CITIZENS, INC. 10-Q

Item 1. FINANCIAL STATEMENTS CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Consolidated Balance Sheets (In thousands) March 31, 2024 December 31, 2023 (Unaudited) Assets: Investments: Fixed maturity securities available-for-sale, at fair value (amortized cost: $ 1,397,074 and $ 1,389,038 in 2024 and 2023, respectively) $ 1,234,048 1,238,981 Equity securities, at fair value 5,419 5,282 Policy loans 75,274 75,359 Other long-term investments (portion measured at fair value $ 84,853 and $ 82,460 in 2024 and 2023, respectively) 85,118 82,725 Total investments 1,399,859 1,402,347 Cash and cash equivalents 23,242 26,997 Accrued investment income 17,290 17,360 Reinsurance recoverable 4,208 3,991 Deferred policy acquisition costs 180,061 175,768 Cost of insurance acquired 9,871 10,043 Current federal income tax receivable 192 1,546 Property and equipment, net 11,408 11,809 Due premiums 9,880 11,264 Other assets (less allowance for losses of $ 431 and $ 408 in 2024 and 2023, respectively) 9,652 7,803 Total assets $ 1,665,663 1,668,928 See accompanying Notes to Consolidated Financial Statements. March 31, 2024 | 10-Q 2 Table of Contents CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Consolidated Balance Sheets, Continued (In thousands, except share amounts) March 31, 2024 December 31, 2023 (Unaudited) Liabilities and Stockholders' Equity: Liabilities: Policy liabilities: Future policy benefit reserves: Life insurance $ 1,195,430 1,229,253 Accident and health insurance 844 889 Total future policy benefit reserves 1,196,274 1,230,142 Policyholders' funds: Annuities 136,965 133,216 Dividend accumulations 45,760 44,960 Premiums paid in advance 32,391 32,446 Policy claims payable 7,983 6,637 Other policyholders' funds 7,402 7,363 Total policyholders' funds 230,501 224,622 Total policy liabilities 1,426,775 1,454,764 Commissions payable 2,919 3,445 Deferred federal income tax liability 3,601 1,102 Payable for securities in process of settlement 1,350 — Other liabilities 35,835 37,488 Total liabilities 1,470,480 1,496,799 Commitments and contingencies ( Note 7 ) Stockholders' Equity: Common stock: 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 Class B, no par value, 2,000,000 shares authorized, 1,001,714 shares issued and outstanding in 2024 and 2023, including shares in treasury of 1,001,714 in 2024 and 2023 3,184 3,184 Retained earnings 46,692 42,150 Accumulated other comprehensive income (loss) ( 99,770 ) ( 118,155 ) Treasury stock, at cost ( 23,725 ) ( 23,725 ) Total stockholders' equity 195,183 172,129 Total liabilities and stockholders' equity $ 1,665,663 1,668,928 See accompanying Notes to Consolidated Financial Statements. March 31, 2024 | 10-Q 3 Table of Contents CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) Three Months Ended March 31, (In thousands, except per share amounts) 2024 2023 Revenues: Premiums: Life insurance $ 38,261 36,934 Accident and health insurance 414 358 Property insurance ( 2 ) 957 Net investment income 17,487 17,074 Investment related gains (losses), net 963 ( 288 ) Other income 589 879 Total revenues 57,712 55,914 Benefits and Expenses: Insurance benefits paid or provided: Claims and surrenders 33,113 30,299 Increase (decrease) in future policy benefit reserves 451 ( 978 ) Policyholder liability remeasurement (gain) loss 319 880 Policyholders' dividends 1,237 1,108 Total insurance benefits paid or provided 35,120 31,309 Commissions 10,450 9,013 Other general expenses 11,338 11,260 Capitalization of deferred policy acquisition costs ( 8,331 ) ( 6,358 ) Amortization of deferred policy acquisition costs 4,038 3,814 Amortization of cost of insurance acquired 172 161 Total benefits and expenses 52,787 49,199 Income before federal income tax 4,925 6,715 Federal income tax expense 383 1,843 Net income 4,542 4,872 Per Share Amounts: Basic and diluted earnings per share of Class A common stock 0.09 0.10 Other Comprehensive Income (Loss): Unrealized gains (losses) on fixed maturity securities: Unrealized holding gains (losses) arising during period ( 13,416 ) 43,436 Reclassification adjustment for losses (gains) included in net income 448 38 Unrealized gains (losses) on fixed maturity securities, net ( 12,968 ) 43,474 Change in current discount rate for liability for future policy benefits 33,995 ( 20,480 ) Income tax expense (benefit) on other comprehensive income items 2,642 1,415 Other comprehensive income (loss) 18,385 21,579 Total comprehensive income (loss) $ 22,927 26,451 See accompanying Notes to Consolidated Financial Statements. March 31, 2024 | 10-Q 4 Table of Contents CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Stockholders' Equity (Unaudited) Common Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Stockholders' Equity (In thousands) Class A Class B Balance at December 31, 2023 $ 268,675 3,184 42,150 ( 118,155 ) ( 23,725 ) 172,129 Comprehensive income (loss): Net income — — 4,542 — — 4,542 Other comprehensive income (loss) — — — 18,385 — 18,385 Total comprehensive income (loss) — — 4,542 18,385 — 22,927 Stock-based compensation 127 — — — — 127 Balance at March 31, 2024 $ 268,802 3,184 46,692 ( 99,770 ) ( 23,725 ) 195,183 Balance at December 31, 2022 $ 268,147 3,184 16,309 ( 137,044 ) ( 22,806 ) 127,790 Comprehensive income (loss): Net income — — 4,872 — — 4,872 Other comprehensive income (loss) — — — 21,579 — 21,579 Total comprehensive income (loss) — — 4,872 21,579 — 26,451 Stock-based compensation 50 — — — — 50 Balance at March 31, 2023 $ 268,197 3,184 21,181 ( 115,465 ) ( 22,806 ) 154,291 See accompanying Notes to Consolidated Financial Statements. March 31, 2024 | 10-Q 5 Table of Contents CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, (In thousands) 2024 2023 Cash flows from operating activities: Net income $ 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 ) Amortization of cost of insurance acquired 172 161 Depreciation 144 122 Amortization of premiums and discounts on investments 1,291 1,203 Stock-based compensation 154 70 Deferred federal income tax expense (benefit) ( 143 ) 706 Change in: Accrued investment income 70 173 Reinsurance recoverable ( 217 ) 237 Due premiums 1,384 2,648 Future policy benefit reserves 128 ( 125 ) Other policyholders' liabilities 6,929 1,582 Federal income tax payable 1,353 1,138 Commissions payable and other liabilities ( 1,863 ) ( 2,673 ) Other, net ( 1,900 ) ( 504 ) Net cash provided by operating activities 6,788 7,354 Cash flows from investing activities: Purchases of fixed maturity securities, available-for-sale ( 23,271 ) ( 25,114 ) Sales of fixed maturity securities, available-for-sale 2,508 2,865 Maturities and calls of fixed maturity securities, available-for-sale 12,366 14,426 Principal payments on mortgage loans 3 2 (Increase) decrease in policy loans, net 85 114 Sales of other long-term investments 82 249 Purchases of other long-term investments ( 1,181 ) ( 3,495 ) Purchases of property and equipment ( 58 ) ( 73 ) Net cash used in investing activities ( 9,466 ) ( 11,026 ) See accompanying Notes to Consolidated Financial Statements. March 31, 2024 | 10-Q 6 Table of Contents CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Cash Flows, Continued (Unaudited) Three Months Ended March 31, (In thousands) 2024 2023 Cash flows from financing activities: Annuity deposits $ 1,600 2,008 Annuity withdrawals ( 2,650 ) ( 2,365 ) Other ( 27 ) ( 20 ) 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 Cash and cash equivalents at end of period $ 23,242 18,924 SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: 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. March 31, 2024 | 10-Q 7 Table of Contents CITIZENS, INC . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited ) (1) FINANCIAL STATEMENTS BASIS OF PRESENTATION AND CONSOLIDATION 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 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 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. generally accepted accounting principles ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission ("SEC"). Accordingly, the consolidated financial statements do not include all the information and footnotes required for complete financial statements and should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023 ("Form 10-K"). 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 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. dollar-denominated endowment contracts internationally, which are principally accumulation contracts that incorporate an element of life insurance protection and ordinary whole life insurance in U.S. dollar-denominated amounts sold to non-U.S. residents. 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 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. 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. NES provides services to policyholders of CICA International. March 31, 2024 | 10-Q 8 Table of Contents CITIZENS, INC . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited ) 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. SIGNIFICANT ACCOUNTING POLICIES For a description of all significant accounting policies, see Part IV, Item 15, Note 1. 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. (2) ACCOUNTING PRONOUNCEMENTS ACCOUNTING STANDARDS NOT YET ADOPTED 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. 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 Table of Contents CITIZENS, INC . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited ) (3) INVESTMENTS 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 %) March 31, 2024 December 31, 2023 Amount % Amount % Cash and invested assets: Fixed maturity securities $ 1,234,048 86.7 % 1,238,981 86.7 % Equity securities 5,419 0.4 5,282 0.4 Policy loans 75,274 5.3 75,359 5.3 Other long-term investments 85,118 6.0 82,725 5.8 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 % The following tables represent the amortized cost, gross unrealized gains and losses and fair value of fixed maturity securities as of the dates indicated. Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value March 31, 2024 (In thousands) Fixed maturity securities: Available-for-sale: U.S. Treasury securities $ 5,972 76 74 5,974 U.S. Government-sponsored enterprises 3,396 201 1 3,596 States and political subdivisions 313,364 1,718 30,027 285,055 Corporate: Financial 273,436 1,701 32,459 242,678 Consumer 252,953 1,321 39,615 214,659 Utilities 127,577 369 21,576 106,370 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 Commercial mortgage-backed 276 1 5 272 Residential mortgage-backed 106,977 7 12,136 94,848 Asset-backed 55,395 511 1,048 54,858 Total fixed maturity securities $ 1,397,074 6,623 169,649 1,234,048 March 31, 2024 | 10-Q 10 Table of Contents CITIZENS, INC . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited ) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value December 31, 2023 (In thousands) Fixed maturity securities: Available-for-sale: U.S. Treasury securities $ 5,983 127 48 6,062 U.S. Government-sponsored enterprises 3,404 250 1 3,653 States and political subdivisions 314,203 2,160 29,132 287,231 Corporate: Financial 266,485 2,066 31,255 237,296 Consumer 250,672 2,145 37,094 215,723 Utilities 123,625 615 20,253 103,987 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 Commercial mortgage-backed 171 — — 171 Residential mortgage-backed 107,174 9 10,060 97,123 Asset-backed 58,360 290 1,516 57,134 Total fixed maturity securities $ 1,389,038 8,682 158,739 1,238,981 Most of the Company's equity securities are invested in a non-redeemable preferred stock fund. Fair Value (In thousands) March 31, 2024 December 31, 2023 Equity securities: Bond mutual funds $ 739 740 Common stock 664 665 Non-redeemable preferred stock 7 7 Non-redeemable preferred stock fund 4,009 3,870 Total equity securities $ 5,419 5,282 VALUATION OF INVESTMENTS 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. 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 months ended March 31, 2024 and 2023, the Company recorded no credit valuation losses on fixed maturity securities. March 31, 2024 | 10-Q 11 Table of Contents CITIZENS, INC . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited ) 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 Value Unrealized Losses # of Securities Fair Value Unrealized Losses # of Securities Fair Value Unrealized Losses # of Securities Fixed maturity securities: Available-for-sale securities: U.S. Treasury securities $ 1,178 67 5 66 7 2 1,244 74 7 U.S. Government-sponsored enterprises 220 1 1 — — — 220 1 1 States and political subdivisions 22,031 357 41 165,011 29,670 196 187,042 30,027 237 Corporate: Financial 9,895 380 26 178,234 32,079 218 188,129 32,459 244 Consumer 13,303 643 29 174,217 38,972 224 187,520 39,615 253 Utilities 9,200 374 45 83,296 21,202 136 92,496 21,576 181 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 Commercial mortgage-backed — — — 100 5 1 100 5 1 Residential mortgage-backed 133 2 7 94,337 12,134 86 94,470 12,136 93 Asset-backed 6,793 60 10 22,959 988 29 29,752 1,048 39 Total fixed maturity securities $ 77,709 2,305 182 914,635 167,344 1,134 992,344 169,649 1,316 December 31, 2023 Less than 12 months Greater than 12 months Total (In thousands, except for # of securities) Fair Value Unrealized Losses # of Securities Fair Value Unrealized Losses # of Securities Fair Value Unrealized Losses # of Securities Fixed maturity securities: Available-for-sale securities: U.S. Treasury securities $ 1,203 40 5 65 8 2 1,268 48 7 U.S. Government-sponsored enterprises 221 1 1 — — — 221 1 1 States and political subdivisions 19,540 357 35 164,264 28,775 192 183,804 29,132 227 Corporate: Financial 12,584 383 19 176,521 30,872 217 189,105 31,255 236 Consumer 10,175 265 16 176,725 36,829 223 186,900 37,094 239 Utilities 3,596 66 20 85,169 20,187 137 88,765 20,253 157 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 Residential mortgage-backed 849 38 5 95,806 10,022 86 96,655 10,060 91 Asset-backed 4,757 111 8 32,764 1,405 40 37,521 1,516 48 Total fixed maturity securities $ 64,080 1,503 120 932,571 157,236 1,142 996,651 158,739 1,262 March 31, 2024 | 10-Q 12 Table of Contents CITIZENS, INC . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited ) 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, 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. 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 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. March 31, 2024 Amortized Cost Fair Value (In thousands) Fixed maturity securities: Due in one year or less $ 15,247 15,156 Due after one year through five years 127,682 125,714 Due after five years through ten years 300,002 291,665 Due after ten years 954,143 801,513 Total fixed maturity securities $ 1,397,074 1,234,048 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 March 31, (In thousands) 2024 2023 Fixed maturity securities, available-for-sale: Proceeds $ 2,508 2,865 Gross realized gains $ 1 5 Gross realized losses $ 49 12 (4) FAIR VALUE MEASUREMENTS Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We hold AFS fixed maturity securities, which are carried at fair value with changes in fair value reported through 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 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 March 31, 2024 | 10-Q 13 Table of Contents CITIZENS, INC . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited ) observable inputs and minimize the use of unobservable inputs. All assets and liabilities carried at fair value are required to be classified and disclosed in one of the following three categories: • Level 1 - Quoted prices for identical instruments in active markets. • Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs or whose significant value drivers are observable. • Level 3 - Instruments whose significant value drivers are unobservable. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as U.S. Treasury securities and actively traded mutual fund and stock investments. Level 2 includes those financial instruments that are valued by independent pricing services or broker quotes. These pricing models are primarily industry-standard models that consider various inputs, such as interest rates, credit spreads and foreign exchange rates for the underlying financial instruments. All significant inputs are observable or derived from observable information in the marketplace or are supported by observable levels at which transactions are executed in the marketplace. Financial instruments in this category primarily include corporate securities, U.S. Government-sponsored enterprise securities, securities issued by states and political subdivisions and certain mortgage and asset-backed securities. Level 3 is comprised of financial instruments whose fair value is estimated based on non-binding broker prices utilizing significant inputs not based on or corroborated by readily available market information. We have no investments in this category. 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 Fair Value (In thousands) Financial assets: Fixed maturity securities, available-for-sale: U.S. Treasury and U.S. Government-sponsored enterprises $ 5,974 3,596 — 9,570 States and political subdivisions — 285,055 — 285,055 Corporate 46 789,399 — 789,445 Commercial mortgage-backed — 272 — 272 Residential mortgage-backed — 94,848 — 94,848 Asset-backed — 54,858 — 54,858 Total fixed maturity securities, available-for-sale 6,020 1,228,028 — 1,234,048 Equity securities: Bond mutual funds 739 — — 739 Common stock 664 — — 664 Non-redeemable preferred stock 7 — — 7 Non-redeemable preferred stock fund 4,009 — — 4,009 Total equity securities 5,419 — — 5,419 Other long-term investments (1) — — — 84,853 Total financial assets $ 11,439 1,228,028 — 1,324,320 (1) In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient are not classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets. March 31, 2024 | 10-Q 14 Table of Contents CITIZENS, INC . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited ) December 31, 2023 Level 1 Level 2 Level 3 Total Fair Value (In thousands) Financial assets: Fixed maturity securities, available-for-sale: U.S. Treasury and U.S. Government-sponsored enterprises $ 6,062 3,653 — 9,715 States and political subdivisions — 287,231 — 287,231 Corporate 43 787,564 — 787,607 Commercial mortgage-backed — 171 — 171 Residential mortgage-backed — 97,123 — 97,123 Asset-backed — 57,134 — 57,134 Total fixed maturity securities, available-for-sale 6,105 1,232,876 — 1,238,981 Equity securities: Bond mutual funds 740 — — 740 Common stock 665 — — 665 Non-redeemable preferred stock 7 — — 7 Non-redeemable preferred stock fund 3,870 — — 3,870 Total equity securities 5,282 — — 5,282 Other long-term investments (1) — — — 82,460 Total financial assets $ 11,387 1,232,876 — 1,326,723 (1) In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient are not classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets. FINANCIAL INSTRUMENTS VALUATION FINANCIAL INSTRUMENTS CARRIED AT FAIR VALUE Fixed maturity securities, available-for-sale. 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 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. Our equity securities are classified as Level 1 assets as their fair values are based upon quoted market prices. Limited partnerships. The Company considers the net asset value ("NAV") to represent the value of the investment fund and is measured by the total value of assets minus the total value of liabilities. The following table includes information related to our investments in limited partnerships that calculate NAV per share. For these investments, which are measured at fair value on a recurring basis, we use the NAV per share to measure fair value. The Company recognized net investment related gains of $ 1.3 million and losses of $ 0.6 million on limited partnerships March 31, 2024 | 10-Q 15 Table of Contents CITIZENS, INC . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited ) 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. March 31, 2024 December 31, 2023 (In thousands, except for years) Fair Value Using NAV Per Share Unfunded Commit- ments Range (In years) Fair Value Using NAV Per Share Unfunded Commit- ments Range (In years) Description Limited partnerships: Middle market Investments in privately-originated, performing senior secured debt primarily in North America-based companies $ 35,648 3,452 3 $ 34,858 3,452 4 Global equity fund Investments in common stocks of U.S., international developed and emerging markets with a focus on long-term capital growth 11,056 — 0 10,345 — 0 Late-stage growth Investments in private late-stage, established companies seeking capital to accelerate growth prior to an IPO or sale 21,116 12,861 4 to 6 20,524 14,271 4 to 6 Infrastructure Investments in climate infrastructure assets, focusing on renewable power generation in wind and solar energy 17,033 9,367 9 to 11 16,733 9,576 10 Total limited partnerships $ 84,853 25,680 $ 82,460 27,299 The majority of our limited partnership investments are not redeemable because distributions from the funds will be received when the underlying investments of the funds are liquidated. The life spans indicated above may be shortened or extended at the fund manager's discretion, typically in one or two-year increments. The global equity fund is redeemable monthly. FINANCIAL INSTRUMENTS NOT CARRIED AT FAIR VALUE Estimates of fair values are made at a specific point in time, based on relevant market prices and information about the financial instruments. The estimated fair values of financial instruments presented below are not necessarily indicative of the amounts the Company might realize in actual market transactions. The carrying amount and fair value for the financial assets and liabilities on the consolidated financial statements not otherwise disclosed for the periods indicated were as follows: March 31, 2024 December 31, 2023 (In thousands) Carrying Value Fair Value Carrying Value Fair Value Financial assets: Policy loans $ 75,274 75,274 75,359 75,359 Residential mortgage loan 39 40 42 42 Cash and cash equivalents 23,242 23,242 26,997 26,997 Financial liabilities: Annuity - investment contracts 67,518 61,576 67,690 63,283 March 31, 2024 | 10-Q 16 Table of Contents CITIZENS, INC . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited ) Policy loans. 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. Policy loans are an integral part of the life insurance policies we have in force, cannot be valued separately and are not marketable. Therefore, the fair value of policy loans approximates the carrying value and policy loans are considered Level 3 assets in the fair value hierarchy. Residential mortgage loan. 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. Cash and cash equivalents. The fair value of cash and cash equivalents approximates carrying value and are characterized as Level 1 assets in the fair value hierarchy. Annuity liabilities. The fair value of the Company's liabilities under annuity 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. Other long-term investments. Financial instruments included in other long-term investments are classified in various levels of the fair value hierarchy. The following table summarizes the carrying amounts of these investments. Carrying Value (In thousands ) March 31, 2024 December 31, 2023 Other long-term investments: Limited partnerships $ 84,853 82,460 FHLB common stock 204 202 Mortgage loans 39 42 All other investments 22 21 Total other long-term investments $ 85,118 82,725 We are a member of the Federal Home Loan Bank ("FHLB") of Dallas and such membership requires members to own stock in the FHLB. Our FHLB stock is carried at amortized cost, which approximates fair value. (5) DEFERRED POLICY ACQUISITION COSTS AND COST OF INSURANCE ACQUIRED DAC 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 March 31, 2024 | 10-Q 17 Table of Contents CITIZENS, INC . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited ) premiums payable for a limited time after which the policy is fully paid up. Both reporting cohorts include whole life and endowment policies. Three Months Ended March 31, 2024 (In thousands) Permanent Permanent Limited Pay Other Business Total Life Insurance: Balance, beginning of year $ 105,552 14,075 1,213 120,840 Capitalizations 5,976 766 74 6,816 Amortization expense ( 3,076 ) ( 227 ) ( 55 ) ( 3,358 ) Balance, end of period 108,452 14,614 1,232 124,298 Home Service Insurance: Balance, beginning of year 43,280 10,564 1,084 54,928 Capitalizations 1,174 271 70 1,515 Amortization expense ( 554 ) ( 105 ) ( 21 ) ( 680 ) Balance, end of period 43,900 10,730 1,133 55,763 Consolidated: Balance, beginning of year 148,832 24,639 2,297 175,768 Capitalizations 7,150 1,037 144 8,331 Amortization expense ( 3,630 ) ( 332 ) ( 76 ) ( 4,038 ) Balance, end of period $ 152,352 25,344 2,365 180,061 Three Months Ended March 31, 2023 (In thousands) Permanent Permanent Limited Pay Other Business Total Life Insurance: Balance, beginning of year $ 100,926 11,542 1,016 113,484 Capitalizations 3,453 822 85 4,360 Amortization expense ( 2,918 ) ( 186 ) ( 58 ) ( 3,162 ) Balance, end of period 101,461 12,178 1,043 114,682 Home Service Insurance: Balance, beginning of year 38,793 9,729 921 49,443 Capitalizations 1,615 331 52 1,998 Amortization expense ( 492 ) ( 95 ) ( 65 ) ( 652 ) Balance, end of period 39,916 9,965 908 50,789 Consolidated: Balance, beginning of year 139,719 21,271 1,937 162,927 Capitalizations 5,068 1,153 137 6,358 Amortization expense ( 3,410 ) ( 281 ) ( 123 ) ( 3,814 ) Balance, end of period $ 141,377 22,143 1,951 165,471 March 31, 2024 | 10-Q 18 Table of Contents CITIZENS, INC . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited ) 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. COIA Three Months Ended March 31, 2024 (In thousands) Permanent Permanent Limited Pay Other Business Total Life Insurance: Balance, beginning of year $ 249 695 406 1,350 Amortization expense ( 4 ) ( 13 ) ( 9 ) ( 26 ) Balance, end of period 245 682 397 1,324 Home Service Insurance: Balance, beginning of year 7,194 168 1,331 8,693 Amortization expense ( 94 ) ( 2 ) ( 50 ) ( 146 ) Balance, end of period 7,100 166 1,281 8,547 Consolidated: Balance, beginning of year 7,443 863 1,737 10,043 Amortization expense ( 98 ) ( 15 ) ( 59 ) ( 172 ) Balance, end of period $ 7,345 848 1,678 9,871 Three Months Ended March 31, 2023 (In thousands) Permanent Permanent Limited Pay Other Business Total Life Insurance: Balance, beginning of year $ 267 750 444 1,461 Amortization expense ( 4 ) ( 15 ) ( 13 ) ( 32 ) Balance, end of period 263 735 431 1,429 Home Service Insurance: Balance, beginning of year 7,583 176 1,427 9,186 Amortization expense ( 99 ) ( 2 ) ( 28 ) ( 129 ) Balance, end of period 7,484 174 1,399 9,057 Consolidated: Balance, beginning of year 7,850 926 1,871 10,647 Amortization expense ( 103 ) ( 17 ) ( 41 ) ( 161 ) Balance, end of period $ 7,747 909 1,830 10,486 (6) POLICYHOLDERS’ LIABILITIES LIABILITY FOR FUTURE POLICY BENEFITS 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, March 31, 2024 | 10-Q 19 Table of Contents CITIZENS, INC . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited ) 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, 2024 (In thousands) Life Insurance Home Service Insurance Permanent Permanent Limited Pay Total Permanent Permanent Limited Pay Total Present Value of Expected Net Premiums: Balance, beginning of year $ 244,917 13,260 258,177 98,831 14,926 113,757 Beginning balance at original discount rate 252,426 13,533 265,959 102,045 15,512 117,557 Effects of actual variances from expected experience ( 1,772 ) 204 ( 1,568 ) ( 1,703 ) ( 1,078 ) ( 2,781 ) Adjusted beginning of year balance 250,654 13,737 264,391 100,342 14,434 114,776 Issuances 18,208 604 18,812 4,152 685 4,837 Interest accrual 2,550 117 2,667 1,057 132 1,189 Net premiums collected ( 10,497 ) ( 683 ) ( 11,180 ) ( 3,016 ) 80 ( 2,936 ) Derecognition and other ( 2,456 ) 47 ( 2,409 ) 74 7 81 Ending balance at original discount rate 258,459 13,822 272,281 102,609 15,338 117,947 Effect of changes in discount rates ( 9,285 ) ( 325 ) ( 9,610 ) ( 5,401 ) ( 832 ) ( 6,233 ) Balance, end of period $ 249,174 13,497 262,671 97,208 14,506 111,714 Present Value of Expected Future Policy Benefits: Balance, beginning of year $ 973,350 195,122 1,168,472 211,946 122,784 334,730 Beginning balance at original discount rate 995,962 202,755 1,198,717 217,524 123,941 341,465 Effects of actual variances from expected experience ( 1,592 ) 1,094 ( 498 ) ( 1,697 ) ( 748 ) ( 2,445 ) Adjusted beginning of year balance 994,370 203,849 1,198,219 215,827 123,193 339,020 Issuances 18,424 649 19,073 4,153 683 4,836 Interest accrual 11,014 2,066 13,080 2,401 1,437 3,838 Benefit payments ( 20,342 ) ( 4,411 ) ( 24,753 ) ( 3,672 ) ( 1,436 ) ( 5,108 ) Derecognition and other ( 2,976 ) 2 ( 2,974 ) 73 7 80 Ending balance at original discount rate 1,000,490 202,155 1,202,645 218,782 123,884 342,666 Effect of changes in discount rates ( 41,718 ) ( 12,311 ) ( 54,029 ) ( 13,926 ) ( 6,975 ) ( 20,901 ) Balance, end of period $ 958,772 189,844 1,148,616 204,856 116,909 321,765 Net liability for future policy benefits $ 709,598 176,347 885,945 107,648 102,403 210,051 March 31, 2024 | 10-Q 20 Table of Contents CITIZENS, INC . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited ) March 31, 2023 (In thousands) Life Insurance Home Service Insurance Permanent Permanent Limited Pay Total Permanent Permanent Limited Pay Total Present Value of Expected Net Premiums: Balance, beginning of year $ 235,228 10,209 245,437 93,508 13,255 106,763 Beginning balance at original discount rate 247,601 10,682 258,283 100,225 14,394 114,619 Effects of actual variances from expected experience 1,742 365 2,107 ( 1,371 ) ( 809 ) ( 2,180 ) Adjusted beginning of year balance 249,343 11,047 260,390 98,854 13,585 112,439 Issuances 6,236 759 6,995 4,789 1,176 5,965 Interest accrual 2,272 72 2,344 986 114 1,100 Net premiums collected ( 9,715 ) ( 751 ) ( 10,466 ) ( 2,967 ) 467 ( 2,500 ) Derecognition and other 153 38 191 132 46 178 Ending balance at original discount rate 248,289 11,165 259,454 101,794 15,388 117,182 Effect of changes in discount rates ( 8,766 ) ( 370 ) ( 9,136 ) ( 4,925 ) ( 873 ) ( 5,798 ) Balance, end of period $ 239,523 10,795 250,318 96,869 14,515 111,384 Present Value of Expected Future Policy Benefits: Balance, beginning of year $ 947,415 195,612 1,143,027 200,351 116,356 316,707 Beginning balance at original discount rate 996,169 208,051 1,204,220 214,188 121,908 336,096 Effects of actual variances from expected experience 2,538 1,045 3,583 ( 1,299 ) 25 ( 1,274 ) Adjusted beginning of year balance 998,707 209,096 1,207,803 212,889 121,933 334,822 Issuances 6,375 785 7,160 4,789 1,176 5,965 Interest accrual 10,842 2,112 12,954 2,310 1,410 3,720 Benefit payments ( 19,153 ) ( 4,873 ) ( 24,026 ) ( 4,178 ) ( 1,748 ) ( 5,926 ) Derecognition and other 14 12 26 132 45 177 Ending balance at original discount rate 996,785 207,132 1,203,917 215,942 122,816 338,758 Effect of changes in discount rates ( 31,065 ) ( 9,459 ) ( 40,524 ) ( 10,101 ) ( 3,712 ) ( 13,813 ) Balance, end of period $ 965,720 197,673 1,163,393 205,841 119,104 324,945 Net liability for future policy benefits $ 726,197 186,878 913,075 108,972 104,589 213,561 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 three months ended March 31, 2024 and 2023. 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, 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. If the net of the two lines is a positive number, the implication is an unfavorable result with policy cash flows less favorable than assumed while a negative number implies a favorable result compared to assumptions. Our policy experience will vary from actual experience in any one period, either favorably or unfavorably. March 31, 2024 | 10-Q 21 Table of Contents CITIZENS, INC . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited ) 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. March 31, 2024 March 31, 2023 (In thousands) Life Insurance Home Service Insurance Consolidated Life Insurance Home Service Insurance Consolidated Life Insurance: Permanent $ 709,598 107,648 817,246 726,197 108,972 835,169 Permanent limited pay 176,347 102,403 278,750 186,878 104,589 291,467 Deferred profit liability 29,258 27,432 56,690 26,347 25,113 51,460 Other 28,818 13,926 42,744 26,474 13,725 40,199 Total life insurance 944,021 251,409 1,195,430 965,896 252,399 1,218,295 Accident & Health: Other 514 330 844 599 249 848 Total future policy benefit reserves $ 944,535 251,739 1,196,274 966,495 252,648 1,219,143 The following table provides the amount of undiscounted and discounted expected gross premiums and expected future benefit payments for long-term duration contracts. March 31, 2024 March 31, 2023 (In thousands) Life Insurance Home Service Insurance Life Insurance Home Service Insurance Undiscounted: Permanent: Expected future gross premiums $ 658,547 455,252 607,319 463,491 Expected future benefit payments 1,514,326 488,264 1,478,777 478,978 Permanent Limited Pay: Expected future gross premiums 46,558 76,799 46,845 77,743 Expected future benefit payments 326,302 320,554 321,985 319,390 Discounted: Permanent: Expected future gross premiums $ 499,821 268,852 474,777 277,098 Expected future benefit payments 958,772 204,856 965,720 205,841 Permanent Limited Pay: Expected future gross premiums 41,378 51,413 41,719 54,170 Expected future benefit payments 189,844 116,909 197,673 119,104 March 31, 2024 | 10-Q 22 Table of Contents CITIZENS, INC . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited ) 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, 2024 2023 (In thousands) Gross Premiums Interest Expense Gross Premiums Interest Expense Life Insurance Segment: Life Insurance: Permanent $ 23,316 8,464 22,458 8,570 Permanent Limited Pay 3,646 2,263 4,168 2,336 Other 1,109 — 77 — Less: Reinsurance 373 — 648 — Total, net of reinsurance 27,698 10,727 26,055 10,906 Accident & Health: Other 164 — 152 — Less: Reinsurance 1 — — — Total, net of reinsurance 163 — 152 — Total $ 27,861 10,727 26,207 10,906 Home Service Insurance Segment: Life Insurance: Permanent $ 8,241 1,344 8,372 1,324 Permanent Limited Pay 2,040 1,626 2,154 1,586 Other 294 — 368 — Less: Reinsurance 12 — 15 — Total, net of reinsurance 10,563 2,970 10,879 2,910 Accident & Health: Other 251 — 206 — Total $ 10,814 2,970 11,085 2,910 The following table provides the weighted-average durations of the liability for future policy benefits. March 31, 2024 March 31, 2023 (In years) Life Insurance Home Service Insurance Life Insurance Home Service Insurance Permanent: Duration at original discount rate 8.2 16.0 8.1 15.9 Duration at current discount rate 8.5 15.8 8.4 16.1 Permanent Limited Pay: Duration at original discount rate 8.1 14.5 7.6 14.5 Duration at current discount rate 7.8 14.5 7.6 15.2 March 31, 2024 | 10-Q 23 Table of Contents CITIZENS, INC . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited ) The following table provides the weighted-average interest rates for the liability for future policy benefits. March 31, 2024 March 31, 2023 Life Insurance Home Service Insurance Life Insurance Home Service Insurance Permanent: Interest rate at original discount rate 4.89 % 4.97 % 4.92 % 4.99 % Interest rate at current discount rate 5.10 % 5.31 % 4.86 % 5.09 % Permanent Limited Pay: Interest rate at original discount rate 4.28 % 5.03 % 4.30 % 5.05 % Interest rate at current discount rate 5.09 % 5.31 % 4.85 % 5.08 % 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. At Guaranteed Minimum 1 Basis Point-50 Basis Points Above 51 Basis Points-150 Basis Points Above Greater Than 150 Basis Points Above Total March 31, 2024 (In thousands) Range of Guaranteed Minimum Crediting Rates: 0.00 % - 1.49 % $ 792 — 1,031 34,391 36,214 1.50 % - 2.99 % 22,353 531 37 11,622 34,543 3.00 % - 4.49 % 100,882 131 8,498 — 109,511 Greater or equal to 4.50 % 31,447 — — — 31,447 Total $ 155,474 662 9,566 46,013 211,715 At Guaranteed Minimum 1 Basis Point-50 Basis Points Above 51 Basis Points-150 Basis Points Above Greater Than 150 Basis Points Above Total March 31, 2023 (In thousands) Range of Guaranteed Minimum Crediting Rates: 0.00 % - 1.49 % $ 736 — 1,144 38,186 40,066 1.50 % - 2.99 % 25,929 593 66 — 26,588 3.00 % - 4.49 % 101,264 10 — — 101,274 Greater or equal to 4.50 % 31,858 — — — 31,858 Total $ 159,787 603 1,210 38,186 199,786 March 31, 2024 | 10-Q 24 Table of Contents CITIZENS, INC . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited ) The following tables summarize balances of and changes in policyholders' account balances. March 31, 2024 (In thousands, except for %) Supplemental Contracts Without Life Contingencies Fixed Annuity Dividend Accumulations Premiums Paid in Advance Balance, beginning of year $ 44,569 87,134 44,960 31,039 Issuances 5,721 594 138 806 Premiums received 27 985 1,358 194 Interest credited 474 663 472 431 Less: Surrenders and withdrawals — 2,572 1,168 1,989 Benefit payments 2,121 — — — Balance, end of period $ 48,670 86,804 45,760 30,481 Weighted-average crediting rates 3.96 % 3.57 % 3.28 % 2.93 % Cash surrender value $ 48,670 86,804 45,760 30,481 March 31, 2023 (In thousands, except for %) Supplemental Contracts Without Life Contingencies Fixed Annuity Dividend Accumulations Premiums Paid in Advance Balance, beginning of year $ 32,995 86,807 41,663 34,603 Issuances 4,788 763 148 905 Premiums received 18 1,170 1,384 145 Interest credited 343 668 324 226 Less: Surrenders and withdrawals — 2,247 851 1,757 Benefit payments 2,309 — — — Balance, end of period $ 35,835 87,161 42,668 34,122 Weighted-average crediting rates 4.05 % 3.57 % 3.05 % 2.98 % Cash surrender value $ 35,835 87,161 42,668 34,122 March 31, 2024 | 10-Q 25 Table of Contents CITIZENS, INC . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited ) The following table reconciles policyholders' account balances shown above to the policyholders' account balances liability in the consolidated balance sheets. As of March 31, (In thousands) 2024 2023 Annuities: Supplemental contracts without life contingencies $ 48,670 35,835 Fixed annuity 86,804 87,161 Unearned revenue reserve 1,491 1,531 Other — 1 Total annuities $ 136,965 124,528 Premiums Paid in Advance: Premiums paid in advance $ 30,481 34,122 Other 1,910 2,575 Total premiums paid in advance $ 32,391 36,697 (7) COMMITMENTS AND CONTINGENCIES LITIGATION AND REGULATORY ACTIONS From time to time, we are subject to legal and regulatory actions relating to our business. We may incur defense costs, including attorneys' fees, and other direct litigation costs associated with defending claims. If we suffer an adverse judgment as a result of litigation claims, it could have a material adverse effect on our business, results of operations and financial condition. CONTRACTUAL OBLIGATIONS 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 On May 5, 2021 , the Company entered into a $ 20 million senior secured revolving credit facility (the “Credit Facility”) with Regions Bank ("Regions"). The Credit Facility has a three-year term, maturing on May 5, 2024 , and allows the Company to borrow up to $ 20 million for working capital purposes, capital expenditures and other corporate purposes. Revolving loans may be requested by the Company in aggregate minimum principal amounts of $ 0.5 million per loan. At the Company's election, the revolving loans may either bear a base rate, which is 1.75 % plus a base rate (a fluctuating rate per annum) equal to the greatest of (a) Regions' prime rate, (b) the federal funds rate plus 0.50 %, 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. 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, 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 Table of Contents CITIZENS, INC . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited ) 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 STOCK Our Restated and Amended Articles of Incorporation authorize the issuance of 127,000,000 shares, of which 100,000,000 shares shall be Class A common stock, 2,000,000 shares shall be Class B common stock, and 25,000,000 shall be preferred stock. Both authorized classes of common stock are equal in all respects, except (a) each share of Class A common stock is entitled to receive twice the cash dividends paid on a per share basis to the Class B common stock, if any; and (b) the holders of the Class B common stock have the exclusive right to elect a simple majority of the Board of Directors of Citizens. In April 2021, we repurchased all of the outstanding Class B common stock, which is now classified as treasury stock. As a result, all of the directors are elected by the holders of the Class A common stock. Citizens has never issued any preferred stock. A summary of the change in the number of shares of Class A and Class B common stock and treasury stock issued is as follows: Three Months Ended March 31, 2024 2023 (In thousands) Common Stock Treasury Common Stock Treasury Class A Class B Stock Class A Class B Stock Balance at beginning of year 53,883 1,002 5,330 53,758 1,002 4,937 Stock issued for compensation 17 — — 34 — — 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 per share. Three Months Ended March 31, 2024 2023 (In thousands, except per share amounts) Basic and diluted earnings per share: Numerator: Net income $ 4,542 4,872 Net income allocated to Class A common stock $ 4,542 4,872 Denominator: 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 and diluted earnings per share of Class A common stock $ 0.09 0.10 STATUTORY CAPITAL AND SURPLUS Each of our regulated insurance subsidiaries is required to meet stipulated regulatory capital requirements. These include capital requirements imposed by the U.S. National Association of Insurance Commissioners ("NAIC") and the Bermuda Monetary Authority ("BMA"). 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 Table of Contents CITIZENS, INC . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited ) 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 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 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 AND OTHER OPERATING INFORMATION The Company has two reportable segments: Life Insurance and Home Service Insurance. Our Life Insurance segment issues endowment contracts, which are principally accumulation contracts that incorporate an element of life insurance protection, and ordinary whole life insurance to non-U.S. residents through CICA International. These contracts are designed to provide a fixed amount of insurance coverage over the life of the insured and may utilize rider benefits to provide additional coverage and annuity benefits to enhance accumulations. CICA 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. 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 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 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. The accounting policies of the reportable segments and Other Non-Insurance Enterprises are presented in accordance with U.S. GAAP and are the same as those described in the summary of significant accounting policies in our Form 10-K . The Company evaluates profit and loss performance based on U.S. 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 Table of Contents CITIZENS, INC . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited ) Life Insurance Home Service Insurance Other Non-Insurance Enterprises Consolidated Three Months Ended March 31, 2024 (In thousands) Revenues: Premiums $ 27,861 10,812 — 38,673 Net investment income 13,686 3,537 264 17,487 Investment related gains (losses), net 1,086 ( 91 ) ( 32 ) 963 Other income 506 — 83 589 Total revenues 43,139 14,258 315 57,712 Benefits and expenses: Insurance benefits paid or provided: Claims and surrenders 27,364 5,749 — 33,113 Increase (decrease) in future policy benefit reserves ( 1,193 ) 1,644 — 451 Policyholder liability remeasurement (gain) loss 373 ( 54 ) — 319 Policyholders' dividends 1,231 6 — 1,237 Total insurance benefits paid or provided 27,775 7,345 — 35,120 Commissions 6,960 3,490 — 10,450 Other general expenses 6,036 3,489 1,813 11,338 Capitalization of deferred policy acquisition costs ( 6,816 ) ( 1,515 ) — ( 8,331 ) Amortization of deferred policy acquisition costs 3,358 680 — 4,038 Amortization of cost of insurance acquired 26 146 — 172 Total benefits and expenses 37,339 13,635 1,813 52,787 Income (loss) before federal income tax $ 5,800 623 ( 1,498 ) 4,925 March 31, 2024 | 10-Q 29 Table of Contents CITIZENS, INC . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited ) Life Insurance Home Service Insurance Other Non-Insurance Enterprises Consolidated Three Months Ended March 31, 2023 (In thousands) Revenues: Premiums $ 26,207 12,042 — 38,249 Net investment income 13,311 3,470 293 17,074 Investment related gains (losses), net ( 437 ) 99 50 ( 288 ) Other income 879 — — 879 Total revenues 39,960 15,611 343 55,914 Benefits and expenses: Insurance benefits paid or provided: Claims and surrenders 24,439 5,860 — 30,299 Increase (decrease) in future policy benefit reserves ( 1,820 ) 842 — ( 978 ) Policyholder liability remeasurement (gain) loss 816 64 — 880 Policyholders' dividends 1,101 7 — 1,108 Total insurance benefits paid or provided 24,536 6,773 — 31,309 Commissions 4,759 4,254 — 9,013 Other general expenses 5,459 4,468 1,333 11,260 Capitalization of deferred policy acquisition costs ( 4,360 ) ( 1,998 ) — ( 6,358 ) Amortization of deferred policy acquisition costs 3,162 652 — 3,814 Amortization of cost of insurance acquired 32 129 — 161 Total benefits and expenses 33,588 14,278 1,333 49,199 Income (loss) before federal income tax $ 6,372 1,333 ( 990 ) 6,715 (10) INCOME TAXES 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. 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 Table of Contents CITIZENS, INC . NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited ) (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 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 Unrealized gains (losses): 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 448 ( 94 ) 354 38 ( 8 ) 30 Unrealized holding gains (losses), net ( 12,968 ) 1,104 ( 11,864 ) 43,474 ( 2,288 ) 41,186 Change in current discount rate for liability for future policy benefits 33,995 ( 3,746 ) 30,249 ( 20,480 ) 873 ( 19,607 ) Other comprehensive income (loss) $ 21,027 ( 2,642 ) 18,385 22,994 ( 1,415 ) 21,579 (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, 2024 except as described in Note 1. Financial Statements under Basis of Presentation and Consolidation. See our Form 10-K for a comprehensive discussion of related party transactions. (13) SUBSEQUENT EVENTS The Company has evaluated the impact of subsequent events as defined by the accounting guidance through the date this report was issued and determined that no other significant subsequent events need to be recognized or disclosed at this time. March 31, 2024 | 10-Q 31 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS