What changed in this filing

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Item 1. Financial Statements

2023-08-04 compared with 2023-05-08 · 311 added, 413 removed, 967 unchanged (43% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets

(In thousands) March 31, 2023 December 31, 2022

(In thousands) June 30, 2023 December 31, 2022

Fixed maturity securities available-for-sale, at fair value (amortized cost:

18 unchanged sentences

See accompanying Notes to Consolidated Financial Statements.

March 31, 2023 | 10-Q 2

June 30, 2023 | 10-Q 2

CITIZENS, INC.

1 unchanged sentence

Consolidated Balance Sheets, Continued

(In thousands, except share amounts) March 31, 2023 December 31, 2022

Liabilities and Stockholders' Equity (Deficit)

(In thousands, except share amounts) June 30, 2023 December 31, 2022

Liabilities and Stockholders' Equity

Policy liabilities:

1 unchanged sentence

Life insurance $ 1,211,320 1,198,647

Accident and health 848 767

Accident and health insurance 926 767

Total future policy benefit reserves 1,212,246 1,199,414

8 unchanged sentences

Commissions payable 1,972 1,967

Current federal income tax payable 537 —

Deferred federal income tax liability 4,736 3,653

4 unchanged sentences

Common stock:

Class A, no par value, 100,000,000 shares authorized, 53,792,476 and 53,758,176 shares issued and outstanding in 2023 and 2022, respectively, including shares in treasury of 3,935,581 in 2023 and 2022

Class A, no par value, 100,000,000 shares authorized, 53,864,545 and 53,758,176 shares issued and outstanding in 2023 and 2022, respectively, including shares in treasury of 4,261,005 in 2023 and 3,935,581 in 2022

268,243 268,147

6 unchanged sentences

See accompanying Notes to Consolidated Financial Statements.

March 31, 2023 | 10-Q 3

June 30, 2023 | 10-Q 3

CITIZENS, INC.

1 unchanged sentence

Consolidated Statements of Operations and Comprehensive Income (Loss)

Three Months Ended March 31,

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands, except per share amounts)

2023 2022 2023 2022

Life insurance $ 39,292 40,761 76,226 78,507

33 unchanged sentences

See accompanying Notes to Consolidated Financial Statements.

March 31, 2023 | 10-Q 4

June 30, 2023 | 10-Q 4

CITIZENS, INC.

AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Stockholders' Equity (Deficit)

Consolidated Statements of Stockholders' Equity

Common Stock Retained Earnings (Accumulated

2 unchanged sentences

Income (Loss) Treasury

Stock Total Stockholders' Equity (Deficit)

Stock Total Stockholders' Equity

(In thousands) Class A Class B

6 unchanged sentences

Balance at March 31, 2023 268,197 3,184 21,181 ( 115,465 ) ( 22,806 ) 154,291

Comprehensive income (loss):

Net income (loss) — — 6,126 — — 6,126

Other comprehensive income (loss) — — — ( 12,898 ) — ( 12,898 )

Total comprehensive income (loss) — — 6,126 ( 12,898 ) — ( 6,772 )

Acquisition of treasury stock — — — — ( 719 ) ( 719 )

Stock-based compensation 46 — — — — 46

Balance at June 30, 2023 $ 268,243 3,184 27,307 ( 128,363 ) ( 23,525 ) 146,846

Balance at December 31, 2021 $ 265,561 3,184 ( 9,698 ) ( 138,989 ) ( 20,101 ) 99,957

6 unchanged sentences

Balance at March 31, 2022 267,442 3,184 ( 3,249 ) ( 121,800 ) ( 20,101 ) 125,476

Comprehensive income (loss):

Net income (loss) — — 2,492 — — 2,492

Other comprehensive income (loss) — — — ( 3,752 ) — ( 3,752 )

Total comprehensive income (loss) — — 2,492 ( 3,752 ) — ( 1,260 )

Issuance of common stock 455 — — — — 455

Acquisition of treasury stock — — — — ( 1,300 ) ( 1,300 )

Stock-based compensation ( 47 ) — — — — ( 47 )

Balance at June 30, 2022 $ 267,850 3,184 ( 757 ) ( 125,552 ) ( 21,401 ) 123,324

See accompanying Notes to Consolidated Financial Statements.

March 31, 2023 | 10-Q 5

June 30, 2023 | 10-Q 5

CITIZENS, INC.

1 unchanged sentence

Consolidated Statements of Cash Flows

Three Months Ended March 31,

Six Months Ended June 30,

(In thousands)

27 unchanged sentences

Purchases of property and equipment ( 84 ) ( 51 )

Maturities of short-term investments 500 —

Purchases of short-term investments — ( 5 )

1 unchanged sentence

See accompanying Notes to Consolidated Financial Statements.

March 31, 2023 | 10-Q 6

June 30, 2023 | 10-Q 6

CITIZENS, INC.

1 unchanged sentence

Consolidated Statements of Cash Flows, Continued

Three Months Ended March 31,

Six Months Ended June 30,

(In thousands)

2 unchanged sentences

Annuity withdrawals ( 5,390 ) ( 4,319 )

Acquisition of treasury stock ( 719 ) ( 1,300 )

Issuance of common stock — 2,244

5 unchanged sentences

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

During the three months ended March 31, 2023 and 2022, various fixed maturity issuers exchanged securities with book values of $ 2.1 million and $ 0.6 million, respectively, for securities of equal value.

The Company had no net unsettled security trades during the three months ended March 31, 2023 and $ 3.8 million during the three months ended March 31, 2022.

The Company recognized no right-of-use assets in exchange for new operating lease liabilities during the three months ended March 31, 2023 and $ 0.4 million during the three months ended March 31, 2022.

During the six months ended June 30, 2023 and 2022, various fixed maturity issuers exchanged securities with book values of $ 5.4 million and $ 6.1 million, respectively, for securities of equal value.

The Company had no net unsettled security trades at June 30, 2023 and $ 3.3 million at June 30, 2022.

The Company recognized no right-of-use assets in exchange for new operating lease liabilities during the six months ended June 30, 2023 and $ 0.4 million during the six months ended June 30, 2022.

See accompanying Notes to Consolidated Financial Statements.

March 31, 2023 | 10-Q 7

June 30, 2023 | 10-Q 7

CITIZENS, INC .

5 unchanged sentences

("CICA International"), CICA Life A.I., a Puerto Rico company ("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 ("MGLIC"), Computing Technology, Inc.

("CTI"), and Nexo Global Services, LLC ("Nexo").

("CTI"), and Nexo Global Services LLC, a Puerto Rico holding company ("Nexo").

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

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

The consolidated balance sheet as of March 31, 2023, the consolidated statements of operations and comprehensive income (loss) and stockholders' equity (deficit) for the three months ended March 31, 2023 and March 31, 2022 and the consolidated statements of cash flows for the three months ended March 31, 2023 and March 31, 2022 have been prepared by the Company without audit and are not subject to audit.

In the opinion of management, all normal and recurring adjustments to present fairly the financial position, results of operations, and changes in cash flows at March 31, 2023 and for comparative periods have been made.

The consolidated balance sheet as of June 30, 2023, the consolidated statements of operations and comprehensive income (loss) and stockholders' equity for the three and six months ended June 30, 2023 and June 30, 2022 and the consolidated statements of cash flows for the six months ended June 30, 2023 and June 30, 2022 have been prepared by the Company without audit and are not subject to audit.

In the opinion of management, all normal and recurring adjustments to present fairly the financial position, results of operations, and changes in cash flows at June 30, 2023 and for comparative periods have been made.

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

10 unchanged sentences

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 ordinary whole life, 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.

Prior to July 1, 2023, our domestic life insurance business operated through CICA and CNLIC.

CICA issues ordinary whole life, life products with living benefits, critical illness, credit life and disability policies throughout the U.S.

and CNLIC issued ordinary whole life and critical illness policies through June 30, 2023.

CNLIC merged into CICA on July 1, 2023.

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

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

As of June 30, 2023, the Company ceased all operations for SPFIC.

CTI provides data processing systems and services to the Company.

1 unchanged sentence

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 the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and

March 31, 2023 | 10-Q 8

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent

June 30, 2023 | 10-Q 8

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

expenses during the reporting period.

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 from those estimates.

17 unchanged sentences

Amortization of DAC is included in the consolidated statements of comprehensive income or loss.

The DAC balance on the consolidated balance sheet is reduced for actual experience in excess of expected experience.

The DAC balance on the consolidated balance sheets is reduced for actual experience in excess of expected experience.

Changes in future estimates are recognized prospectively over the remaining expected contract term.

COST OF INSURANCE ACQUIRED

The Company recognizes an intangible asset that arises in the application of GAAP purchase accounting as the difference between the reported value and the fair value of insurance contract liabilities, or comparable amounts determined in purchased insurance business combinations.

The Company recognizes an intangible asset that arises in the application of U.S.

GAAP purchase accounting as the difference between the reported value and the fair value of insurance contract liabilities, or comparable amounts determined in purchased insurance business combinations.

This intangible asset is referred to as the Cost of Insurance Acquired (“COIA”), which is amortized on a basis consistent with DAC, such that it is amortized in proportion to policies in force for the Life Insurance Segment and face amount in force for the Home Service Insurance Segment to approximate straight-line amortization.

3 unchanged sentences

These current assumptions are based on judgements that consider the Company’s historical experience, industry data, and other factors.

March 31, 2023 | 10-Q 9

June 30, 2023 | 10-Q 9

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For traditional and limited-payment contracts, contracts are grouped into cohorts by contract type and issue year.

Our traditional and limited-payment contracts are grouped into cohorts by contract type and issue year.

Our reporting cohorts are (i) Permanent, which summarizes insurance policies with premiums payable over the lifetime of the policy, and (ii) Permanent Limited Pay, which summarizes insurance policies with premiums payable for a limited time after which the policy is fully paid up.

22 unchanged sentences

On the consolidated balance sheets, DPL is recorded as a component of the liability for future policy benefits.

March 31, 2023 | 10-Q 10

June 30, 2023 | 10-Q 10

CITIZENS, INC .

8 unchanged sentences

The following table summarizes the balance of and changes in the liability for future policy benefits, annuity reserves, DAC and COIA due to the adoption of ASU 2018-12.

(In thousands) Life Insurance Segment Home Services Insurance Segment Consolidated

(In thousands) Life Insurance Segment Home Service Insurance Segment Consolidated

Liability for Future Policy Benefits

19 unchanged sentences

The Company also removed shadow adjustments previously recorded in OCI for the impact of unrealized gains and losses on annuity products that previously amortized unearned revenue, DAC and COIA over expected future gross profits.

March 31, 2023 | 10-Q 11

June 30, 2023 | 10-Q 11

CITIZENS, INC .

1 unchanged sentence

Impacts to Previously Reported Results

Adoption of the standard impacted our previously reported consolidated financial results are as follows:

(in thousands, except per share amounts)

Adoption of the standard impacted our previously reported consolidated financial results as follows:

(In thousands)

As Previously Reported Adoption of New Standard Post Adoption

4 unchanged sentences

Deferred tax asset, net 2,414 ( 2,414 ) —

Total assets 1,569,970 20,733 1,590,703

Future policy benefit reserves:

5 unchanged sentences

Deferred federal income tax liability — 3,653 3,653

Total liabilities 1,568,927 ( 106,014 ) 1,462,913

Retained earnings (accumulated deficit) ( 52,203 ) 68,512 16,309

Accumulated other comprehensive income (loss) ( 195,279 ) 58,235 ( 137,044 )

For the Three Months Ended March 31, 2022

Total stockholders' equity 1,043 126,747 127,790

June 30, 2023 | 10-Q 12

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

As Previously Reported Adoption of New Standard Post Adoption

For the Three Months Ended June 30, 2022

Consolidated Statement of Operations

4 unchanged sentences

Federal income tax expense (benefit) ( 81 ) 1,555 1,474

Net income (loss) ( 3,548 ) 6,040 2,492

Basic and diluted earnings (losses) per share of Class A common stock ( 0.07 ) 0.12 0.05

3 unchanged sentences

Income tax expense (benefit) on other comprehensive income items ( 4,735 ) 9,369 4,634

Other comprehensive income (loss) ( 116,223 ) 112,471 ( 3,752 )

Total comprehensive income (loss) ( 119,771 ) 118,511 ( 1,260 )

For the Six Months Ended June 30, 2022

Consolidated Statement of Operations

Increase (decrease) in future policy benefit reserves $ 15,947 ( 12,103 ) 3,844

Policyholder liability remeasurement (gain) loss — 1,335 1,335

Amortization of deferred policy acquisition costs 11,787 ( 4,760 ) 7,027

Amortization of cost of insurance acquired 499 219 280

Federal income tax expense (benefit) 278 1,925 2,203

Net income (loss) ( 4,881 ) 13,822 8,941

Basic and diluted earnings (losses) per share of Class A common stock ( 0.10 ) 0.28 0.18

Consolidated Statement of Comprehensive Income (Loss)

Unrealized holding gains (losses) arising during period $ ( 254,276 ) 1,980 ( 252,296 )

Change in current discount rate for liability for future policy benefits — 272,044 272,044

Income tax expense (benefit) on other comprehensive income items ( 13,801 ) 20,147 6,346

Other comprehensive income (loss) ( 240,440 ) 253,877 13,437

Total comprehensive income (loss) ( 245,321 ) 267,699 22,378

ACCOUNTING STANDARDS NOT YET ADOPTED

3 unchanged sentences

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.

March 31, 2023 | 10-Q 12

In addition, the amendments clarify that an entity cannot, as a separate unit of

June 30, 2023 | 10-Q 13

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

3 unchanged sentences

(3) INVESTMENTS

The Company invests primarily in fixed maturity securities, which totaled 87.0 % of total cash and invested assets at March 31, 2023, as shown below.

The Company invests primarily in fixed maturity securities, which totaled 86.5 % of total cash and invested assets at June 30, 2023, as shown below.

Carrying Value

(In thousands, except for %)

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Amount % Amount %

7 unchanged sentences

Total cash and invested assets $ 1,394,562 100.0 % 1,363,754 100.0 %

June 30, 2023 | 10-Q 14

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

March 31, 2023

June 30, 2023

(In thousands)

14 unchanged sentences

Total fixed maturity securities $ 1,385,121 4,271 182,909 1,206,483

March 31, 2023 | 10-Q 13

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022

15 unchanged sentences

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

June 30, 2023 | 10-Q 15

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(In thousands)

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Equity securities:

8 unchanged sentences

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

The Company recognized net investment related gains of $ 0.3 million on equity securities held for the three months ended March 31, 2023 and losses of $ 0.8 million for the same period ended March 31, 2022, respectively.

The Company recognized net investment related losses of $ 0.2 million and gains of $ 0.1 million on equity securities held for the three and six months ended June 30, 2023 and losses of $ 1.2 million and $ 2.0 million for the same periods ended June 30, 2022, respectively.

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

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

For the three months ended March 31, 2023 and 2022, the Company recorded no credit valuation losses on fixed maturity securities.

March 31, 2023 | 10-Q 14

For the three and six months ended June 30, 2023 and 2022, the Company recorded no credit valuation losses on fixed maturity securities.

June 30, 2023 | 10-Q 16

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables present the fair values and gross unrealized losses of fixed maturity securities that are not deemed to have credit losses, aggregated by investment category and length of time that individual securities have been in a continuous loss position at March 31, 2023 and December 31, 2022.

March 31, 2023 Less than 12 months Greater than 12 months Total

June 30, 2023 Less than 12 months Greater than 12 months Total

(In thousands, except for # of securities) Fair

39 unchanged sentences

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

March 31, 2023 | 10-Q 15

June 30, 2023 | 10-Q 17

CITIZENS, INC .

1 unchanged sentence

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

As of March 31, 2023 and December 31, 2022, 98.7 % of the fair value of our fixed maturity securities portfolio was rated investment grade.

As of June 30, 2023 and December 31, 2022, 99 % of the fair value of our fixed maturity securities portfolio was rated investment grade.

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

3 unchanged sentences

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 March 31, 2023 by contractual maturity are shown in the table below.

The amortized cost and fair value of fixed maturity securities at June 30, 2023 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.

March 31, 2023 Amortized

June 30, 2023 Amortized

(In thousands)

6 unchanged sentences

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

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands) 2023 2022 2023 2022

3 unchanged sentences

Gross realized losses $ 5 102 17 102

The Company sold 4 AFS fixed maturity securities during the three months ended March 31, 2023 and 1 during the three months ended March 31, 2022, respectively.

(4) FAIR VALUE MEASUREMENTS

1 unchanged sentence

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

We also report our equity

March 31, 2023 | 10-Q 16

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.

June 30, 2023 | 10-Q 18

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

16 unchanged sentences

We have no investments in this category.

March 31, 2023 | 10-Q 17

June 30, 2023 | 10-Q 19

CITIZENS, INC .

1 unchanged sentence

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

March 31, 2023 Level 1 Level 2 Level 3 Total

June 30, 2023 Level 1 Level 2 Level 3 Total

(In thousands)

21 unchanged sentences

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

March 31, 2023 | 10-Q 18

June 30, 2023 | 10-Q 20

CITIZENS, INC .

27 unchanged sentences

Fixed maturity securities, available-for-sale.

At March 31, 2023, fixed maturity securities, valued using a third-party pricing source, totaled $ 1.2 billion for Level 2 assets and comprised 93.2 % of total reported fair value of our financial assets.

At June 30, 2023, fixed maturity securities, valued using a third-party pricing source, totaled $ 1.2 billion for Level 2 assets and comprised 93 % of total reported fair value of our financial assets.

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

In addition, we obtain information annually relative to the third-party pricing models and review model parameters for reasonableness.

There were no Level 3 assets at March 31, 2023.

As of March 31, 2023, there were no material changes to the valuation methods or assumptions used to determine fair values, and no broker or third-party prices were changed from the values received.

There were no Level 3 assets at June 30, 2023.

As of June 30, 2023, there were no material changes to the valuation methods or assumptions used to determine fair values, and no broker or third-party prices were changed from the values received.

Equity securities.

4 unchanged sentences

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

The Company recognized net investment related losses of $ 0.6 million and $ 0.8 million on limited partnerships held for

March 31, 2023 | 10-Q 19

The Company recognized net investment related gains of $ 0.9 million and $ 0.3 million and losses of $ 4.4 million and

June 30, 2023 | 10-Q 21

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the three months ended March 31, 2023 and March 31, 2022, respectively.

$ 5.2 million on limited partnerships held for the three and six months ended June 30, 2023 and June 30, 2022, respectively.

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

(In thousands, except years) Fair Value

Using NAV Per Share Unfunded Commit-

(In years) Fair Value

Using NAV Per Share Unfunded Commit-

14 unchanged sentences

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:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

(In thousands) Carrying

6 unchanged sentences

Annuity - investment contracts 67,136 62,253 67,344 61,701

March 31, 2023 | 10-Q 20

June 30, 2023 | 10-Q 22

CITIZENS, INC .

1 unchanged sentence

Policy loans.

Policy loans had a weighted average annual interest rate of 7.7 % at both March 31, 2023 and December 31, 2022 and no specified maturity dates.

Policy loans had a weighted average annual interest rate of 7.7 % at both June 30, 2023 and December 31, 2022 and no specified maturity dates.

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

3 unchanged sentences

The mortgage loan is secured principally by a residential property.

The interest rate for this loan was approximately 7.0 % at both March 31, 2023 and December 31, 2022.

At March 31, 2023, the remaining loan matures in five years .

Management estimated the fair value using an annual interest rate of 6.25 % at March 31, 2023.

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

The interest rate for this loan was 7.0 % at both June 30, 2023 and December 31, 2022.

At June 30, 2023, the remaining loan matures in five years .

Management estimated the fair value using an annual interest rate of 6.25 % at June 30, 2023.

Our mortgage loan is considered a Level 3 asset in the fair value hierarchy and is included in other long-term investments on the consolidated balance sheets.

Cash and cash equivalents.

1 unchanged sentence

Annuity liabilities.

The fair value of the Company's liabilities under annuity contract policies, which are considered Level 3 liabilities, was estimated at March 31, 2023 and December 31, 2022 using discounted cash flows based upon spot rates adjusted for various risk adjustments ranging from 4.18 % to 4.41 % and 4.74 % to 5.09 %, respectively.

The fair value of the Company's liabilities under annuity contract policies, which are considered Level 3 liabilities, was estimated at June 30, 2023 and December 31, 2022 using discounted cash flows based upon spot rates adjusted for various risk adjustments ranging from 4.00 % to 4.71 % and 4.74 % to 5.09 %, 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.

4 unchanged sentences

(In thousands )

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Other long-term investments:

4 unchanged sentences

Total other long-term investments $ 77,262 69,558

We carried no limited partnership investments at cost at March 31, 2023 while $ 2.4 million were carried at cost at December 31, 2022.

We carried no limited partnership investments at cost at June 30, 2023 while $ 2.4 million were carried at cost at December 31, 2022.

We are a member of the Federal Home Loan Bank ("FHLB") of Dallas and such membership requires members to own stock in the FHLB.

1 unchanged sentence

(5) DEFERRED POLICY ACQUISITION COSTS AND COST OF INSURANCE ACQUIRED

The following tables roll forward the DAC asset for the three months ended March 31, 2023 and 2022 by reporting cohort.

The following tables roll forward the DAC asset for the six months ended June 30, 2023 and 2022 by reporting cohort.

Our reporting cohorts are Permanent, which summarizes insurance policies with premiums payable over the lifetime of the policy, and Permanent Limited Pay, which summarizes insurance policies with premiums payable for a limited time after which the policy is fully paid up.

Both reporting cohorts include whole life and endowment policies.

March 31, 2023 | 10-Q 21

June 30, 2023 | 10-Q 23

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2023

Six Months Ended June 30, 2023

(In thousands) Permanent Permanent Limited Pay Other Business Total

14 unchanged sentences

Balance, end of period $ 143,347 22,758 2,236 168,341

Three Months Ended March 31, 2022

Six Months Ended June 30, 2022

(In thousands) Permanent Permanent Limited Pay Other Business Total

14 unchanged sentences

Balance, end of period $ 135,003 19,508 1,845 156,356

DAC capitalization increased for the three months ended March 31, 2023, compared to the same prior year period mainly from increased commissions from higher first year sales across our business segments.

March 31, 2023 | 10-Q 22

DAC capitalization increased for the six months ended June 30, 2023, compared to the same prior year period mainly from increased commissions from higher first year sales across our business segments.

June 30, 2023 | 10-Q 24

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables provide rollforwards of the COIA balances for the three months ended March 31, 2023 and 2022 by reporting cohort.

The following tables provide rollforwards of the COIA balances for the six months ended June 30, 2023 and 2022 by reporting cohort.

Both reporting cohorts include whole life and endowment policies.

Three Months Ended March 31, 2023

Six Months Ended June 30, 2023

(In thousands) Permanent Permanent Limited Pay Other Business Total

11 unchanged sentences

Balance, end of period $ 7,643 892 1,798 10,333

Three Months Ended March 31, 2022

Six Months Ended June 30, 2022

(In thousands) Permanent Permanent Limited Pay Other Business Total

11 unchanged sentences

Balance, end of period $ 8,061 961 1,966 10,988

March 31, 2023 | 10-Q 23

June 30, 2023 | 10-Q 25

CITIZENS, INC .

5 unchanged sentences

Both reporting cohorts include whole life and endowment policies.

Life Insurance Segment

March 31, 2023

June 30, 2023

(In thousands)

Permanent Permanent Limited Pay Total

Life Insurance Segment Home Service Insurance

Permanent Permanent Limited Pay Total Permanent Permanent Limited Pay Total

Present Value of Expected Net Premiums

24 unchanged sentences

The Life Insurance segment impact of updating actual experience for the current period contributed to an increase in liabilities primarily due to higher benefits than expected.

March 31, 2023 | 10-Q 24

The Home Service Insurance segment impact of

June 30, 2023 | 10-Q 26

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Home Service Insurance

March 31, 2023

updating actual experience for the current period contributed to an increase in liabilities due to higher premiums collected than expected.

June 30, 2022

(In thousands)

Permanent Permanent Limited Pay Total

Life Insurance Home Service Insurance

Permanent Permanent Limited Pay Total Permanent Permanent Limited Pay Total

Present Value of Expected Net Premiums

23 unchanged sentences

Net liability for future policy benefits $ 747,749 197,133 944,882 117,128 112,528 229,656

Net premiums collected are defined as the transactional gross premiums collected in the current period times the net premium ratio.

Issuances are calculated as the present value, using the locked-in discount rate of the expected net premiums or the expected future policy benefits related to new policies issued during the three months ended March 31, 2023 and 2022.

Flooring impact — — — 27 71 98

Net liability for future policy benefits, after flooring impact $ 747,749 197,133 944,882 117,155 112,599 229,754

The Life Insurance segment impact of updating actual experience for the current period contributed to an increase in liabilities primarily due to higher benefits paid than expected.

The Home Service Insurance segment impact of updating actual experience for the current period contributed to an increase in liabilities due to higher premiums collected than expected.

June 30, 2023 | 10-Q 27

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Net premiums collected is defined as the transactional gross premiums collected in the current period times the net premium ratio.

Interest accrual is the interest earned on the beginning present value of either the expected net premiums or the expected future policy benefits using the locked-in discount rate.

Benefit payments are the transactional benefits (death, lapse, surrenders and maturities) paid in the current period.

Derecognition refers to a subset of the issuances or the present value of future premiums released on new issues that lapsed during the three months ended March 31, 2023 and 2022 as well as other reconciling items.

Derecognition refers to a subset of the issuances or the present value of future premiums released on new issues that lapsed during the six months ended June 30, 2023 and 2022 as well as other reconciling items.

The effects of actual variances from expected experience lines are primarily impacted by the actual policy cash flows during the period compared to that which was expected in the reserve assumptions.

1 unchanged sentence

Our policy experience will vary from actual experience in any one period, either favorably or unfavorably.

March 31, 2023 | 10-Q 25

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Home Service Insurance segment impact of updating actual experience for the current period contributed to an increase in liabilities due to higher premiums collected than expected.

Life Insurance

March 31, 2022

(In thousands)

Permanent Permanent Limited Pay Total

Present Value of Expected Net Premiums

Balance, beginning of year $ 269,528 4,939 274,467

Beginning balance at original discount rate 246,386 5,093 251,479

Effects of actual variances from expected experience 1,693 422 2,115

Adjusted beginning of year balance 248,079 5,515 253,594

Issuances 5,795 1,121 6,916

Interest accrual 2,088 ( 2 ) 2,086

Net premiums collected ( 9,166 ) 133 ( 9,033 )

Derecognition and other 57 24 81

Ending balance at original discount rate 246,853 6,791 253,644

Effect of changes in discount rates 6,040 ( 291 ) 5,749

Balance, end of period $ 252,893 6,500 259,393

Present Value of Expected Future Policy Benefits

Balance, beginning of year $ 1,168,282 240,679 1,408,961

Beginning balance at original discount rate 990,921 207,105 1,198,026

Effects of actual variances from expected experience 1,998 1,407 3,405

Adjusted beginning of year balance 992,919 208,512 1,201,431

Issuances 5,863 1,141 7,004

Interest accrual 10,658 2,125 12,783

Benefit payments ( 17,715 ) ( 3,918 ) ( 21,633 )

Derecognition and other ( 10 ) 4 ( 6 )

Ending balance at original discount rate 991,715 207,864 1,199,579

Effect of changes in discount rates 72,720 12,917 85,637

Balance, end of period $ 1,064,435 220,781 1,285,216

Net liability for future policy benefits $ 811,542 214,281 1,025,823

The Life Insurance segment impact of updating actual experience for the current period contributed to an increase in liabilities primarily due to higher benefits paid than expected.

March 31, 2023 | 10-Q 26

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Home Service Insurance

March 31, 2022

(In thousands)

Permanent Permanent Limited Pay Total

Present Value of Expected Net Premiums

Balance, beginning of year $ 104,556 10,196 114,752

Beginning balance at original discount rate 90,012 9,532 99,544

Effects of actual variances from expected experience 876 ( 1,083 ) ( 207 )

Adjusted beginning of year balance 90,888 8,449 99,337

Issuances 4,349 711 5,060

Interest accrual 822 43 865

Net premiums collected ( 2,723 ) 1,610 ( 1,113 )

Derecognition and other ( 1,113 ) 24 ( 1,089 )

Ending balance at original discount rate 92,223 10,837 103,060

Effect of changes in discount rates 5,130 ( 112 ) 5,018

Balance, end of period $ 97,353 10,725 108,078

Present Value of Expected Future Policy Benefits

Balance, beginning of year $ 266,206 161,715 427,921

Beginning balance at original discount rate 205,340 117,425 322,765

Effects of actual variances from expected experience 1,090 625 1,715

Adjusted beginning of year balance 206,430 118,050 324,480

Issuances 4,350 708 5,058

Interest accrual 2,164 1,349 3,513

Benefit payments ( 5,832 ) ( 2,057 ) ( 7,889 )

Derecognition and other ( 1,114 ) 24 ( 1,090 )

Ending balance at original discount rate 205,998 118,074 324,072

Effect of changes in discount rates 28,342 23,076 51,418

Balance, end of period $ 234,340 141,150 375,490

Net liability for future policy benefits $ 136,987 130,425 267,412

The Home Service Insurance segment impact of updating actual experience for the current period contributed to an increase in liabilities due to higher premiums collected than expected.

March 31, 2023 | 10-Q 27

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table reconciles the net liability for future policy benefits shown above to the liability for future policy benefits in the consolidated balance sheet.

March 31, 2023

March 31, 2022

The following table reconciles the net liability for future policy benefits shown above to the liability for future policy benefits reported in the consolidated balance sheets.

June 30, 2023

June 30, 2022

(In thousands) Life

11 unchanged sentences

Other 662 264 926 502 243 745

Total $ 966,495 252,648 1,219,143 1,077,304 303,562 1,380,866

Total future policy benefit reserves $ 958,020 254,226 1,212,246 997,049 267,042 1,264,091

June 30, 2023 | 10-Q 28

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table provides the amount of undiscounted and discounted expected gross premiums and expected future benefit payments for long-term duration contracts.

As of March 31, 2023 2022

June 30, 2023 June 30, 2022

(In thousands) Life

13 unchanged sentences

Expected future benefit payments 194,592 119,607 204,675 124,517

March 31, 2023 | 10-Q 28

June 30, 2023 | 10-Q 29

CITIZENS, INC .

1 unchanged sentence

The following tables summarize the amount of revenue and interest related to long-term duration contracts recognized in the consolidated statement of operations:

Life Insurance Home Service Insurance

Three Months Ended March 31, 2023

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

2023 2022 2023 2022

(In thousands)

Gross Premiums Interest Expense Gross Premiums Interest Expense

Gross Premiums Interest Expense Gross Premiums Interest Expense Gross Premiums Interest Expense Gross Premiums Interest Expense

Life Insurance Segment:

Life Insurance

9 unchanged sentences

Total $ 28,773 10,699 29,834 10,861 54,980 21,605 56,765 21,781

Life Insurance Home Service Insurance

Three Months Ended March 31, 2022

(In thousands)

Gross Premiums Interest Expense Gross Premiums Interest Expense

Home Service Insurance Segment:

Life Insurance

9 unchanged sentences

Total $ 11,066 2,914 11,632 2,886 22,151 5,824 22,308 5,787

June 30, 2023 | 10-Q 30

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table provides the weighted-average durations of the liability for future policy benefits.

March 31, 2023 March 31, 2022

June 30, 2023 June 30, 2022

(In years) Life

2 unchanged sentences

Insurance Home Service

Original duration 8.1 15.9 8.8 16.0

Current duration 8.4 16.1 9.1 16.3

Duration at original discount rate 8.1 16.2 8.1 15.4

Duration at current discount rate 8.4 16.5 8.7 16.4

Permanent Limited Pay

Original duration 7.6 14.5 8.0 15.2

Current duration 7.6 15.2 8.4 17.5

March 31, 2023 | 10-Q 29

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Duration at original discount rate 7.7 14.7 7.6 14.4

Duration at current discount rate 7.6 15.3 7.9 15.7

The following table provides the weighted-average interest rates for the liability for future policy benefits.

March 31, 2023 March 31, 2022

(In thousands) Life

June 30, 2023 June 30, 2022

Insurance Home Service

1 unchanged sentence

Insurance Home Service

Original discount rate 4.92 % 4.99 % 4.93 % 5.01 %

Current discount rate 4.86 % 5.09 % 3.43 % 3.68 %

Interest rate at original discount rate 4.91 % 4.98 % 4.95 % 5.02 %

Interest rate at current discount rate 5.02 % 5.09 % 4.40 % 4.60 %

Permanent Limited Pay

Original discount rate 4.30 % 5.05 % 4.33 % 5.06 %

Current discount rate 4.85 % 5.08 % 3.38 % 3.67 %

March 31, 2023 | 10-Q 30

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Interest rate at original discount rate 4.30 % 5.04 % 4.32 % 5.06 %

Interest rate at current discount rate 4.99 % 5.09 % 4.36 % 4.59 %

LIABILITY FOR POLICYHOLDERS’ ACCOUNT BALANCES

The following table presents the policyholders' account balances by range of guaranteed minimum crediting rates and the related range of the difference, in basis points, between rates being credited and the respective guaranteed minimums.

March 31, 2023 At Guaranteed Minimum 1 Basis Point- 50 Basis Points Above

At Guaranteed Minimum 1 Basis Point- 50 Basis Points Above

51 Basis Points- 150 Basis Points Above

Greater Than 150 Basis Points Above

(In thousands) Range of Guaranteed Minimum Crediting Rate

Life Insurance:

0.00 % - 1.49 %

1.50 % - 2.99 %

1,452 — — — 1,452

3.00 % - 4.49 %

33,940 — — — 33,940

Greater or equal to 4.50 %

134 — — — 134

Total $ 35,526 — — — 35,526

Fixed annuity 0.00 % - 1.49 %

$ 197 — 1,144 — 1,341

1.50 % - 2.99 %

13,078 — 59 — 13,137

3.00 % - 4.49 %

21,568 10 — — 21,578

Greater or equal to 4.50 %

30,944 — — — 30,944

Total $ 65,787 10 1,203 — 67,000

Dividend accumulations 0.00 % - 1.49 %

$ 239 — — 3,499 3,738

1.50 % - 2.99 %

11,144 551 7 — 11,702

3.00 % - 4.49 %

26,985 — — — 26,985

Greater or equal to 4.50 %

Total $ 38,371 551 7 3,499 42,428

Premiums paid in advance 0.00 % - 1.49 %

$ — — — 34,122 34,122

1.50 % - 2.99 %

3.00 % - 4.49 %

Greater or equal to 4.50 %

Total $ — — — 34,122 34,122

Home Service Insurance:

0.00 % - 1.49 %

1.50 % - 2.99 %

June 30, 2023

(In thousands)

Range of Guaranteed Minimum Crediting Rates

0.00 % - 1.49 %

$ 749 — 1,131 37,814 39,694

Greater or equal to 4.50 %

Total $ 309 — — — 309

Fixed annuity 0.00 % - 1.49 %

1.50 % - 2.99 %

5 unchanged sentences

Total $ 163,522 626 1,193 37,814 203,155

Dividend accumulations 0.00 % - 1.49 %

$ — — — 173 173

1.50 % - 2.99 %

3.00 % - 4.49 %

Greater or equal to 4.50 %

Total $ 25 42 — 173 240

(1) Supplemental Contracts Without Life Contingencies

March 31, 2023 | 10-Q 31

June 30, 2023 | 10-Q 31

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022 At Guaranteed Minimum 1 Basis Point- 50 Basis Points Above

At Guaranteed Minimum 1 Basis Point- 50 Basis Points Above

51 Basis Points- 150 Basis Points Above

Greater Than 150 Basis Points Above

(In thousands) Range of Guaranteed Minimum Crediting Rate

Life Insurance:

0.00 % - 1.49 %

1.50 % - 2.99 %

256 — — — 256

3.00 % - 4.49 %

24,862 — — — 24,862

Greater or equal to 4.50 %

145 — — — 145

Total $ 25,263 — — — 25,263

Fixed annuity 0.00 % - 1.49 %

$ 203 — 813 — 1,016

1.50 % - 2.99 %

10,584 — 12 — 10,596

3.00 % - 4.49 %

21,976 9 — — 21,985

Greater or equal to 4.50 %

30,662 — — — 30,662

Total $ 63,425 9 825 — 64,259

Dividend accumulations 0.00 % - 1.49 %

$ 250 — — 3,529 3,779

1.50 % - 2.99 %

8,501 533 11 — 9,045

3.00 % - 4.49 %

25,507 — — — 25,507

Greater or equal to 4.50 %

Total $ 34,261 533 11 3,529 38,334

Premiums paid in advance 0.00 % - 1.49 %

$ — — — 37,922 37,922

1.50 % - 2.99 %

3.00 % - 4.49 %

Greater or equal to 4.50 %

Total $ — — — 37,922 37,922

Home Service Insurance:

0.00 % - 1.49 %

1.50 % - 2.99 %

June 30, 2022

(In thousands)

Range of Guaranteed Minimum Crediting Rates

0.00 % - 1.49 %

$ 715 — 768 41,087 42,570

Greater or equal to 4.50 %

Total $ 304 — — — 304

Fixed annuity 0.00 % - 1.49 %

1.50 % - 2.99 %

5 unchanged sentences

Total $ 147,415 602 791 41,087 189,895

Dividend accumulations 0.00 % - 1.49 %

$ — — — 173 173

1.50 % - 2.99 %

3.00 % - 4.49 %

Greater or equal to 4.50 %

Total $ 24 44 — 173 241

(1) Supplemental Contracts Without Life Contingencies

March 31, 2023 | 10-Q 32

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables summarize balances of and changes in policyholders' account balances.

March 31, 2023

(In thousands)

Fixed Annuity Dividend

June 30, 2023

(In thousands, except for %)

Supplemental Contracts Without Life Contingencies Fixed Annuity Dividend

Accumulations Premiums Paid in Advance

Life Insurance:

Balance, beginning of year $ 32,995 86,807 41,663 34,603

7 unchanged sentences

Cash surrender value $ 39,393 86,558 43,384 33,820

Home Service Insurance:

Balance, beginning of year $ 328 20,264 239 —

Issuances — 227 1 —

Premiums received — 145 1 —

Interest credited 2 132 2 —

Surrenders and withdrawals — 607 3 —

Benefit payments 21 — — —

Balance, end of period $ 309 20,161 240 —

Weighted-average crediting rates 2.20 % 3.10 % 3.09 % 4.00 %

Cash surrender value $ 309 20,161 240 —

Consolidated:

June 30, 2022

(In thousands, except for %)

Supplemental Contracts Without Life Contingencies Fixed Annuity Dividend

Accumulations Premiums Paid in Advance

Balance, beginning of year $ 23,950 83,917 37,760 38,875

7 unchanged sentences

Cash surrender value $ 28,139 85,179 39,622 36,955

(1) Supplemental Contracts Without Life Contingencies

March 31, 2023 | 10-Q 33

June 30, 2023 | 10-Q 32

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

The following table reconciles policyholders' account balances shown above to the policyholders' account balances liability in the consolidated balance sheets.

As of June 30,

(In thousands)

Fixed Annuity Dividend

Accumulations Premiums Paid in Advance

Life Insurance:

Balance, beginning of year $ 23,628 63,591 37,513 38,875

Issuances 2,392 604 123 469

Premiums received 12 995 1,264 132

Interest credited 232 517 292 275

Surrenders and withdrawals — 1,448 858 1,829

Benefit payments 1,001 — — —

Balance, end of period $ 25,263 64,259 38,334 37,922

Weighted-average crediting rates 4.11 % 3.76 % 3.50 % 3.09 %

Cash surrender value $ 25,263 64,259 38,334 37,922

Home Service Insurance:

Balance, beginning of year $ 322 20,326 247 —

Issuances 10 213 3 —

Premiums received — 189 1 —

Interest credited 2 140 2 —

Surrenders and withdrawals — 530 12 —

Benefit payments 30 — — —

Balance, end of period $ 304 20,338 241 —

Weighted-average crediting rates 2.13 % 3.11 % 3.10 % 4.00 %

Cash surrender value $ 304 20,338 241 —

Consolidated:

Balance, beginning of year $ 23,950 83,917 37,760 38,875

Issuances 2,402 817 126 469

Premiums received 12 1,184 1,265 132

Interest credited 234 657 294 275

Surrenders and withdrawals — 1,978 870 1,829

Benefit payments 1,031 — — —

Balance, end of period $ 25,567 84,597 38,575 37,922

Weighted-average crediting rates 4.08 % 3.60 % 3.08 % 3.09 %

Cash surrender value $ 25,567 84,597 38,575 37,922

Supplemental contracts without life contingencies $ 39,393 28,139

March 31, 2023 | 10-Q 34

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table reconciles policyholders' account balances to the policyholders' account balances' liability in the consolidated balance sheet.

March 31, 2023 March 31, 2022

(In thousands) Life

Insurance Home Service

Insurance Consolidated Life

Insurance Home Service

Insurance Consolidated

$ 35,526 309 35,835 25,263 304 25,567

Fixed annuity 86,558 85,179

Unearned revenue reserve 1,534 1,605

Other 1 — 1 — ( 1 ) ( 1 )

Total annuities $ 127,485 114,923

(1) Supplemental Contracts Without Life Contingencies

Dividend Accumulations:

Dividend accumulations $ 42,428 240 42,668 38,334 241 38,575

Other 1 ( 1 ) — — — —

Total dividend accumulations $ 42,429 239 42,668 38,334 241 38,575

Premiums Paid in Advance:

8 unchanged sentences

CONTRACTUAL OBLIGATIONS

As of March 31, 2023, CICA International is committed to fund investments up to $ 35.6 million related to limited partnerships previously described.

As of June 30, 2023, CICA International is committed to fund investments up to $ 33.0 million related to limited partnerships previously described.

CREDIT FACILITY

2 unchanged sentences

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

March 31, 2023 | 10-Q 35

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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 %.

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 %, or (c) 0.75 %.

The Company is required to pay Regions an annual commitment fee of 0.375 % of the unused portion of the Credit Facility in quarterly installments, which the Company expenses as it is incurred.

Regions informed the Company that after June 30, 2023, the United Kingdom's Financial Conduct Authority will no longer publish a LIBOR rate that may be used as the benchmark interest rate index.

Regions will transition to a replacement interest rate index on any future draws.

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 March 31, 2023, the Company had no t borrowed any funds against the Credit Facility and was not in violation of any covenants.

As of June 30, 2023, the Company had no t borrowed any funds against the Credit Facility and was not in violation of any covenants.

June 30, 2023 | 10-Q 33

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(8) STOCKHOLDERS' EQUITY AND RESTRICTIONS

6 unchanged sentences

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

Three Months Ended March 31,

Six Months Ended June 30,

(In thousands) Common Stock Treasury Common Stock Treasury

3 unchanged sentences

Stock issued for compensation 106 — — 81 — —

Acquisition of Class A shares — — 325 — — 392

Other share issuance — — — 16 — —

Balance at end of period 53,864 1,002 5,262 53,742 1,002 4,530

March 31, 2023 | 10-Q 36

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

EARNINGS PER SHARE

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

Three Months Ended March 31, 2023 2022

Three Months Ended June 30, 2023 2022

(In thousands, except per share amounts)

5 unchanged sentences

Basic and diluted earnings (loss) per share of Class A common stock $ 0.12 0.05

June 30, 2023 | 10-Q 34

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended June 30, 2023 2022

(In thousands, except per share amounts)

Basic and diluted earnings (loss) per share:

Net income (loss) $ 10,998 8,941

Net income (loss) allocated to Class A common stock $ 10,998 8,941

Weighted average shares of Class A outstanding - basic 49,791 50,278

Weighted average shares of Class A outstanding - diluted 50,584 50,970

Basic and diluted earnings (loss) per share of Class A common stock $ 0.22 0.18

CAPITAL AND SURPLUS

2 unchanged sentences

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

All domestic insurance subsidiaries exceeded the minimum capital requirements at March 31, 2023.

All domestic insurance subsidiaries exceeded the minimum capital requirements at June 30, 2023.

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

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

As of March 31, 2023, CICA International was above the TCL threshold.

As of June 30, 2023, CICA International was above the TCL threshold.

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

1 unchanged sentence

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

CICA International had previously been granted a permitted practice by the BMA to report its fixed income maturity securities at amortized cost in its unconsolidated statutory financial statements.

This permitted practice has expired.

CICA PR is a Puerto Rico domiciled company.

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

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

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

CICA PR began issuing new business as of January 1, 2023 and since higher costs are associated with new business than renewal business (e.g., first year commissions), we expect that Citizens will have to contribute capital to CICA PR in the foreseeable future in order to maintain the required premium to surplus ratio.

CICA PR began issuing new business as of January 1, 2023 and since higher costs are associated with new business than renewal business (e.g., first year commissions), we expect that Citizens will have to contribute capital to CICA PR in order to maintain the required premium to surplus ratio.

(9) SEGMENT INFORMATION

3 unchanged sentences

residents through CICA International and, beginning January 1, 2023, 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 coverage and annuity

March 31, 2023 | 10-Q 37

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 ordinary whole life, life products with living benefits, critical illness, credit life and disability policies throughout the U.S.

and CNLIC issued ordinary whole life and critical illness policies through June 30, 2023.

CNLIC merged into CICA on July 1, 2023.

June 30, 2023 | 10-Q 35

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

benefits to enhance accumulations.

Domestically, we currently offer whole life, credit life, credit disability, and critical illness products.

The critical illness products are sold in Texas and Florida through CICA and CNLIC.

Both CICA and CNLIC also service whole life and accident and health policies primarily in the Southern U.S., Midwest and Mountain West.

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

Our Home Service Insurance segment also sells property insurance policies in Louisiana.

Our Home Service Insurance segment also sold property insurance policies in Louisiana and Arkansas until operations were ceased effective June 30, 2023.

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.

In addition to the Life Insurance and Home Service Insurance businesses, 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.

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

4 unchanged sentences

Life Insurance Home Service Insurance Other Non-Insurance Enterprises Consolidated

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

(In thousands)

2 unchanged sentences

Investment related gains (losses), net 738 ( 12 ) ( 23 ) 703

Other income (loss) 879 — — 879

Other income 856 1 — 857

Total revenues 43,865 14,392 270 58,527

13 unchanged sentences

Income (loss) before federal income tax $ 7,473 624 ( 2,053 ) 6,044

March 31, 2023 | 10-Q 38

June 30, 2023 | 10-Q 36

CITIZENS, INC .

1 unchanged sentence

Life Insurance Home Service Insurance Other Non-Insurance Enterprises Consolidated

Three Months Ended March 31, 2022

Six Months Ended June 30, 2023

(In thousands)

2 unchanged sentences

Investment related gains (losses), net 301 87 27 415

Other income (loss) 1,088 — — 1,088

Other income 1,735 1 — 1,736

Total revenues 83,825 30,003 613 114,441

2 unchanged sentences

Claims and surrenders 51,407 11,668 — 63,075

Increase in future policy benefit reserves 1,376 ( 1,262 ) — 114

Increase (decrease) in future policy benefit reserves ( 3,683 ) 1,761 — ( 1,922 )

Policyholder liability remeasurement (gain) loss 1,701 135 — 1,836

8 unchanged sentences

Income (loss) before federal income tax $ 13,845 1,957 ( 3,043 ) 12,759

June 30, 2023 | 10-Q 37

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Life Insurance Home Service Insurance Other Non-Insurance Enterprises Consolidated

Three Months Ended June 30, 2022

(In thousands)

Premiums $ 29,834 12,390 — 42,224

Net investment income 12,347 3,283 262 15,892

Investment related gains (losses), net ( 3,984 ) ( 925 ) ( 107 ) ( 5,016 )

Other income 633 1 — 634

Total revenues 38,830 14,749 155 53,734

Benefits and expenses:

Insurance benefits paid or provided:

Claims and surrenders 21,568 5,529 — 27,097

Increase (decrease) in future policy benefit reserves 3,006 724 — 3,730

Policyholder liability remeasurement (gain) loss 580 87 — 667

Policyholders' dividends 1,509 6 — 1,515

Total insurance benefits paid or provided 26,663 6,346 — 33,009

Commissions 4,792 4,132 — 8,924

Other general expenses 5,358 3,515 1,527 10,400

Capitalization of deferred policy acquisition costs ( 4,307 ) ( 1,877 ) — ( 6,184 )

Amortization of deferred policy acquisition costs 2,950 518 — 3,468

Amortization of cost of insurance acquired 38 113 — 151

Total benefits and expenses 35,494 12,747 1,527 49,768

Income (loss) before federal income tax $ 3,336 2,002 ( 1,372 ) 3,966

June 30, 2023 | 10-Q 38

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Life Insurance Home Service Insurance Other Non-Insurance Enterprises Consolidated

Six Months Ended June 30, 2022

(In thousands)

Premiums $ 56,765 24,823 — 81,588

Net investment income 24,318 6,527 534 31,379

Investment related gains (losses), net ( 4,277 ) ( 1,167 ) ( 154 ) ( 5,598 )

Other income 1,721 1 — 1,722

Total revenues 78,527 30,184 380 109,091

Benefits and expenses:

Insurance benefits paid or provided:

Claims and surrenders 43,026 12,505 — 55,531

Increase (decrease) in future policy benefit reserves 4,382 ( 538 ) — 3,844

Policyholder liability remeasurement (gain) loss 994 341 — 1,335

Policyholders' dividends 2,859 9 — 2,868

Total insurance benefits paid or provided 51,261 12,317 — 63,578

Commissions 8,598 7,999 — 16,597

Other general expenses 11,049 7,865 2,516 21,430

Capitalization of deferred policy acquisition costs ( 7,613 ) ( 3,352 ) — ( 10,965 )

Amortization of deferred policy acquisition costs 5,970 1,057 — 7,027

Amortization of cost of insurance acquired 62 218 — 280

Total benefits and expenses 69,327 26,104 2,516 97,947

Income (loss) before federal income tax $ 9,200 4,080 ( 2,136 ) 11,144

(10) INCOME TAXES

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

The effective tax rate was 27.4 % for the three months ended March 31, 2023, compared to 10.2 % for the same period in 2022, respectively.

The effective tax rate was ( 1.4 )% and 13.8 % for the three and six months ended June 30, 2023, compared to 37.2 % and 19.8 % for the same periods in 2022, respectively.

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

2 unchanged sentences

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

At March 31, 2023, we determined it was more likely than not that a portion of our capital deferred tax assets would not be realized in their entirety.

At June 30, 2023, we determined it was more likely than not that a portion of our capital deferred tax assets would not be realized in their entirety.

The Company recorded a valuation allowance of $ 3.9 million through Other Comprehensive Income (Loss).

March 31, 2023 | 10-Q 39

June 30, 2023 | 10-Q 39

CITIZENS, INC .

1 unchanged sentence

(11) OTHER COMPREHENSIVE INCOME (LOSS)

The changes in the components of other comprehensive income (loss) are reported net of the effects of income taxes of 21% as of the three months ended March 31, 2023 and 2022, as indicated below.

Three Months Ended March 31, 2023 2022

The changes in the components of other comprehensive income (loss) are reported net of the effects of income taxes of 21% as of the three and six months ended June 30, 2023 and 2022, as indicated below.

Three Months Ended June 30, 2023 2022

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

5 unchanged sentences

Other comprehensive income (loss) $ ( 14,155 ) 1,257 ( 12,898 ) 882 ( 4,634 ) ( 3,752 )

Six Months Ended June 30, 2023 2022

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

Unrealized gains (losses):

Unrealized holding gains (losses) arising during the period $ 23,006 ( 1,169 ) 21,837 ( 252,296 ) 13,392 ( 238,904 )

Reclassification adjustment for (gains) losses included in net income 62 ( 13 ) 49 35 ( 7 ) 28

Unrealized holding gains (losses), net 23,068 ( 1,182 ) 21,886 ( 252,261 ) 13,385 ( 238,876 )

Change in current discount rate for liability for future policy benefits ( 14,229 ) 1,024 ( 13,205 ) 272,044 ( 19,731 ) 252,313

Other comprehensive income (loss) $ 8,839 ( 158 ) 8,681 19,783 ( 6,346 ) 13,437

(12) 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.

There were no changes related to these relationships during the three months ended March 31, 2023.

There were no changes related to these relationships during the six months ended June 30, 2023.

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

(13) SUBSEQUENT EVENTS

The Company has a plan of disposal to cease operations for its property insurance business on June 30, 2023.

The property insurance business operates through SPFIC and represented less than 1 % of the Company’s total consolidated assets as of March 31, 2023 and less than 2 % of the Company's total consolidated revenues for the three months ended March 31, 2023.

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 other significant subsequent events need to be recognized or disclosed at this time.

March 31, 2023 | 10-Q 40

June 30, 2023 | 10-Q 40

CITIZENS, INC.

1 unchanged sentence

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

What changed 10-Q

Item 1. Financial Statements