What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-06 compared with 2024-05-07 · 210 added, 154 removed, 452 unchanged (45% of the section changed)

13 unchanged sentences

For 55 years, we have been fulfilling the needs of our policyholders and their families by providing insurance products that offer both living and death benefits.

Citizens conducts insurance related operations through its insurance subsidiaries, which provide benefits to policyholders throughout the United States and in over 75 different countries.

Citizens conducts insurance related operations through its insurance subsidiaries, which provide benefits to policyholders throughout the United States and in 80 different countries.

We specialize in offering primarily ordinary whole life insurance, endowment products and final expense insurance in niche markets where we believe we can optimize our competitive position.

6 unchanged sentences

We refer to our Management’s Discussion and Analysis of Financial Condition and Results of Operations as our “MD&A”.

The objective of our MD&A is to provide investors with information in order to assess the material changes in our financial condition from December 31, 2023 to March 31, 2024 and the material changes in our results of operations for the three months ended March 31, 2024 as compared to the same period in 2023.

The objective of our MD&A is to provide investors with information in order to assess the material changes in our financial condition from December 31, 2023 to June 30, 2024 and the material changes in our results of operations for the three and six months ended June 30, 2024 as compared to the same periods in 2023.

We also discuss in the MD&A any trends that we believe may materially affect our future operations or financial condition.

March 31, 2024 | 10-Q 32

June 30, 2024 | 10-Q 36

CITIZENS, INC.

7 unchanged sentences

• Operating expenses

Premium revenues and investment income are our two primary sources of income and thus key to our profitability.

Premium Revenues.

Premium revenues and investment income are our two primary sources of revenue and thus key to our profitability.

Premium revenues consist of all money deposited by customers into new and existing insurance policies.

We believe sales statistics are meaningful to gaining an understanding of, among other things, the attractiveness of our new products, how expansion of our distribution channels affects our revenue, customer retention and the performance of our business from period-to-period.

Throughout the MD&A, we describe the actions and initiatives that we are taking to increase sales and improve retention, sales performance in each period and as compared to prior periods, and how we view trends with respect to sales and retention.

Because we ceased operations in our property insurance business effective June 30, 2023, the premiums charts below only reflect life insurance and accident and health insurance ("A&H") premium results.

In the last 2 years, we have received 9 new state licenses, developed new final expense and living benefit products, and entered into new white label and other distribution agreements, leading to an increase in first year premiums (i.e.

, new sales) of 42% from 2023 to 2024.

Our renewal life and A&H premium revenues in the three months ended March 31, 2024 decreased slightly primarily due to the impact of a higher level of surrenders during the last few years (and thus a lower amount of policies paying renewal premiums) and from matured endowment benefits, which we expected due to contractual expiration dates.

March 31, 2024 | 10-Q 33

We view these premiums in two categories - first year premiums are premiums received within the first 12 months of a policy's issuance and thereafter any premiums received are renewal premiums.

We believe premium statistics are meaningful to gaining an understanding of, among other things, the attractiveness of our new products, how expansion of our distribution channels affects our revenue, customer retention and the performance of our business from period-to-period.

Throughout the MD&A, we describe the actions and initiatives that we are taking to increase sales and improve retention, sales performance in each period and as compared to the prior periods, and how we view trends with respect to sales and retention.

In the past year, we have significantly expanded our domestic distribution in the Life Insurance segment and first year premiums have more than doubled in this segment quarter-over-quarter and almost doubled year-to-date as compared to 2023.

Because of this significant growth, in the second quarter of 2024, we entered into a coinsurance agreement with RGA Reinsurance Company ("RGA") in order to provide more capacity for growth.

Under this agreement, CICA Domestic initially elected for RGA to reinsure 50% of its newly written final expense business, which means that we cede 50% of premiums in our domestic final expense business to RGA.

We refer to "direct" premiums as all premiums received and "net" or "total" premiums as all premiums received less premiums ceded to RGA and our other reinsurers.

In addition to our domestic growth, first year premiums in our international business have increased in both the three and six months ended June 30, 2024, as compared to the same periods in 2023, due to focused marketing campaigns with our international distribution channel.

June 30, 2024 | 10-Q 37

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

Our net investment income increased for the three months ended March 31, 2024 by 2% compared to the same prior year period due primarily to investment income from our limited partnership investments and a growing diversified invested asset base.

Our renewal life and A&H premium revenues in the six months ended June 30, 2024 decreased slightly primarily due to the impact of a higher level of surrenders during the last few years (and thus a lower amount of policies paying renewal premiums) and from matured endowment benefits, which we expected due to contractual expiration dates.

Our net investment income increased for both the three and six months ended June 30, 2024 by 2% compared to the same prior year periods, due primarily to investment income from our limited partnership investments and a growing diversified invested asset base.

June 30, 2024 | 10-Q 38

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

Claims and Surrenders.

Payment of policyholder benefits for claims and surrenders is our largest expense and thus also key to our profitability.

The three largest components of this expense are reflected in the graphs above.

In the three months ended March 31, 2024 compared to the prior year period:

• Death claim benefits increased due to the increase in policies issued over the last few years.

• Surrenders decreased slightly as we continue to focus on retention efforts.

The three largest components of this expense are reflected in the graphs below.

In the three and six months ended June 30, 2024 compared to the prior year periods:

• death claim benefits decreased for three months ended June 30, 2024 and increased for six months ended June 30, 2024 from fluctuation in the number of reported claims,

• surrenders decreased slightly as we continue to focus on retention efforts, and

• matured endowments increased as expected due to many of our endowment policies reaching their contractual maturity dates.

Operating Expenses.

Operating expenses are our second largest expense and thus also drive our operating results.

Our general operating expenses for the three months ended March 31, 2024 increased slightly compared to the prior year period as we continue to invest in the growth of our business.

March 31, 2024 | 10-Q 34

Our general operating expenses for the three and six months ended June 30, 2024 increased compared to the prior year periods.

The primary reason for the increase was the accrual of $3.5 million in legal fees awarded to certain defendants in the trade secret lawsuit.

We have not paid any of these fees and intend to appeal the judgment against us.

See Part II, Item 1, Legal Proceedings - Trade Secret Lawsuit.

To a lesser extent, the increase was also due to our continued investment in the growth of our business and costs incurred as we transitioned to a new CEO.

June 30, 2024 | 10-Q 39

CITIZENS, INC.

1 unchanged sentence

FINANCIAL HIGHLIGHTS

Our net income decreased from $4.9 million in the three months ended March 31, 2023 to $4.5 million in the three months ended March 31, 2024.

Total revenues increased by $1.8 million due primarily to higher life insurance premium revenue, higher investment related gains and losses and higher net investment income.

We also had a $1.5 million reduction in federal income tax expense.

This was more than offset by total benefits and expenses, which increased by $3.6 million due primarily to $3.5 million of higher death claims and matured endowment benefits paid.

We also incurred $1.4 million in higher commissions paid due to the large increase in first year sales, which have a higher commission rate than renewal sales.

Our basic net income per share of Class A common stock was $0.09 for the three months ended March 31, 2024, respectively, compared to $0.10 in prior year period.

Financial Condition at March 31, 2024

Our net income before federal income taxes decreased to $3.3 million in the three months ended June 30, 2024, from $6.0 million in the three months ended June 30, 2023.

While our revenues increased by $3.6 million due primarily to higher premiums and other income, which is generated mostly from supplemental contracts with life contingencies that are entered into by policyholders with maturing endowments, our net income decreased due to the accrual of the $3.5 million in legal fees awarded to the defendants in the trade secret lawsuit described above, as well as a $1.8 million increase in claims and surrenders benefits paid due to higher matured endowments, which increased as expected due to many of our endowment policies reaching their contractual maturity dates.

Our net income before federal income taxes decreased from $12.8 million in the six months ended June 30, 2023 to $8.2 million in the six months ended June 30, 2024.

Other than the accrual of the $3.5 million in legal fees in the second quarter of 2024 mentioned above, this is due primarily to first quarter results, which despite having higher life insurance premium revenue, higher investment related gains and losses, and higher net investment income, had a decline in net income before federal income taxes due primarily to an increase in total benefits and expenses driven by higher death claims and the contractually matured endowments.

We also incurred $4.8 million in higher commissions paid in the six months ended June 30, 2024 as compared to the prior year period due to the large increase in first year sales, which have a higher commission rate than renewal sales.

Our net income per share of Class A common stock was $0.08 and $0.17 for the three and six months ended June 30, 2024, respectively, compared to $0.12 and $0.22 in the prior year periods.

Financial Condition at June 30, 2024

• Total assets of $1.7 billion

2 unchanged sentences

• $5.1 billion of direct insurance in force

• Fully diluted income per share of Class A common stock of $0.09

• Net income per share of Class A common stock of $0.17

• Book value per share of Class A common stock of $3.85

1 unchanged sentence

From time-to-time, certain events may affect our business in ways that cause current or future results to differ from past results.

See Part II, Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Events that Impacted Our Business" in our Annual Report on 10-K for the period ended December 31, 2023 for a discussion of certain events that have impacted and continue to impact our business, including inflation and market volatility, rising interest rates and ceasing operations of our property insurance business.

See Part II, Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Events that Impacted Our Business" in our Annual Report on Form 10-K for the period ended December 31, 2023 for a discussion of certain events that have impacted and continue to impact our business, including inflation and market volatility, high interest rates and ceasing operations of our property insurance business.

See also Part I, Item 1, Note 8.

Commitments and Contingencies , as well as Part II, Item 1, Legal Proceedings - Trade Secret Lawsuit for a discussion of the trade secret lawsuit, which has impacted our results of operations and could negatively impact our cash if we do not succeed in our appeal.

June 30, 2024 | 10-Q 40

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

OUR OPERATING SEGMENTS

3 unchanged sentences

See the discussion under Segment Operations below for detailed analysis.

The amount of insurance,

March 31, 2024 | 10-Q 35

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

number of policies, and average face amounts for ordinary life policies issued during the periods indicated are shown below.

Three Months Ended March 31, 2024 2023

The amount of insurance, number of policies, and average face amounts for ordinary life policies issued during the periods indicated are shown below.

Six Months Ended June 30, 2024 2023

Issued Number of

11 unchanged sentences

As we previously disclosed, our strategic initiatives include the introduction of new products tailored to our specific markets and expansion of our distribution channels both domestically and internationally.

These new products and distribution channels helped drive the 61% increase in total insurance issued in the three months ended March 31, 2024, from $170.3 million in the first three months of 2023 to $274.5 million in 2024.

The growth in our Life Insurance segment is primarily attributable to strong sales of our new domestic final expense products, which accounted for the majority of the insurance issued through March 31, 2024.

The Life Insurance segment also benefited from sales from the international whole life product which accounted for 67% of total insurance issued internationally in this segment for the three months ended March 31, 2024.

Insurance issued in our Home Service Insurance segment decreased for the three months ended March 31, 2024 compared to prior year period as we continue to make changes to our agents' compensation structures to improve the quality of sales in this segment and believe the impact of inflation has affected new sales since the customer demographic is primarily middle- and lower-income individuals.

March 31, 2024 | 10-Q 36

These new products and distribution channels helped drive the 73% increase in total insurance issued in the six months ended June 30, 2024 as compared to the prior year period.

The growth in our Life Insurance segment is primarily attributable to strong sales of our new domestic final expense products, which accounted for over half of the insurance issued through June 30, 2024.

The Life Insurance segment also benefited from sales of our international whole life product, which accounted for 65% of total insurance issued internationally in this segment for the six months ended June 30, 2024.

Insurance issued in our Home Service Insurance segment decreased for the six months ended June 30, 2024 compared to the prior year period as we continue to make changes to our agents' compensation structures to improve the quality of sales in this segment and believe the impact of inflation has affected new sales since the customer demographic is primarily middle- and lower-income individuals.

June 30, 2024 | 10-Q 41

CITIZENS, INC.

1 unchanged sentence

CONSOLIDATED RESULTS OF OPERATIONS

A discussion of consolidated results is presented below, followed by a discussion of segment operations and financial results by segment.

Our revenues are generated primarily by insurance renewal premiums and investment income from invested assets.

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands) 2024 2023 2024 2023

6 unchanged sentences

Total revenues $ 62,084 58,527 119,796 114,441

Total revenues increased in March 31, 2024, as we had higher life insurance premiums, investment related gains, compared to losses in the same period in 2023, and higher net investment income.

The Company stopped accepting renewal premiums for property insurance at the end of May and ceased our operations on June 30, 2023.

Three Months Ended

Total revenues increased in the three and six months ended June 30, 2024 as compared to the prior year periods, due to significantly higher first year life insurance premiums, higher net investment income and higher other income from supplemental contract revenue.

The Company stopped accepting premiums for property insurance at the end of May 2023 and ceased these operations on June 30, 2023.

Therefore, the table below shows a summary of our life and A&H premiums for the periods indicated.

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands)

2024 2023 2024 2023

Life and A&H premiums:

Direct premiums:

First year $ 7,893 4,277 13,824 8,451

Renewal 36,032 35,977 69,161 69,759

Total premiums $ 38,673 38,249

Total direct life and A&H premiums

43,925 40,254 82,985 78,210

(1,366) (415) (1,751) (1,079)

Total life and A&H premiums

$ 42,559 39,839 81,234 77,131

Premium Income.

Total premiums increased in the three months ended March 31, 2024 compared to the same period in 2023 due to strong first year premium growth primarily in our Life Insurance segment.

The increase in first year premiums is partially offset by lower renewal year premiums as we stopped accepting renewal premiums in our property insurance business at the end of May 2023, and a decline in Life Insurance segment renewal year premiums.

March 31, 2024 | 10-Q 37

Total direct premiums increased 9% and 6% in the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023 due to strong first year premium growth primarily in our Life Insurance segment.

Reinsurance ceded premiums increased in the three and six months ended June 30, 2024 compared to the same periods in 2023 due to our new coinsurance agreement with RGA entered in the second quarter of 2024 related to our CICA Domestic business.

June 30, 2024 | 10-Q 42

CITIZENS, INC.

1 unchanged sentence

Net Investment Income.

A summary of our net investment income and annualized net investment income performance are summarized as follows:

Three Months Ended

A summary of our net investment income and annualized net investment income performance is as follows:

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands, except for %) 2024 2023 2024 2023

12 unchanged sentences

Due to insurance regulations, fixed maturity securities constitute the vast majority, or 88%, of our investment portfolio based on fair value and thus provide the vast majority of our investment income.

Our total investment income increased by 2% for the three months ended March 31, 2024 compared to the same period in 2023, primarily due to a higher average portfolio yield on our fixed maturity securities in the current period.

Our total investment income increased by 2% for the three and six months ended June 30, 2024 compared to the same periods in 2023, primarily due to a higher average portfolio yield on our fixed maturity securities in the current period.

Long-term investment income increased as our private equity investment asset base grew.

Investment Related Gains (Losses), Net.

We recorded investment related gains during the three months ended March 31, 2024 of $1.0 million compared to losses of $0.3 million during the same prior year period.

As described above, the gains and losses are primarily related to the fair value change of our limited partnership and equity securities investments, mostly in our Life Insurance segment, due to the volatility in equity markets over the past year.

We recorded investment related losses of $0.3 million and gains of $0.7 million during the three and six months ended June 30, 2024, respectively, compared to investment related gains of $0.7 million and $0.4 million during the same prior year periods.

As described above, the gains and losses are primarily related to the fair value change of our limited partnership and equity security investments, mostly in our Life Insurance segment, due to the volatility in equity markets over the past year.

We did not sell these investments;

2 unchanged sentences

Other income consists primarily of supplemental contracts issued to policyholders in our Life Insurance segment upon the surrender or maturity of their original policies.

March 31, 2024 | 10-Q 38

June 30, 2024 | 10-Q 43

CITIZENS, INC.

1 unchanged sentence

BENEFITS AND EXPENSES

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands) 2024 2023 2024 2023

13 unchanged sentences

Payments of claims and surrenders benefits constitute the majority of our expenses.

Total benefits and expenses increased in the three months ended March 31, 2024 as compared to same period in 2023 driven by higher death claims and matured endowments.

Total benefits and expenses increased in the three and six months ended June 30, 2024 as compared to same periods in 2023 driven primarily by higher matured endowments in both periods and higher death claim benefits in the first quarter of 2024 as compared to the same period in 2023.

The $3.5 million accrual of legal fees awarded to the defendants in the trade secret trial, reflected in other general expenses, also contributed to the increase in the three months ended June 30, 2024.

Claims and Surrenders.

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands) 2024 2023 2024 2023

7 unchanged sentences

Total claims and surrenders $ 34,530 32,776 67,643 63,075

Death claim benefits increased for the three months ended March 31, 2024 compared to the same period in 2023 due primarily to a higher volume of reported death claims as a result of the increase in policies issued over the past few years.

Surrender benefits decreased slightly for the three months ended March 31, 2024 compared to the same period in 2023.

Death claim benefits are being impacted by the increase in policies issued over the past few years.

Surrender benefits decreased in the three and six months ended June 30, 2024 compared to the same periods in 2023.

Surrenders are primarily related to international policies that are nearing maturity as well as policies that have passed their surrender charge period.

We have implemented retention initiatives over the past few years, which we believe are helping to decrease surrenders, but we believe that the high interest rates are negatively affecting these efforts, as policyholders surrender their policies to re-invest the cash values in higher interest rate products.

March 31, 2024 | 10-Q 39

We have implemented retention initiatives over the past few years, which we believe are helping to decrease surrenders.

June 30, 2024 | 10-Q 44

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

Matured endowment benefits increased for the three months ended March 31, 2024 compared to the same period in 2023.

Matured endowment benefits increased for the three and six months ended June 30, 2024 compared to the same periods in 2023.

We anticipated this increase based upon the contractual maturity dates of the policies.

2 unchanged sentences

Future policy benefit reserves reflect the liability established to provide for the payment of policy benefits that we expect to pay in the future and thus generally increase when we have a larger in force block of business due to higher sales and better persistency (i.e., more policies on which we expect to pay future benefits) and decrease when we have lower sales and persistency.

In the three months ended March 31, 2024, the change in future policy benefit reserves increased compared to the same prior year period from increases in insurance issued and increases in our in force block of business somewhat offset by the amount of reserves released in connection with the death claims, surrenders and higher matured endowment benefits.

In the three and six months ended June 30, 2024, the change in future policy benefit reserves varied due to the amount of reserves released in connection with higher matured endowments compared to increases in insurance issued and increases in our in force block of business.

Policyholder Liability Remeasurement (Gain) Loss.

4 unchanged sentences

First year commission rates are higher than renewal commission rates and thus commissions fluctuate directly in relation to first year sales.

As discussed above, in the three months ended March 31, 2024, we experienced a 41% increase in first year sales leading to an increase in commission related expenses.

Other General Expenses.

General expenses increased slightly in the three months ended March 31, 2024, compared to the same period in 2023.

As discussed above, in the three and six months ended June 30, 2024, the increases in first year sales led to an increase in commission related expenses.

Capitalization of Deferred Policy Acquisition Costs.

1 unchanged sentence

These costs vary based upon amounts of premiums received related to new and renewal business.

Capitalized DAC increased in the three months ended March 31, 2024, which is in line with the increases in new sales activity.

Capitalized DAC increased in the three and six months ended June 30, 2024, which is in line with the increases in new sales activity.

Significantly lower amounts are capitalized related to renewal business in correlation with the lower commissions paid on that business compared to first year business, which has higher commission rates.

Amortization of Deferred Policy Acquisition Costs.

Amortization of DAC increased in the three months ended March 31, 2024, compared to the same period in 2023.

Amortization of DAC increased in the three and six months ended June 30, 2024, compared to the same periods in 2023.

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

SEGMENT OPERATIONS

Our business is comprised of two operating business segments:

We operate in two business segments:

• Life Insurance

3 unchanged sentences

The Company's Other Non-Insurance Enterprises include non-insurance operations such as IT and corporate-support functions, which are included in the table presented below to properly reconcile the segment information with the consolidated financial statements of the Company.

March 31, 2024 | 10-Q 40

June 30, 2024 | 10-Q 45

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

The following table sets forth income (loss) before federal income taxes by segment during the periods indicated.

Three Months Ended

The following table sets forth income (loss) before federal income tax by segment during the periods indicated.

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands) 2024 2023 2024 2023

Income (loss) before federal income tax expense:

Income (loss) before federal income tax:

Life Insurance $ 7,472 7,473 13,272 13,845

2 unchanged sentences

Other Non-Insurance Enterprises (5,581) (2,053) (7,079) (3,043)

Total income before federal income tax expense

Total income before federal income tax

$ 3,302 6,044 8,227 12,759

1 unchanged sentence

Detailed results of operations in the Life Insurance segment for the periods indicated are as follows:

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands) 2024 2023 2024 2023

19 unchanged sentences

$ 7,472 7,473 13,272 13,845

In our Life Insurance segment, income before federal income tax of $5.8 million in the three months ended March 31, 2024 decreased from $6.4 million in the prior year period .

Total revenue increased by $3.2 million from higher premium revenue, investment related gains (losses) and higher net investment income compared to the prior

March 31, 2024 | 10-Q 41

In our Life Insurance segment, income before federal income tax was $7.5 million in both the three months ended June 30, 2024 and 2023.

In the 2024 period, $3.5 million in higher revenues was offset by higher matured endowments and higher general expenses supporting our domestic growth strategy.

In the six months ended

June 30, 2024 | 10-Q 46

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

These improvements were more than offset by higher claims and surrenders benefits paid and higher other general expenses supporting our domestic growth strategy.

June 30, 2024, income before federal income tax decreased by $0.6 million from the prior year period for the above reasons as well as higher death claims in the six month period .

Life Insurance segment premium breakout is detailed below.

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands) 2024 2023 2024 2023

Direct premiums:

First year $ 6,496 2,805 11,080 5,399

Renewal 26,468 26,380 50,118 50,643

Total direct premiums 32,964 29,185 61,198 56,042

(1,359) (412) (1,732) (1,062)

Total premiums $ 31,605 28,773 59,466 54,980

Our total premiums increased by 6% in the three months ended March 31, 2024 as compared to the same period in 2023 due to the 77% increase in first year premiums.

Our total premiums increased by 10% and 8% in the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023 due to the 103% and 90% increase, respectively, in first year premiums.

First year premiums rose significantly due to sales of our new products and expanded domestic distribution.

Renewal premiums decreased slightly in the three months ended March 31, 2024 as compared to the same prior year period.

Renewal premiums decreased slightly in the six months ended June 30, 2024 as compared to the same prior year period.

As described above, this decline is due to high surrenders and matured endowments over the last several years;

While our domestic life insurance business drove the significant increase in first year premiums, life insurance premiums are generated largely from our international policyholders living in over 75 different countries across the globe.

The following table sets forth our premiums by location for the three months ended March 31, 2024 and 2023.

Three Months Ended

however, the growth in sales over the last 2 years contributed to the slight increase in renewal premiums in the three months ended June 30, 2024 as compared to 2023.

The increase in reinsurance ceded premiums in the three and six months ended June 30, 2024, compared to the same periods in 2023, is due to our new coinsurance agreement with RGA entered in the second quarter of 2024 related to our CICA Domestic business.

The following table sets forth our premiums by location for the three and six months ended June 30, 2024 and 2023.

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands) 2024 2023 2024 2023

6 unchanged sentences

Other Non-U.S.

9,532 9,534 18,347 18,375

Total international premiums

1 unchanged sentence

Domestic premiums 3,382 926 5,704 1,893

Change in premium accruals (2,258) (4,112)

Reinsurance and change in premium accruals

(450) (793) (2,708) (4,905)

Total premiums

$ 31,605 28,773 59,466 54,980

June 30, 2024 | 10-Q 47

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

Net Investment Income .

Our net investment income increased by 3% for the three months ended March 31, 2024, compared to the same period in 2023 due to our higher average portfolio yield.

Our net investment income increased by 2% and 3% for the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023 due to our higher average portfolio yield.

The majority of our investment income is derived from fixed maturity securities;

1 unchanged sentence

Investment Related Gains (Losses), Net.

We recorded investment related gains of $1.1 million during the three months ended March 31, 2024, compared to investment related losses of $0.4 million during the same prior year period, resulting primarily from the change in estimated fair market value of our limited partnership investments.

March 31, 2024 | 10-Q 42

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

We recorded investment related losses of $0.3 million and gains of $0.8 million during the three and six months ended June 30, 2024, respectively, compared to investment related gains of $0.7 million and $0.3 million during the same prior year periods, resulting primarily from the change in estimated fair market value of our limited partnership investments.

Claims and Surrenders.

The following table sets forth our primary claims and surrender benefits paid within our Life Insurance segment for the three months ended March 31, 2024 compared to the same period in 2023.

Three Months Ended

The following table sets forth our primary claims and surrender benefits paid within our Life Insurance segment for the three and six months ended June 30, 2024 compared to the same periods in 2023.

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands) 2024 2023 2024 2023

6 unchanged sentences

Total claims and surrenders $ 29,169 26,968 56,533 51,407

During the three months ended March 31, 2024 and 2023, the majority of our claims and surrender benefits in our Life Insurance segment were related to payment of surrender benefits and matured endowment benefits.

During the three and six months ended June 30, 2024 and 2023, the majority of our claims and surrender benefits in our Life Insurance segment were related to payment of surrender benefits and matured endowment benefits.

Many of our endowment policies are reaching their contractual maturity dates and thus matured endowment benefits are increasing.

We expect this trend to continue over the next few years.

Surrender benefits decreased slightly for the three months ended March 31, 2024 compared to the prior year period.

Death claim benefits increased for the three months ended March 31, 2024, compared to the prior year period as we saw a higher number of reported claims due to the increase in policies issued.

Surrender benefits decreased slightly for the three and six months ended June 30, 2024 compared to the prior year periods which we believe is due to our retention efforts.

Death claim benefits increased for the six months ended June 30, 2024, compared to the prior year period as we saw a higher number of reported claims due to the increase in policies issued.

Mortality experience is closely monitored by the Company as a key performance indicator and fluctuates from quarter-to-quarter based on reported claims.

Increase (Decrease) in Future Policy Benefit Reserves.

The change in future policy benefit reserves decreased for the three months ended March 31, 2024 and 2023 as a result of reserves released from surrenders and higher matured endowment benefits, which was partially offset by increases in insurance issued and normal increases in our in force block of business policy benefit reserves.

March 31, 2024 | 10-Q 43

The change in future policy benefit reserves for the three and six months ended June 30, 2024 and 2023 was the result of reserves released due to surrenders and higher matured endowment benefits.

These releases were partially offset by increases in reserves due to insurance issued and normal increases in our in force block of business policy benefit reserves.

June 30, 2024 | 10-Q 48

CITIZENS, INC.

2 unchanged sentences

Detailed results of operations for the Home Service Insurance segment for the periods indicated are as follows:

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands) 2024 2023 2024 2023

2 unchanged sentences

Investment related gains (losses), net 23 (12) (68) 87

Other income 20 1 20 1

Total revenues 14,526 14,392 28,784 30,003

13 unchanged sentences

Income before federal income tax

In our Home Service Insurance segment, we reported income before federal income tax of $0.6 million in the three months ended March 31, 2024, as compared to income of $1.3 million in the prior year period.

The lower income is primarily driven by lower premiums as we ceased our property insurance operations, increases in future policy benefit reserves and investment related losses partially offset by a decrease in other general expenses.

Total premium revenue declined by 10% in the three months ended March 31, 2024, compared to the same prior year period due primarily to the impact of ceasing our property insurance operations as of June 30, 2023.

Our first year premiums declined 16% in the three months ended March 31, 2024 compared to the same prior year period as we continue to make changes to our agents' compensation structures to improve the quality and the persistency of sales in this segment.

March 31, 2024 | 10-Q 44

$ 1,411 624 2,034 1,957

In our Home Service Insurance segment, we reported income before federal income tax of $1.4 million and $2.0 million in the three and six months ended June 30, 2024, respectively, as compared to income of $0.6 million and $2.0 million in the prior year periods.

The higher income is primarily driven by a decrease in other general expenses and lower claims and surrenders, partially due to ceasing our property insurance operations as of June 30, 2023, which also impacted premium revenue.

Home Service Insurance segment life and A&H premium breakout is detailed below.

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands) 2024 2023 2024 2023

Direct life and A&H premiums:

First year $ 1,397 1,472 2,744 3,052

Renewal 9,564 9,597 19,043 19,116

Total direct life and A&H premiums

$ 10,961 11,069 21,787 22,168

June 30, 2024 | 10-Q 49

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

Our first year life and A&H premiums declined 5% and 10% in the three and six months ended June 30, 2024, respectively, compared to the same prior year periods as we continue to make changes to our agents' compensation structures to improve the quality and the persistency of sales in this segment.

Claims and Surrenders.

Payments of claims and surrender benefits, which are the largest portion of our expenses, are summarized as follows:

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands) 2024 2023 2024 2023

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The majority of claims and surrender benefits in our Home Service Insurance segment are death claim benefits.

Death claim benefits increased 5% in the three months ended March 31, 2024 compared to the same prior year period.

Death claim benefits decreased slightly in the three months and increased slightly in the six months ended June 30, 2024 compared to the same prior year periods.

Mortality experience is closely monitored by the Company as a key performance indicator and fluctuates from quarter-to-quarter based on reported claims.

Other General Expenses.

General expenses decreased in the three months ended March 31, 2024 compared to the same period in 2023, primarily due to ceasing our property insurance business as discussed above.

General expenses decreased in the three and six months ended June 30, 2024 compared to the same periods in 2023, primarily due to ceasing our property insurance business as discussed above.

OTHER NON-INSURANCE ENTERPRISES

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands)

2024 2023 2024 2023

Loss before federal income tax

4 unchanged sentences

Revenue in this operating unit consists primarily of net investment income and investment related gains or losses, while expenses consist of other general expenses related to corporate functions.

The primary reason for the increased loss before federal income tax in the three and six months ended June 30, 2024 compared to the same periods in 2023 is the legal accrual described above.

Our investments are an integral part of our business success.

Our cash and invested assets at March 31, 2024 were $1.4 billion, of which 87% was invested in fixed maturity securities, all of which are classified as available-for-sale.

Our cash and invested assets at June 30, 2024 were $1.4 billion, of which 86% was invested in fixed maturity securities, all of which are classified as available-for-sale.

We closely monitor the duration of our fixed maturity investments, and investment purchases and sales are executed with the objective of having adequate funds available to satisfy our insurance obligations.

March 31, 2024 | 10-Q 45

June 30, 2024 | 10-Q 50

CITIZENS, INC.

1 unchanged sentence

The following table sets forth the carrying value of our investments by investment category and cash, cash equivalents and the percentage of each to total cash and invested assets.

Carrying Value March 31, 2024 December 31, 2023

Carrying Value June 30, 2024 December 31, 2023

(In thousands, except for %) Amount % Amount %

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Total cash, cash equivalents and invested assets $ 1,410,686 100.0 % $ 1,429,344 100.0 %

(1) Includes $122.8 million and $124.2 million of securities guaranteed by third parties at March 31, 2024 and December 31, 2023, respectively.

(1) Includes $121.2 million and $124.2 million of securities guaranteed by third parties at June 30, 2024 and December 31, 2023, respectively.

(2) Includes $93.5 million and $96.1 million of U.S.

Government-sponsored enterprises at March 31, 2024 and December 31, 2023, respectively.

The carrying value of the Company’s fixed maturity securities investment portfolio at March 31, 2024 was $1.23 billion compared to $1.24 billion at December 31, 2023.

The distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of March 31, 2024 did not materially change from December 31, 2023 – the weighted average was “A” at both dates.

Cash and cash equivalents decreased as of March 31, 2024 from December 31, 2023 and fluctuates from period-to-period primarily due to the timing of operating and investing activities.

Other long-term investments increased by $2.4 million as of March 31, 2024 from December 31, 2023 due to additional funding and increases in the fair market value of our limited partnership investments.

Government-sponsored enterprises at June 30, 2024 and December 31, 2023, respectively.

The carrying value of the Company’s fixed maturity securities investment portfolio at June 30, 2024 was $1.21 billion compared to $1.24 billion at December 31, 2023.

The distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of June 30, 2024 did not materially change from December 31, 2023 – the weighted average was “A” at both dates.

Cash and cash equivalents decreased as of June 30, 2024 from December 31, 2023 and fluctuates from period-to-period primarily due to the timing of operating and investing activities.

Other long-term investments increased by $9.4 million as of June 30, 2024 from December 31, 2023 due to additional funding and increases in the fair market value of our limited partnership investments.

Obligations of States and Political Subdivisions

The Company’s fixed maturity securities investment portfolio at March 31, 2024 and December 31, 2023 included $285.1 million and $287.2 million, respectively, of securities that are obligations of states and political subdivisions, including municipalities (collectively referred to as the municipal bond portfolio).

March 31, 2024 | 10-Q 46

The Company’s fixed maturity securities investment portfolio at June 30, 2024 and December 31, 2023 included $277.2 million and $287.2 million, respectively, of securities that are obligations of states and political subdivisions, including municipalities (collectively referred to as the municipal bond portfolio).

June 30, 2024 | 10-Q 51

CITIZENS, INC.

1 unchanged sentence

The Company's municipal bond portfolio includes third-party guarantees.

Detailed below is a presentation by the Nationally Recognized Statistical Rating Organization ("NRSRO") rating of these holdings by funding type as of March 31, 2024.

Detailed below is a presentation by the Nationally Recognized Statistical Rating Organization ("NRSRO") rating of these holdings by funding type as of June 30, 2024.

General Obligation Special Revenue Other Total % Based on Amortized

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Total $ 63,869 65,050 201,312 230,289 12,047 12,395 277,228 307,734 100.0 %

The table below shows the categories in which the Company held investments in special revenue bonds that were greater than 10% of fair value based upon the Company's total municipal bond portfolio at March 31, 2024.

(In thousands, except for %) Fair

4 unchanged sentences

Transportation 33,565 40,561 12.1

The Company's municipal bond portfolio is spread across many states, however, municipal bonds from Texas and California comprise the most significant concentration of the total municipal bond portfolio as of March 31, 2024.

The Company holds 22% and 15% of its municipal bond portfolio in Texas and California issuers, respectively, as of March 31, 2024.

There were no other states or individual issuer holdings that represented or exceeded 10% of the total municipal bond portfolio as of March 31, 2024.

March 31, 2024 | 10-Q 47

The Company holds 22% and 15% of its municipal bond portfolio in Texas and California issuers, respectively, as of June 30, 2024.

There were no other states or individual issuer holdings that represented or exceeded 10% of the total municipal bond portfolio as of June 30, 2024.

June 30, 2024 | 10-Q 52

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

The table below represents the Company's detailed exposure to municipal bonds in Texas at March 31, 2024.

The table below represents the Company's detailed exposure to municipal bonds in Texas at June 30, 2024.

General Obligation Special Revenue Other Total

15 unchanged sentences

Total $ 28,809 28,796 32,755 39,697 — — 61,564 68,493

The table below represents the Company's detailed exposure to municipal bonds in California at March 31, 2024.

The table below represents the Company's detailed exposure to municipal bonds in California at June 30, 2024.

General Obligation Special Revenue Other Total

7 unchanged sentences

A 1,265 1,650 7,592 9,257 — — 8,857 10,907

BBB — — 570 570 — — 570 570

Total $ 3,298 3,718 36,673 44,309 2,435 2,733 42,406 50,760

6 unchanged sentences

IMPAIRMENT CONSIDERATIONS RELATED TO INVESTMENTS IN FIXED MATURITY AND EQUITY SECURITIES

The Company did not record any credit valuation allowances on fixed maturity securities in either of the three months ended March 31, 2024 or 2023.

The Company did not record any credit valuation allowances on fixed maturity securities in either of the three and six months ended June 30, 2024 or 2023.

Information on both unrealized and realized gains and losses by category is set forth in Part I, Item 1, Note 3.

Investments of the notes to our consolidated financial statements herein.

March 31, 2024 | 10-Q 48

June 30, 2024 | 10-Q 53

CITIZENS, INC.

3 unchanged sentences

(In thousands)

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Fixed maturity securities $ 1,213,403 1,238,981

3 unchanged sentences

We may also derive liquidity by accessing our Credit Facility (described below) or may raise capital by selling shares in our SIP (as defined below) or by other traditional means.

Citizens has no debt as of March 31, 2024.

Citizens has no debt as of June 30, 2024.

Cash from Operating Activities.

Cash provided by operating activities is an important liquidity metric because it reflects, during a given period, the amount of cash generated that is available to pay our operating expenses, invest in our business or make strategic acquisitions.

In the three months ended March 31, 2024, our operations provided $6.8 million in net cash.

In the six months ended June 30, 2024, our operations provided $11.4 million in net cash.

Cash from Investing Activities.

1 unchanged sentence

These cash flows, for the most part, are reinvested in new investments.

In the three months ended March 31, 2024, we had net cash outflows from investing activities of $9.5 million as we continue to invest excess funds in this high interest rate environment.

In the six months ended June 30, 2024, we had net cash outflows from investing activities of $10.2 million as we continue to invest excess funds in this high interest rate environment.

The investing activities fluctuate from period to period due to timing of security activities such as calls and maturities and reinvestment of those funds.

12 unchanged sentences

At our option, purchases of stock under the SIP can be made from newly issued or treasury stock, rather than in the open market, in which case, we can raise capital by selling our shares.

In 2021, we entered into a Credit Facility with Regions Bank.

The initial term of the Credit Facility expired on May 5, 2024 and we renewed it on substantially the same terms for an additional three years.

We renewed our Credit Facility with Regions Bank on May 3, 2024 on substantially the same terms for an additional three years.

See Part I, Item 1, Note 8.

Commitments and Contingencies in the notes to our consolidated financial statements, herein, for a description of

March 31, 2024 | 10-Q 49

Commitments and Contingencies in the notes to our consolidated financial statements, herein, for a description of the Credit Facility.

The Credit Facility provides additional liquidity to the

June 30, 2024 | 10-Q 54

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

the Credit Facility.

The Credit Facility provides additional liquidity to the Company for short-term or longer-term needs.

As of March 31, 2024, we have not borrowed any money under the Credit Facility.

Company for short-term or longer-term needs.

As of June 30, 2024, we have not borrowed any money under the Credit Facility.

INSURANCE COMPANY SUBSIDIARY LIQUIDITY AND CAPITAL RESOURCES

14 unchanged sentences

Because claims and surrenders are our largest expense, a primary liquidity concern is the risk of either (i) an extraordinary level of early policyholder surrenders, or (ii) higher than expected mortality experience.

Our death benefit payments increased in the three months ended March 31, 2024 which is expected as the amount of insurance issued has increased significantly over the past couple of years.

Surrender benefits, which have been higher than usual the last several years, slightly decreased in the first three months of 2024.

Our death benefit payments increased in the six months ended June 30, 2024 which is expected as the amount of insurance issued has increased significantly over the past couple of years.

Surrender benefits, which have been higher than usual the last several years, slightly decreased in the first six months of 2024.

In order to mitigate the risk of early policyholder surrenders, we include provisions in our insurance policies, such as surrender charges, that help limit and discourage early withdrawal, but as many of our policies have reached the age where surrender charges have expired or significantly decreased, we have experienced high levels of surrenders.

Additionally, we believe that surrenders have been high due to other reasons, including the loss of one of our biggest distributors in Venezuela in 2018, increasing interest rates, which may encourage policyholders to seek higher rates of returns in different investment products, post-pandemic beliefs that life insurance may not be as important as it was during the pandemic, and inflationary pressures, which may cause policyholders to want the cash values of their policies due to decreased purchasing power elsewhere.

We believe that surrenders have been high due to other reasons, including the loss of one of our biggest distributors in Venezuela in 2018, increasing interest rates, which may encourage policyholders to seek higher rates of returns in different investment products, post-pandemic beliefs that life insurance may not be as important as it was during the pandemic, and inflationary pressures, which may cause policyholders to want the cash values of their policies due to decreased purchasing power elsewhere.

To the extent that early surrenders are higher than expected, our liquidity could be negatively impacted due to benefit payments as well as lower renewal premiums.

1 unchanged sentence

Our endowment products have contractual maturity dates and provide the policyholder with alternatives once the policy matures - they can choose to take a lump sum payout or leave the money on deposit at interest with the Company.

Approximately 18% of the endowments in force, totaling approximately 6% of our in force business as of March 31, 2024, will mature in the next five years.

Approximately 18% of the endowments in force, totaling approximately 6% of our in force business as of June 30, 2024, will mature in the next five years.

Policyholder election behavior is unknown, but if too many policyholders elect lump sum distributions, the Company could be exposed to liquidity risk in years of high maturities.

2 unchanged sentences

We currently anticipate that our available operating cash flow and capital resources will be adequate to meet our needs for funds, but we are closely monitoring our policyholder behavior patterns.

March 31, 2024 | 10-Q 50

June 30, 2024 | 10-Q 55

CITIZENS, INC.

3 unchanged sentences

CICA Domestic sales have increased significantly since the third quarter of 2023 and continue to grow rapidly.

To mitigate this risk and strain on capital, we may seek options, such as reinsurance or loans at the holding company level (from the Credit Facility or otherwise) that would allow us to reduce the liquidity risk should CICA Domestic's required commission payments exceed current resources.

If we are unable to purchase reinsurance protection in amounts that we consider sufficient or unable to borrow money to contribute capital to CICA Domestic, we could be exposed to cash flow strain.

To mitigate this risk and strain on capital, we entered into a coinsurance agreement with RGA in the second quarter of 2024 and elected to cede 50% of our final expense business to RGA, which alleviates some of the strain on expenses.

We may also seek other options, such as loans at the holding company level (from the Credit Facility or otherwise) that would allow us to reduce the liquidity risk should CICA Domestic's required commission payments exceed current resources.

If we are unable to borrow money to contribute capital to CICA Domestic, we could be exposed to cash flow strain.

See Part I, Item 1, Note 8.

Commitments and Contingencies , as well as Part II, Item 1.

Legal Proceedings - Trade Secret Lawsuit, for a discussion of the trade secret lawsuit, which could negatively impact our cash if we do not succeed in our appeal.

Regulatory Restrictions on our Use of Cash

As discussed above, we are subject to regulatory capital requirements that could affect the Company’s ability to access capital from our insurance operations or cause the Company to have to put additional cash in our wholly-owned subsidiaries.

4 unchanged sentences

Additionally, we have a Capital Maintenance Agreement between Citizens and CICA Domestic, Citizens' wholly-owned subsidiary domiciled in Colorado, that would require Citizens to contribute capital to CICA Domestic in order to maintain a RBC level above 350%.

At March 31, 2024, our domestic insurance subsidiaries were above the required minimum RBC levels and CICA Domestic was above 350%.

At June 30, 2024, our domestic insurance subsidiaries were above the required minimum RBC levels and CICA Domestic was above 350%.

For CICA Domestic, commission advances are non-admitted assets, which increases required regulatory capital and reduces the excess capital available.

6 unchanged sentences

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.

The Keep Well Agreement, which expires on August 31, 2024, 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.

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 to its insurance subsidiaries could negatively impact the Company's capital resources and liquidity.

March 31, 2024 | 10-Q 51

June 30, 2024 | 10-Q 56

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

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

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

As of March 31, 2024, we have no additional contractual obligations or off-balance sheet arrangements other than those described in Part I.

Item 1, Note 7.

As of June 30, 2024, we have no additional contractual obligations or off-balance sheet arrangements other than those described in Part I, Item 1, Note 8.

Commitments and Contingencies in the notes to our consolidated financial statements herein and in Part II, Item 7, Contractual Obligations and Off-Balance Sheet Arrangements in our Form 10-K .

6 unchanged sentences

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 2. Management’s Discussion and Analysis