences

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

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

FINANCIAL INSTRUMENTS VALUATION

1 unchanged sentence

Fixed maturity securities, available-for-sale.

At June 30, 2022, fixed maturity securities, valued using a third-party pricing source, totaled $ 1.2 billion for Level 2 assets and comprised 93.3 % of total reported fair value of our financial assets.

At September 30, 2022, fixed maturity securities, valued using a third-party pricing source, totaled $ 1.2 billion for Level 2 assets and comprised 93.2 % of total reported fair value of our financial assets.

The Level 1 and Level 2 valuations are reviewed and updated quarterly through testing by comparisons to separate pricing models, other third-party pricing services, and back tested to recent trades.

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 at June 30, 2022.

For the six months ended June 30, 2022, 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 at September 30, 2022.

As of September 30, 2022, 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.

4 unchanged sentences

For these investments, which are measured at fair value on a recurring basis, we use the NAV per share to measure fair value.

Changes in the NAV of our limited partnerships are recorded through net income.

The Company recognized net investment related losses of $ 4.4 million and $ 5.2 million on limited partnerships held for the three and six months ended June 30, 2022 and net realized gains of $ 4.0 million and $ 4.5 million for the three and six months ended June 30,

June 30, 2022 | 10-Q 23

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Changes in the NAV of our limited partnerships are recorded through net income (loss).

The Company recognized net investment related losses of $ 4.2 million and $ 9.4 million on limited partnerships held for the three and nine months ended September 30, 2022 and net realized gains of $ 1.3 million and $ 5.8 million for the three and nine months

September 30, 2022 | 10-Q 25

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2021, respectively.

ended September 30, 2021, respectively.

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Using NAV Per Share Unfunded Commit-

14 unchanged sentences

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.

We carried no limited partnership investments at cost at June 30, 2022 and December 31, 2021.

We carried no limited partnership investments at cost at September 30, 2022 and December 31, 2021.

We review the fair value hierarchy classifications each reporting period.

1 unchanged sentence

Such reclassifications are reported as transfers in and out of Level 3 at the beginning fair value for the reporting period in which the changes occur.

There were no transfers in or out of Level 3 during the six months ended June 30, 2022 or 2021.

There were no transfers in or out of Level 3 during the nine months ended September 30, 2022 or 2021.

FINANCIAL INSTRUMENTS NOT CARRIED AT FAIR VALUE

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The fair values of financial instruments presented below are not necessarily indicative of the amounts the Company might realize in actual market transactions.

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CITIZENS, INC .

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The carrying amount and fair value for the financial assets and liabilities on the consolidated balance sheets not otherwise disclosed for the periods indicated are as follows:

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

(In thousands) Carrying

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Policy loans.

Policy loans had a weighted average annual interest rate of 7.7 % at June 30, 2022 and December 31, 2021 and no specified maturity dates.

Policy loans had a weighted average annual interest rate of 7.7 % at September 30, 2022 and December 31, 2021 and no specified maturity dates.

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

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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.

We financed $ 1.0 million of the sale of our training facility at a 6.0 % interest rate during the third quarter of 2021.

The loan was paid in full during the third quarter of 2022.

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

Residential mortgage loans.

Mortgage loans are secured principally by residential properties.

Weighted average interest rates for these loans were approximately 7.0 % at June 30, 2022 and 6.4 % at December 31, 2021.

At June 30, 2022, the remaining loan matures in 6 years.

Management estimated the fair value using an annual interest rate of 6.25 % at June 30, 2022.

Our mortgage loans are considered Level 3 assets in the fair value hierarchy and are included in other long-term investments on the consolidated balance sheets.

Weighted average interest rates for these loans were approximately 7.0 % at September 30, 2022 and 6.4 % at December 31, 2021.

At September 30, 2022, the remaining loan matures in six years .

Management estimated the fair value using an annual interest rate of 6.25 % at September 30, 2022.

Our mortgage loans are considered Level 3 assets in the fair value hierarchy and are included in other long-term investments on the consolidated balance sheet.

Cash and cash equivalents.

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Annuity liabilities.

The fair value of the Company's liabilities under annuity contract policies, which are considered Level 3 liabilities, was estimated at June 30, 2022 and December 31, 2021 using discounted cash flows based upon spot rates adjusted for various risk adjustments ranging from 2.60 % to 3.99 % and 0.50 % to 2.63 %, respectively.

The fair value of the Company's liabilities under annuity contract policies, which are considered Level 3 liabilities, was estimated at September 30, 2022 and December 31, 2021 using discounted cash flows based upon spot rates adjusted for various risk adjustments ranging from 3.91 % to 4.53 % and 0.50 % to 2.63 %, respectively.

The fair value of liabilities under all insurance contracts are taken into consideration in the overall management of interest rate risk, which seeks to minimize exposure to changing interest rates through the matching of investment maturities with amounts due under insurance contracts.

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CITIZENS, INC .

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(In thousands )

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Other long-term investments:

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CONTRACTUAL OBLIGATIONS

As of June 30, 2022, CICA International is committed to fund investments up to $ 50.6 million related to limited partnerships previously described and other investments.

As of September 30, 2022, CICA International is committed to fund investments up to $ 42.7 million related to limited partnerships previously described and other investments.

CREDIT FACILITY

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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.

The Company is required to pay Regions an annual commitment fee of 0.375 % of the unused portion of the Credit Facility in quarterly installments, 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 June 30, 2022, the Company had no t borrowed any funds against the Credit Facility and was not in violation of any covenants.

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As of September 30, 2022, the Company had no t borrowed any funds against the Credit Facility and was not in violation of any covenants.

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CITIZENS, INC .

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The effective tax rate is the ratio of tax expense (benefit) over pre-tax income (loss).

The effective tax rate was 2.3 % and ( 6.0 )% for the three and six months ended June 30, 2022, respectively, compared to 10.4 % and 49.2 %, respectively, for the same periods in 2021.

The effective tax rate was ( 7.2 )% and ( 6.6 )% for the three and nine months ended September 30, 2022, compared to ( 2.6 )% and 1180.0 % for the same periods in 2021, respectively.

CICA International is considered a controlled foreign corporation for federal tax purposes.

As a result, the insurance activity of CICA International is subject to Subpart F of the Internal Revenue Code 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.

The effective tax rate varies from the prevailing corporate federal income tax rate of 21.0% mainly due to the impact of Subpart F and uncertain tax positions.

At June 30, 2022, we determined it was more likely than not that a portion of our capital deferred tax assets would not be realized in their entirety.

The Company recorded a valuation allowance of $ 3.3 million through Other Comprehensive Income.

(9) OTHER COMPREHENSIVE INCOME

The changes in the components of other comprehensive income (loss) are reported net of the effects of income taxes of 21% as of the three and six months ended June 30, 2022 and 2021, as indicated below.

Three Months Ended June 30, 2022 2021

At September 30, 2022, we determined it was more likely than not that a portion of our capital deferred tax assets would not be realized in their entirety.

The Company recorded a valuation allowance of $ 4.4 million through Other Comprehensive Income (Loss).

(9) OTHER COMPREHENSIVE INCOME (LOSS)

The changes in the components of other comprehensive income (loss) are reported net of the effects of income taxes of 21% as of the three and nine months ended September 30, 2022 and 2021, as indicated below.

Three Months Ended September 30, 2022 2021

(In thousands) Amount Tax Effect Total Amount Tax Effect Total

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Other comprehensive income (loss) $ ( 89,670 ) 5,079 ( 84,591 ) ( 1,666 ) 271 ( 1,395 )

Six Months Ended June 30, 2022 2021

Nine Months Ended September 30, 2022 2021

(In thousands) Amount Tax Effect Total Amount Tax Effect Total

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Other comprehensive income (loss) $ ( 343,911 ) 18,880 ( 325,031 ) ( 25,797 ) 32 ( 25,765 )

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CITIZENS, INC .

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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.

There were no changes related to these relationships during the six months ended June 30, 2022.

There were no changes related to these relationships during the nine months ended September 30, 2022.

See our Form 10-K for a comprehensive discussion of related party transactions.

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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 significant subsequent events need to be recognized or disclosed.

June 30, 2022 | 10-Q 28

September 30, 2022 | 10-Q 30

CITIZENS, INC.

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

What changed 10-Q

Item 1. Financial Statements