What changed in this filing

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Item 1. Financial Statements

2024-05-07 compared with 2023-11-06 · 213 added, 501 removed, 819 unchanged (47% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets

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

(In thousands) March 31, 2024 December 31, 2023

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

5 unchanged sentences

85,118 82,725

Short-term investments — 1,241

Total investments 1,399,859 1,402,347

10 unchanged sentences

See accompanying Notes to Consolidated Financial Statements.

September 30, 2023 | 10-Q 2

March 31, 2024 | 10-Q 2

CITIZENS, INC.

1 unchanged sentence

Consolidated Balance Sheets, Continued

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

(In thousands, except share amounts) March 31, 2024 December 31, 2023

Liabilities and Stockholders' Equity:

13 unchanged sentences

Commissions payable 2,919 3,445

Current federal income tax payable 652 —

Deferred federal income tax liability 3,601 1,102

5 unchanged sentences

Common stock:

Class A, no par value, 100,000,000 shares authorized, 53,880,359 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

Class A, no par value, 100,000,000 shares authorized, 53,900,208 and 53,882,661 shares issued and outstanding in 2024 and 2023, respectively, including shares in treasury of 4,327,810 in 2024 and 2023

268,802 268,675

6 unchanged sentences

See accompanying Notes to Consolidated Financial Statements.

September 30, 2023 | 10-Q 3

March 31, 2024 | 10-Q 3

CITIZENS, INC.

1 unchanged sentence

Consolidated Statements of Operations and Comprehensive Income (Loss)

Three Months Ended Nine Months Ended

September 30, September 30,

Three Months Ended

(In thousands, except per share amounts)

2023 2022 2023 2022

Life insurance $ 38,261 36,934

18 unchanged sentences

Total benefits and expenses 52,787 49,199

Income (loss) before federal income tax 4,641 4,822 17,400 15,966

Federal income tax expense (benefit) 1,943 1,415 3,704 3,618

Net income (loss) 2,698 3,407 13,696 12,348

Income before federal income tax

Federal income tax expense

Per Share Amounts:

Basic earnings (losses) per share of Class A common stock

0.06 0.07 0.28 0.25

Diluted earnings (losses) per share of Class A common stock

0.05 0.06 0.27 0.24

Basic and diluted earnings per share of Class A common stock

Other Comprehensive Income (Loss):

1 unchanged sentence

Unrealized holding gains (losses) arising during period ( 13,416 ) 43,436

Reclassification adjustment for losses (gains) included in net income (loss) 419 43 481 78

Reclassification adjustment for losses (gains) included in net income

Unrealized gains (losses) on fixed maturity securities, net ( 12,968 ) 43,474

4 unchanged sentences

See accompanying Notes to Consolidated Financial Statements.

September 30, 2023 | 10-Q 4

March 31, 2024 | 10-Q 4

CITIZENS, INC.

1 unchanged sentence

Consolidated Statements of Stockholders' Equity

Common Stock Retained Earnings (Accumulated

Deficit) Accumulated Other

Common Stock Retained Earnings

Accumulated Other

Comprehensive

4 unchanged sentences

Comprehensive income (loss):

Net income (loss) — — 4,872 — — 4,872

— — 4,542 — — 4,542

Other comprehensive income (loss) — — — 18,385 — 18,385

2 unchanged sentences

Balance at March 31, 2024 $ 268,802 3,184 46,692 ( 99,770 ) ( 23,725 ) 195,183

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

Comprehensive income (loss):

Net income (loss) — — 2,698 — — 2,698

Other comprehensive income (loss) — — — 1,696 — 1,696

Total comprehensive income (loss) — — 2,698 1,696 — 4,394

Stock-based compensation 180 — — — — 180

— — 1,327 — — 1,327

Balance at September 30, 2023 $ 268,423 3,184 31,332 ( 126,667 ) ( 23,525 ) 152,747

1 See Note 10 - Income Taxes for details.

See accompanying Notes to Consolidated Financial Statements.

September 30, 2023 | 10-Q 5

CITIZENS, INC.

AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Stockholders' Equity, Continued

Common Stock Retained Earnings (Accumulated

Deficit) Accumulated Other

Comprehensive

Income (Loss) Treasury

Stockholders' Equity

(In thousands) Class A Class B

Balance at December 31, 2022

$ 268,147 3,184 16,309 ( 137,044 ) ( 22,806 ) 127,790

Comprehensive income (loss):

Net income (loss) — — 6,449 — — 6,449

— — 4,872 — — 4,872

Other comprehensive income (loss) — — — 21,579 — 21,579

Total comprehensive income (loss) — — 4,872 21,579 — 26,451

Issuance of common stock 1,788 — — — — 1,788

Stock-based compensation 50 — — — — 50

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

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

Comprehensive income (loss):

Net income (loss) — — 3,407 — — 3,407

Other comprehensive income (loss) — — — ( 14,941 ) — ( 14,941 )

Total comprehensive income (loss) — — 3,407 ( 14,941 ) — ( 11,534 )

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

Stock-based compensation 138 — — — — 138

Balance at September 30, 2022 $ 267,988 3,184 2,650 ( 140,493 ) ( 22,284 ) 111,045

See accompanying Notes to Consolidated Financial Statements.

September 30, 2023 | 10-Q 6

March 31, 2024 | 10-Q 5

CITIZENS, INC.

1 unchanged sentence

Consolidated Statements of Cash Flows

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands)

Cash flows from operating activities:

Net income (loss) $ 13,696 12,348

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Investment related (gains) losses on sale of investments and other assets 477 10,589

$ 4,542 4,872

Adjustments to reconcile net income to net cash provided by operating activities:

Investment related (gains) losses on sale of investments and other assets, net ( 963 ) 288

Net deferred policy acquisition costs ( 4,293 ) ( 2,544 )

12 unchanged sentences

Other, net ( 1,900 ) ( 504 )

Net cash provided by (used in) operating activities 15,444 39,763

Net cash provided by operating activities

Cash flows from investing activities:

2 unchanged sentences

Maturities and calls of fixed maturity securities, available-for-sale 12,366 14,426

Sales of equity securities

Principal payments on mortgage loans 3 2

3 unchanged sentences

Purchases of property and equipment ( 58 ) ( 73 )

Maturities of short-term investments 750 —

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

Net cash provided by (used in) investing activities ( 18,471 ) ( 46,137 )

Net cash used in investing activities

( 9,466 ) ( 11,026 )

See accompanying Notes to Consolidated Financial Statements.

September 30, 2023 | 10-Q 7

March 31, 2024 | 10-Q 6

CITIZENS, INC.

1 unchanged sentence

Consolidated Statements of Cash Flows, Continued

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands)

2 unchanged sentences

Annuity withdrawals ( 2,650 ) ( 2,365 )

Acquisition of treasury stock ( 719 ) ( 2,183 )

Issuance of common stock — 2,244

Other ( 27 ) ( 20 )

Net cash provided by (used in) financing activities ( 3,161 ) 87

Net increase (decrease) in cash and cash equivalents ( 6,188 ) ( 6,287 )

Net cash used in financing activities

( 1,077 ) ( 377 )

Net decrease in cash and cash equivalents

( 3,755 ) ( 4,049 )

Cash and cash equivalents at beginning of year 26,997 22,973

1 unchanged sentence

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

During the nine months ended September 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 $ 0.3 million net unsettled security trades at September 30, 2023 and none at September 30, 2022.

The Company recognized $ 36 thousand right-of-use assets in exchange for new operating lease liabilities during the nine months ended September 30, 2023 and $ 0.4 million during the nine months ended September 30, 2022.

During the three months ended March 31, 2023, various fixed maturity issuers exchanged securities with book values of $ 2.1 million for securities of equal value while none were exchanged during the three months ended March 31, 2024.

The Company had $ 1.4 million of net unsettled security trades at March 31, 2024 and none at March 31, 2023.

See accompanying Notes to Consolidated Financial Statements.

September 30, 2023 | 10-Q 8

March 31, 2024 | 10-Q 7

CITIZENS, INC .

3 unchanged sentences

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., 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, a Puerto Rico holding company ("Nexo").

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

("CICA Bermuda"), CICA Life A.I., a Puerto Rico company ("CICA International"), Security Plan Life Insurance Company ("SPLIC"), Security Plan Fire Insurance Company ("SPFIC"), Magnolia Guaranty Life Insurance Company ("MGLIC"), Computing Technology, Inc.

("CTI"), Nexo Enrollment Services LLC, a Puerto Rico service company ("NES") 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 September 30, 2023, the consolidated statements of operations and comprehensive income (loss) and stockholders' equity for the three and nine months ended September 30, 2023 and September 30, 2022 and the consolidated statements of cash flows for the nine months ended September 30, 2023 and September 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 September 30, 2023 and for comparative periods have been made.

The consolidated balance sheet as of March 31, 2024, the consolidated statements of operations and comprehensive income (loss) and stockholders' equity for the three months ended March 31, 2024 and March 31, 2023 and the consolidated statements of cash flows for the three months ended March 31, 2024 and March 31, 2023 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, 2024 and for comparative periods have been made.

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

3 unchanged sentences

Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

Our Life Insurance segment operates through CICA PR and CICA.

Until December 31, 2022, our international life insurance business operated through CICA International.

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

Our Life Insurance segment operates through CICA International and CICA Domestic.

Until December 31, 2022, our international life insurance business operated through CICA Bermuda.

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

These companies provide U.S.

2 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.

On August 31, 2023, CICA International transferred all of its insurance in force business to CICA PR.

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.

On August 31, 2023, CICA Bermuda transferred all of its insurance in force business to CICA International.

Prior to July 1, 2023, our domestic life insurance business operated through CICA Domestic and Citizens National Life Insurance Company ("CNLIC").

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

CNLIC merged into CICA Domestic 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.

2 unchanged sentences

CTI provides data processing systems and services to the Company.

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 the disclosure of contingent

September 30, 2023 | 10-Q 9

NES provides services to policyholders of CICA International.

March 31, 2024 | 10-Q 8

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

Significant estimates include those used in the evaluation of credit allowances on fixed maturity securities, actuarially determined assets and liabilities and assumptions and valuation allowance on deferred tax assets.

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, valuation allowances on deferred tax assets, actuarially determined assets and liabilities and assumptions and contingencies related to litigation and regulatory matters.

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

2 unchanged sentences

Summary of Significant Accounting Policies in the notes to our consolidated financial statements included in our Form 10-K , which should be read in conjunction with these accompanying consolidated financial statements.

DEFERRED POLICY ACQUISITION COSTS

Deferred policy acquisition costs (“DAC”) are costs that are incremental and directly related to the successful acquisition of new or renewal insurance contracts.

Such costs include the incremental direct costs of contract acquisition, such as sales commissions;

the portion of employees’ total compensation and payroll-related fringe benefits related directly to time spent performing acquisition activities, such as underwriting, issuing, and processing policies for contracts that have actually been acquired;

and other costs related directly to acquisition activities that would not have been incurred if the contract had not been acquired.

Contracts are grouped by contract type and issue year into cohorts consistent with the grouping used in estimating the associated liability.

DAC is amortized on a constant level basis for the grouped contracts over the expected term of the related contracts to approximate straight-line amortization.

For the Life Insurance segment, the constant level basis used is policy count in force.

For the Home Service Insurance segment, the constant level basis used is face amount in force.

The constant level bases used for amortization are projected using mortality and lapse assumptions that are based on the Company’s experience, industry data, and other factors at the end of each reporting period and are consistent with those used for the liability for future policy benefit life reserves.

Annually, the Company completes experience studies with respect to mortality and lapse.

If those assumptions are updated, the DAC amortization basis is recalculated and the effect of the assumption change will be reflected in the cohort level amortization in future periods.

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

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 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.

FUTURE POLICY BENEFITS AND EXPENSES

As premium revenue is recognized, a liability for future policy benefits, which is the present value of estimated future policy benefits to be paid to or on behalf of policyholders less the present value of estimated future net premiums to be collected from policyholders, is accrued.

The liability is estimated using current assumptions that include discount rate, mortality and lapses.

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

September 30, 2023 | 10-Q 10

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

Both reporting cohorts include whole life and endowment policies.

The liability is adjusted for differences between actual and expected experience.

The Company reviews its historical cash flow assumptions quarterly and in the third quarter of the year, the Company reviews its future cash flow assumptions.

The net premium ratio used to calculate the liability is updated each quarter based on the current period's actual experience relative to expected experience.

The revised net premium ratio is used to derive an updated liability for future policy benefits as of the beginning of the current reporting period, discounted at the locked-in discount rate.

This amount is then compared to the carrying amount of the liability as of that same date, before the updating of cash flow assumptions, to determine the current period change in liability estimate.

The current period change in the liability is the policyholder liability remeasurement gain or loss and is presented as a separate component of total insurance benefits paid or provided in the consolidated statements of comprehensive income or loss.

In subsequent periods, the revised net premiums are used to measure the liability for future policy benefits, subject to future revisions.

For traditional and limited-payment contracts, the current discount rate assumption is a yield curve that equals the yield of an upper-medium grade fixed income instrument, based on an A-quality corporate bonds.

The Company selects fixed-income instruments that have been A rated by one of the major credit rating agencies, such as Moody’s, Standard & Poor’s, or Fitch.

The current discount rate assumption is updated quarterly and used to remeasure the liability at the reporting date, with the resulting change reflected in other comprehensive income.

For liability cash flows that are projected beyond the duration of market-observable A credit-rated fixed-income instruments, the Company uses the last market-observable yield level and uses linear interpolation to determine yield assumptions for durations that do not have market observable yields.

The locked-in discount rate for policies issued prior to transition equals the rate set at contract issuance.

For current year issues, the locked-in discount rate is the average of the current year quarterly discount rates and will change throughout the year as new discount rates are calculated, with the change reflected in net income.

DEFERRED PROFIT LIABILITY

For limited-payment products, gross premiums received in excess of net premiums are deferred at initial recognition as a deferred profit liability (“DPL”).

Gross premiums are measured using assumptions consistent with those used in the measurement of the liability for future policy benefit life reserves, including discount rate, mortality and lapses.

The DPL is amortized and recognized in net income within the increase in future policy benefit reserves.

The amortization basis for the DPL is the present value of insurance in force for life insurance contracts.

Interest is accreted on the balance of the DPL using the locked-in discount rate.

The Company reviews and updates its estimates of cash flows for the DPL at the same time as the estimates of cash flows for the liability for future policy benefit life reserves.

The DPL is updated each quarter based on the current period's actual experience relative to expected experience with the changes recorded within the increase in future policy benefit reserves in the consolidated statements of comprehensive income or loss.

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

September 30, 2023 | 10-Q 11

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(2) ACCOUNTING PRONOUNCEMENTS

ACCOUNTING STANDARDS RECENTLY ADOPTED

Impacts at Transition Date

In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No.

2018-12, Financial Services-Insurance (Topic 944):

Targeted Improvements to the Accounting for Long-Duration Contracts.

The Company adopted ASU 2018-12 for the liability for future policy benefits, DAC and COIA on a modified retrospective basis such that those balances were adjusted to conform to ASU 2018-12 effective January 1, 2021.

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

Home Service Insurance

Liability for Future Policy Benefits

Pre-adoption liability as of 12/31/2020 $ 987,373 255,513 1,242,886

Change in discount rate assumptions 261,823 108,468 370,291

Effect of reserve changes 6 96 102

Post-adoption liability as of 1/1/2021 $ 1,249,202 364,077 1,613,279

Fixed Annuity Liability

Pre-adoption liability as of 12/31/2020 $ 60,027 18,277 78,304

Adjustments for the removal of shadow adjustments — 3,426 3,426

Post-adoption liability as of 1/1/2021 $ 60,027 21,703 81,730

Deferred Acquisition Costs

Pre-adoption balance as of 12/31/2020 $ 94,771 10,142 104,913

Adjustments for the removal of shadow adjustments 8,270 29,905 38,175

Impact of flooring cohorts at zero 23 12 35

Post adoption balance as of 1/1/2021 $ 103,064 40,059 143,123

Cost of Insurance Acquired

Pre-adoption balance as of 12/31/2020 $ 1,734 9,807 11,541

Adjustments for the removal of shadow adjustments — 484 484

Post adoption balance as of 1/1/2021 $ 1,734 10,291 12,025

At transition, the Company recorded a charge of $ 0.1 million to retained earnings, net of tax, primarily from capping net premium ratios for certain policyholder benefit cohorts at 100%, increasing reserves for certain non-premium paying cohorts and flooring certain DAC cohorts at zero.

Other comprehensive income ("OCI") was reduced by $ 316.8 million primarily due to the difference in the discount rate used prior to transition and the discount rate at January 1, 2021.

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.

September 30, 2023 | 10-Q 12

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Impacts to Previously Reported Results

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

(In thousands)

As Previously Reported Adoption of New Standard Post Adoption

As of December 31, 2022

Consolidated Balance Sheet

Deferred policy acquisition costs $ 140,167 22,760 162,927

Cost of insurance acquired 10,260 387 10,647

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

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

Future policy benefit reserves:

Life insurance 1,305,506 ( 106,859 ) 1,198,647

Annuities 91,234 ( 91,234 ) —

Policyholders' funds:

Annuities — 121,422 121,422

Other policyholders' funds 40,497 ( 32,996 ) 7,501

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 )

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

September 30, 2023 | 10-Q 13

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 September 30, 2022

Consolidated Statement of Operations

Increase (decrease) in future policy benefit reserves $ 7,090 ( 6,437 ) 653

Policyholder liability remeasurement (gain) loss — 396 396

Amortization of deferred policy acquisition costs 7,082 ( 3,458 ) 3,624

Amortization of cost of insurance acquired 276 ( 110 ) 166

Federal income tax expense (benefit) 344 1,071 1,415

Net income (loss) ( 5,131 ) 8,538 3,407

Basic earnings (losses) per share of Class A common stock ( 0.10 ) 0.17 0.07

Diluted earnings (losses) per share of Class A common stock ( 0.10 ) 0.16 0.06

Consolidated Statement of Comprehensive Income (Loss)

Unrealized holding gains (losses) arising during period $ ( 89,713 ) 1,331 ( 88,382 )

Change in current discount rate for liability for future policy benefits — 73,214 73,214

Income tax expense (benefit) on other comprehensive income items ( 5,079 ) 4,895 ( 184 )

Other comprehensive income (loss) ( 84,591 ) 69,650 ( 14,941 )

Total comprehensive income (loss) ( 89,722 ) 78,188 ( 11,534 )

For the Nine Months Ended September 30, 2022

Consolidated Statement of Operations

Increase (decrease) in future policy benefit reserves $ 23,037 ( 18,540 ) 4,497

Policyholder liability remeasurement (gain) loss — 1,731 1,731

Amortization of deferred policy acquisition costs 18,869 ( 8,218 ) 10,651

Amortization of cost of insurance acquired 775 ( 329 ) 446

Federal income tax expense (benefit) 622 2,996 3,618

Net income (loss) ( 10,012 ) 22,360 12,348

Basic earnings (losses) per share of Class A common stock ( 0.20 ) 0.45 0.25

Diluted earnings (losses) per share of Class A common stock ( 0.20 ) 0.44 0.24

Consolidated Statement of Comprehensive Income (Loss)

Unrealized holding gains (losses) arising during period $ ( 343,989 ) 3,311 ( 340,678 )

Change in current discount rate for liability for future policy benefits — 345,258 345,258

Income tax expense (benefit) on other comprehensive income items ( 18,880 ) 25,042 6,162

Other comprehensive income (loss) ( 325,031 ) 323,527 ( 1,504 )

Total comprehensive income (loss) ( 335,043 ) 345,887 10,844

ACCOUNTING STANDARDS NOT YET ADOPTED

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

September 30, 2023 | 10-Q 14

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

On November 27, 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures .

This amendment expands a public entity's segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker, clarifying when an entity may report one or more additional measures to assess segment performance, requiring enhanced interim disclosures, providing new disclosure requirements for entities with a single reportable segment, and requiring other new disclosures.

The amendments are effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is available.

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

Although the ASU only requires additional disclosures about the Company's operating segments, the Company is currently evaluating the effects of adopting this guidance on the consolidated financial statements.

On December 14, 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which is intended to enhance the transparency, decision usefulness and effectiveness of income tax disclosures.

The amendments in this ASU require a public entity to disclose a tabular tax rate reconciliation, using both percentages and currency, with specific categories.

A public entity is also required to provide a qualitative description of the state and local jurisdictions that make up the majority of the effect of the state and local income tax category and the net amount of income taxes paid, disaggregated by federal, state and foreign taxes and also disaggregated by individual jurisdictions.

The amendments also remove certain disclosures that are no longer considered cost beneficial.

The amendments are effective prospectively for annual periods beginning after December 15, 2024 and early adoption and retrospective application are permitted.

The Company is currently evaluating the impact of adopting this pronouncement on the consolidated financial statements.

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

March 31, 2024 | 10-Q 9

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(3) INVESTMENTS

The Company invests primarily in fixed maturity securities, which totaled 86.3 % of total cash and invested assets at September 30, 2023, as shown below.

The Company invests primarily in fixed maturity securities, which totaled 86.7 % of total cash and invested assets at March 31, 2024, as shown below.

Carrying Value

(In thousands, except for %)

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Amount % Amount %

4 unchanged sentences

Other long-term investments 85,118 6.0 82,725 5.8

Short-term investments — — 1,241 0.1

Cash and cash equivalents 23,242 1.6 26,997 1.8

Total cash and invested assets $ 1,423,101 100.0 % 1,429,344 100.0 %

September 30, 2023 | 10-Q 15

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.

September 30, 2023

March 31, 2024

(In thousands)

8 unchanged sentences

Energy 72,733 27 8,576 64,184

Communications

73,354 247 9,843 63,758

All other 111,641 444 14,289 97,796

3 unchanged sentences

Total fixed maturity securities $ 1,397,074 6,623 169,649 1,234,048

March 31, 2024 | 10-Q 10

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2023

9 unchanged sentences

Energy 73,808 64 8,049 65,823

Communications

74,029 309 8,892 65,446

All other 111,124 647 12,439 99,332

2 unchanged sentences

Asset-backed 58,360 290 1,516 57,134

Foreign governments 100 1 — 101

Total fixed maturity securities $ 1,389,038 8,682 158,739 1,238,981

September 30, 2023 | 10-Q 16

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Most of the Company's equity securities are invested in a non-redeemable preferred stock fund.

(In thousands)

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Equity securities:

Stock mutual funds $ 2,034 2,615

Bond mutual funds $ 739 740

5 unchanged sentences

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

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

The Company recognized net investment related losses of $ 0.4 million and $ 0.3 million on equity securities held for the three and nine months ended September 30, 2023 and losses of $ 0.9 million and $ 2.9 million for the same periods ended September 30, 2022, respectively.

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

The Company recognized net investment related gains of $ 0.1 million and $ 0.3 million on equity securities held for the three months ended March 31, 2024 and 2023, respectively.

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

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

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

September 30, 2023 | 10-Q 17

For the three months ended March 31, 2024 and 2023, the Company recorded no credit valuation losses on fixed maturity securities.

March 31, 2024 | 10-Q 11

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 September 30, 2023 and December 31, 2022.

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

For fixed maturity security investments that have unrealized losses as of March 31, 2024 and December 31, 2023, the gross unrealized losses and related fair values that have been in a continuous unrealized loss position by timeframe are as follows.

March 31, 2024 Less than 12 months Greater than 12 months Total

(In thousands, except for # of securities) Fair

13 unchanged sentences

Energy 4,380 110 3 58,299 8,466 74 62,679 8,576 77

Communications

6,429 190 6 54,172 9,653 68 60,601 9,843 74

All Other 4,147 121 9 83,944 14,168 100 88,091 14,289 109

19 unchanged sentences

Energy 3,291 57 1 59,392 7,992 76 62,683 8,049 77

Communications

5,784 153 5 56,108 8,739 69 61,892 8,892 74

All Other 2,080 32 5 85,757 12,407 100 87,837 12,439 105

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

Residential mortgage-backed 849 38 5 95,806 10,022 86 96,655 10,060 91

1 unchanged sentence

Total fixed maturity securities $ 64,080 1,503 120 932,571 157,236 1,142 996,651 158,739 1,262

September 30, 2023 | 10-Q 18

March 31, 2024 | 10-Q 12

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

As of March 31, 2024 and December 31, 2023, 99.0 % and 99.4 % of the fair value of our fixed maturity securities portfolio, respectively, were 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.

While we experience unrealized losses across all corporate sectors, the financial sector includes exposure to regional banks which have been impacted the most by recent economic and interest rate pressures.

We have assessed our exposure in this sector and believe our investments have access to sufficient liquidity to meet their debt obligations.

These unrealized losses on fixed maturity securities are due to noncredit-related factors, including widening credit spreads and rising interest rates since purchase, which have little bearing on the recoverability of 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 September 30, 2023 by contractual maturity are shown in the table below.

The amortized cost and fair value of fixed maturity securities at March 31, 2024 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.

September 30, 2023 Amortized

March 31, 2024 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 Nine Months Ended

September 30, September 30,

Three Months Ended

(In thousands) 2024 2023

6 unchanged sentences

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

September 30, 2023 | 10-Q 19

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

We utilize valuation techniques that maximize the use of

March 31, 2024 | 10-Q 13

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

observable inputs and minimize the use of unobservable inputs.

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

13 unchanged sentences

We have no investments in this category.

September 30, 2023 | 10-Q 20

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

September 30, 2023 Level 1 Level 2 Level 3 Total

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

March 31, 2024 Level 1 Level 2 Level 3 Total

(In thousands)

9 unchanged sentences

Total fixed maturity securities, available-for-sale

6,020 1,228,028 — 1,234,048

Equity securities:

Stock mutual funds 2,034 — — 2,034

Bond mutual funds 739 — — 739

7 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.

September 30, 2023 | 10-Q 21

March 31, 2024 | 10-Q 14

CITIZENS, INC .

11 unchanged sentences

Asset-backed — 57,134 — 57,134

Foreign governments — 101 — 101

Total fixed maturity securities, available-for-sale

6,105 1,232,876 — 1,238,981

Equity securities:

Stock mutual funds 2,615 — — 2,615

Bond mutual funds 740 — — 740

10 unchanged sentences

Fixed maturity securities, available-for-sale.

At September 30, 2023, fixed maturity securities, valued using a third-party pricing source, totaled $ 1.1 billion for Level 2 assets and comprised 92 % of total reported fair value of our financial assets.

At March 31, 2024, fixed maturity securities, valued using a third-party pricing source, totaled $ 1.2 billion for Level 2 assets and comprised 92.7 % 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 September 30, 2023.

As of September 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.

There were no Level 3 assets at March 31, 2024.

As of March 31, 2024, 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 $ 0.1 million and gains of $ 0.2 million and losses of $ 4.2 million and $ 9.4 million on limited partnerships held for the three and nine months ended September 30, 2023 and

September 30, 2023 | 10-Q 22

The Company recognized net investment related gains of $ 1.3 million and losses of $ 0.6 million on limited partnerships

March 31, 2024 | 10-Q 15

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022, respectively.

held for the three months ended March 31, 2024 and March 31, 2023, respectively.

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

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

(In thousands, except for years)

16 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:

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

(In thousands) Carrying

6 unchanged sentences

Annuity - investment contracts 67,518 61,576 67,690 63,283

September 30, 2023 | 10-Q 23

March 31, 2024 | 10-Q 16

CITIZENS, INC .

1 unchanged sentence

Policy loans.

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

Policy loans had a weighted average annual interest rate of 7.7 % at both March 31, 2024 and December 31, 2023 and no specified maturity dates.

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

2 unchanged sentences

Residential mortgage loan.

The mortgage loan is secured principally by a residential property.

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

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

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

The mortgage loan is secured by a residential property.

The interest rate for this loan was 7.0 % at both March 31, 2024 and December 31, 2023.

At March 31, 2024, the remaining loan matures in four years .

Management estimated the fair value using an annual interest rate of 6.25 % at both March 31, 2024 and December 31, 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.

2 unchanged sentences

Annuity liabilities.

The fair value of the Company's liabilities under annuity contract policies, which are considered Level 3 liabilities, was estimated at September 30, 2023 and December 31, 2022 using discounted cash flows based upon spot rates adjusted for various risk adjustments ranging from 4.57 % to 5.01 % and 4.74 % to 5.09 %, respectively.

The fair value of the Company's liabilities under annuity contracts, which are considered Level 3 liabilities, was estimated at March 31, 2024 and December 31, 2023 using discounted cash flows based upon spot rates adjusted for various risk adjustments ranging from 4.13 % to 4.63 % and 3.80 % to 4.50 %, 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 )

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Other long-term investments:

4 unchanged sentences

Total other long-term investments $ 85,118 82,725

We carried no limited partnership investments at cost at September 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 nine months ended September 30, 2023 and 2022 by reporting cohort.

The following tables roll forward the DAC and COIA balances for the three months ended March 31, 2024 and 2023 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

September 30, 2023 | 10-Q 24

March 31, 2024 | 10-Q 17

CITIZENS, INC .

2 unchanged sentences

Both reporting cohorts include whole life and endowment policies.

Nine Months Ended September 30, 2023

Three Months Ended March 31, 2024

(In thousands) Permanent Permanent Limited Pay Other Business Total

14 unchanged sentences

Balance, end of period $ 152,352 25,344 2,365 180,061

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

(In thousands) Permanent Permanent Limited Pay Other Business Total

14 unchanged sentences

Balance, end of period $ 141,377 22,143 1,951 165,471

September 30, 2023 | 10-Q 25

March 31, 2024 | 10-Q 18

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The following tables provide rollforwards of the COIA balances for the nine months ended September 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.

Nine Months Ended September 30, 2023

DAC capitalization increased for the three months ended March 31, 2024, compared to the same prior year period mainly from increased commissions from higher first year sales in our Life Insurance segment.

Three Months Ended March 31, 2024

(In thousands) Permanent Permanent Limited Pay Other Business Total

11 unchanged sentences

Balance, end of period $ 7,345 848 1,678 9,871

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

(In thousands) Permanent Permanent Limited Pay Other Business Total

11 unchanged sentences

Balance, end of period $ 7,747 909 1,830 10,486

September 30, 2023 | 10-Q 26

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(6) POLICYHOLDERS’ LIABILITIES

1 unchanged sentence

The following tables summarize balances of and changes in the liability for future policy benefits for our reporting cohorts:

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.

Permanent, which summarizes insurance policies with premiums payable over the lifetime of the policy,

March 31, 2024 | 10-Q 19

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

September 30, 2023

March 31, 2024

(In thousands)

5 unchanged sentences

Beginning balance at original discount rate 252,426 13,533 265,959 102,045 15,512 117,557

Effect of changes in cash flow assumptions ( 210 ) 38 ( 172 ) ( 343 ) 85 ( 258 )

Effects of actual variances from expected experience ( 1,772 ) 204 ( 1,568 ) ( 1,703 ) ( 1,078 ) ( 2,781 )

10 unchanged sentences

Beginning balance at original discount rate 995,962 202,755 1,198,717 217,524 123,941 341,465

Effect of changes in cash flow assumptions ( 389 ) ( 702 ) ( 1,091 ) ( 257 ) 331 74

Effects of actual variances from expected experience ( 1,592 ) 1,094 ( 498 ) ( 1,697 ) ( 748 ) ( 2,445 )

8 unchanged sentences

Net liability for future policy benefits $ 709,598 176,347 885,945 107,648 102,403 210,051

September 30, 2023 | 10-Q 27

March 31, 2024 | 10-Q 20

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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.

September 30, 2022

March 31, 2023

(In thousands)

4 unchanged sentences

Beginning balance at original discount rate 247,601 10,682 258,283 100,225 14,394 114,619

Effect of changes in cash flow assumptions ( 3,662 ) 237 ( 3,425 ) 4,253 1,214 5,467

Effects of actual variances from expected experience 1,742 365 2,107 ( 1,371 ) ( 809 ) ( 2,180 )

10 unchanged sentences

Beginning balance at original discount rate 996,169 208,051 1,204,220 214,188 121,908 336,096

Effect of changes in cash flow assumptions ( 3,916 ) 374 ( 3,542 ) 4,822 1,765 6,587

Effects of actual variances from expected experience 2,538 1,045 3,583 ( 1,299 ) 25 ( 1,274 )

8 unchanged sentences

Net liability for future policy benefits $ 726,197 186,878 913,075 108,972 104,589 213,561

Flooring impact 2 — 2 — — —

Net liability for future policy benefits, after flooring impact $ 703,765 185,486 889,251 107,375 104,165 211,540

September 30, 2023 | 10-Q 28

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

Net premiums collected is 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 nine months ended September 30, 2023 and 2022.

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 nine months ended September 30, 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 three months ended March 31, 2024 and 2023 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, 2024 | 10-Q 21

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 reported in the consolidated balance sheets.

September 30, 2023

September 30, 2022

March 31, 2024

March 31, 2023

(In thousands) Life

12 unchanged sentences

Total future policy benefit reserves $ 944,535 251,739 1,196,274 966,495 252,648 1,219,143

September 30, 2023 | 10-Q 29

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.

September 30, 2023 September 30, 2022

March 31, 2024 March 31, 2023

(In thousands) Life

13 unchanged sentences

Expected future benefit payments 189,844 116,909 197,673 119,104

September 30, 2023 | 10-Q 30

March 31, 2024 | 10-Q 22

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Three Months Ended September 30,

Nine Months Ended September 30,

2023 2022 2023 2022

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

Three Months Ended March 31,

(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:

21 unchanged sentences

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

September 30, 2023 September 30, 2022

March 31, 2024 March 31, 2023

(In years) Life

7 unchanged sentences

Duration at current discount rate 7.8 14.5 7.6 15.2

September 30, 2023 | 10-Q 31

March 31, 2024 | 10-Q 23

CITIZENS, INC .

1 unchanged sentence

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

September 30, 2023 September 30, 2022

March 31, 2024 March 31, 2023

Insurance Home Service

9 unchanged sentences

At Guaranteed Minimum 1 Basis Point-50 Basis Points Above 51 Basis Points-150 Basis Points Above Greater Than 150 Basis Points Above Total

September 30, 2023

March 31, 2024

(In thousands)

10 unchanged sentences

At Guaranteed Minimum 1 Basis Point-50 Basis Points Above 51 Basis Points-150 Basis Points Above Greater Than 150 Basis Points Above Total

September 30, 2022

March 31, 2023

(In thousands)

9 unchanged sentences

Total $ 159,787 603 1,210 38,186 199,786

September 30, 2023 | 10-Q 32

March 31, 2024 | 10-Q 24

CITIZENS, INC .

1 unchanged sentence

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

September 30, 2023

March 31, 2024

(In thousands, except for %)

5 unchanged sentences

Interest credited 474 663 472 431

Other 1 — — —

Surrenders and withdrawals — 2,572 1,168 1,989

3 unchanged sentences

Cash surrender value $ 48,670 86,804 45,760 30,481

September 30, 2022

March 31, 2023

(In thousands, except for %)

5 unchanged sentences

Interest credited 343 668 324 226

Other 2 — — —

Surrenders and withdrawals — 2,247 851 1,757

3 unchanged sentences

Cash surrender value $ 35,835 87,161 42,668 34,122

September 30, 2023 | 10-Q 33

March 31, 2024 | 10-Q 25

CITIZENS, INC .

1 unchanged sentence

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

As of September 30,

As of March 31,

(In thousands)

13 unchanged sentences

CONTRACTUAL OBLIGATIONS

As of September 30, 2023, CICA International is committed to fund investments up to $ 30.3 million related to limited partnerships previously described.

As of March 31, 2024, CICA International is committed to fund investments up to $ 25.7 million related to limited partnerships previously described.

CREDIT FACILITY

6 unchanged sentences

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

September 30, 2023 | 10-Q 34

As of March 31, 2024, the Company had no t borrowed any funds against the Credit Facility and was not in violation of any covenants.

March 31, 2024 | 10-Q 26

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We renewed the line of credit in May 2024 for an additional three years at substantially the same terms as described above.

(8) STOCKHOLDERS' EQUITY AND RESTRICTIONS

5 unchanged sentences

Citizens has never issued any preferred stock.

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

Nine Months Ended September 30,

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

Three Months Ended March 31,

(In thousands) Common Stock Treasury Common Stock Treasury

1 unchanged sentence

Balance at beginning of year 53,883 1,002 5,330 53,758 1,002 4,937

Stock issued under stock investment plan — — — 475 — —

Stock issued for compensation 17 — — 34 — —

Acquisition of Class A shares — — 325 — — 615

Other share issuance — — — 22 — —

Balance at end of period 53,900 1,002 5,330 53,792 1,002 4,937

EARNINGS PER SHARE

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

Three Months Ended September 30, 2023 2022

(In thousands, except per share amounts)

Basic and diluted earnings (loss) per share:

Net income (loss) $ 2,698 3,407

Net income (loss) allocated to Class A common stock $ 2,698 3,407

Weighted average shares of Class A outstanding - basic 49,615 50,075

Weighted average shares of Class A outstanding - diluted 50,522 50,799

Basic earnings (loss) per share of Class A common stock

Diluted earnings (loss) per share of Class A common stock

September 30, 2023 | 10-Q 35

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Nine Months Ended September 30, 2023 2022

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

Three Months Ended March 31, 2024 2023

(In thousands, except per share amounts)

Basic and diluted earnings (loss) per share:

Net income (loss) $ 13,696 12,348

Net income (loss) allocated to Class A common stock $ 13,696 12,348

Basic and diluted earnings per share:

$ 4,542 4,872

Net income allocated to Class A common stock

$ 4,542 4,872

Weighted average shares of Class A outstanding - basic 49,564 49,840

Weighted average shares of Class A outstanding - diluted 50,561 50,609

Basic earnings (loss) per share of Class A common stock

Diluted earnings (loss) per share of Class A common stock

CAPITAL AND SURPLUS

Basic and diluted earnings per share of Class A common stock

STATUTORY CAPITAL AND SURPLUS

Each of our regulated insurance subsidiaries is required to meet stipulated regulatory capital requirements.

1 unchanged sentence

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

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

CICA PR is a Puerto Rico domiciled company.

All domestic insurance subsidiaries exceeded the minimum capital requirements at March 31, 2024.

On March 27, 2024 , Citizens and the Colorado Division of Insurance entered into

March 31, 2024 | 10-Q 27

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

a capital maintenance agreement that specifies that Citizens will infuse capital as needed to ensure that CICA Domestic's RBC remains above 350 %.

As CICA Domestic's RBC exceeded 350% at March 31, 2024, no capital contribution was necessary.

CICA International is a Puerto Rico domiciled company.

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 received the transfer of all of CICA International's in force insurance business as of August 31, 2023 .

On that date, Citizens entered into a Keep Well Agreement with CICA PR to replace the Keep Well Agreement that had been in place between Citizens and CICA International (Bermuda).

The Keep Well Agreement requires Citizens to contribute up to $ 10 million in capital to CICA PR as necessary to ensure that CICA PR maintains at least either (i) 112 % of its required ratio of premiums to capital and surplus, or (ii) 200 % of the minimum capital and surplus requirement, whichever is higher.

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

CICA International began issuing new business as of January 1, 2023 and received the transfer of all of CICA Bermuda's in force insurance business as of August 31, 2023 .

On that date, Citizens entered into a Keep Well Agreement with CICA International to replace the Keep Well Agreement that had been in place between Citizens and CICA Bermuda.

The Keep Well Agreement requires Citizens to contribute up to $ 10 million in capital to CICA International as necessary to ensure that CICA International maintains at least either (i) 112 % of its required ratio of premiums to capital and surplus, or (ii) 200 % of the minimum capital and surplus requirement, whichever is higher.

The initial term of the Keep Well Agreement is 12 months.

Since CICA PR's capital exceeds both of the metrics, Citizens is not required to make a capital contribution.

Since CICA International's capital exceeds both of the metrics, Citizens is not required to make a capital contribution.

Any capital that Citizens is required to contribute could negatively impact the Company's capital resources and liquidity.

(9) SEGMENT INFORMATION

(9) SEGMENT AND OTHER OPERATING INFORMATION

The Company has two reportable segments:

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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 PR.

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

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

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

September 30, 2023 | 10-Q 36

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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.

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.

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

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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 is the only reportable difference between segments and consolidated operations.

Life Insurance Home Service Insurance Other Non-Insurance Enterprises Consolidated

Three Months Ended September 30, 2023

(In thousands)

Premiums $ 31,148 10,878 — 42,026

Net investment income 13,661 3,459 252 17,372

Investment related gains (losses), net ( 424 ) ( 370 ) ( 98 ) ( 892 )

Other income 884 — — 884

Total revenues 45,269 13,967 154 59,390

Benefits and expenses:

Insurance benefits paid or provided:

Claims and surrenders 32,419 5,304 — 37,723

Increase (decrease) in future policy benefit reserves ( 5,587 ) 1,707 — ( 3,880 )

Policyholder liability remeasurement (gain) loss 840 184 — 1,024

Policyholders' dividends 1,405 9 — 1,414

Total insurance benefits paid or provided 29,077 7,204 — 36,281

Commissions 5,406 4,038 — 9,444

Other general expenses 6,036 4,293 1,620 11,949

Capitalization of deferred policy acquisition costs ( 5,141 ) ( 1,991 ) — ( 7,132 )

Amortization of deferred policy acquisition costs 3,313 743 — 4,056

Amortization of cost of insurance acquired 28 123 — 151

Total benefits and expenses 38,719 14,410 1,620 54,749

Income (loss) before federal income tax $ 6,550 ( 443 ) ( 1,466 ) 4,641

September 30, 2023 | 10-Q 37

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Life Insurance Home Service Insurance Other Non-Insurance Enterprises Consolidated

Nine Months Ended September 30, 2023

(In thousands)

Premiums $ 86,128 33,873 — 120,001

Net investment income 40,470 10,379 838 51,687

Investment related gains (losses), net ( 123 ) ( 283 ) ( 71 ) ( 477 )

Other income 2,619 1 — 2,620

Total revenues 129,094 43,970 767 173,831

Benefits and expenses:

Insurance benefits paid or provided:

Claims and surrenders 83,826 16,972 — 100,798

Increase (decrease) in future policy benefit reserves ( 9,270 ) 3,468 — ( 5,802 )

Policyholder liability remeasurement (gain) loss 2,541 319 — 2,860

Policyholders' dividends 3,761 22 — 3,783

Total insurance benefits paid or provided 80,858 20,781 — 101,639

Commissions 14,930 12,410 — 27,340

Other general expenses 17,141 13,060 5,276 35,477

Capitalization of deferred policy acquisition costs ( 13,958 ) ( 6,076 ) — ( 20,034 )

Amortization of deferred policy acquisition costs 9,642 1,902 — 11,544

Amortization of cost of insurance acquired 86 379 — 465

Total benefits and expenses 108,699 42,456 5,276 156,431

Income (loss) before federal income tax $ 20,395 1,514 ( 4,509 ) 17,400

September 30, 2023 | 10-Q 38

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

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

March 31, 2024 | 10-Q 28

CITIZENS, INC .

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Life Insurance Home Service Insurance Other Non-Insurance Enterprises Consolidated

Three Months Ended September 30, 2022

Three Months Ended March 31, 2024

(In thousands)

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Income (loss) before federal income tax $ 5,800 623 ( 1,498 ) 4,925

September 30, 2023 | 10-Q 39

March 31, 2024 | 10-Q 29

CITIZENS, INC .

1 unchanged sentence

Life Insurance Home Service Insurance Other Non-Insurance Enterprises Consolidated

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

(In thousands)

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Income (loss) before federal income tax $ 6,372 1,333 ( 990 ) 6,715

September 30, 2023 | 10-Q 40

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(10) INCOME TAXES

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

The effective tax rate was 41.9 % and 21.3 % for the three and nine months ended September 30, 2023, compared to 29.3 % and 22.7 % for the same periods in 2022, respectively.

CICA International and CICA PR are considered controlled foreign corporations for federal tax purposes.

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

CICA PR has applied for a tax exemption decree from the Government of Puerto Rico which will freeze the income tax rate at 4% on any taxable earnings in excess of $1.2 million.

The effective tax rate is the ratio of tax expense over pre-tax income.

The effective tax rate was 7.8 % for the three months ended March 31, 2024, compared to 27.4 % for the same period in 2023, respectively.

CICA Bermuda and CICA International are considered controlled foreign corporations for federal income tax purposes.

As a result, the insurance activity of CICA Bermuda and CICA International are subject to Subpart F of the Internal Revenue Code and are included in Citizens’ taxable income.

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

The Government of Puerto Rico approved a tax exemption decree for CICA International which freezes the income tax rate at 0 % on taxable earnings up to $ 1.2 million and 4 % on taxable earnings in excess of $ 1.2 million for a minimum of 15 years.

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.

As a result of the August 31, 2023 transfer of CICA International's in force business to CICA PR, the Company's consolidated deferred federal income tax liability was reduced by $ 4.3 million due to the difference in the tax rates in the jurisdictions in which the companies operate.

Since the transfer was between companies under common control, the $ 4.3 million reduction in the deferred federal income tax liability was recorded as a credit to equity, $ 1.3 million of which increased retained earnings and $ 3.0 million of which reduced accumulated other comprehensive income (loss), based on the nature of the tax components.

At September 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 $ 6.2 million through Other Comprehensive Income (Loss).

September 30, 2023 | 10-Q 41

At March 31, 2024 and 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 valuation allowances of $ 4.6 million and $ 3.7 million, respectively, through Other Comprehensive Income (Loss).

March 31, 2024 | 10-Q 30

CITIZENS, INC .

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(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% for entities domiciled in the United States and 4 % for entities domiciled in Puerto Rico for the three and nine months ended September 30, 2023 and 2022, as indicated below.

Three Months Ended September 30, 2023 2022

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

Unrealized gains (losses):

Unrealized holding gains (losses) arising during the period $ ( 59,817 ) 8,717 ( 51,100 ) ( 88,382 ) 398 ( 87,984 )

Reclassification adjustment for losses (gains) included in net income (loss) 419 ( 88 ) 331 43 ( 9 ) 34

Unrealized holding gains (losses), net ( 59,398 ) 8,629 ( 50,769 ) ( 88,339 ) 389 ( 87,950 )

Change in current discount rate for liability for future policy benefits 60,054 ( 7,589 ) 52,465 73,214 ( 205 ) 73,009

Other comprehensive income (loss) $ 656 1,040 1,696 ( 15,125 ) 184 ( 14,941 )

Nine Months Ended September 30, 2023 2022

The changes in the components of other comprehensive income (loss) are reported net of the effects of income taxes of 21% for domestic entities and 4 % for Puerto Rican entities for the three months ended March 31, 2024 and 2023, as indicated below.

Three Months Ended March 31, 2024 2023

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

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Unrealized holding gains (losses) arising during the period $ ( 13,416 ) 1,198 ( 12,218 ) 43,436 ( 2,280 ) 41,156

Reclassification adjustment for losses (gains) included in net income (loss) 481 ( 101 ) 380 78 ( 16 ) 62

Reclassification adjustment for losses (gains) included in net income

448 ( 94 ) 354 38 ( 8 ) 30

Unrealized holding gains (losses), net ( 12,968 ) 1,104 ( 11,864 ) 43,474 ( 2,288 ) 41,186

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The Company has various routine related party transactions in conjunction with our holding company structure, such as a management service agreement related to costs incurred, a tax sharing agreement between entities, and inter-company dividends and capital contributions.

There were no changes related to these relationships during the nine months ended September 30, 2023 except as described in Note 1 .

There were no changes related to these relationships during the three months ended March 31, 2024 except as described in Note 1.

Financial Statements under Basis of Presentation and Consolidation.

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The Company has evaluated the impact of subsequent events as defined by the accounting guidance through the date this report was issued and determined that no other significant subsequent events need to be recognized or disclosed at this time.

September 30, 2023 | 10-Q 42

March 31, 2024 | 10-Q 31

CITIZENS, INC.

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

What changed 10-Q

Item 1. Financial Statements