What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2023-03-10 compared with 2022-03-11 · 325 added, 502 removed, 1507 unchanged (35% of the section changed)

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Based on such evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2022 to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and such information is accumulated and reported to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding disclosure.

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(b) MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

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

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

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OTHER INFORMATION

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

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248 Auditor Location:

Reports of Independent Registered Public Accounting Firm - Auditor Name:

Deloitte & Touche LLP Audit Firm ID:

34 Auditor Location:

Consolidated Balance Sheets at December 31, 2022 and 2021

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Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Board of Directors and Shareholders

Citizens, Inc.

Opinion on the financial statements

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

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

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

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

(a Colorado corporation) and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2022, and the related notes and financial statement schedules included under Item 15(a) (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 10, 2023 expressed an unqualified opinion.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Critical audit matters

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

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

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

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

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

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

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

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

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

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

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

Development of Assumptions used in the Future Policy Benefit Reserves Adequacy Testing

As described further in Notes 1 and 4 to the financial statements, the Company estimates future policy benefit reserves for life insurance contracts which is the liability for the payment of policy benefits it expects to pay in the future.

Management’s estimate of future policy benefit reserves for life insurance was $ 1.31 billion as of December 31, 2022.

Management tests this liability for adequacy.

The adequacy testing uses key actuarial assumptions which are updated annually and include mortality, persistency, and investment experience.

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

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anticipated trends and to include provisions for possible adverse deviations.

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

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

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

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

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

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

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

include provisions for possible adverse deviations.

We identified the development of assumptions used in the future policy benefit reserves adequacy testing as a critical audit matter.

The principal consideration for our determination that the development of assumptions used in the future policy benefit reserves adequacy testing is a critical audit matter is that the development of these assumptions requires management to make significant estimates regarding mortality, persistency, and investment experience based on historical experience and future expectations, which could result in the recording of a premium deficiency.

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

Our audit procedures related to the development of assumptions used in the future policy benefit reserves adequacy testing included the following, among others.

• We tested the design and operating effectiveness of management’s review controls over the mortality, persistency, and investment experience assumption development and approval processes.

• We utilized an actuarial specialist in evaluating management’s methodologies and reasonableness of the assumptions of mortality, persistency, and investment experience, that were used to reperform management’s testing the adequacy of the future policy benefit reserves.

/s/ GRANT THORNTON LLP

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CITIZENS, INC.

Report of Independent Registered Public Accounting Firm

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

Opinion on the Consolidated Financial Statements

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

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

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

Basis for Opinion

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

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

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

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

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

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

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

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

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

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

/s/ DELOITTE & TOUCHE LLP

Austin, Texas

March 10, 2021

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

In 2021, we became the predecessor auditor.

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AND CONSOLIDATED SUBSIDIARIES

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Policy loans 78,773 80,307

Real estate held-for-sale — 2,571

Other long-term investments (portion measured at fair value $ 66,846 and $ 56,038 in 2022 and 2021, respectively)

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

69,558 57,399

Short-term investments 1,241 —

Total investments 1,340,781 1,623,167

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Cost of insurance acquired 10,260 10,611

Goodwill and other intangible assets 941 13,570

Federal income tax receivable 601 762

Deferred tax asset, net 2,414 —

Property and equipment, net 12,926 14,074

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Deferred federal income tax liability, net — 15,456

Current federal income tax payable — 43,916

Payable for securities in process of settlement — 5,265

Other liabilities 41,025 28,780

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Common stock:

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

Class A, no par value, 100,000,000 shares authorized, 53,758,176 and 53,170,413 shares issued and outstanding as of December 31, 2022 and 2021, respectively, including shares in treasury of 3,935,581 and 3,135,738 as of December 31, 2022 and 2021

268,147 265,561

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

Class B, no par value, 2,000,000 shares authorized, 1,001,714 shares issued and outstanding as of December 31, 2022 and 2021, including shares in treasury of 1,001,714 as of December 31, 2022 and 2021

Accumulated deficit ( 52,203 ) ( 45,565 )

Accumulated other comprehensive income:

Net unrealized gains on fixed maturity securities, net of tax 117,492 128,255

Accumulated other comprehensive income (loss):

Net unrealized gains (losses) on fixed maturity securities, net of tax ( 195,279 ) 117,492

Treasury stock, at cost ( 22,806 ) ( 20,101 )

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(In thousands, except share amounts)

2021 2020 2019

Life insurance $ 167,586 169,801

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Net income (loss) — — 36,787 — — 36,787

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

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

Stock-based compensation 1,722 — — — — 1,722

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

Accounting standards adopted January 1, 2020 (1)

— — ( 395 ) — — ( 395 )

Comprehensive income (loss):

Net income (loss) — — ( 10,988 ) — — ( 10,988 )

Unrealized investment gains (losses), net — — — 51,138 — 51,138

Unrealized gains (losses) on fixed maturity securities, net of tax — — — ( 10,763 ) — ( 10,763 )

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

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

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

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Net income (loss) — — ( 6,638 ) — — ( 6,638 )

Unrealized investment gains (losses), net — — — ( 10,763 ) — ( 10,763 )

Unrealized gains (losses) on fixed maturity securities, net of tax — — — ( 312,771 ) — ( 312,771 )

Total comprehensive income (loss) — — ( 6,638 ) ( 312,771 ) — ( 319,409 )

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

Repurchase of treasury stock — — — — ( 2,705 ) ( 2,705 )

Issuance of common stock 2,244 — — — — 2,244

Stock-based compensation 342 — — — — 342

Balance at December 31, 2022 $ 268,147 3,184 ( 52,203 ) ( 195,279 ) ( 22,806 ) 1,043

(1) See Note 1 in the Notes to Consolidated Financial Statements for more details.

See accompanying Notes to Consolidated Financial Statements.

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(In thousands)

2021 2020 2019

Cash Flows from Operating Activities:

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Purchases of fixed maturity securities, available-for-sale ( 120,094 ) ( 94,265 )

Purchases of equity securities — ( 4,473 ) —

Sales of equity securities 500 7,383

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Sales of property and equipment — 14

Maturities of short-term investments — 1,300 9,090

Purchases of short-term investments ( 1,250 ) —

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(In thousands)

2021 2020 2019

Cash Flows from Financing Activities:

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Net cash provided by (used in) financing activities ( 499 ) ( 6,215 )

Net increase (decrease) in cash and cash equivalents ( 6,837 ) ( 12,074 ) 713

Net decrease in cash and cash equivalents ( 4,321 ) ( 6,837 )

Cash and cash equivalents at beginning of year 27,294 34,131

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SUPPLEMENTAL DISCLOSURE OF OPERATING ACTIVITIES:

Cash paid during the year for income taxes $ 1,198 — 2,200

Cash paid for income taxes during 2022 and 2021 were $ 0.3 million and $ 1.2 million, respectively.

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

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

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

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

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

During 2022 and 2021, various fixed maturity issuers exchanged securities with book values of $ 6.9 million and $ 12.1 million, respectively, for securities of equal value.

The Company recognized right-of-use assets of $ 0.4 million in exchange for new operating lease liabilities during 2022 and none during 2021.

See accompanying Notes to Consolidated Financial Statements.

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

("CICA 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.

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

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

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

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

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

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

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dollar-denominated amounts sold to non-U.S.

Effective January 1, 2023, all new policies are issued through CICA PR.

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

Our domestic life insurance business operates through CICA and CNLIC.

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

Our Home Service Insurance segment operates through our subsidiaries SPLIC, MGLIC and SPFIC, and focuses on the life insurance needs of the middle- and lower-income markets, primarily in Louisiana, Mississippi and Arkansas.

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

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, Magnolia and SPFIC, and focuses on the life insurance needs of the middle- and lower-income markets, primarily in Louisiana, Mississippi and Arkansas.

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

CTI provides data processing systems and services to the Company.

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

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

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

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

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

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

The Company assesses AFS fixed maturity securities in an unrealized loss position for expected credit losses.

First, we assess whether we intend to sell, or it is more likely than not that we will be required to sell, the security before recovery of its amortized cost.

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

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

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

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CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

specifically related to the security, among other factors.

and adverse conditions specifically related to the security, among other factors.

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

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

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

Prior to 2020, the Company evaluated all fixed maturity securities on a quarterly basis, and more frequently when economic conditions warranted additional evaluations, to determine if a write-down should be recorded due to an other-than-temporary impairment ("OTTI").

If an OTTI was required, the write-down was recorded directly to operations and any subsequent recoveries were recorded through net investment income over the remaining life of the security.

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

The Company made a policy election to exclude accrued interest from the amortized cost of AFS fixed maturity securities and report accrued interest separately in accrued investment income in the consolidated balance sheets.

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Policy loans are reported at unpaid principal balances.

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

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

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

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

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The Company had cash equivalents and fixed maturity securities with an aggregate fair value of $ 9.8 million and $ 10.1 million at December 31, 2022 and 2021, respectively, on deposit with various state regulatory authorities to fulfill statutory requirements.

CASH AND CASH EQUIVALENTS

Cash consists of balances on hand and on deposit in banks and financial institutions.

Cash equivalents consists of securities whose duration does not exceed 90 days at the date of acquisition.

SHORT-TERM INVESTMENTS

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These securities are carried at fair value.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CASH AND CASH EQUIVALENTS

Cash consists of balances on hand and on deposit in banks and financial institutions.

Cash equivalents consists of securities whose duration does not exceed 90 days at the date of acquisition.

REINSURANCE RECOVERABLE

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Reinsurance premiums, benefits and expenses are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts.

The cost of reinsurance related to long duration contracts is accounted for over the life of the underlying reinsured policies using assumptions consistent with those used to account for the underlying policies.

The cost of reinsurance

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CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

related to long duration contracts is accounted for over the life of the underlying reinsured policies using assumptions consistent with those used to account for the underlying policies.

The cost of reinsurance related to short duration contracts is accounted for over the coverage period.

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For universal life type contracts and investment contracts that include significant surrender charges or that yield significant revenues from sources other than the investment contract holders' funds, the deferred contract acquisition cost amortization is matched to the recognition of gross profit.

The effect on the DAC asset that would result from realization of unrealized gains or losses is recognized with an offset to accumulated other comprehensive income in consolidated stockholders' equity.

If an internal replacement of insurance or investment contract modification substantially changes a contract as defined in current accounting guidance, then the DAC is written off immediately through income and any new deferrable costs associated with the new replacement are deferred.

The effect on the DAC asset that would result from realization of unrealized gains or losses is recognized with an offset to accumulated other comprehensive income (loss) in consolidated stockholders' equity.

If an internal replacement of insurance or investment contract modification substantially changes a contract as defined in current accounting guidance, the DAC is written off immediately through income (loss) and any new deferrable costs associated with the new replacement are deferred.

If a contract modification does not substantially change the contract, the DAC amortization on the original contract will continue and any acquisition costs associated with the related modification are immediately expensed.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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If a future loss is anticipated under this basis, any additional shortfall indicated by loss recognition tests is recognized as a reduction in accumulated other comprehensive income (shadow loss recognition).

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

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

Similar to other loss recognition on long-duration insurance contracts, such shortfall is first reflected as

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CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

a reduction in DAC and secondly as an increase in liabilities for future policy benefits.

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

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(In thousands)

2021 2020 2019

Balance at beginning of period $ 140,380 104,913

3 unchanged sentences

Balance at end of period $ 140,167 140,380

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

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

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

(In thousands) 2021 2019

Increase (Decrease)

Consolidated Balance Sheets

DAC $ ( 122 ) ( 1,396 )

Future policy benefit reserves:

Life insurance ( 827 ) ( 2,299 )

Consolidated Statements of Operations and Comprehensive Income (Loss)

Decrease in future policy benefit reserves ( 827 ) ( 2,299 )

Amortization of deferred policy acquisition costs 122 1,396

Income before federal income tax 705 903

Federal income tax expense 148 190

Net income $ 557 713

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

The impact of this system conversion, which impacted the Life Insurance segment, 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, reflecting changes in actuarial valuation estimates associated with the conversion.

COST OF INSURANCE ACQUIRED

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Management believes that our COIA is recoverable for the years ended December 31, 2022 and 2021.

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

2 unchanged sentences

(In thousands)

2021 2020 2019

Balance at beginning of period $ 10,611 11,541

2 unchanged sentences

Balance at end of period $ 10,260 10,611

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CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

These judgments incorporate multiple inputs including discounted cash flow calculations based on assumptions that market participants would make in valuing the reporting unit, levels of economic capital,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

This impairment is recorded on the Consolidated Statement of Operations.

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

1 unchanged sentence

(In thousands)

2021 2020 2019

Balance at beginning of period $ — 12,624

1 unchanged sentence

Balance at end of period $ — —

This impairment is recorded on the Consolidated Statement of Operations.

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

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PROPERTY AND EQUIPMENT

7 unchanged sentences

Electronic data processing equipment and computer software 7,485 7,418

Automobiles — 50

Real estate and equipment leases (See Note 7 )

11 unchanged sentences

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

Annuity interest crediting rates range from 2.5 %

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to 5.5 % annually.

Annuity interest crediting rates range from 2.0 % to 5.5 % annually.

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

11 unchanged sentences

We monitor actual experience and revise assumptions as necessary.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PARTICIPATING POLICIES

15 unchanged sentences

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

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

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There were none as of December 31, 2022 and 2021.

PREMIUM REVENUE AND RELATED EXPENSES

10 unchanged sentences

A deferred tax asset is recorded only if a determination is made that it is more-likely-than-not that the tax treatment on which the deferred tax asset depends will be sustained in the event of an audit.

These determinations inherently involve management's judgment.

These determinations inherently

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

involve management's judgment.

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

8 unchanged sentences

Actual results could differ materially from these estimates.

Significant estimates include those used in the evaluation of credit losses on fixed maturity securities, actuarially determined assets and liabilities and assumptions, tests of goodwill impairment, valuation allowance on deferred tax assets, valuation of uncertain tax positions and contingencies relating to litigation and regulatory matters.

Significant estimates include those used in the evaluation of credit losses on fixed maturity securities, actuarially determined assets and liabilities and assumptions, valuation allowance on deferred tax assets, valuation of uncertain tax positions and contingencies relating to litigation and regulatory matters.

Certain of these estimates are particularly sensitive to market conditions, and deterioration and/or volatility in the worldwide debt or equity markets could have a material impact on the consolidated financial statements.

2 unchanged sentences

No individual amounts were material.

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ACCOUNTING PRONOUNCEMENTS

ACCOUNTING STANDARDS RECENTLY ADOPTED

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

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

The ASU requires a financial asset (or a group of financial assets) measured at amortized cost to be presented at the net amount expected to be collected.

The allowance for credit losses is a valuation account that is deducted from the amortized cost of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset.

The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the increases or decreases of expected credit losses that have taken place during the period.

Credit losses on AFS fixed maturity securities should be measured in a manner similar to current U.S.

however, the credit losses are recorded through an allowance for credit losses rather than as a write-down.

This approach is an improvement to prior U.S.

GAAP because an entity will be able to record reversals of credit losses (in situations in which the estimate of credit losses declines) in current period net income, which in turn should align the income statement recognition of credit losses with the reporting period in which changes occur.

GAAP prohibited reflecting those improvements in current-period earnings.

The Company adopted this standard effective January 1, 2020 using the modified retrospective approach.

The adoption resulted in an increase in accumulated deficit of $ 0.4 million related to agents' debit balance collectability.

In September 2018, the FASB issued ASU No.

2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract .

This ASU requires an entity in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance in Accounting Standards Codification 350-40 to determine which implementation costs to capitalize as assets or expense as incurred.

Capitalized implementation costs should be presented in the same line item on the balance sheet as amounts prepaid for the hosted service, if any (generally as an "other asset").

The capitalized costs will be amortized over the term of the hosting arrangement, with the amortization expense being presented in the same income statement line item as the fees paid for the hosted service.

We adopted this standard effective January 1, 2020.

The adoption had no impact on our consolidated financial statements.

ACCOUNTING STANDARDS NOT YET ADOPTED

6 unchanged sentences

• Standardizes the liability discount rate.

The liability discount rate will be a market-observable discount rate (upper-medium grade fixed-income instrument yield), with the effect of rate changes recorded in other comprehensive income;

The liability discount rate will be a market-observable discount rate (upper-medium grade fixed-income instrument yield), with the effect of rate changes recorded in other comprehensive income (loss);

• Provides greater consistency in measurement of market risk benefits.

4 unchanged sentences

The new disclosures include rollforwards and information about significant assumptions and the effects of changes in those assumptions.

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

modified retrospective approach.

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

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

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

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

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

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

As of the January 1, 2021 transition date, the adoption of the new guidance will increase previously reported accumulated deficit by $ 0.1 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 $ 316.8 million, 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 December 31, 2022, these estimates have declined, ranging from an increase in AOCI of approximately $ 25 million to $ 75 million primarily due to the increase in interest rates since the transition date.

We estimate that our previously reported accumulated deficit will decrease by a range of $ 50 million to $ 100 million primarily due to a reduction in policyholder benefits resulting from updating the underlying reserve assumptions annually compared to the use of historical assumptions that were locked at issue and reduced DAC amortization due to changes in amortization methods and the elimination of accruing and amortizing interest on existing DAC balances.

All amounts assume a tax rate of 21%.

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

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 pronouncement issued or effective during 2022 had, or is expected to have, a material impact on our consolidated financial statements.

8 unchanged sentences

Policy loans 78,773 5.8 80,307 4.9

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

Other long-term investments 69,558 5.1 57,399 3.5

Short-term investments 1,241 0.1 — —

Cash and cash equivalents 22,973 1.7 27,294 1.7

Total cash and invested assets $ 1,363,754 100.0 % $ 1,650,461 100.0 %

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CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table represents the amortized cost, gross unrealized gains and losses and fair value of fixed maturity securities as of December 31, 2022 and 2021.

8 unchanged sentences

Consumer 247,824 758 47,138 201,444

Utilities 115,738 39 23,790 91,987

Energy 76,065 — 11,395 64,670

All Other 184,022 683 29,048 155,657

Commercial mortgage-backed 171 — 2 169

Residential mortgage-backed 110,582 9 10,765 99,826

2 unchanged sentences

Total fixed maturity securities $ 1,381,318 3,563 205,262 1,179,619

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December 31, 2021

7 unchanged sentences

Consumer 219,223 23,658 900 241,981

Utilities 105,738 7,358 801 112,295

Energy 76,989 7,334 68 84,255

All Other 196,403 22,497 380 218,520

Commercial mortgage-backed 225 — 4 221

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

2 unchanged sentences

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

10 unchanged sentences

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 realized gains of $ 0.4 million and $ 1.6 million on equity securities held for the years ended December 31, 2021 and 2020.

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

The Company recognized net realized losses of $ 2.7 million and net realized gains of $ 0.4 million on equity securities held for the years ended December 31, 2022 and 2021.

The Company monitors all AFS fixed maturity securities on an on-going basis relative to changes in credit ratings, market prices, earnings trends and financial performance, in addition to specific region or industry reviews.

6 unchanged sentences

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

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

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

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

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

2 unchanged sentences

Any credit losses are presented as an allowance rather than as a write-down on AFS fixed maturity securities management does not intend to sell or believes that it is more likely than not we will be required to sell.

We adopted ASU 2016-13 using the prospective transition approach for fixed maturity securities for which other-than-temporary impairment had been recognized prior to January 1, 2020.

As a result, the amortized cost remains the same before and after adoption.

The effective interest rate on these fixed maturity securities was not changed.

Amounts previously recognized in accumulated other comprehensive income as of January 1, 2020 relating to improvements in cash flow expected to be collected will be accreted into income over the remaining life of the asset.

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

The Company recorded no credit valuation losses on fixed maturity securities for the years ended December 31, 2022 and 2021.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For fixed maturity security investments that have unrealized losses as of December 31, 2022 and 2021, the gross unrealized losses that have been in a continuous unrealized loss position for less than 12 months, gross unrealized losses that have been in a continuous unrealized loss position for 12 months or longer and fair value are as follows.

9 unchanged sentences

Treasury securities $ — — — 64 9 2 64 9 2

Government-sponsored enterprises 223 1 1 — — — 223 1 1

States and political subdivisions 189,084 30,866 242 14,184 7,098 14 203,268 37,964 256

1 unchanged sentence

Consumer 164,224 34,823 220 23,417 12,315 30 187,641 47,138 250

Utilities 73,483 15,959 152 16,413 7,831 18 89,896 23,790 170

Energy 59,053 9,601 75 5,617 1,794 8 64,670 11,395 83

All Other 140,955 25,337 171 7,910 3,711 15 148,865 29,048 186

Commercial mortgage-backed 168 2 2 — — — 168 2 2

Residential mortgage-backed 98,758 10,514 95 759 251 5 99,517 10,765 100

1 unchanged sentence

Total fixed maturity securities $ 945,462 168,710 1,236 78,772 36,552 117 1,024,234 205,262 1,353

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

7 unchanged sentences

Available-for-sale:

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

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

1 unchanged sentence

Consumer 29,494 777 28 2,419 123 1 31,913 900 29

Utilities 19,072 401 14 4,523 400 4 23,595 801 18

Energy 7,381 68 8 — — — 7,381 68 8

All Other 14,312 380 16 — — — 14,312 380 16

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

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

2 unchanged sentences

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

At December 31, 2022 and 2021, 98.7 % and 98.0 %, respectively, of the fair value of our fixed maturity

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

securities portfolio was rated investment grade.

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

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

The unrealized losses on fixed maturity securities detailed in the previous tables are due to noncredit-related factors, including widening credit spreads and rising interest rates since purchase, which have little bearing on the recoverability of our investments, hence they are not recognized as credit losses.

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

9 unchanged sentences

Total fixed maturity securities $ 1,381,318 1,179,619

The Company had no investments in any one entity which exceeded 10% of stockholders' equity at December 31, 2021 or 2020.

In addition, there were no investments that were non-income producing for the years ended December 31, 2021 or 2020.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

There were no investments that were non-income producing for the years ended December 31, 2022 or 2021.

Major categories of net investment income are summarized as follows:

1 unchanged sentence

(In thousands)

2021 2020 2019

Gross investment income:

3 unchanged sentences

Other long-term investments 2,535 809

Other 54 97 374

Total investment income 68,020 63,886

1 unchanged sentence

Net investment income $ 65,426 61,495

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

1 unchanged sentence

(In thousands)

2021 2020 2019

Fixed maturity securities:

Fixed maturity securities, available-for-sale:

Proceeds $ 33,914 8,238

5 unchanged sentences

Gross realized losses — 149

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

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

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I nvestment related gains (losses) are as follows:

We sold 20 and 28 fixed maturity securities from our available-for-sale portfolio in 2022 and 2021, respectively.

There was two sales of equity securities in 2022 and one sale in 2021.

Investment related gains (losses) are as follows:

Years ended December 31,

(In thousands)

2021 2020 2019

Investment related gains (losses):

9 unchanged sentences

Change in credit loss allowance ( 237 ) 186

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

Net investment related gains (losses) $ ( 10,291 ) 10,991

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

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

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

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

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

(3) FAIR VALUE MEASUREMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

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

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

We hold AFS fixed maturity securities, which are carried at fair value with changes in fair value reported through comprehensive income (loss).

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

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.

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

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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.

8 unchanged sentences

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

All significant inputs are

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

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

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

1 unchanged sentence

Level 3 is comprised of financial instruments whose fair value is estimated based on non-binding broker prices utilizing significant inputs not based on or corroborated by readily available market information.

Real estate held-for-sale is in this category.

We review the fair value hierarchy classifications each reporting period.

Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets.

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 years ended December 31, 2021 and 2020.

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

We have no investments in this category.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables set forth our assets that are measured at fair value on a recurring basis.

December 31, 2022

7 unchanged sentences

Corporate 44 715,601 — 715,645

Commercial mortgage-backed — 169 — 169

Residential mortgage-backed — 99,826 — 99,826

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 have not been classified in the fair value hierarchy.

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

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

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9 unchanged sentences

Corporate 51 892,957 — 893,008

Commercial mortgage-backed — 221 — 221

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

12 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 balance sheet.

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

FINANCIAL INSTRUMENTS VALUATION

FINANCIAL INSTRUMENTS CARRIED AT FAIR VALUE

Fixed maturity securities, available-for-sale.

9 unchanged sentences

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

For these investments,

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

The Company recognized net investment related losses of $ 9.7 million on limited partnerships held for the year ended

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

December 31, 2022 and gains of $ 7.5 million for year 2021.

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

2 unchanged sentences

Fair Value Using NAV Per Share Unfunded Commit-

ments Remaining life

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

ments Remaining life

Limited partnerships

1 unchanged sentence

Global equity fund Investments in common stocks of U.S., international developed and emerging markets with a focus on long-term capital growth 9,037 — 0 10,607 — 0

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

Federal Reserve that provides financing to U.S.

company market participants for levered asset purchases with a focus on asset-backed, commercial mortgage and collateralized loan obligation markets — — 0 1,381 — 3

Late-stage growth Investments in private late-stage, established companies seeking capital to accelerate growth prior to an IPO or sale 20,468 4,459 6 — 16,291 7

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

Late-stage growth Investments in private late-stage, established companies seeking capital to accelerate growth prior to an IPO or sale 16,892 18,444 5 to 7

20,468 4,459 6

Infrastructure Investments in environmental infrastructure and related technology, focusing on renewable power generation and distribution 7,683 4,107 11 3,016 16,653 12

Total limited partnerships $ 66,846 28,562 $ 56,038 39,824

1 unchanged sentence

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

The international equity fund is redeemable monthly.

The global equity fund is redeemable monthly.

FINANCIAL INSTRUMENTS NOT CARRIED AT FAIR VALUE

12 unchanged sentences

Annuity - investment contracts 67,344 61,701 64,384 72,352

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Policy loans.

1 unchanged sentence

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

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

Policy loans are an integral part of the life insurance policies we have

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in force, cannot be valued separately and are not marketable.

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

1 unchanged sentence

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.

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 6.4 % at both December 31, 2021 and 2020, with maturities ranging from 5 to 18 years.

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

At December 31, 2022, the remaining loan matures in six years .

Management estimated the fair value using an annual interest rate of 6.25 % at both December 31, 2022 and 2021.

5 unchanged sentences

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.

Other long-term investments.

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

7 unchanged sentences

Total other long-term investments $ 69,558 57,399

We carried $ 2.4 million of limited partnership investments at cost at December 31, 2022.

None were carried at cost at December 31, 2021.

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

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

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

(4) POLICY LIABILITIES AND SHORT DURATION CONTRACTS

1 unchanged sentence

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents information on changes in the liability for life, accident and health and property policy and contract claims for the years ended December 31, 2021, 2020 and 2019.

The following table presents information on changes in the liability for life, accident and health and property policy and contract claims.

Years ended December 31,

(In thousands)

2021 2020 2019

Policy claims payable:

6 unchanged sentences

28,674 33,647

33,647 38,595 27,359

Deduct claims paid, related to:

12 unchanged sentences

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27 unchanged sentences

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19 unchanged sentences

In the normal course of business, the Company reinsures portions of certain policies that we underwrite to limit disproportionate risks.

During 2021 and 2020, we retained varying amounts of individual insurance up to a maximum retention of $ 100,000 on any life.

During 2022 and 2021, we generally retained $ 100,000 on any one individual life insurance policy.

The Company also reinsures 100 % of our accidental death benefit rider coverage.

Catastrophe reinsurance is in place for our property policies.

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

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

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

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

We remain contingently liable to the extent that the reinsuring companies cannot meet their obligations under these reinsurance treaties.

The Company maintains catastrophe reinsurance with the net retention on any one loss of $ 30,000 , which is the maximum policy limit on any single risk.

During 2022, this reinsurance provided $ 11.0 million of coverage with the Company retaining $ 1.4 million of the risk.

In 2021, this reinsurance provided $ 10.5 million of coverage once the Company paid a $ 0.5 million deductible.

In consideration for a reinstatement premium, second event coverage is provided under the same terms for both years.

The Company's principal reinsurers are R+V Versicherung AG and Lloyds Underwriter Syndicates.

The Company remains contingently liable in the event that any of the reinsurers are unable to meet their obligations under any reinsurance agreement.

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

2 unchanged sentences

Best Company range from A- (Excellent) to A+ (Superior).

December 31, 2021 | 10-K 97

CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Assumed and ceded life reinsurance activity as of December 31, 2021 and 2020 is summarized as follows:

Assumed and ceded life reinsurance activity is summarized as follows:

(In thousands)

2 unchanged sentences

Net life insurance in force $ 4,257,148 4,165,921

December 31, 2022 | 10-K 91

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company's reinsurance recoverable on ceded reinsurance was $ 4.6 million and $ 5.5 million in 2022 and 2021, respectively.

2 unchanged sentences

(In thousands)

2021 2020 2019

Premiums from short-duration contracts:

Direct $ 7,862 7,631

Assumed — — —

Ceded ( 1,413 ) ( 2,312 )

10 unchanged sentences

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

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

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

The reinsurance agreement specifies a maximum coverage per event of $ 10.5 million and a retention level of $ 0.5 million per event.

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

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

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

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

The Company has a reinsurance agreement that covers catastrophic events such as Hurricane Ida.

We paid the $ 0.5 million retention in claim amounts for Ida and did not exceed the maximum reinsurance coverage.

(6) STOCKHOLDERS' EQUITY AND RESTRICTIONS

2 unchanged sentences

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

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

In April 2021, we repurchased all of the outstanding Class B common stock and it is now classified as treasury stock.

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

Citizens has never issued any preferred stock.

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CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

common stock and it is now classified as treasury stock.

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

Citizens has never issued any preferred stock.

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

3 unchanged sentences

52,654 1,002 3,136

Change 149 — —

Balance at December 31, 2019

52,365 1,002 ( 3,136 )

Change 289 — —

Stock issued under stock investment plan 404 — —

Stock issued for compensation 112 — —

Acquisition of Class B shares — — 1,002

Balance at December 31, 2021

53,170 1,002 4,138

Change 516 — ( 1,002 )

Stock issued under stock investment plan 475 — —

Stock issued for compensation 91 — —

Acquisition of Class A shares — — 799

Other share issuance 22 — —

Balance at December 31, 2022

4 unchanged sentences

(In thousands, except per share amounts)

2021 2020 2019

Net income (loss) $ ( 6,638 ) 36,787

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CITIZENS, INC.

11 unchanged sentences

(In thousands)

2021 2020 2019

Combined statutory net income (loss)

6 unchanged sentences

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

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

Our domestic insurance subsidiaries have calculated their risk-based capital ("RBC") in accordance with the National Association of Insurance Commissioners' ("NAIC") Model Rule and the RBC rules as adopted by their respective states of domicile.

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

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

Under the Bermuda Insurance Act 1978, an insurer is prohibited from declaring or paying a dividend if it is in breach of its Enhanced Capital Requirement (“ECR”) or Minimum Margin of Solvency (“MMS”) or if the declaration or payment of such dividend would cause such a breach.

All domestic insurance subsidiaries exceeded RBC minimum levels at December 31, 2022.

Under the Bermuda Insurance Act 1978 (the "Insurance Act"), an insurer is prohibited from declaring or paying a dividend if it is in breach of its Enhanced Capital Requirement (“ECR”) or Minimum Margin of Solvency (“MMS”) or if the declaration or payment of such dividend would cause such a breach.

Where an insurer fails to meet its MMS on the last day of any financial year, it is prohibited from declaring or paying any dividends during the next financial year without the approval of the Bermuda Monetary Authority (the “BMA” or the "Authority").

1 unchanged sentence

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

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

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

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

Further, CICA International must obtain the

Further, CICA International must obtain the BMA’s prior approval before

December 31, 2022 | 10-K 94

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

reducing its total statutory capital as shown in its previous financial year statutory balance sheet by 15 % or more.

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

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

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

Based upon these rules, CICA International can pay a dividend of $ 4.6 million without prior regulatory approval in 2023.

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

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

As of December 31,

3 unchanged sentences

(In thousands)

2021 2020 2019

CICA International net income (loss) $ ( 1,024 ) 14,029

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

(a) Bermuda Solvency Capital Requirement ("BSCR");

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

CICA International uses the BSCR in calculating its solvency requirements.

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

The BMA established risk-based regulatory capital adequacy and solvency margin requirements for Bermuda insurers that require us to calculate our ECR by using the Bermuda Solvency Capital Requirement ("BSCR").

CICA International held capital in excess of the BSCR requirements at December 31, 2022.

2 unchanged sentences

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

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

Although this NAIC standard does not change the reserving requirements under U.S.

GAAP, it can be significant for many life insurers.

PBR replaces the current formulaic approach to determining policy reserves with an approach that more closely reflects the risks of highly complex products.

Companies will be expected to develop “right-sized” reserves that better align with their specific product features, their observed actuarial experience, and their overall risk management procedures.

PBR was required effective January 1, 2020.

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

As the Insurance Act permits, we requested a modification under Section 6C of the Insurance Act to remove the impact of unrealized gains or losses from the MMS requirement.

On January 19, 2023, the BMA granted CICA International a permitted practice, effective December 31, 2022, pursuant to Section 6C (1) of the Insurance Act to report its fixed income maturity securities at amortized cost in its unconsolidated statutory financial statements.

(7) COMMITMENTS AND CONTINGENCIES

QUALIFICATIONS OF LIFE PRODUCTS

We have previously reported that a portion of the life insurance policies issued by our subsidiary insurance companies failed to qualify for the favorable U.S.

federal income tax treatment afforded by Sections 7702 and 72(s) of the Internal Revenue Code ("IRC") of 1986.

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

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

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

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

GAAP for financial reporting.

December 31, 2021 | 10-K 101

CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

LITIGATION AND REGULATORY ACTIONS

2 unchanged sentences

As a result, we incur defense costs, including attorneys' fees, other direct litigation costs and the expenditure of management time that otherwise would be devoted to our business.

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

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

CREDIT FACILITY

5 unchanged sentences

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.

December 31, 2022 | 10-K 95

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CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

8 unchanged sentences

Our operating lease liabilities had a weighted-average lease term of 7.7 years remaining as of December 31, 2022.

December 31, 2021 | 10-K 102

CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Maturities of our remaining operating lease liabilities as of December 31, 2022 are as follows.

5 unchanged sentences

Present value of operating lease liabilities $ 10,116

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

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

We record the lease right-of-use asset in Property and Equipment, net and the lease liability in Other Liabilities using a weighted average discount rate of 2.59 %.

Cash payments related to the operating lease liabilities were $ 1.4 million for both of the years ended December 31, 2022 and 2021 and were reported in operating cash flows.

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

3 unchanged sentences

Life Insurance and Home Service Insurance.

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

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

residents through CICA International.

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

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

CNLIC issues ordinary whole life policies in Florida.

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

CNLIC issues ordinary whole life and critical illness products.

December 31, 2022 | 10-K 96

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CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our policies are sold and serviced through 165 funeral homes and 430 independent agents who sell policies, collect premiums and service policyholders.

1 unchanged sentence

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

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

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

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

1 unchanged sentence

The Company evaluates profit and loss performance based on U.S.

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

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CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

23 unchanged sentences

Amortization of cost of insurance acquired 262 712 — 974

Goodwill impairment 12,624 — — 12,624

Total benefits and expenses 170,857 63,193 5,541 239,591

1 unchanged sentence

December 31, 2022 | 10-K 97

CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2020

(In thousands)

Insurance Home

Service Insurance Other

Non-Insurance

Enterprises Consolidated

Life insurance $ 128,900 41,428 — 170,328

Accident and health insurance 301 718 — 1,019

Property insurance — 3,982 — 3,982

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

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

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

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

Benefits and expenses:

Insurance benefits paid or provided:

Claims and surrenders 93,813 27,332 — 121,145

Increase in future policy benefit reserves 25,825 4,098 — 29,923

Policyholders' dividends 5,554 33 — 5,587

Total insurance benefits paid or provided 125,192 31,463 — 156,655

Commissions 17,944 14,125 — 32,069

Other general expenses 16,323 17,402 19,944 53,669

Capitalization of deferred policy acquisition costs ( 15,568 ) ( 4,907 ) — ( 20,475 )

Amortization of deferred policy acquisition costs 23,987 3,452 — 27,439

Amortization of cost of insurance acquired 460 1,356 — 1,816

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

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

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CITIZENS, INC.

24 unchanged sentences

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

Goodwill impairment 12,624 — — 12,624

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

7 unchanged sentences

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CITIZENS, INC.

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(In thousands)

2021 2020 2019

United States $ 54,712 56,000

11 unchanged sentences

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

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

For both of the years ended December 31, 2022 and 2021, the Subpart F income inclusion generated $ 2.1 million of federal income tax expense.

CICA PR, a wholly-owned subsidiary of Citizens, was formed in September 2022.

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

CICA PR's insurance activity will be subject to Subpart F of the IRC and included in Citizens' taxable income.

CICA PR's activity for the current period is immaterial to the financial statements as it was not operational until 2023.

A reconciliation between the U.S.

4 unchanged sentences

Expected tax expense (benefit) $ ( 1,484 ) 21.0 % $ ( 1,404 ) 21.0 %

Change in valuation allowance 1 — — —

Foreign income tax rate differential 151 ( 2.1 ) ( 2,912 ) 43.5

10 unchanged sentences

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CITIZENS, INC.

3 unchanged sentences

(In thousands)

2021 2020 2019

Income tax expense (benefit):

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Deferred intercompany loss 1,744 1,848

Unrealized losses on investments available-for-sale 11,688 —

Accrued compensation 360 337

2 unchanged sentences

Total gross deferred tax assets 19,623 9,145

Valuation allowance 4,238 —

Net deferred tax assets 15,385 9,145

Deferred tax liabilities:

5 unchanged sentences

Total gross deferred tax liabilities ( 12,971 ) ( 24,601 )

Net deferred tax liability $ ( 15,456 ) ( 9,564 )

Net deferred tax asset (liability) $ 2,414 ( 15,456 )

December 31, 2022 | 10-K 100

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CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of the changes in the components of deferred federal and state income taxes is as follows:

4 unchanged sentences

Investments available-for-sale 21,770 ( 5,709 )

Change in valuation allowance ( 4,238 ) —

Effects of unrealized gains on DAC, COIA and reserves 462 244

Adoption of ASU 2016-13 — 79

Balance December 31, $ 2,414 ( 15,456 )

December 31, 2021 | 10-K 108

CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

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

The Company and our subsidiaries have net operating loss carryforwards of $ 0.9 million at December 31, 2022.

The Company and our subsidiaries have capital loss carryforwards of $ 0.9 million at December 31, 2022, which begin expiring in 2026.

At December 31, 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.

Thus, the Company holds a $ 4.2 million valuation allowance in other comprehensive income (loss) at December 31, 2022.

We did not hold any valuation allowances at December 31, 2021.

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

2 unchanged sentences

(In thousands)

2021 2020 2019

Balance at January 1, $ 2,156 45,990

7 unchanged sentences

However, the Company released $ 1.2 million of this uncertain tax position, including interest, during the fourth quarter of 2022 following the expiration of the statute of limitations on the tax year ended December 31, 2018.

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

The Company believes it is reasonably possible that the remaining uncertain tax benefits will decrease within the next twelve months.

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

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

In the consolidated statements of operations and comprehensive income (loss), the amount of interest income recorded was $ 0.2 million and $ 9.5 million for the years ended December 31, 2022 and 2021, respectively.

December 31, 2022 | 10-K 101

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CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

During the year ended December 31, 2021, the Company was able to claim a net refund for taxes paid in preceding years as a result of the CARES Act.

2 unchanged sentences

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

December 31, 2021 | 10-K 109

CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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CITIZENS, INC.

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Effects on unearned revenue reserves ( 4,235 ) 889 ( 3,346 )

Other comprehensive income (loss) $ ( 5,298 ) ( 5,465 ) ( 10,763 )

Year ended December 31, 2020

Unrealized gains (losses):

Unrealized holding gains (losses) arising during the period $ 84,010 ( 6,044 ) 77,966

Reclassification adjustment for (gains) losses included in net income 111 ( 23 ) 88

Effects on DAC ( 37,372 ) 8,872 ( 28,500 )

Effects on COIA ( 98 ) 21 ( 77 )

Effects on unearned revenue reserves 2,102 ( 441 ) 1,661

Change in tax valuation allowance — ( 4,238 ) ( 4,238 )

Other comprehensive income (loss) $ ( 330,765 ) 17,994 ( 312,771 )

12 unchanged sentences

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

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

These awarded RSUs have a time-based vesting component of three years , subject to continued employment.

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

1 unchanged sentence

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CITIZENS, INC.

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Forfeitures are recognized in the period they occur.

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

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

Compensation expense of $ 0.5 million and $ 0.6 million was recognized in 2022 and 2021, respectively, related to these awards.

(12) BENEFIT PLANS

4 unchanged sentences

There have been no profit sharing contributions since 2014.

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

The 401(k) plan automatically enrolls employees who have completed three months of service.

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

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

The Company's expense was $ 0.7 million in both 2022 and 2021.

The Company is primarily self-insured for employee health benefits.

2 unchanged sentences

If more claims are made than were estimated or if the costs of actual claims increase beyond what was anticipated, reserves recorded may not be sufficient and additional accruals may be required in future periods.

December 31, 2021 | 10-K 112

CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(13) RELATED PARTY TRANSACTIONS

2 unchanged sentences

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

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

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

CERTAIN PAYMENTS FOLLOWING CHANGE IN CONTROL

For over 30 years, the Harold E.

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

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

The Trust documents provided that upon Mr.

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

Riley Foundation (the “Foundation”).

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

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

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

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

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

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

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

Additionally, all outstanding Restricted Stock Units held by Mr.

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

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

These amounts were expensed in 2020.

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

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

Under the Separation and Consulting Agreement, Mr.

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

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

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

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

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

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

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

Pursuant to the Consulting Agreement, Mr.

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

The Consulting Agreement was terminated when Mr.

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

December 31, 2022 | 10-K 104

T a b l e o f C o n t e n t s

CITIZENS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

no changes related to these relationships during the year ended December 31, 2022 and no additional related party transactions.

(14) QUARTERLY FINANCIAL INFORMATION (Unaudited)

37 unchanged sentences

Mortgage loans on real estate — 1,000

Real estate held-for-sale — 2,571

Other long-term investments — 8,790

Short-term investments 1,241 —

Cash 2,163 3,399

17 unchanged sentences

(1) Eliminated in consolidation.

Negative amount due to unrealized losses on fixed maturity securities during at December 31, 2022.

Note to Schedule II :

Citizens, Inc.'s investments in consolidated subsidiaries are stated at cost plus equity in undistributed income of consolidated subsidiaries.

Citizens, Inc.'s investments in consolidated subsidiaries are stated at cost plus equity in undistributed income of consolidated subsidiaries and unrealized gains (losses) on investments held by consolidated subsidiaries.

The Company includes in its Statement of Operations and Comprehensive Income (Loss) dividends from its subsidiaries and equity in income (loss) of consolidated subsidiaries, which represents the net income (loss) of each of its wholly-owned subsidiaries.

9 unchanged sentences

(In thousands)

2021 2020 2019

Comprehensive income (loss):

14 unchanged sentences

Other comprehensive income (loss) ( 312,771 ) ( 10,763 )

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

Total comprehensive income (loss) $ ( 319,409 ) 26,024

(1) Eliminated in consolidation.

Note to Schedule II :

Citizens, Inc.'s investments in consolidated subsidiaries are stated at cost plus equity in undistributed income of consolidated subsidiaries.

9 unchanged sentences

(In thousands)

2021 2020 2019

Cash flows from operating activities:

16 unchanged sentences

Maturities and calls of fixed maturity securities, available-for-sale 9,721 7,548

Purchase of equity securities — ( 250 ) —

Sales of fixed maturity securities, available-for-sale 4,314 6,952

Sales of property and equipment 2 14

Sale of equity securities 500 —

Sale of other long-term investments — 8,790

1 unchanged sentence

Funding of mortgage loans — ( 1,000 )

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

Principal payments on mortgage loans 1,000 —

Purchases of property and equipment ( 32 ) ( 119 )

Purchases of short-term investments ( 1,250 ) —

Maturities of short-term investments — 1,300 9,090

Net cash provided by (used in) investing activities 3,023 23,059

8 unchanged sentences

Note to Schedule II :

Citizens, Inc.'s investments in consolidated subsidiaries are stated at cost plus equity in undistributed income of consolidated subsidiaries.

42 unchanged sentences

Total premiums $ 178,806 4,162 84 174,728 — %

Year ended December 31, 2019

Life insurance in force $ 4,728,826 486,937 4,892 4,246,781 0.1 %

Life insurance 180,204 1,952 99 178,351

Accident and health insurance 1,400 17 — 1,383

Property insurance 5,405 792 — 4,613

Total premiums $ 187,009 2,761 99 184,347 0.1 %

December 31, 2022 | 10-K 110

11 unchanged sentences

Non-employee Director Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.7 to the Registrant's Annual Report on Form 10-K filed on March 29, 2018)

Consulting Agreement by and Between the Company and Gerald W.

Shields dated August 5, 2020 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on July 30, 2020)

Amendment to Consulting Agreement by and between the Company and Gerald W.

Shields effective January 1, 2021 (incorporated by reference to Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K, filed on March 10, 2021)

Amendment to Gerald Shields Consulting Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on November 4, 2021)

Mutual Agreement for Compromise, Settlement and Release with the Harold E.

Riley Foundation dated February 6, 2021 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on February 9, 2021)

Mutual Agreement for Compromise, Settlement and Release with Michael C.

Hughes, Charles W.

Hott and David August Boto dated February 5, 2021 (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed on February 9, 2021)

Purchase and Sale Agreement dated February 6, 2021 (incorporated herein by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on February 9, 2021)

Executive Employment Agreement by and between Citizens, Inc.

and Gerald W.

Shields, effective as of January 1, 2022 (incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed on December 21, 2021)

Credit Agreement between the Company and Regions Bank dated May 5, 2021 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on August 4, 2021)

1 unchanged sentence

as obligor, and Regions Bank, as lender (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on August 4, 2021)

Separation Agreement between the Company and James A.

Eliasberg effective April 30, 2021 (incorporated by referenced to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed on August 4, 2021)

December 31, 2021 | 10-K 120

Form of Executive Change in Leadership Agreement entered into by and between the Company and each of the following:

Conklin, Sheryl Kinlaw, Robert M.

Mauldin III and Harvey J.L.

Waite (incorporated by referenced to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on November 4, 2021)

Subsidiaries of the Registrant

Consent of Independent Registered Public Accounting Firm - Grant Thornton LLP

Consent of Independent Registered Public Accounting Firm - Deloitte & Touche LLP

Power of Attorney (included on signature page enclosed herein)

3 unchanged sentences

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act

December 31, 2022 | 10-K 111

101.INS XBRL Instance Document

23 unchanged sentences

March 10, 2023

/s/ Gerald W.

Davis, Jr., Chairman of the Board and Director Gerald W.

Shields, Vice Chairman of the Board and Director

/s/ Christopher W.

2 unchanged sentences

Claus, Director Dr.

Maness, Director

/s/ Gerald W.

Davis, Jr., Chairman of the Board and Director Gerald W.

Shields, Vice Chairman of the Board and Director

Dean Gage /s/ Dr.

Dean Gage, Director Dr.

Sloan, Jr., Director

/s/ Francis A.

Keating II /s/ Cynthia H.

Keating II, Director Cynthia H.

Maness /s/ Cynthia H.

Maness, Director Cynthia H.

Davis, Director

Keith Morgan /s/ Mary Taylor

Keith Morgan, Director Mary Taylor, Director

/s/ Francis A.

Keating II /s/ Mary Taylor

Keating II, Director Mary Taylor, Director

Keith Morgan, Director

December 31, 2022 | 10-K 113

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

What changed 10-K

Item 9A. Controls and Procedures