CITIZENS, INC. 10-K

Item 9A. CONTROLS AND PROCEDURES (a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosures. Our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of December 31, 2022, the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective 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. (b) MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. December 31, 2022 | 10-K 56 Table of Contents CITIZENS, INC. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management evaluated the design and operating effectiveness of internal control over financial reporting based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on this evaluation, management concluded that our internal control over financial reporting as of December 31, 2022 was effective. Grant Thornton LLP, an independent registered public accounting firm, audited the effectiveness of our internal control over financial reporting as of December 31, 2022. Their attestation report is included in Item 9A(c) of this Annual Report. December 31, 2022 | 10-K 57 Table of Contents CITIZENS, INC. (c) ATTESTATION REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Report of Independent Registered Public Accounting Firm Board of Directors and Stockholders Citizens, Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Citizens, Inc. (a Colorado corporation) and subsidiaries (the “Company”) 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"). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013 Internal Control — Integrated Framework issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the consolidated financial statements of the Company as of and for the year ended December 31, 2022, and our report dated March 10, 2023, expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may December 31, 2022 | 10-K 58 Table of Contents CITIZENS, INC. become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ GRANT THORNTON LLP Miami, Florida March 10, 2023 (d) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING There were no changes in our internal control over financial reporting during the quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. OTHER INFORMATION None. Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. December 31, 2022 | 10-K 59 Table of Contents CITIZENS, INC. PART III The information in this Part III indicated below is incorporated by reference from other sections of this Annual Report on Form 10-K or from our definitive proxy statement pursuant to General Instruction G(3) of Form 10-K. We plan to file our definitive proxy statement for our 2023 annual meeting of shareholders within 120 days after December 31, 2022. Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Item 10 of this Annual Report on Form 10-K incorporates by reference the information in the sections entitled "Corporate Governance," "Audit Matters," "Directors" and "Executive Officers" in our Proxy Statement. Item 11. EXECUTIVE COMPENSATION Item 11 of this Annual Report on Form 10-K incorporates by reference the information in the sections entitled "Directors - Director Compensation," "Executive Compensation" and "Board Matters - Compensation Committee Interlocks and Insider Participation" in our Proxy Statement. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Item 12 of this Annual Report on Form 10-K incorporates by reference the information in the sections entitled "Security Ownership of Directors and Management" and "Security Ownership of Certain Beneficial Owners" in our Proxy Statement. SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS The following table sets forth information regarding securities authorized for issuance under our equity compensation plan, the Citizens, Inc. Omnibus Incentive Plan, as of December 31, 2022. See Note 11. Stock Compensation in the notes to our consolidated financial statements for additional information regarding our Omnibus Incentive Plan. Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining for future issuance under equity compensation plans Equity compensation plans approved by security holders 265,597 $ 4.65 2,359,054 Equity compensation plans not approved by security holders — — — Total 265,597 $ 4.65 2,359,054 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Item 13 of this Annual Report on Form 10-K incorporates by reference the information in the sections entitled "Board Matters - Director Independence" and "Board Matters - Certain Relationships and Related Party Transactions" in our Proxy Statement. Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Item 14 of this Annual Report on Form 10-K incorporates by reference the information in the section entitled "Audit Matters" in our Proxy Statement. December 31, 2022 | 10-K 60 Table of Contents CITIZENS, INC. PART IV Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) Documents filed as part of this Report (1) and (2) Financial Statements and Schedules The financial statements and schedules listed on the following index to financial statements and financial statement schedules are filed under Item 8 as part of this Form 10-K. Index to Consolidated Financial Statements and Financial Statement Schedules Page Reference Reports of Independent Registered Public Accounting Firm - Auditor Name: Grant Thornton LLP Auditor Firm ID: 248 Auditor Location: Miami, FL 62 Consolidated Balance Sheets at December 31, 2022 and 2021 64 Consolidated Statements of Operations and Comprehensive Income (Loss) - years ended December 31, 2022 and 2021 66 Consolidated Statements of Stockholders' Equity - years ended December 31, 2022 and 2021 67 Consolidated Statements of Cash Flows - years ended December 31, 2022 and 2021 68 Notes to Consolidated Financial Statements 70 Schedule II – Condensed Financial Information of Registrant 106 Schedule III – Consolidated Supplementary Insurance Information 109 Schedule IV – Consolidated Statement of Reinsurance 110 All other schedules have been omitted because the required information is inapplicable or the information required is presented in the consolidated financial statements or the notes thereto filed elsewhere herein. (3) Exhibits See the Index of Exhibits . December 31, 2022 | 10-K 61 Table of Contents CITIZENS, INC. Report of Independent Registered Public Accounting Firm Board of Directors and Shareholders Citizens, Inc. Opinion on the financial statements 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. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our 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 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 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 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 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 December 31, 2022 | 10-K 62 Table of Contents CITIZENS, INC. 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 We have served as the Company’s auditor since 2021. Miami, Florida March 10, 2023 December 31, 2022 | 10-K 63 Table of Contents CITIZENS, INC. CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Consolidated Balance Sheets December 31, (In thousands) 2022 2021 Assets Investments: Fixed maturity securities available-for-sale, at fair value (amortized cost: $ 1,381,318 and $ 1,343,755 in 2022 and 2021, respectively) $ 1,179,619 1,470,617 Equity securities, at fair value 11,590 14,844 Policy loans 78,773 80,307 Other long-term investments (portion measured at fair value $ 66,846 and $ 56,038 in 2022 and 2021, respectively) 69,558 57,399 Short-term investments 1,241 — Total investments 1,340,781 1,623,167 Cash and cash equivalents 22,973 27,294 Accrued investment income 17,131 16,197 Reinsurance recoverable 4,560 5,539 Deferred policy acquisition costs 140,167 140,380 Cost of insurance acquired 10,260 10,611 Federal income tax receivable 601 762 Deferred tax asset, net 2,414 — Property and equipment, net 12,926 14,074 Due premiums 11,829 10,748 Other assets (less allowance for losses of $ 347 and $ 111 in 2022 and 2021, respectively) 6,328 5,739 Total assets $ 1,569,970 1,854,511 See accompanying Notes to Consolidated Financial Statements. December 31, 2022 | 10-K 64 Table of Contents CITIZENS, INC. CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Consolidated Balance Sheets December 31, continued (In thousands, except share amounts) 2022 2021 Liabilities and Stockholders' Equity Liabilities: Policy liabilities: Future policy benefit reserves: Life insurance $ 1,305,506 1,278,987 Annuities 91,234 83,918 Accident and health 767 784 Dividend accumulations 41,663 37,760 Premiums paid in advance 36,384 40,690 Policy claims payable 9,884 14,590 Other policyholders' funds 40,497 30,690 Total policy liabilities 1,525,935 1,487,419 Commissions payable 1,967 2,285 Deferred federal income tax liability, net — 15,456 Other liabilities 41,025 28,780 Total liabilities 1,568,927 1,533,940 Commitments and contingencies (Notes 5 and 7 ) Stockholders' Equity: Common stock: 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, 2022 and 2021, including shares in treasury of 1,001,714 as of December 31, 2022 and 2021 3,184 3,184 Accumulated deficit ( 52,203 ) ( 45,565 ) 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 ) Total stockholders' equity 1,043 320,571 Total liabilities and stockholders' equity $ 1,569,970 1,854,511 See accompanying Notes to Consolidated Financial Statements. December 31, 2022 | 10-K 65 Table of Contents CITIZENS, INC. CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Operations and Comprehensive Income (Loss) Years Ended December 31, (In thousands, except share amounts) 2022 2021 Revenues: Premiums Life insurance $ 167,586 169,801 Accident and health insurance 1,278 1,250 Property insurance 4,850 3,677 Net investment income 65,426 61,495 Investment related gains (losses), net ( 10,291 ) 10,991 Other income 3,675 3,332 Total revenues 232,524 250,546 Benefits and Expenses: Insurance benefits paid or provided: Claims and surrenders 119,935 119,735 Increase in future policy benefit reserves 29,640 36,444 Policyholders' dividends 6,013 6,180 Total insurance benefits paid or provided 155,588 162,359 Commissions 36,222 35,463 Other general expenses 45,177 43,370 Capitalization of deferred policy acquisition costs ( 24,899 ) ( 22,740 ) Amortization of deferred policy acquisition costs 26,529 24,952 Amortization of cost of insurance acquired 974 1,206 Goodwill impairment — 12,624 Total benefits and expenses 239,591 257,234 Income (loss) before federal income tax ( 7,067 ) ( 6,688 ) Federal income tax expense (benefit) ( 429 ) ( 43,475 ) Net income (loss) ( 6,638 ) 36,787 Basic Earnings Per Share: Class A common stock $ ( 0.13 ) 0.74 Class B common stock — 0.37 Diluted Earnings Per Share: Class A common stock ( 0.13 ) 0.73 Class B common stock — 0.36 Other Comprehensive Income (Loss): Unrealized gains (losses) on fixed maturity securities: Unrealized holding gains (losses) arising during period ( 330,869 ) ( 5,055 ) Reclassification adjustment for losses (gains) included in net income (loss) 104 ( 243 ) Unrealized gains (losses) on fixed maturity securities, net ( 330,765 ) ( 5,298 ) Income tax expense (benefit) on unrealized gains (losses) on fixed maturity securities ( 17,994 ) 5,465 Other comprehensive income (loss) ( 312,771 ) ( 10,763 ) Total comprehensive income (loss) $ ( 319,409 ) 26,024 See accompanying Notes to Consolidated Financial Statements. December 31, 2022 | 10-K 66 Table of Contents CITIZENS, INC. CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Stockholders' Equity Common Stock Accumulated deficit Accumulated other comprehensive income (loss) Treasury stock Total Stock-holders' equity (In thousands) Class A Class B Balance at December 31, 2020 $ 262,869 3,184 ( 82,352 ) 128,255 ( 11,011 ) 300,945 Comprehensive income (loss): Net income (loss) — — 36,787 — — 36,787 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 Balance at December 31, 2021 265,561 3,184 ( 45,565 ) 117,492 ( 20,101 ) 320,571 Comprehensive income (loss): Net income (loss) — — ( 6,638 ) — — ( 6,638 ) Unrealized gains (losses) on fixed maturity securities, net of tax — — — ( 312,771 ) — ( 312,771 ) Total comprehensive income (loss) — — ( 6,638 ) ( 312,771 ) — ( 319,409 ) 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 See accompanying Notes to Consolidated Financial Statements. December 31, 2022 | 10-K 67 Table of Contents CITIZENS, INC. CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Cash Flows Years Ended December 31, (In thousands) 2022 2021 Cash Flows from Operating Activities: Net income (loss) $ ( 6,638 ) 36,787 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Investment related (gains) losses, net on sales of investments and other assets 10,291 ( 10,991 ) Net deferred policy acquisition costs 1,630 2,212 Amortization of cost of insurance acquired 974 1,206 Depreciation 536 1,140 Amortization of premiums and discounts on investments 4,240 5,568 Stock-based compensation 461 646 Deferred federal income tax expense (benefit) 124 427 Goodwill impairment — 12,624 Change in: Accrued investment income ( 934 ) ( 60 ) Reinsurance recoverable 979 214 Due premiums ( 1,081 ) 561 Future policy benefit reserves 29,501 35,239 Other policyholders' liabilities 4,698 14,136 Federal income tax payable 161 ( 44,678 ) Commissions payable and other liabilities 12,652 ( 15,450 ) Other, net ( 674 ) 874 Net cash provided by (used in) operating activities 56,920 40,455 Cash Flows from Investing Activities: Sales of fixed maturity securities, available-for-sale 33,914 8,238 Maturities and calls of fixed maturity securities, available-for-sale 44,493 53,089 Purchases of fixed maturity securities, available-for-sale ( 120,094 ) ( 94,265 ) Sales of equity securities 500 7,383 Principal payments on mortgage loans 1,098 10 Funding of mortgage loans — ( 1,000 ) Change in policy loans, net 1,534 3,011 Sales of other long-term investments and real estate 5,033 24,238 Purchases of other long-term investments ( 25,870 ) ( 40,788 ) Purchases of property and equipment ( 100 ) ( 1,007 ) Sales of property and equipment — 14 Purchases of short-term investments ( 1,250 ) — Net cash provided by (used in) investing activities ( 60,742 ) ( 41,077 ) See accompanying Notes to Consolidated Financial Statements. December 31, 2022 | 10-K 68 Table of Contents CITIZENS, INC. CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Cash Flows Years Ended December 31, (In thousands) 2022 2021 Cash Flows from Financing Activities: Annuity deposits $ 8,626 8,839 Annuity withdrawals ( 8,546 ) ( 7,763 ) Issuance of common stock 2,244 2,255 Acquisition of treasury stock ( 2,705 ) ( 9,090 ) Other ( 118 ) ( 456 ) Net cash provided by (used in) financing activities ( 499 ) ( 6,215 ) Net decrease in cash and cash equivalents ( 4,321 ) ( 6,837 ) Cash and cash equivalents at beginning of year 27,294 34,131 Cash and cash equivalents at end of year $ 22,973 27,294 SUPPLEMENTAL DISCLOSURE OF OPERATING ACTIVITIES: 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 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. December 31, 2022 | 10-K 69 Table of Contents CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION AND CONSOLIDATION The accompanying consolidated financial statements of Citizens, Inc. and its wholly-owned subsidiaries have been prepared in conformity with U.S. generally accepted accounting principles ("U.S. GAAP"). The consolidated financial statements include the accounts and operations of Citizens, Inc. ("Citizens" or the "Company"), a Colorado corporation, and its wholly-owned subsidiaries, CICA Life Insurance Company of America ("CICA"), CICA Life Ltd. ("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. ("CTI"). 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 PR, CICA and CNLIC. Our international life insurance business, which operates through CICA International, issues U.S. dollar-denominated endowment contracts internationally, which are principally accumulation contracts that incorporate an element of life insurance protection, and ordinary whole life insurance in U.S. dollar-denominated amounts sold to non-U.S. residents. 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 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. SIGNIFICANT ACCOUNTING POLICIES INVESTMENTS Investment securities are classified as held-to-maturity ("HTM"), available-for-sale ("AFS") or trading. Management determines the appropriate classification at the time of purchase. The classification of securities is significant since it directly impacts the accounting for unrealized gains and losses on securities. Fixed maturity securities are classified as HTM and carried at amortized cost when management has the positive intent and the Company has the ability to hold the securities to maturity. Securities not classified as HTM are classified as AFS and are carried at fair value, with the unrealized holding gains and losses, net of tax, reported in other comprehensive income and are not reported in earnings until realized. Our fixed maturity securities consist primarily of bonds classified as AFS. The Company does not classify any fixed maturity securities as trading or as HTM. Equity securities are measured at fair value with the change in fair value recorded through net income (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. If either of the criteria is met, the security's amortized cost is written down to its fair value. 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, December 31, 2022 | 10-K 70 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 (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. AFS fixed maturity securities are placed on non-accrual status when we no longer expect to receive all contractual amounts due. Accrued interest receivable is reversed against interest income when a security is placed on non-accrual status. Accordingly, we do not recognize an allowance for credit loss against accrued interest receivable. Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of securities sold. The Company from time to time may dispose of an impaired security in response to asset/liability management decisions, future market movements, business plan changes, or if the net proceeds can be reinvested at a rate of return that is expected to recover the loss within a reasonable period of time. Policy loans are reported at unpaid principal balances. 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. Subsequently, we obtain the fair value of these investments from net asset value information provided by the general partner or manager of the investments, the financial statements of which are audited annually. Recognition of investment income on these funds is delayed due to the availability of the related financial statements, which are generally obtained from the partnerships' general partners. As a result, our limited partnerships are generally reported on a three-month delay. We are a member of the FHLB of Dallas and such membership requires members to own stock in the FHLB. Our FHLB stock is carried at amortized cost, which approximates fair value. Mortgage loans on real estate are reported at unpaid principal balances. 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. SHORT-TERM INVESTMENTS The Company considers investments maturing within one year at acquisition as short-term. These securities are carried at fair value. 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 Reinsurance recoverable includes expected reimbursements for policyholder claim amounts in excess of the Company's retention, as well as profit sharing and experience refund accruals. Reinsurance recoverable is reduced for estimated uncollectible amounts, if any. 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 December 31, 2022 | 10-K 71 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. Profit-sharing and similar adjustable provisions are accrued based on the experience of the underlying policies. DEFERRED POLICY ACQUISITION COSTS Policy acquisition costs consist of commissions and policy issuance, underwriting and agent convention expenses that are directly related to and vary with the successful production of new business and are deferred. These deferred amounts, referred to as deferred policy acquisition costs ("DAC"), are recorded as an asset on the consolidated balance sheets and amortized to income in a systematic manner, based on related contract revenues or gross profits as appropriate. Traditional life insurance and accident and health insurance acquisition costs are amortized over the premium-paying period of the related policies using assumptions consistent with those used in computing future policy benefit liabilities. 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 (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. The ending DAC asset balance is calculated at a seriatim level for policies in force at the end of each reporting period based on the remaining unamortized asset. The assumptions used to calculate DAC are set when a policy is issued and do not change with changes in actual experience, unless a loss recognition event occurs. The seriatim method ensures that policies lapsed or surrendered during the reporting period are no longer included in the DAC calculation. This method limits the amount of deferred costs to its estimated realizable value, provided actual experience is comparable to that contemplated in the locked-in assumptions. Inherent in the capitalization and amortization of DAC are certain management judgments about what acquisition costs are deferred, the ending asset balance and the annual amortization. Approximately 95 % of our capitalized DAC is attributed to first year and renewal excess commissions. The remaining 5 % is attributed to costs that vary with and are directly related to the successful acquisition of new insurance business. Those costs generally include costs related to the production, underwriting and issuance of new business. DAC is subject to recoverability testing at the time of policy issuance and loss recognition testing on an annual basis, or when an event occurs that might require loss recognition testing. If loss recognition or impairment is necessary, DAC would be written off to the extent that anticipated future premiums and investment income is insufficient to cover expected future policy benefits and expenses. Loss recognition testing that considers, among other things, actual experience and projected future experience calculates the available premium (gross premium less the benefit and expense portion of premium) for the next 50 years. DAC is evaluated for recoverability using best estimate assumptions. Based on the results of DAC recoverability testing and loss recognition testing, management believes that our DAC as of the years ended December 31, 2022 and 2021 limits the amount of deferred costs to its estimated recoverable value. 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). 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. Similarly, for long-duration traditional insurance contracts, if the assets supporting the liabilities are in a net unrealized gain position at the balance sheet date, loss recognition testing assumptions are updated to exclude such gains from future cash flows by reflecting the impact of reinvestment rates on future yields. 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 December 31, 2022 | 10-K 72 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 (loss). The components of DAC from year to year are summarized as follows: Years ended December 31, (In thousands) 2022 2021 Balance at beginning of period $ 140,380 104,913 Capitalization of deferred policy acquisition costs 24,899 22,740 Amortization of deferred policy acquisition costs ( 26,529 ) ( 24,952 ) Effects of unrealized (gains) losses 1,417 37,679 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. 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 Cost of insurance acquired ("COIA") is established when we purchase a block of insurance. COIA is amortized over the emerging profit of the related policies using the same assumptions as were used in computing liabilities for future policy benefits. Inherent in the amortization of COIA are certain management judgments used in the estimation of the ending asset balance and the annual amortization. The key assumptions used in management's estimates are based upon interest, mortality and lapses at the time of purchase. A recoverability test that considers, among other things, actual experience and projected future experience is performed at least annually. These annual recoverability tests are based initially on an estimate of the available premium (gross premium less the benefit and expense portion of premium) for the next 50 years. Management believes that our COIA is recoverable for the years ended December 31, 2022 and 2021. This belief is based upon the analysis performed on estimated future results of the block and our annual recoverability testing. COIA relative to purchased blocks of insurance is summarized as follows: Years ended December 31, (In thousands) 2022 2021 Balance at beginning of period $ 10,611 11,541 Amortization ( 974 ) ( 1,206 ) Change in effects of unrealized (gains) losses on COIA 623 276 Balance at end of period $ 10,260 10,611 December 31, 2022 | 10-K 73 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Estimated amortization of COIA in each of the next five years and thereafter is as follows. Actual future amortization will differ from these estimates due to variances from estimated future withdrawal assumptions. (In thousands) Amount Cost of insurance acquired: Year: 2023 $ 1,107 2024 965 2025 849 2026 750 2027 665 Thereafter 5,509 9,845 Effects of unrealized (gains) losses on COIA 415 Total cost of insurance acquired $ 10,260 The value of COIA resulting from our various acquisitions was determined based on the present value of future profits discounted at annual rates ranging from 3.7 % to 8.5 %. GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill is the difference between the purchase price in a business combination and the fair value of assets and liabilities acquired and is not amortized. Other intangible assets include various state insurance licenses, which have been determined to have indefinite useful lives and, therefore, are not amortized. Both goodwill and other intangible assets with indefinite useful lives are subject to annual impairment analysis. Goodwill is tested for impairment on an annual basis or more frequently if indicators of potential impairment exist. The goodwill testing requires us to compare the estimated fair value of a reporting unit to its carrying value. If the carrying value of the reporting unit is lower than its estimated fair value, no further evaluation is required. If the carrying value of the reporting unit exceeds its estimated fair value, an impairment charge is recorded for that excess, limited to the total amount of goodwill allocated to that reporting unit. 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. 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: Years ended December 31, (In thousands) 2022 2021 Balance at beginning of period $ — 12,624 Impairment — 12,624 Balance at end of period $ — — December 31, 2022 | 10-K 74 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) PROPERTY AND EQUIPMENT Property and equipment are carried at cost less accumulated depreciation. Depreciation of property and equipment is computed using the straight-line method over the useful lives of the assets, ranging from three years to thirty years . The following is a summary of property and equipment. December 31, (In thousands) 2022 2021 Property and equipment: Home office, land and buildings $ 3,980 3,980 Furniture and equipment 1,267 1,236 Electronic data processing equipment and computer software 7,485 7,418 Real estate and equipment leases (See Note 7 ) 10,116 10,827 Total property and equipment 22,848 23,461 Accumulated depreciation ( 9,922 ) ( 9,387 ) Total property and equipment $ 12,926 14,074 The Company has several lease agreements for real estate and equipment, such as its corporate home office and several district office locations related to our Home Service Insurance segment. The Company recognizes these lease agreements on the consolidated balance sheets as a right-of-use asset and a corresponding lease liability. The Company uses its estimated incremental borrowing rate, which is derived from information available at lease commencement date, in determining the present value of lease payments. FUTURE POLICY BENEFITS AND EXPENSES Future policy benefit reserves for traditional life insurance are established based on methods and underlying assumptions in accordance with U.S. GAAP and applicable actuarial standards. Assumptions as to investment yields, expenses, mortality and lapses are based upon our experience, modified as necessary to reflect anticipated trends and to include provisions for possible adverse deviations. 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 2.0 % 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. Expenses include interest credited to contract account balances and benefits paid in excess of contract account balances. Unpaid claims on accident and health and specialty property insurance policies represent the estimated liability for benefit expenses, both reported but not paid and incurred but not reported to the Company. The liability for incurred but not reported claims includes estimates for additional claim amounts due related to reported claims. Liabilities for unpaid claims are estimated using individual case basis valuations and statistical analysis. Those estimates are subject to the effects of trends in claim severity and frequency. Anticipated investment income is not considered in determining whether a premium deficiency exists with respect to short-duration contracts. Premium deposits accrue interest at rates ranging from 2.5 % to 6.0 % per annum. The cost of insurance is included in the premium when collected and interest is credited annually to deposit accounts. The development of liabilities for future policy benefits requires management to make estimates and assumptions regarding mortality, persistency, expense, and investment experience based on historical experience and future expectations of those assumptions. Actual results could differ materially from estimates. An additional provision is made on most products to allow for possible adverse deviation from the assumptions assumed. We monitor actual experience and revise assumptions as necessary. December 31, 2022 | 10-K 75 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) PARTICIPATING POLICIES At December 31, 2022 and 2021, participating business approximated 55 % and 59 % of direct life insurance in force, respectively. Future policy benefits on participating policies are estimated based on net level premium reserves for death and endowment policy benefits with interest rates ranging from 2.5 % to 9.0 %, and the cash surrender values described in such contracts. The scaling rate used for the 2022 portfolio ranged between 2.54 % for 1 year and then going up to 2.99 % over 20 years and remaining there for the duration. Earnings and dividends on participating policies are allocated based on policies in force. Policyholder dividends are determined based on the discretion of the board of directors of the policy issuing subsidiary. Policyholder dividends are accrued over the premium paying periods of the insurance contract. CONTINGENCIES An estimated loss from a contingency is accrued and charged to results of operations only if both of the following conditions are met: 1. Information available prior to the issuance of the consolidated financial statements indicates that it is probable (virtual certainty is not required) that an asset has been impaired or a liability incurred as of the date of the consolidated financial statements; and 2. The amount of the loss can be reasonably estimated. Reasonable estimation of a possible loss does not require estimating a single amount of the loss. It requires that a loss be accrued if it can be estimated within a range. If an amount within the range is a better estimate than any other amount within the range, that amount is accrued. If no amount within the range is a better estimate than any other amount, the minimum amount in the range is accrued. A gain contingency is an uncertain situation that will be resolved in the future, possibly resulting in a gain. We do not allow the recognition of a gain contingency prior to settlement of the underlying event. There were none as of December 31, 2022 and 2021. PREMIUM REVENUE AND RELATED EXPENSES Premiums on life policies are recognized as earned when due. Premiums paid in advance on the consolidated balance sheets are held on deposit and accrue interest at rates ranging from 2.5 % to 6.0 % until such time as the premiums become due. Premiums on accident and health policies are recognized as revenue over the contract period on a pro rata basis. Benefits and expenses are associated with earned premiums resulting in the recognition of profits over the estimated lives of the contracts. This matching is accomplished by means of a provision for future policy benefits and the capitalization and amortization of deferred policy acquisition costs. Annuity policies, primarily flexible premium fixed annuity products, are accounted for in a manner consistent with accounting for interest bearing financial instruments. Premium receipts are not reported as revenue, rather as deposit liabilities to annuity contracts. The annuity products issued do not include fees or other such charges. INCOME TAXES Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered. 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 December 31, 2022 | 10-K 76 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. The Company releases stranded tax effects in accumulated other comprehensive income on an aggregate portfolio basis. EARNINGS PER SHARE Basic earnings per share are computed by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding during each period. Diluted earnings per share are computed under the if-converted method for convertible securities and the treasury stock method for warrants, giving effect to all potential dilutive common stock, including options, warrants and convertible/redeemable preferred stock. The basic and diluted earnings per share of Class B common stock are one half the earnings per share of the Class A common stock. USE OF ESTIMATES The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. 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, 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. RECLASSIFICATIONS Certain amounts presented in prior years have been reclassified to conform to the current presentation. No individual amounts were material. ACCOUNTING PRONOUNCEMENTS ACCOUNTING STANDARDS NOT YET ADOPTED In August 2018, the FASB issued ASU No. 2018-12, Financial Services-Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. This ASU amends four key areas of the accounting and impacts disclosures for long-duration insurance and investment contracts: • Requires updated assumptions for liability measurement. Assumptions used to measure the liability for traditional insurance contracts, which are typically determined at contract inception, will now be reviewed at least annually, and, if there is a change, updated, with the effect recorded in net income; • 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 (loss); • Provides greater consistency in measurement of market risk benefits. The two previous measurement models have been reduced to one measurement model (fair value), resulting in greater uniformity across similar market-based benefits and better alignment with the fair value measurement of derivatives used to hedge capital market risk; • Simplifies amortization of DAC. Previous earnings-based amortization methods have been replaced with a more level amortization basis; and • Requires enhanced disclosures. The new disclosures include rollforwards and information about significant assumptions and the effects of changes in those assumptions. December 31, 2022 | 10-K 77 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. (2) INVESTMENTS The Company invests primarily in fixed maturity securities, which totaled 86.5 % of total cash and invested assets at December 31, 2022. Carrying Value as of December 31, (In thousands, except for %) 2022 % 2021 % Cash and invested assets Fixed maturity securities $ 1,179,619 86.5 % $ 1,470,617 89.0 % Equity securities 11,590 0.8 14,844 0.9 Policy loans 78,773 5.8 80,307 4.9 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 % December 31, 2022 | 10-K 78 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. December 31, 2022 (In thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Fixed maturity securities: Available-for-sale: U.S. Treasury securities $ 9,425 152 9 9,568 U.S. Government-sponsored enterprises 3,434 277 1 3,710 States and political subdivisions 344,208 1,114 37,964 307,358 Corporate Financial 243,758 512 42,383 201,887 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 Asset-backed 45,991 18 2,767 43,242 Foreign governments 100 1 — 101 Total fixed maturity securities $ 1,381,318 3,563 205,262 1,179,619 December 31, 2021 (In thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Fixed maturity securities: Available-for-sale: U.S. Treasury securities $ 9,515 1,097 1 10,611 U.S. Government-sponsored enterprises 3,463 996 — 4,459 States and political subdivisions 356,594 28,056 692 383,958 Corporate Financial 213,652 22,477 172 235,957 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 Residential mortgage-backed 117,755 16,046 6 133,795 Asset-backed 44,322 368 14 44,676 Foreign governments 101 9 — 110 Total fixed maturity securities $ 1,343,755 129,896 3,034 1,470,617 December 31, 2022 | 10-K 79 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Most of the Company's equity securities are diversified stock and bond mutual funds. Fair Value as of December 31, (In thousands) 2022 2021 Equity securities: Stock mutual funds $ 2,615 3,571 Bond mutual funds 4,337 5,060 Common stock 857 990 Non-redeemable preferred stock 8 161 Non-redeemable preferred stock fund 3,773 5,062 Total equity securities $ 11,590 14,844 VALUATION OF INVESTMENTS 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 (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. The Company evaluates whether a credit impairment exists for fixed maturity securities by considering primarily the following factors: (a) changes in the financial condition of the security's underlying collateral; (b) whether the issuer is current on contractually obligated interest and principal payments; (c) changes in the financial condition, credit rating and near-term prospects of the issuer; and (d) the payment structure of the security. The Company's best estimate of expected future cash flows used to determine the credit loss amount is a quantitative and qualitative process. Quantitative review includes information received from third-party sources such as financial statements, pricing and rating changes, liquidity and other statistical information. Qualitative factors include judgments related to business strategies, economic impacts on the issuer, overall judgment related to estimates and industry factors as well as the Company's intent to sell the security, or if it is more likely than not that the Company would be required to sell a security before recovery of its amortized cost. 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. These assumptions require the use of significant management judgment and include the probability of issuer default and estimates regarding timing and amount of expected recoveries, which may include estimating the underlying collateral value. In addition, projections of expected future fixed maturity security cash flows may change based upon new information regarding the performance of the issuer. 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. The Company recorded no credit valuation losses on fixed maturity securities for the years ended December 31, 2022 and 2021. December 31, 2022 | 10-K 80 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. December 31, 2022 Less than 12 months Greater than 12 months Total (In thousands, except for # of securities) Fair Value Unrealized Losses # of Securities Fair Value Unrealized Losses # of Securities Fair Value Unrealized Losses # of Securities Fixed maturity securities: Available-for-sale: U.S. Treasury securities $ — — — 64 9 2 64 9 2 U.S. 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 Corporate Financial 182,447 39,122 237 6,144 3,261 16 188,591 42,383 253 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 Asset-backed 37,067 2,485 41 4,264 282 9 41,331 2,767 50 Total fixed maturity securities $ 945,462 168,710 1,236 78,772 36,552 117 1,024,234 205,262 1,353 December 31, 2021 Less than 12 months Greater than 12 months Total (In thousands, except for # of securities) Fair Value Unrealized Losses # of Securities Fair Value Unrealized Losses # of Securities Fair Value Unrealized Losses # of Securities Fixed maturity securities: Available-for-sale: U.S. Treasury securities $ 72 1 2 — — — 72 1 2 States and political subdivisions 21,715 692 15 — — — 21,715 692 15 Corporate Financial 8,059 86 15 1,227 86 1 9,286 172 16 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 Residential mortgage-backed 1,084 6 6 — — — 1,084 6 6 Asset-backed 9,078 12 11 663 2 1 9,741 14 12 Total fixed maturity securities $ 110,267 2,423 115 8,832 611 7 119,099 3,034 122 In each category of our fixed maturity securities described below, we do not intend to sell our investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases. At December 31, 2022 and 2021, 98.7 % and 98.0 %, respectively, of the fair value of our fixed maturity December 31, 2022 | 10-K 81 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 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. The amortized cost and fair value of fixed maturity securities at December 31, 2022 by contractual maturity are shown in the table below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date have been reflected based upon final stated maturity. (In thousands) Amortized Cost Fair Value Fixed maturity securities: Due in one year or less $ 22,196 22,201 Due after one year through five years 115,395 113,416 Due after five years through ten years 247,611 235,011 Due after ten years 996,116 808,991 Total fixed maturity securities $ 1,381,318 1,179,619 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: Years ended December 31, (In thousands) 2022 2021 Gross investment income: Fixed maturity securities $ 58,400 55,579 Equity securities 650 1,024 Policy loans 6,189 6,420 Other long-term investments 2,535 809 Other 246 54 Total investment income 68,020 63,886 Investment expenses ( 2,594 ) ( 2,391 ) Net investment income $ 65,426 61,495 December 31, 2022 | 10-K 82 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. Years ended December 31, (In thousands) 2022 2021 Fixed maturity securities, available-for-sale: Proceeds $ 33,914 8,238 Gross realized gains 120 189 Gross realized losses 112 1 Equity securities: Proceeds $ 500 7,383 Gross realized gains 44 — Gross realized losses — 149 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) 2022 2021 Investment related gains (losses): Sales, calls and maturities: Fixed maturity securities $ ( 104 ) 243 Equity securities 62 ( 152 ) Real estate — 981 Property and equipment — 13 Other long-term investments 2,320 1,892 Realized investment gains (losses) 2,278 2,977 Change in fair value of equity securities ( 2,665 ) 376 Change in fair value of limited partnerships ( 9,667 ) 7,452 Change in credit loss allowance ( 237 ) 186 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. The facility was owned by Citizens and was held in Other Non-Insurance Enterprises. (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 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 December 31, 2022 | 10-K 83 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) in the absence of observable market information. We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. All assets and liabilities carried at fair value are required to be classified and disclosed in one of the following three categories: • Level 1 - Quoted prices for identical instruments in active markets. • Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active and model-derived valuations whose inputs or whose significant value drivers are observable. • Level 3 - Instruments whose significant value drivers are unobservable. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as U.S. Treasury securities and actively traded mutual fund and stock investments. Level 2 includes those financial instruments that are valued by independent pricing services or broker quotes. These pricing models are primarily industry-standard models that consider various inputs, such as interest rates, credit spreads and foreign exchange rates for the underlying financial instruments. All significant inputs are observable or derived from observable information in the marketplace or are supported by observable levels at which transactions are executed in the marketplace. Financial instruments in this category primarily include corporate securities, U.S. Government-sponsored enterprise securities, securities issued by states and political subdivisions and certain mortgage and asset-backed securities. 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. We have no investments in this category. December 31, 2022 | 10-K 84 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following tables set forth our assets that are measured at fair value on a recurring basis. December 31, 2022 (In thousands) Level 1 Level 2 Level 3 Total Fair Value Financial assets: Fixed maturity securities, available-for-sale: U.S. Treasury and U.S. Government-sponsored enterprises $ 9,567 3,711 — 13,278 States and political subdivisions — 307,358 — 307,358 Corporate 44 715,601 — 715,645 Commercial mortgage-backed — 169 — 169 Residential mortgage-backed — 99,826 — 99,826 Asset-backed — 43,242 — 43,242 Foreign governments — 101 — 101 Total fixed maturity securities available-for-sale 9,611 1,170,008 — 1,179,619 Equity securities: Stock mutual funds 2,615 — — 2,615 Bond mutual funds 4,337 — — 4,337 Common stock 857 — — 857 Non-redeemable preferred stock 8 — — 8 Non-redeemable preferred stock fund 3,773 — — 3,773 Total equity securities 11,590 — — 11,590 Other long-term investments (1) — — — 66,846 Total financial assets $ 21,201 1,170,008 — 1,258,055 (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 permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet. December 31, 2022 | 10-K 85 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2021 (In thousands) Level 1 Level 2 Level 3 Total Fair Value Financial assets: Fixed maturity securities, available-for-sale: U.S. Treasury and U.S. Government-sponsored enterprises $ 10,611 4,459 — 15,070 States and political subdivisions — 383,958 — 383,958 Corporate 51 892,957 — 893,008 Residential mortgage-backed — 133,795 — 133,795 Asset-backed — 44,676 — 44,676 Foreign governments — 110 — 110 Total fixed maturity securities available-for-sale 10,662 1,459,955 — 1,470,617 Equity securities: Stock mutual funds 3,571 — — 3,571 Bond mutual funds 5,060 — — 5,060 Common stock 990 — — 990 Non-redeemable preferred stock 161 — — 161 Non-redeemable preferred stock fund 5,062 — — 5,062 Total equity securities 14,844 — — 14,844 Other long-term investments (1) — — — 56,038 Total financial assets $ 25,506 1,459,955 — 1,541,499 (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 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. At December 31, 2022, fixed maturity securities, valued using a third-party pricing source, totaled $ 1.2 billion for Level 2 assets and comprised 93.0 % of total reported fair value of our financial assets. The Level 1 and Level 2 valuations are reviewed and updated quarterly through testing by comparisons to separate pricing models, other third-party pricing services, and back tested to recent trades. In addition, we obtain information annually relative to the third-party pricing models and review model parameters for reasonableness. There were no Level 3 assets as of December 31, 2022 and 2021. For the year ended December 31, 2022, there were no material changes to the valuation methods or assumptions used to determine fair values, and no broker or third-party prices were changed from the values received. Equity securities. Our equity securities are classified as Level 1 assets as their fair values are based upon quoted market prices. Limited partnerships. The Company considers the net asset value ("NAV") to represent the value of the investment fund and is measured by the total value of assets minus the total value of liabilities. The following table includes information related to our investments in limited partnerships that calculate NAV per share. 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 December 31, 2022 | 10-K 86 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. December 31, 2022 December 31, 2021 (In thousands, except years) Fair Value Using NAV Per Share Unfunded Commit- ments Range (In years) Fair Value Using NAV Per Share Unfunded Commit- ments Range (In years) Description Limited partnerships Middle market Investments in privately-originated, performing senior secured debt primarily in North America-based companies $ 33,234 6,011 5 $ 21,947 18,712 10 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 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 The majority of our limited partnership investments are not redeemable because distributions from the funds will be received when the underlying investments of the funds are liquidated. The life spans indicated above may be shortened or extended at the fund manager's discretion, typically in one or two-year increments. The global equity fund is redeemable monthly. FINANCIAL INSTRUMENTS NOT CARRIED AT FAIR VALUE Estimates of fair values are made at a specific point in time, based on relevant market prices and information about the financial instruments. The estimated fair values of financial instruments presented below are not necessarily indicative of the amounts the Company might realize in actual market transactions. The carrying amount and fair value for the financial assets and liabilities on the consolidated financial statements not otherwise disclosed for the periods indicated were as follows: December 31, 2022 December 31, 2021 (In thousands) Carrying Value Fair Value Carrying Value Fair Value Financial assets: Policy loans $ 78,773 78,773 80,307 80,307 Commercial mortgage loan — — 1,000 1,000 Residential mortgage loans 49 50 148 169 Cash and cash equivalents 22,973 22,973 27,294 27,294 Financial liabilities: Annuity - investment contracts 67,344 61,701 64,384 72,352 Policy loans. Policy loans had a weighted average annual interest rate of 7.7 % at both December 31, 2022 and 2021 and no specified maturity dates. The aggregate fair value of policy loans approximates the carrying value reflected on the consolidated balance sheets. Policy loans are an integral part of the life insurance policies we have December 31, 2022 | 10-K 87 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. Commercial mortgage loan. We financed $ 1.0 million of the sale of our training facility at a 6.0 % interest rate. The loan was paid in full during the third quarter of 2022. Due to the short-term nature of the loan, the carrying value approximated fair value and was considered a Level 3 asset in the fair value hierarchy. Residential mortgage loans. Mortgage loans are secured principally by residential properties. Weighted average interest rates for these loans were approximately 7.0 % at 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. Our mortgage loans are considered Level 3 assets in the fair value hierarchy. Cash and cash equivalents. The fair value of cash and cash equivalents approximate carrying value and are characterized as Level 1 assets in the fair value hierarchy. Annuity liabilities. The fair value of the Company's liabilities under annuity contract policies, which are considered Level 3 liabilities, was estimated at December 31, 2022 and 2021 using discounted cash flows based upon spot rates adjusted for various risk adjustments ranging from 4.74 % to 5.09 % and 0.50 % to 2.63 %, respectively. The fair value of liabilities under all insurance contracts are taken into consideration in the overall management of interest rate risk, which seeks to minimize exposure to changing interest rates through the matching of investment maturities with amounts due under insurance contracts. Other long-term investments. The following table summarizes the carrying amounts of other long-term investments. As of December 31, (In thousands) 2022 2021 Other long-term investments: Limited partnerships $ 69,294 56,038 FHLB common stock 193 192 Mortgage loans 49 1,148 All other investments 22 21 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. (4) POLICY LIABILITIES AND SHORT DURATION CONTRACTS Various assumptions used to determine the future policy benefit reserves of life insurance include valuation interest rates, mortality assumptions and withdrawals. December 31, 2022 | 10-K 88 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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) 2022 2021 Policy claims payable: Balance at January 1 $ 14,590 13,206 Less: reinsurance recoverable 2,469 3,012 Net balance at January 1 12,121 10,194 Add claims incurred, related to: Current year 28,720 32,595 Prior years (1) ( 46 ) 1,052 28,674 33,647 Deduct claims paid, related to: Current year 22,771 23,369 Prior years 10,210 8,351 32,981 31,720 Net balance December 31 7,814 12,121 Plus: reinsurance recoverable 2,070 2,469 Balance at December 31 $ 9,884 14,590 (1) This line is primarily impacted by the level of claim resolutions in the period compared to that which is expected by the reserve assumption. A positive number implies an unfavorable result where claim resolutions were less favorable than assumed while a negative number implies a favorable result compared to assumptions. Our claim assumptions will vary from actual experience in any one period, either favorably or unfavorably. SHORT DURATION CONTRACTS The Company's short duration contracts consist of credit life and credit disability in the Life Insurance segment and property insurance in the Home Service Insurance segment. The credit insurance lines are an immaterial part of short duration contracts so the following disclosures cover only the property insurance line of business in the Home Service Insurance segment. December 31, 2022 | 10-K 89 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Special Property Insurance (Allied and Fire) The following table presents incurred claims development as of December 31, 2022, net of reinsurance, as well as cumulative claim frequency and the total of incurred-but-not-reported liabilities plus expected development on reported claims included within the net incurred claims amounts. This information is presented for the last five years as these claims rarely pay out over a longer period of time. As of December 31, 2022 Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance Total of Incurred but Not Reported Liabilities Plus Expected Development on Reported Claims Cumulative Number of Reported Claims For the Years Ended December 31, ($ In thousands) 2018 2019 2020 2021 2022 Accident Year: (Unaudited) 2018 $ 1,542 1,427 1,432 1,436 1,430 — 496 2019 1,549 1,150 1,161 1,106 1 610 2020 2,598 2,670 2,577 2 2,397 2021 2,087 1,644 5 2,369 2022 1,213 177 313 Total $ 7,970 The following table presents paid claims development as of December 31, 2022, net of reinsurance. Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance Years ended December 31, (In thousands) 2018 2019 2020 2021 2022 Accident Year: (Unaudited) 2018 $ 1,330 1,425 1,430 1,430 1,430 2019 1,166 1,071 1,091 1,105 2020 1,997 2,639 2,575 2021 1,435 1,639 2022 1,011 Total $ 7,760 All outstanding liabilities before 2018, net of reinsurance $ — Liabilities for claims and claim adjustment expenses, net of reinsurance $ 263 December 31, 2022 | 10-K 90 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The reconciliation of the net incurred and paid claims development tables to the liability for claims and claim adjustment expenses in the consolidated balance sheets are as follows: As of December 31, (In thousands) 2022 2021 Net outstanding liabilities: Special property $ 263 796 Other short duration insurance lines 158 253 Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance 421 1,049 Reinsurance recoverable on unpaid claims: Special property 1,275 2,083 Other short duration insurance lines 798 386 Total reinsurance recoverable on unpaid claims 2,073 2,469 Insurance lines other than short duration 7,390 11,072 Total gross liability for unpaid claims and claim adjustment expense $ 9,884 14,590 The following is supplementary information to the consolidated financial statements about average historical claims duration as of December 31, 2022. Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited) Years 1 2 3 4 5 Special property 98 % 10 % — % 1 % — % (5) REINSURANCE In the normal course of business, the Company reinsures portions of certain policies that we underwrite to limit disproportionate risks. 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. 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. We obtain reinsurance from multiple reinsurers, and we monitor concentration as well as financial strength ratings of our principal reinsurers. The ratings by A.M. Best Company range from A- (Excellent) to A+ (Superior). Assumed and ceded life reinsurance activity is summarized as follows: December 31, (In thousands) 2022 2021 Aggregate assumed life insurance in force $ 4,074 4,366 Aggregate ceded life insurance in force $ 543,496 465,954 Net life insurance in force $ 4,257,148 4,165,921 December 31, 2022 | 10-K 91 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Company's reinsurance recoverable on ceded reinsurance was $ 4.6 million and $ 5.5 million in 2022 and 2021, respectively. Premiums, claims and surrenders assumed and ceded for all lines of business for these years are summarized as follows: Years ended December 31, (In thousands) 2022 2021 Premiums from short-duration contracts: Direct $ 7,862 7,631 Assumed — — Ceded ( 1,413 ) ( 2,312 ) Net premiums earned 6,449 5,319 Premiums from long-duration contracts: Direct 169,111 171,175 Assumed 74 84 Ceded ( 1,920 ) ( 1,850 ) Net premiums earned 167,265 169,409 Total premiums earned $ 173,714 174,728 Claims and surrenders assumed $ 151 169 Claims and surrenders ceded $ ( 1,130 ) ( 11,764 ) 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. 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 STOCK Our Restated and Amended Articles of Incorporation authorize the issuance of 127,000,000 shares, of which 100,000,000 shares shall be Class A common stock, 2,000,000 shares shall be Class B common stock, and 25,000,000 shall be preferred stock. The two authorized classes of common stock are equal in all respects, except (a) each share of Class A common stock is entitled to receive twice the cash dividends paid on a per share basis to the Class B common stock, if any; and (b) the holders of the Class B common stock have the exclusive right to elect a simple majority of the Board of Directors of Citizens. In April 2021, we repurchased all of the outstanding Class B 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. December 31, 2022 | 10-K 92 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) A summary of the change in number of shares of Class A and Class B common stock and treasury stock issued is as follows: (In thousands) Common Stock Treasury Class A Class B Stock Balance at December 31, 2020 52,654 1,002 3,136 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 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 53,758 1,002 4,937 EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share. Years ended December 31, (In thousands, except per share amounts) 2022 2021 Net income (loss) $ ( 6,638 ) 36,787 Numerator for Basic Earnings Per Share: Net income (loss) allocated to Class A common stock $ ( 6,638 ) 36,673 Net income (loss) allocated to Class B common stock — 114 Net income (loss) $ ( 6,638 ) 36,787 Denominator for Basic Earnings Per Share: Weighted average shares of Class A outstanding 50,139 49,664 Weighted average shares of Class B outstanding — 308 Total weighted average shares outstanding 50,139 49,972 Basic earnings (loss) per share of Class A common stock $ ( 0.13 ) 0.74 Basic earnings (loss) per share of Class B common stock — 0.37 Numerator for Diluted Earnings Per Share: Net income (loss) allocated to Class A common stock $ ( 6,638 ) 36,675 Net income (loss) allocated to Class B common stock — 112 Net income (loss) $ ( 6,638 ) 36,787 Denominator for Diluted Earnings Per Share: Weighted average shares of Class A outstanding 50,867 50,337 Weighted average shares of Class B outstanding — 308 Total weighted average shares outstanding 50,867 50,645 Diluted earnings (loss) per share of Class A common stock $ ( 0.13 ) 0.73 Diluted earnings (loss) per share of Class B common stock — 0.36 December 31, 2022 | 10-K 93 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) STATUTORY CAPITAL AND SURPLUS The table below shows the combined total of all of our domestic insurance subsidiaries' statutory capital and surplus and statutory net income (loss) for life insurance operations and property insurance operations, although these amounts are not all available as dividends to Citizens because only CICA is directly owned by Citizens. All other domestic subsidiaries are owned by CICA. As of December 31, (In thousands) 2022 2021 Combined statutory capital and surplus Life insurance operations $ 35,433 43,138 Property insurance operations 6,912 5,298 Total combined statutory capital and surplus $ 42,345 48,436 Years ended December 31, (In thousands) 2022 2021 Combined statutory net income (loss) Life insurance operations $ ( 1,885 ) 5,280 Property insurance operations 1,615 ( 1,512 ) Total combined statutory net income (loss) $ ( 270 ) 3,768 Generally, the net assets of the domestic insurance subsidiaries available for transfer to their immediate parent are limited to the lesser of the subsidiary's net gain from operations during the preceding year or 10 % of the subsidiary's net statutory surplus as of the end of the preceding year as determined in accordance with accounting practices prescribed or permitted by insurance regulatory authorities. Under these practices, total surplus at December 31, 2022 was $ 32.3 million and net gain from operations was $ 0.7 million for CICA for the year ended December 31, 2022. Based upon these amounts, a $ 0.7 million dividend could be paid to the Company without prior regulatory approval in 2023. Payments of dividends in excess of such amounts would generally require approval by regulatory authorities. 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 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"). Insurers are also prohibited from paying a dividend in an amount exceeding 25 % of the prior year’s total statutory capital and surplus, unless at least two members of the board of directors and its principal representative sign and submit to the BMA an affidavit attesting that a dividend in excess of this amount would not cause such insurer to fail to meet its relevant margins. 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 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 BMA’s prior approval before December 31, 2022 | 10-K 94 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 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 it in advance of any potential dividend payments and any intercompany related payments or transactions. As of December 31, (In thousands) 2022 2021 CICA International capital and surplus $ 61,801 141,931 Years ended December 31, (In thousands) 2022 2021 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 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. At the request of the BMA, on April 15, 2021, Citizens and CICA International entered into a Keep Well Agreement. The Keep Well Agreement requires Citizens to contribute up to $ 10 million in capital to CICA International as necessary to ensure that CICA International has a minimum capital level of 120 % (equal to the TCL). Since CICA International's capital level currently exceeds 120 %, Citizens is not currently required to make a capital contribution. 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 LITIGATION AND REGULATORY ACTIONS From time to time we are subject to legal and regulatory actions relating to our business. We defend all claims vigorously. 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 or if a regulator fines us, it could have a material adverse effect on our business, results of operations and financial condition. CREDIT FACILITY On May 5, 2021 , the Company entered into a $ 20 million senior secured revolving credit facility (the “Credit Facility”) with Regions Bank ("Regions"). The Credit Facility has a three-year term, maturing on May 5, 2024 , and allows the Company to borrow up to $ 20 million for working capital purposes, capital expenditures and other corporate purposes. Revolving loans may be requested by the Company in aggregate minimum principal amounts of $ 0.5 million per loan. At the Company's election, the revolving loans may either bear a base rate, which is 1.75 % plus a base rate (a fluctuating rate per annum) equal to the greatest of (a) Regions' prime rate, (b) the federal funds rate plus 0.50 %, (c) the one-month LIBOR rate plus 1 %, and (d) 0.75 %; or an adjusted LIBOR rate, which is 2.75 % plus an adjusted LIBOR rate but cannot be less than 0.75 %. The Company is required to pay Regions a quarterly commitment fee of 0.375 % of the unused portion of the Credit Facility, which the Company expenses as it is incurred. December 31, 2022 | 10-K 95 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Obligations under the Credit Facility are secured by substantially all of the assets of the Company other than the equity interests in all of the regulated insurance subsidiaries, real estate owned by the Company, and other limited exceptions. The Credit Facility contains customary events of default and financial, affirmative and negative covenants, including but not limited to restrictions on indebtedness, liens, investments, asset dispositions and restricted payments. As of December 31, 2022, the Company had no t borrowed any funds against the Credit Facility and was not in violation of any covenants. CONTRACTUAL OBLIGATIONS The Company leases home office space in Austin, Texas for Citizens and in Bermuda for CICA International as well as several district office locations related to our Home Service Insurance segment across Louisiana, Mississippi and Arkansas, which are classified as operating leases. Certain operating leases include renewal options that extend the lease term. The exercise of lease renewal options is at our sole discretion when it is reasonably certain that we will exercise such option. The Company also has a minimal amount of finance leases regarding equipment. Leases with an initial term of 12 months or less are immaterial to the consolidated financial statements and are recognized as lease expense on a straight-line basis over the lease term and not recorded on the consolidated balance sheets. Our operating lease liabilities had a weighted-average lease term of 7.7 years remaining as of December 31, 2022. Maturities of our remaining operating lease liabilities as of December 31, 2022 are as follows. (In thousands) Operating Lease Payments Maturity of operating lease liabilities: 2023 $ 1,404 2024 1,440 2025 1,381 2026 1,368 2027 1,402 After 2027 4,165 Total operating lease payments 11,160 Interest expense ( 1,044 ) Present value of operating lease liabilities $ 10,116 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. As of December 31, 2022, CICA International is committed to fund investments up to $ 28.6 million related to limited partnership investments. (8) SEGMENT AND OTHER OPERATING INFORMATION The Company has two reportable segments: Life Insurance and Home Service Insurance. 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 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 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 policies are sold and serviced through 165 funeral homes and 430 independent agents who sell policies, collect premiums and service policyholders. Our Home Service Insurance segment also sells property insurance policies in Louisiana. The Life Insurance and Home Service Insurance portions of the Company constitute separate businesses. In addition to the Life Insurance and Home Service Insurance business, the Company also operates other non-insurance portions of the Company ("Other Non-Insurance Enterprises"), which primarily include the Company’s IT and Corporate-support functions that 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. GAAP and are the same as those described in the summary of significant accounting policies. The Company evaluates profit and loss performance based on U.S. 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. Year ended December 31, 2022 (In thousands) Life Insurance Home Service Insurance Other Non-Insurance Enterprises Consolidated Revenues: Premiums Life insurance $ 124,156 43,430 — 167,586 Accident and health insurance 497 781 — 1,278 Property insurance — 4,850 — 4,850 Net investment income (loss) 50,680 13,632 1,114 65,426 Investment related gains (losses), net ( 8,826 ) ( 1,277 ) ( 188 ) ( 10,291 ) Other income (loss) 3,668 1 6 3,675 Total revenue 170,175 61,417 932 232,524 Benefits and expenses: Insurance benefits paid or provided: Claims and surrenders 95,576 24,359 — 119,935 Increase in future policy benefit reserves 23,938 5,702 — 29,640 Policyholders' dividends 5,990 23 — 6,013 Total insurance benefits paid or provided 125,504 30,084 — 155,588 Commissions 20,031 16,191 — 36,222 Other general expenses 23,192 16,444 5,541 45,177 Capitalization of deferred policy acquisition costs ( 17,942 ) ( 6,957 ) — ( 24,899 ) Amortization of deferred policy acquisition costs 19,810 6,719 — 26,529 Amortization of cost of insurance acquired 262 712 — 974 Total benefits and expenses 170,857 63,193 5,541 239,591 Income (loss) before federal income tax $ ( 682 ) ( 1,776 ) ( 4,609 ) ( 7,067 ) December 31, 2022 | 10-K 97 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended December 31, 2021 (In thousands) Life Insurance Home Service Insurance Other Non-Insurance Enterprises Consolidated Revenues: Premiums Life insurance $ 125,558 44,243 — 169,801 Accident and health insurance 500 750 — 1,250 Property insurance — 3,677 — 3,677 Net investment income (loss) 47,216 13,224 1,055 61,495 Investment related gains (losses), net 9,176 618 1,197 10,991 Other income (loss) 3,362 7 ( 37 ) 3,332 Total revenue 185,812 62,519 2,215 250,546 Benefits and expenses: Insurance benefits paid or provided: Claims and surrenders 91,390 28,345 — 119,735 Increase in future policy benefit reserves 29,407 7,037 — 36,444 Policyholders' dividends 6,140 40 — 6,180 Total insurance benefits paid or provided 126,937 35,422 — 162,359 Commissions 18,747 16,716 — 35,463 Other general expenses 20,846 14,739 7,785 43,370 Capitalization of deferred policy acquisition costs ( 16,174 ) ( 6,566 ) — ( 22,740 ) Amortization of deferred policy acquisition costs 21,571 3,381 — 24,952 Amortization of cost of insurance acquired 343 863 — 1,206 Goodwill impairment 12,624 — — 12,624 Total benefits and expenses 184,894 64,555 7,785 257,234 Income (loss) before federal income tax $ 918 ( 2,036 ) ( 5,570 ) ( 6,688 ) The table below summarizes assets by segment. December 31, (In thousands) 2022 2021 Assets: Life Insurance $ 1,176,246 1,390,392 Home Service Insurance 338,977 407,603 Other Non-Insurance Enterprises 54,747 56,516 Total assets $ 1,569,970 1,854,511 December 31, 2022 | 10-K 98 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) GEOGRAPHIC INFORMATION The following table sets forth, by country, the Company's annual total of earned premiums from geographic area for the years indicated: Years ended December 31, (In thousands) 2022 2021 Area: United States $ 54,712 56,000 Colombia 25,181 24,829 Taiwan 18,236 19,042 Venezuela 16,429 17,788 Ecuador 12,992 13,115 Argentina 9,251 9,160 Other foreign countries 40,172 38,871 Net reinsurance ( 3,259 ) ( 4,077 ) Total premiums $ 173,714 174,728 (9) INCOME TAXES CICA International, a wholly-owned subsidiary of Citizens, is considered a controlled foreign corporation for federal income tax purposes. As a result, the insurance activity of CICA International is subject to Subpart F of the IRC and is included in Citizens’ taxable income. Due to the 0 % enacted tax rate in Bermuda there are no deferred taxes recorded for CICA International's temporary differences. For 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. corporate income tax rate and the effective income tax rate is as follows: Years ended December 31, (In thousands, except for %) 2022 % 2021 % 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 Tax-exempt interest and dividends-received deduction ( 63 ) 0.9 ( 114 ) 1.7 Adjustment of prior year taxes — — ( 61 ) 0.9 Effect of uncertain tax position ( 1,185 ) 16.8 ( 43,834 ) 655.4 Nondeductible costs to remediate tax compliance issue — — ( 176 ) 2.6 Compensation limitation under 162(m) and 280(g) 67 ( 0.9 ) ( 21 ) 0.3 Subpart F income 2,053 ( 29.1 ) 2,102 ( 31.4 ) Rate differential on net operating loss carryback claim — — 295 ( 4.4 ) Goodwill impairment — — 2,651 ( 39.6 ) Other 31 ( 0.5 ) ( 1 ) — Total federal income tax expense (benefit) $ ( 429 ) 6.1 % $ ( 43,475 ) 650.0 % December 31, 2022 | 10-K 99 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Income tax expense (benefit) consists of: Years ended December 31, (In thousands) 2022 2021 Income tax expense (benefit): Current - normal operations $ 632 ( 68 ) Current - UTP release impact ( 1,185 ) ( 43,834 ) Deferred 124 427 Total income tax expense (benefit) $ ( 429 ) ( 43,475 ) The components of deferred federal income taxes are as follows: December 31, (In thousands) 2022 2021 Deferred tax assets: Future policy benefit reserves $ 2,632 2,572 Net operating and capital loss carryforwards 388 1,545 Accrued policyholder dividends and expenses 134 115 Investments 113 218 Deferred intercompany loss 1,744 1,848 Unrealized losses on investments available-for-sale 11,688 — Accrued compensation 360 337 Lease liability 2,124 2,274 Other 440 236 Total gross deferred tax assets 19,623 9,145 Less: Valuation allowance 4,238 — Net deferred tax assets 15,385 9,145 Deferred tax liabilities: DAC, COIA and intangible assets ( 8,571 ) ( 8,955 ) Unrealized gains on investments available-for-sale — ( 10,350 ) Tax reserves transition liability ( 2,242 ) ( 2,989 ) Right-of-use lease asset ( 2,124 ) ( 2,274 ) Other ( 34 ) ( 33 ) Total gross deferred tax liabilities ( 12,971 ) ( 24,601 ) Net deferred tax asset (liability) $ 2,414 ( 15,456 ) December 31, 2022 | 10-K 100 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) A summary of the changes in the components of deferred federal and state income taxes is as follows: December 31, (In thousands) 2022 2021 Deferred federal and state income taxes: Balance January 1, $ ( 15,456 ) ( 9,564 ) Deferred tax benefit (expense) ( 124 ) ( 427 ) 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 Balance December 31, $ 2,414 ( 15,456 ) 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. A reconciliation of unrecognized tax benefits is as follows: Years ended December 31, (In thousands) 2022 2021 Balance at January 1, $ 2,156 45,990 Additions for tax positions of prior years — — Reductions for tax positions of prior years ( 1,185 ) ( 43,834 ) Balance December 31, $ 971 2,156 This unrecognized tax benefit is reported net in current federal income tax payable on the consolidated balance sheets. Included in these amounts are interest expense of $ 0.2 million and $ 0.4 million with respect to unrecognized tax benefits as of December 31, 2022 and 2021, respectively. The Company’s unrecognized tax benefits at December 31, 2022 would affect the effective tax rate if recognized. The Company accrued an uncertain tax position of $ 2.2 million at December 31, 2021. 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 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 $ 0.2 million and $ 9.5 million for the years ended December 31, 2022 and 2021, respectively. December 31, 2022 | 10-K 101 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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, 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. As of December 31, 2022, the Company has an accrued tax refund remaining of $ 1.5 million. The Consolidated Appropriations Act was enacted on December 27, 2020 and the American Rescue Plan Act of 2021 was enacted March 11, 2021. These Acts did not have a material impact on the Company's financial statements. The Company's Federal income tax return is filed on a consolidated basis with the following entities: Citizens, Inc. CICA Life Insurance Company of America Citizens National Life Insurance Company Magnolia Guaranty Life Insurance Company Security Plan Life Insurance Company Security Plan Fire Insurance Company Computing Technology, Inc. The method of tax allocation among companies is subject to a written tax sharing agreement, approved by the Board of Directors, whereby allocation is made primarily on a separate return basis pursuant to the wait-and-see method. Under this method, consolidated group members are not given current credit or refunds for net operating losses until taxable income on a separate return basis is generated. Intercompany tax balances are settled at least annually. The Company and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various U.S. states. Our subsidiaries are subject to examination by U.S. tax authorities for tax years 2014 - 2016 and 2019 - 2021. December 31, 2022 | 10-K 102 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (10) OTHER COMPREHENSIVE INCOME (LOSS) The changes in the components of other comprehensive income (loss) are reported net of the effects of income taxes of 21% in 2022 and 2021, as indicated below. (In thousands) Amount Tax Effect Total Year ended December 31, 2022 Unrealized gains (losses): Unrealized holding gains (losses) arising during the period $ ( 328,673 ) 21,792 ( 306,881 ) Reclassification adjustment for (gains) losses included in net income 104 ( 22 ) 82 Effects on DAC 1,416 ( 296 ) 1,120 Effects on COIA 623 ( 131 ) 492 Effects on unearned revenue reserves ( 4,235 ) 889 ( 3,346 ) Change in tax valuation allowance — ( 4,238 ) ( 4,238 ) Other comprehensive income (loss) $ ( 330,765 ) 17,994 ( 312,771 ) Year ended December 31, 2021 Unrealized gains (losses): Unrealized holding gains (losses) arising during the period $ ( 41,123 ) 3,084 ( 38,039 ) Reclassification adjustment for (gains) losses included in net income ( 243 ) 51 ( 192 ) Effects on DAC 37,679 ( 8,938 ) 28,741 Effects on COIA 276 ( 58 ) 218 Effects on unearned revenue reserves ( 1,887 ) 396 ( 1,491 ) Other comprehensive income (loss) $ ( 5,298 ) ( 5,465 ) ( 10,763 ) (11) STOCK COMPENSATION In 2022 and 2021, the Company's Board of Directors approved awards of restricted stock units ("RSUs") under the Citizens, Inc. Omnibus Incentive Plan for non-employee directors and the executive management team. The RSUs granted to the directors vest one year from the date of the annual shareholders meeting, subject to continued service on the Board. RSUs to the executive management team are subject to achieving performance goals and once the goals are met, RSUs are awarded. These awarded RSUs have a time-based vesting component 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. There were three million shares originally authorized to be granted under the plan. December 31, 2022 | 10-K 103 T a b l e o f C o n t e n t s CITIZENS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table provides a rollforward of restricted stock activity: Restricted Stock Units Units Weighted Average Grant Price Weighted Average Remaining Contractual Life Aggregate Fair Value (1) (In thousands) (In years) (In thousands) Outstanding at December 31, 2020 190 $ 6.03 0.88 $ 1,142 Granted 178 5.83 1,040 Less: Vested 147 6.21 913 Forfeited 8 5.96 47 Outstanding at December 31, 2021 213 5.75 1.63 1,222 Granted 184 4.00 734 Less: Vested 119 5.63 669 Forfeited 12 4.27 51 Outstanding at December 31, 2022 266 $ 4.65 1.61 $ 1,236 (1) Fair value per share of restricted stock units was equal to Grant Date fair value per share, which was calculated based on the closing price of the Company's Class A common stock on the NYSE on the grant date, in accordance with ASC Topic 718. As of December 31, 2022, we recognized $ 0.6 million of expense, while $ 0.8 million was unrecognized and is expected to be amortized up to three years . Restricted stock unit awards give the participant the right to receive common stock in the future, subject to certain restrictions and a risk of forfeiture. Forfeitures are recognized in the period they occur. Compensation expense of $ 0.5 million and $ 0.6 million was recognized in 2022 and 2021, respectively, related to these awards. (12) BENEFIT PLANS The Company sponsors a defined contribution retirement plan. The plan was initially established as the Citizens, Inc. Profit Sharing Plan and was restated as the Citizens, Inc. 401(k) Retirement and Profit Sharing Plan effective March 1, 2016. There have been no profit sharing contributions since 2014. 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 in both 2022 and 2021. The Company is primarily self-insured for employee health benefits. The Company records its self-insurance liability based on an estimate of claims incurred but not yet reported. There is stop-loss coverage for amounts in excess of $ 80,000 per individual per year. 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. (13) RELATED PARTY TRANSACTIONS The Company has various routine related party transactions in conjunction with our holding company structure, such as a management service agreement related to costs incurred, a tax sharing agreement between entities, and inter-company dividends and capital contributions. We perform an expense study on an annual basis, utilizing an enterprise-wide time study, and we adjust cost allocations among entities as needed based upon this review. Any allocation changes are reflected in the segment operations, but do not impact consolidated expenses. There were 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 (Continued) no changes related to these relationships during the year ended December 31, 2022 and no additional related party transactions. (14) QUARTERLY FINANCIAL INFORMATION (Unaudited) The following table contains selected unaudited financial data for each quarter. (In thousands, except per share amounts) Fourth Quarter Third Quarter Second Quarter First Quarter 2022 Revenues $ 67,257 56,176 53,734 55,357 Benefits and expenses 64,934 60,963 57,363 56,331 Federal income tax expense (benefit) ( 1,051 ) 344 ( 81 ) 359 Net income (loss) 3,374 ( 5,131 ) ( 3,548 ) ( 1,333 ) Net income (loss) available to common shareholders 3,374 ( 5,131 ) ( 3,548 ) ( 1,333 ) Basic earnings (losses) per share of Class A common stock 0.07 ( 0.10 ) ( 0.07 ) ( 0.03 ) Basic earnings (losses) per share of Class B common stock — — — — Diluted earnings (losses) per share of Class A common stock 0.07 ( 0.10 ) ( 0.07 ) ( 0.03 ) Diluted earnings (losses) per share of Class B common stock — — — — 2021 Revenues $ 69,921 61,584 63,558 55,483 Benefits and expenses 76,734 64,311 57,958 58,231 Federal income tax expense (benefit) ( 44,950 ) 72 578 825 Net income (loss) 38,137 ( 2,799 ) 5,022 ( 3,573 ) Net income (loss) available to common shareholders 38,137 ( 2,799 ) 5,022 ( 3,573 ) Basic earnings (losses) per share of Class A common stock 0.77 ( 0.06 ) 0.10 ( 0.07 ) Basic earnings (losses) per share of Class B common stock 0.36 — 0.05 ( 0.04 ) Diluted earnings (losses) per share of Class A common stock 0.77 ( 0.06 ) 0.10 ( 0.07 ) Diluted earnings (losses) per share of Class B common stock 0.36 — 0.05 ( 0.04 ) (15) SUBSEQUENT EVENTS The Company has evaluated the impact of subsequent events as defined by the accounting guidance through the date this report was issued and determined that no subsequent events need to be recognized or disclosed. December 31, 2022 | 10-K 105 Table of Contents CITIZENS, INC. FINANCIAL SCHEDULES Schedule II Condensed Financial Information of Registrant CITIZENS, INC. (Parent Company) Balance Sheets December 31, (In thousands) 2022 2021 Assets Investment in subsidiaries (1) $ ( 38,524 ) 271,639 Fixed maturity securities available-for-sale, at fair value 28,566 33,724 Equity securities, at fair value 770 1,466 Mortgage loans on real estate — 1,000 Short-term investments 1,241 — Cash 2,163 3,399 Accrued investment income 342 439 Accounts receivable from subsidiaries (1) 5,126 5,832 Property and equipment, net 10,387 11,564 Other assets 1,715 3,049 Total assets $ 11,786 332,112 Liabilities and Stockholders' Equity Liabilities: Accrued expense and other liabilities $ 10,743 11,541 Total liabilities 10,743 11,541 Stockholders' equity: Common stock: Class A 268,147 265,561 Class B 3,184 3,184 Accumulated deficit ( 52,203 ) ( 45,565 ) Unrealized investment gains (losses) on securities held by parent and subsidiaries, net of tax ( 195,279 ) 117,492 Treasury stock ( 22,806 ) ( 20,101 ) Total stockholders' equity 1,043 320,571 Total liabilities and stockholders' equity $ 11,786 332,112 (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 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. December 31, 2022 | 10-K 106 Table of Contents CITIZENS, INC. FINANCIAL SCHEDULES Schedule II, Continued Condensed Financial Information of Registrant CITIZENS, INC. (Parent Company) Statements of Operations and Comprehensive Income (Loss) Years ended December 31, (In thousands) 2022 2021 Comprehensive income (loss): Revenues: Management service fees (1) $ 35,413 33,311 Investment income 6,124 1,063 Other 6 ( 37 ) Investment related gains (losses), net ( 188 ) 1,197 Total revenues 41,355 35,534 Expenses: General expenses 38,926 37,977 Taxes, licenses and fees 149 198 Total expenses 39,075 38,175 Income (loss) before federal income tax expense (benefit) and equity in income (loss) of consolidated subsidiaries 2,280 ( 2,641 ) Federal income tax expense (benefit) ( 571 ) ( 1,661 ) Income (loss) before equity in income (loss) of consolidated subsidiaries 2,851 ( 980 ) Equity in income (loss) of consolidated subsidiaries ( 9,489 ) 37,767 Net income (loss) ( 6,638 ) 36,787 Other comprehensive income (loss) ( 312,771 ) ( 10,763 ) 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 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. December 31, 2022 | 10-K 107 Table of Contents CITIZENS, INC. FINANCIAL SCHEDULES Schedule II, Continued Condensed Financial Information of Registrant CITIZENS, INC. (Parent Company) Statements of Cash Flows Years ended December 31, (In thousands) 2022 2021 Cash flows from operating activities: Net income (loss) $ ( 6,638 ) 36,787 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Investment related gains (losses), net 188 ( 1,197 ) Equity in loss (income) of consolidated subsidiaries 9,489 ( 37,767 ) Change in accrued expenses and other liabilities 639 ( 11,458 ) Change in federal income tax payable ( 10,379 ) ( 2,683 ) Deferred federal income tax expense (benefit) 1,065 227 Amortization of premiums and discounts on investments 281 473 Depreciation 224 239 Change in accrued investment income 97 32 Stock-based compensation 461 646 Decrease (increase) in receivable from subsidiaries and other assets 705 ( 921 ) Other, net 188 151 Net cash provided by (used in) operating activities ( 3,680 ) ( 15,471 ) Cash flows from investing activities: Purchases of fixed maturity securities, available-for-sale ( 11,232 ) ( 2,678 ) Maturities and calls of fixed maturity securities, available-for-sale 9,721 7,548 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 Sale of real estate — 3,552 Funding of mortgage loans — ( 1,000 ) Principal payments on mortgage loans 1,000 — Purchases of property and equipment ( 32 ) ( 119 ) Purchases of short-term investments ( 1,250 ) — Net cash provided by (used in) investing activities 3,023 23,059 Cash flows from financing activities: Issuance of common stock 2,244 2,255 Acquisition of treasury stock ( 2,705 ) ( 9,090 ) Other ( 118 ) ( 456 ) Net cash provided by (used in) financing activities ( 579 ) ( 7,291 ) Net increase (decrease) in cash ( 1,236 ) 297 Cash at beginning of year 3,399 3,102 Cash at end of year $ 2,163 3,399 Note to Schedule II : 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. December 31, 2022 | 10-K 108 Table of Contents CITIZENS, INC. FINANCIAL SCHEDULES Schedule III Consolidated Supplementary Insurance Information Years ended December 31, (In thousands) 2022 2021 Deferred policy acquisition costs: Life Insurance $ 95,777 97,644 Home Service Insurance 44,390 42,736 Total consolidated deferred policy acquisition costs $ 140,167 140,380 Future policy benefit reserves and policy claims payable: Life Insurance $ 1,109,116 1,084,455 Home Service Insurance 298,275 293,824 Total consolidated future policy benefit reserves and policy claims payable $ 1,407,391 1,378,279 Unearned premiums: Life Insurance $ 1,501 1,471 Home Service Insurance 267 331 Total consolidated unearned premiums $ 1,768 1,802 Other policy claims and benefits payable: Life Insurance $ 114,698 105,310 Home Service Insurance 2,078 2,028 Total consolidated other policy claims and benefits payable $ 116,776 107,338 December 31, 2022 | 10-K 109 Table of Contents CITIZENS, INC. FINANCIAL SCHEDULES For the Company's short duration contracts (property), written premium is not materially different from earned premium, therefore only earned premiums are detailed in Schedule IV. Schedule IV Consolidated Statement of Reinsurance (In thousands) Direct Amount Ceded to Other Companies Assumed From Other Companies Net Amount % of Amount Assumed to Net Year ended December 31, 2022 Life insurance in force $ 4,796,570 543,496 4,074 4,257,148 0.1 % Premiums: Life insurance 169,432 1,920 74 167,586 Accident and health insurance 1,283 5 — 1,278 Property insurance 6,258 1,408 — 4,850 Total premiums $ 176,973 3,333 74 173,714 — % Year ended December 31, 2021 Life insurance in force $ 4,627,509 465,954 4,366 4,165,921 0.1 % Premiums: Life insurance 171,567 1,850 84 169,801 Accident and health insurance 1,255 5 — 1,250 Property insurance 5,984 2,307 — 3,677 Total premiums $ 178,806 4,162 84 174,728 — % December 31, 2022 | 10-K 110 EXHIBITS Exhibit No. The following exhibits are filed herewith: 3.1 Restated and Amended Articles of Incorporation dated March 4, 2004 (incorporated herein by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 15, 2004) 3.2 Amended and Restated Bylaws dated June 2, 2021 (incorporated herein by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K, filed on June 7, 2021) 4.1* Description of Securities of Citizens, Inc. 10.1 Form of Indemnification Agreement for Executive Officers (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on November 8, 2017) 10.2 Form of Indemnification Agreement for Directors (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on November 8, 2017) 10.3† Citizens, Inc. Omnibus Incentive Plan (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-8 filed by the Registrant on December 5, 2017) 10.4† Form of Citizens, Inc. Employee Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.6 to the Registrant's Annual Report on Form 10-K filed on March 29, 2018) 10.5† Form of Citizens, Inc. 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) 10.6† 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) 10. 7 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) 10. 8 Pledge and Security Agreement dated May 5, 2021 by and between Citizens, Inc. as obligor, and Regions Bank, as lender (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on August 4, 2021) 21* Subsidiaries of the Registrant 23* Consent of Independent Registered Public Accounting Firm - Grant Thornton LLP 24 Power of Attorney (included on signature page enclosed herein) 31.1* Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act 31.2* Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act 32.1* Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act 32.2* 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 101.SCH XBRL Taxonomy Extension Schema 101.CAL XBRL Taxonomy Extension Calculation Linkbase 101.DEF XBRL Taxonomy Extension Definition Linkbase 101.LAB XBRL Taxonomy Extension Label Linkbase 101.PRE XBRL Taxonomy Extension Presentation Linkbase 104 Inline XBRL for the cover page of this Annual Report on Form 10-K for the year ended December 31, 2022, filed electronically herewith, included in the Exhibit 101 Inline XBRL Document Set. † Indicates management contract or compensatory plan or arrangement. * Filed herewith. December 31, 2022 | 10-K 112 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. CITIZENS, INC. Date: March 10, 2023 By: /s/ Gerald W. Shields Gerald W. Shields, Chief Executive Officer and President (Principal Executive Officer) By: /s/ Jeffery P. Conklin Jeffery P. Conklin, Vice President, Chief Financial Officer, Chief Investment Officer and Treasurer (Principal Financial and Accounting Officer) POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Gerald W. Shields and Jeffery P. Conklin jointly and severally, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated and on March 10, 2023. Dated: March 10, 2023 /s/ Jerry D. Davis, Jr. /s/ Gerald W. Shields Jerry D. Davis, Jr., Chairman of the Board and Director Gerald W. Shields, Vice Chairman of the Board and Director /s/ Christopher W. Claus /s/ Dr. Robert B. Sloan, Jr. Christopher W. Claus, Director Dr. Robert B. Sloan, Jr., Director /s/ Dr. Terry S. Maness /s/ Cynthia H. Davis Dr. Terry S. Maness, Director Cynthia H. Davis, Director /s/ Francis A. Keating II /s/ Mary Taylor Francis A. Keating II, Director Mary Taylor, Director J. Keith Morgan, Director December 31, 2022 | 10-K 113