What changed in this filing

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Item 1. Business

2023-03-10 compared with 2022-03-11 · 129 added, 148 removed, 185 unchanged (60% of the section changed)

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

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

states and more than 70 different countries.

Through our domestic insurance subsidiaries, we are licensed to provide insurance benefits to residents in 32 U.S.

states and through our international subsidiaries, we provide insurance benefits to residents in more than 70 different countries.

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

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We operate in two business segments:

• Life Insurance segment - U.S.

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

residents, located principally in Latin America and the Pacific Rim through independent marketing consultants and whole life insurance sold domestically through independent agents;

• Home Service Insurance segment - final expense life insurance and property insurance policies marketed to middle- and lower-income households, as well as whole life products with higher allowable face values, in Louisiana, Mississippi and Arkansas, and sold through independent agents and through funeral homes.

• Life Insurance segment - Internationally, we primarily sell U.S.

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

residents, located principally in Latin America and the Pacific Rim.

Domestically, we sell whole life insurance, credit life, credit disability and critical illness products.

• Home Service Insurance segment - we sell final expense life insurance and property insurance policies to middle- and lower-income households, as well as whole life products with higher allowable face values, in Louisiana, Mississippi and Arkansas.

Our Principal Brands

LIFE INSURANCE SEGMENT

Internationally, we conduct our Life Insurance segment business through CICA Life Ltd., a Bermuda company ("CICA International") and, beginning January 1, 2023, through CICA Life, A.I., a Puerto Rico company ("CICA PR").

Domestically, we conduct business primarily through CICA Life Insurance Company of America ("CICA").

HOME SERVICE INSURANCE SEGMENT

We conduct our Home Service Insurance segment through Security Plan Life Insurance Company ("SPLIC"), Security Plan Fire Insurance Company ("SPFIC") and Magnolia Guaranty Life Insurance Company ("Magnolia").

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

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

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

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

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

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

Because collection of premiums is the primary source of our revenues, our overall financial performance depends primarily upon the development and distribution of our products.

A key to product development is the pricing of our insurance products and the accuracy of our pricing assumptions.

We seek to price our insurance policies such that insurance premiums and future net investment income earned on premiums received will cover the ultimate cost of paying claims on our policies, our expenses and will also yield a profit margin.

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

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

Insurance applications are reviewed to make two determinations:

first, eligibility based on established underwriting guidelines and second, the applicable premium.

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

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

We also seek to manage pricing risk through:

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Pursuant to regulatory guidelines, most of the Company’s invested assets are held in available-for-sale ("AFS") fixed maturity securities, primarily in asset classes of corporate bonds, municipal bonds, and government obligation bonds.

The interest rate environment has a

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significant impact on the determination of insurance contract liabilities, our investment rates and yields, and our asset/liability management.

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

The profitability of our "spread-based" product features depends largely on the Company’s ability to earn higher returns on invested assets than the interest we credit to policyholders.

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Riley Foundation (the “Foundation”).

As a result of this change-in-control:

• On August 5, 2020, Geoffrey Kolander, our Chief Executive Officer and President resigned and Gerald W.

Shields, the Vice Chairman of the Board of Directors of the Company, was appointed Interim Chief Executive Officer and President;

In February 2021, the Company entered into an agreement with the Foundation to purchase all of the outstanding shares of Class B common stock for a purchase price of $9.1 million (the “B Share Transaction”).

In April 2021, the Company and the Foundation obtained all regulatory approval required to consummate the B Share Transaction.

In accordance with Colorado law, the shares of Class B common stock are now classified as authorized, but unissued shares and the Company's Board of Directors (the "Board") has resolved not to vote the shares of Class B common stock as long as they are so classified.

Accordingly, since April 2021:

• the Company has only one class of stock outstanding:

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

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

• the holders of the Class A shares are entitled to elect all of the directors at the Company’s annual meetings;

• for the first time in over 30 years, we are no longer a “controlled” company as defined under the NYSE rules.

After the consummation of the B Share Transaction, Mr.

Shields, then acting as our Interim Chief Executive Officer, began working with the Board and management to create and implement a new strategy for the Company in order to set a course for long-term profitable growth.

In December 2021, the Board announced that effective January 1, 2022, Mr.

Shields would become the permanent CEO and President.

After the B Share Transaction and the appointment of Mr.

Shields as our permanent Chief Executive Officer, the Company believes that it is positioned to offer stability to our management team, employees and independent sales force in order to move forward with our business and strategic initiatives, as described below.

After the completion of the B Share Transaction and the appointment of a new Chief Executive Officer, we believe the Company was positioned to offer stability to our management team, employees and independent sales force and was able to move forward with new business and strategic initiatives, as described below.

STRATEGIC INITIATIVES

As mentioned above, in 2021, the Company became a non-controlled company for the first time in over 30 years.

This change allowed the Board and management to reset and clearly define our priorities to set a course for long-term profitable growth.

Our growth strategy consists of focusing on sales growth, improved policy retention, roadmap execution, and financial and expense discipline.

We believe that our roadmap execution is key to achieving sales growth, as it helps us improve sales and service across our three markets (international life, domestic life and home services) by focusing on three specific sales

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levers in each market- products, promotions and processes.

Historically, our insurance companies have only issued a few products and had limited distribution channels.

Since the change-in-control described above, our growth strategy shifted to focusing on sales growth, improved policy retention, roadmap execution, and financial and expense discipline.

We believe that our roadmap execution is key to achieving sales growth, as it helps us expand our product offerings and distribution across our three markets (international life, domestic life and home services) by focusing on three specific sales levers in each market- products, promotions and processes.

Specifically, we implemented a five-quarter roadmap that lays out the following:

We are focusing on our customer needs by offering new products tailored to our specific markets and enhancing existing products.

New products also help our sales force, as they can sell additional products to existing customers and offer a broader portfolio of products to entice prospective customers.

New products also help our sales force, as they can sell

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additional products to existing customers and offer a broader portfolio of products to entice prospective customers.

• Promotions .

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As mentioned above, offering new and enhanced products are key to achieving our strategic goals.

Introduced New Products in our Home Service Insurance Segment .

Over the past 18 months, our Home Service Insurance business has been a focus of transformation to drive sales growth for the Company.

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

renewal premiums and our sales force had sold the same life insurance product for over 30 years.

In 2021, we introduced a higher face value whole life product in this segment, allowing us to expand our target customer.

In December 2021 , we launched a critical illness product that offers a true living benefit to policyholders by paying a lump sum amount in the event of a covered critical illness to use at the policyholder's discretion.

As we continue to expand our product offerings in this market, we believe that cross-selling opportunities (i.e., selling new products to existing customers and offering more than one product to a new customer) will lead to revenue growth.

Reevaluated expansion of Life Insurance Segment into Hispanic US Market .

As we previously disclosed, in 2021 we undertook an initiative to expand our Life Insurance segment to the Hispanic market in the U.S.

by bringing our infrastructure to complete insurance transactions end-to-end in Spanish to the Florida market.

We launched three products in this market in 2021.

While we still believe that there is a need for this type of product and service in the U.S., our efforts to recruit agents to sell our products have been slower than we expected and we are re-evaluating our sales distribution approach, initiatives and domestic life insurance offerings in the Florida market in 2022.

As policy surrenders have increased in our business over the last several years, in 2021, we formed a retention steering team in an effort to curb policy surrenders.

• Introduced eight new products or product enhancements (e.g., riders) across our three markets, leading to first year premium revenue growth of 4% in our Life Insurance segment.

• Entered into a white-label distribution partnership with an independent insurance agency specializing in distribution of final expense products and related services, to sell newly developed final expense insurance products through their distribution channel.

• Continued the transformation of our Home Services Insurance segment to become a sales-focused organization, leading to an 18% increase in policies issued in this segment.

As policy surrenders have increased in our business over the last several years, we formed a retention steering team in an effort to curb policy surrenders in 2021.

This team focused on cultivating and executing on ideas that would increase each of our segments' overall retention, while being beneficial to our policyholders.

Both our Life Insurance segment and our Home Service Insurance segment improved policy retention in 2021 due to these efforts.

Our Life Insurance segment improved policy retention in 2022 due to these efforts.

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

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LIFE INSURANCE

Our Life Insurance segment primarily operates through CICA Life Ltd.

LIFE INSURANCE SEGMENT

Until December 31, 2022, our Life Insurance segment primarily operated through CICA Life Ltd.

("CICA International"), a Bermuda company.

Upon surveying the market demands and needs of our policyholders, in 2022 we formed a new subsidiary in Puerto Rico, CICA Life, A.I.

CICA PR received a license in September 2022 to issue business as a Puerto Rico international insurer for the Company’s international portion of its Life Insurance segment.

Beginning January 1, 2023, all new international policies are issued by CICA PR.

Because CICA PR provides our non-U.S.

policyholders the ability to purchase policies in a U.S.

territory and in a jurisdiction where the primary language spoken is Spanish, which is the primary language of the majority of our international policyholders, we believe this change will drive sales and improve policy retention, leading to revenue growth.

INTERNATIONAL LIFE INSURANCE

We focus our international sales to residents in Latin America and the Pacific Rim.

As of December 31, 2021, we had insurance policies in force in more than 70 foreign countries and receive the majority of our premiums from Colombia, Venezuela, Taiwan, Ecuador and Argentina.

International direct premiums comprised approximately 96% of total direct premiums in the Life Insurance segment and 68% of our total direct premiums in 2021.

As of December 31, 2022, we had insurance policies in force in more than 70 foreign countries and receive the majority of our premiums from

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Colombia, Venezuela, Taiwan, Ecuador and Argentina.

International direct premiums comprised approximately 96% of total direct premiums in the Life Insurance segment and 69% of our total consolidated direct premiums in 2022.

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

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

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

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

We sell our products internationally through independent marketing agencies and consultants who specialize in life insurance products.

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

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

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

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

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

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

CICA International issues ordinary whole life insurance and endowment products in U.S.

CICA PR and prior to January 1, 2023, CICA International, issues primarily ordinary whole life insurance and endowment products in U.S.

dollar-denominated amounts to non-U.S.

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Our international products have both living and death benefit features.

Most policies contain guaranteed cash values and are participating (i.e., provide for cash dividends as apportioned by CICA International's board of directors).

Once a policyowner pays the annual premium and the policy is issued, the owner becomes entitled to policy cash dividends and may elect to receive annual premium benefits.

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

Under the "assigned to a

Most policies contain guaranteed cash values and are participating (i.e., provide for cash dividends as apportioned by CICA PR's and CICA International's

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

Stock Investment Plan (the "CISIP") prospectus and acknowledging their understanding of the risks of investing in Citizens Class A common stock, the right to assign policy values outside of the policy to the CISIP, which is administered in the United States by Computershare Trust Company, N.A., our plan administrator and an affiliate of Computershare, Inc., our transfer agent.

board of directors).

Once a policyowner pays the annual premium and the policy is issued, the owner becomes entitled to policy cash dividends and may elect to receive annual premium benefits.

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

Stock Investment Plan (the "CISIP") prospectus and acknowledging their understanding of the risks of investing in Citizens Class A common stock, the right to assign policy values outside of the policy to the CISIP, which is administered in the United States by Computershare Trust Company, N.A., our third-party plan administrator and an affiliate of Computershare, Inc., our transfer agent.

The CISIP is a direct stock purchase plan available to policyowners, shareholders, our employees and directors, independent consultants, and other potential investors through the Computershare website.

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

CICA and CNLIC issued domestic ordinary whole life and endowment life insurance products prior to 2017, and except for our new domestic initiative described below, continues to sell primarily credit life and accident and health products in Texas.

In 2021, we undertook an initiative to re-start domestic sales in Florida.

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

However, our efforts to recruit agents to sell our product have been slower than we expected and we are re-evaluating our sales distribution approach, initiatives and domestic offerings in the Florida market in 2022.

HOME SERVICE INSURANCE

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

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

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

In 2022, we began our "white label" program, expanding CICA's state licenses and filing new white label products in multiple states.

HOME SERVICE INSURANCE SEGMENT

We operate our domestic Home Service Insurance segment through SPLIC, Magnolia and SPFIC.

SPLIC and Magnolia primarily issue final expense life insurance products to middle- and lower-income individuals, primarily in Louisiana, Mississippi and Arkansas.

Prior to 2021, all of our Home Service Insurance products issued by SPLIC were sold primarily through employee agents who worked on a debit route system.

Starting in late 2020 and continuing throughout 2021, we have been transforming this segment by converting a large portion of our sales force to independent agents, reducing layers of management and introducing

In 2020 and 2021, we transformed this segment by converting a large portion of our sales force to independent agents, reducing layers of management and introducing new products for the first time in almost 35 years.

This transformation led to increased sales and decreased operational expenses in 2022.

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new products for the first time in almost 35 years.

This transformation led to increased sales and decreased operational expenses in 2021.

Policies issued by MGLIC are primarily burial policies which are sold and serviced through funeral homes, who are also typically the beneficiaries of the policies.

Policies issued by Magnolia are primarily burial policies which are sold and serviced through funeral homes, who are also typically the beneficiaries of the policies.

SPFIC is a limited liability casualty company that sells small face value property insurance policies covering dwelling and contents, primarily in Louisiana.

In 2021, we expanded our product offering to Arkansas in part to mitigate the risk of hurricane-related claims that have impacted our business over the last two years.

In 2021, we expanded our product offering to Arkansas and in 2022, we discontinued selling coverage in high-risk parishes in Louisiana in part to mitigate the risk of hurricane-related claims that have impacted our business in 2021.

In 2022, our Home Service Insurance segment comprised 28% of our total consolidated direct premiums.

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

As part of the Home Services Insurance segment transformation mentioned above, in 2021 we introduced a new product, Security Plan Plus, which has a higher allowed face amount.

As part of the Home Service Insurance segment transformation mentioned above, in 2021 we introduced a new product, Security Plan Plus, which has a higher allowed face amount.

In December 2021, we also introduced a critical illness product, which pays the insured a lump sum following the diagnosis of an illness covered under the plan.

To a much lesser extent, our Home Service Insurance segment sells property insurance policies covering dwellings and content.

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

We face competition in Louisiana, Mississippi and Arkansas from other companies specializing in final expense insurance as well as from other property & casualty insurance companies.

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

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

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

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

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

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

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

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Upon the occurrence of a catastrophic event, we retain (i.e.

, pay) the first $500,000 in claims, and then the reinsurer pays the next $10.5 million in claims.

pay) the first $1 million in claims, our first layer of reinsurance provides 100% coverage of the next $1 million in claims, and our second layer of reinsurance provides 85% coverage in excess of $2 million up to $11 million in claims for each loss occurrence.

Upon the occurrence of a catastrophic event, in order to continue receiving reinsurance, we also have to pay reinstatement premiums in order to be covered for another catastrophic event in the same calendar year.

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

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

All of our reinsurers are rated A- (Excellent) or higher by A.M.

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

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reinsurers and our domestic business with two reinsurers.

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

OTHER NON-INSURANCE ENTERPRISES

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

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

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

OPERATIONS AND TECHNOLOGY

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We also conduct operations for our Home Service Insurance segment from our district offices in Louisiana, Arkansas and Mississippi, as well as our service center in Donaldsonville, Louisiana.

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

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

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

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

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

For the international portion of our Life Insurance segment, operations including underwriting, policy issuance, claims processing, accounting and reporting related to certain international policies are currently conducted in Bermuda.

We have a proprietary single, centrally-controlled, mainframe-based policy administrative system (PAS) that we use for all of our insurance companies.

Our PAS performs various functions to effectively handle our insurance operations.

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

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

The Company is actively engaged in continued modernization of technology to invest and expand into new opportunities.

This modernization allows us to bring new products to market rapidly and automate insurance interactions to enhance user experience.

This investment is foundational to the Company's growth strategy as we pursue new product innovation and provides:

• our customers and agents with portals to be able to access account information 24/7;

• our policyholder service and claims representatives with a customer account-centric view of our policyholders and beneficiaries, reducing customer inquiry response time and claims processing time;

• business-to-business solutions.

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

states in which they do business, by U.S.

federal laws, and for CICA International, by Bermuda.

INTERNATIONAL REGULATION

federal laws, and for CICA International and CICA PR, by Bermuda and Puerto Rico, respectively.

REGULATION OF OUR INTERNATIONAL BUSINESS

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

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

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

The Insurance Act regulates the insurance business of CICA International and provides that no person may conduct any insurance business in or within Bermuda unless registered as an insurer under the Insurance Act by the BMA.

The Insurance Act imposes solvency and liquidity standards as well as auditing and reporting requirements and confers on the BMA powers to supervise, investigate and intervene in the affairs of insurance companies.

Certain requirements of the Insurance Act include:

the filing of annual statutory financial returns;

the filing of annual U.S.

GAAP financial statements;

the filing of an annual capital and solvency return;

the delivery of a declaration of compliance;

compliance with minimum enhanced capital requirements;

compliance with the BMA’s Insurance Code of Conduct;

compliance with minimum solvency margins;

limitations on dividends and distributions that CICA International may make to Citizens, its parent company;

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

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

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

appointment of an independent auditor;

and appointment of an actuary approved by the BMA.

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

CICA International is registered as a Class E insurer in Bermuda, which is the license class for long-term insurers and reinsurers with total assets of more than $500 million.

CICA International is not licensed to conduct any business other than life insurance business and due to the type of license we have, we may not insure Bermuda domestic risks or risks of persons of, in or based in Bermuda and thus we do not offer insurance products to residents of Bermuda .

The Insurance Act imposes solvency and liquidity standards as well as auditing and reporting requirements and confers on the BMA broad powers to supervise, investigate and intervene in the affairs of insurance companies.

The Insurance Act requires us to, among other things:

file annual statutory financial returns, annual U.S.

GAAP financial statements, an annual capital and solvency return, and annual Common Reporting Standard reports;

deliver a declaration of compliance;

comply with minimum enhanced capital requirements, minimum solvency margins, and the BMA’s Insurance Code of Conduct;

prepare an annual Financial Condition Report providing details

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calculate its solvency requirements.

of measures governing our business operations, corporate governance framework, solvency and financial performance;

prepare an assessment of our own risk and solvency requirements (referred to as a Commercial Insurer’s Solvency Self-Assessment);

establish and maintain a head and principal office in Bermuda;

and appoint an independent auditor and an actuary approved by the BMA.

Additionally, the Insurance Act limits the dividends and distributions that CICA International may make to Citizens, its parent company.

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

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

In addition to being required to meet the TCL, at the request of the BMA, on April 15, 2021, Citizens and CICA International entered into a “Keep Well Agreement.” The Keep Well Agreement requires Citizens to contribute up to $10 million in capital to CICA International as necessary to ensure that it has a minimum capital level of 120%.

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

Exempted companies may be resident in Bermuda and conduct business from Bermuda in connection with transactions and activities which are external to Bermuda or with other exempted companies, and exempted companies must obtain a license to conduct business activities within Bermuda from the Minister of Finance of Bermuda.

Generally, it is not permitted without a special license granted by the Minister of Finance of Bermuda to ensure Bermuda domestic risks or risks of persons of, in or based in Bermuda and we do not offer insurance products to residents of Bermuda.

In December 2018, the Economic Substance Act (the "ES Act") came into force.

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

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

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

A relevant entity complies with the ES Requirements if:

(a) the relevant entity is managed and directed from Bermuda;

(b) the core income-generating activities are undertaken in Bermuda with respect to each relevant activity;

(d) there are adequate full-time employees in Bermuda with suitable qualifications;

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

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

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

CICA International is in compliance with these requirements as of December 31, 2021.

CICA PR, our Puerto Rico domiciled subsidiary, is regulated by the Puerto Rico Office of the Insurance Commissioner (“OIC”) and is licensed pursuant to Chapter 61 of the Puerto Rico Insurance Code (the "Insurance Code").

Although Puerto Rico is a U.S.

territory, it has its own tax code and own insurance code, including a provision under its Insurance Code (Chapter 61) that allows CICA PR to be established as an "international insurer" and thus export insurance to international markets.

Like in Bermuda, we may not insure risks of residents of Puerto Rico with this type of license and we do not issue policies to U.S.

risks through CICA PR.

The Insurance Code does not specifically set forth minimum capital and surplus standards, but rather requires that an insurer submit a business plan for approval to the OIC that includes proposed minimum capital and surplus.

CICA PR is required to maintain a minimum of $750,000 in capital and maintain a premium to surplus ratio of 7 to 1.

The Insurance Code requires us to file annual U.S.

GAAP financial statements with the OIC that include schedules providing information regarding premiums written and reinsurance assumed and ceded, as well as an annual actuarial certification.

In addition to compliance with the Insurance Code, CICA PR must comply with other laws and regulations of Puerto Rico, most of which apply to our domestic subsidiaries as well, including the U.S.

Bank Secrecy Act and other anti-money laundering laws and regulations of the United States.

Other International Regulation

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

Other than Bermuda, we have never qualified to do business in any foreign country or jurisdiction and have never submitted our insurance policies for approval by any foreign or domestic insurance regulatory agency.

Other than Bermuda and our international license in Puerto Rico, we have never qualified to do business in any foreign country or jurisdiction and have never submitted our insurance policies for approval by any foreign or domestic insurance regulatory agency.

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

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They are also regulated in each of the 32 states and the District of Columbia in which we conduct insurance business.

Additionally, as Citizens is a Colorado-based company, the Colorado Division of Insurance has supervisory authority over the holding company and all of its subsidiaries.

In supervising and regulating insurance companies, state insurance departments generally aim to protect policyholders and the public rather than investors, and enjoy broad authority and discretion in applying applicable insurance laws and regulation for that purpose.

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

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

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

While primarily regulated at the state level, our domestic business is subject to federal laws and regulations, such as the USA Patriot Act of 2001, the Foreign Corrupt Practices Act, the Gramm-Leach-Bliley Act of 1999, the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Tax Cuts and Jobs Act, are examples of U.S.

laws that affect our business.

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

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

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

federal, state and local tax laws.

Bank Secrecy Act with respect to money laundering, as well as federal regulations regarding

December 31, 2022 | 10-K 10

CITIZENS, INC.

privacy and confidentiality.

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

federal, state and local tax laws.

HUMAN CAPITAL RESOURCES

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Our employees implement and drive our strategic initiatives and contribute to the success of our products (development, underwriting, pricing adequacy, customer service), promotions and processes.

Our employees in our claims department are ultimately tasked with "keeping our promise".

Our independent consultants and agents also drive our key goals, as they sell our insurance products and provide local services to our global base of policyholders.

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

We currently do not utilize captive employee agents to distribute our products and thus contract with almost 1,000 actively producing independent consultants internationally and over 500 independent agencies and agents domestically to sell and service our insurance products.

We do not utilize captive employee agents to distribute our products and thus contract with almost 1,000 actively producing independent consultants internationally and almost 600 independent agencies and agents domestically to sell and service our insurance products.

Our independent agents generally reflect the demographics of the areas in which they sell their products, i.e ., our agents in Latin America are almost all Hispanic or Latino and our agents in Taiwan are almost all Asian.

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

We provide employees with compensation packages that include base salary and annual performance-based bonus opportunities that include cash, and for our executive officers, long-term equity awards currently in the form of restricted stock units ("RSUs").

We believe that a compensation program with both short-term cash awards and long-term equity awards provides fair and competitive compensation and aligns employee and stockholder interests.

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

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

Independent agents work for themselves and may sell insurance policies for a variety of insurers and make most of their money through sales commissions and bonuses.

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

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

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

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

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

We believe that creating agent campaigns and promotions with additional incentives provides long-term value for our shareholders.

We are committed to the health and safety of our work force and compliance with applicable regulatory and legal requirements.

In response to the COVID-19 pandemic, in 2021 we implemented operating changes that we determined were in the best interest of the health of our employees, including offering a hybrid work environment where our employees can work part- or full-time from home, depending on their position and circumstances.

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

We have continued with the hybrid work environment as it offers employees flexibility and helps attract and retain talent.

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

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

What changed 10-K

Item 1. Business