What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-08-06 · 184 added, 168 removed, 494 unchanged (42% of the section changed)

6 unchanged sentences

These forward-looking statements are subject to a number of risks, uncertainties and assumptions including those factors discussed in the "Risk Factors" contained in our Annual Report on Form 10-K for the year ended December 31, 2023, which is incorporated herein by reference.

The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes included in Part I, Item 1 of this Form 10-Q.

The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes included in Part I, Item 1 of this Form 10-Q,as well as in conjunction with MD&A and the consolidated financial statements and notes thereto that are included in our Form 10-K.

The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.

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We are not including any of the information contained on our website as part of, or incorporating it by reference into, this Form 10-Q.

Objective of our Management's Discussion and Analysis

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 September 30, 2024 and the material changes in our results of operations for the three and nine months ended September 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.

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 80 different countries.

Citizens conducts insurance related operations through its insurance subsidiaries, which provide benefits to policyholders globally.

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.

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In addition to paying and reserving for insurance benefits that we pay to our policyholders, our expenses consist primarily of the costs of selling our insurance products (e.g., commissions, underwriting, marketing expenses), operating expenses and income taxes.

Objective of our Management's Discussion and Analysis

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 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.

June 30, 2024 | 10-Q 36

September 30, 2024 | 10-Q 37

CITIZENS, INC.

7 unchanged sentences

• Operating expenses

Premium Revenues.

• Actuarial assumptions

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

Premium Revenues.

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

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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.

Throughout the MD&A, we describe the actions and initiatives 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.

Over the last couple of years, we began our "white label" program to expand our distribution by expanding CICA Domestic's state licenses, developing new final expense and living benefit products, and filing these new products in multiple states.

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

We incur significant upfront costs in acquiring new business such as this, including the payment of sales commissions and underwriting costs, and thus in order to provide more capacity for growth, in the second quarter of 2024, we entered into a coinsurance agreement with RGA Reinsurance Company ("RGA").

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 received and benefits paid 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.

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") direct premium results.

June 30, 2024 | 10-Q 37

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

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

First Year Premiums.

In addition to increased first year premiums due to our domestic growth discussed above, first year premiums in our international business have increased in the nine months ended September 30, 2024, as compared to the same period in 2023 as we continue to work with our distribution partners to expand sales.

Renewal Premiums.

Our renewal life and A&H premium revenues in the three and nine months ended September 30, 2024 slightly decreased primarily due to the impact of a higher level of surrenders and matured

September 30, 2024 | 10-Q 38

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

endowments in our international business during the last few years, which has led to a lower number of policies paying renewal premiums.

Investment Income.

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

Claims and Surrenders.

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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

In the three and nine months ended September 30, 2024 compared to the prior year periods,

• death claim benefits increased due to the significant growth in our domestic life in force business as well as a higher volume of reported claims in our Home Services Insurance segment,

• surrenders decreased 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.

While surrenders and matured endowments do not significantly affect current profitability since reserves are released in a corresponding amount of the surrendered policy or matured endowment benefit payment, they

September 30, 2024 | 10-Q 39

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

negatively affect future renewal premium revenue and thus have a greater impact to future profitability versus current profitability.

Operating Expenses.

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

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.

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

The primary reason for the increase in the nine months ended September 30, 2024 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.

See Part I, Item 1, Note 8.

Commitments and Contingencies , as well as Part II, Item 1, Legal Proceedings - Trade Secret Lawsuit for additional details.

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

Actuarial Assumptions.

The actuarial assumptions that underlie our reserves are based upon our best estimates of mortality, lapses and discount rates.

Our results will be affected to the extent there is a variance between our actuarial assumptions and actual experience.

As discussed above, our domestic growth in the Life Insurance segment has been significantly expanded.

Our current profitability is affected by the amount of reserves we have to hold for this new business, and how closely actual experience matches our actuarial assumptions.

The actuarial assumptions that underlie our reserves are

September 30, 2024 | 10-Q 40

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

based upon our best estimates of mortality and lapses and are inherently more difficult to predict for a new product line.

Actuarial assumptions are continually monitored and are expected to become less volatile as this business matures and we develop more experience.

FINANCIAL HIGHLIGHTS

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

Our net income before federal income taxes decreased to $3.0 million in the three months ended September 30, 2024 from $4.6 million in the three months ended September 30, 2023.

While our revenues increased by $2.3 million due primarily to higher first year premiums and investment related gains, our net income decreased due primarily to (i) lower renewal premiums resulting from high surrenders and matured endowments in the past few years, and (ii) an increase in total benefits and expenses paid including (a) an increase in future policyholder benefit reserves primarily related to increases in our domestic life in force business and issuance of supplemental contracts;

(b) policyholder remeasurement loss related to updating our actuarial assumptions in our CICA Domestic business;

and (c) an increase in death claims.

Our net income before federal income taxes decreased from $17.4 million in the nine months ended September 30, 2023 to $11.3 million in the nine months ended September 30, 2024.

In addition to the reasons described above, during the nine month period we accrued $3.5 million in legal fees awarded to the certain defendants in the trade secret lawsuit.

Our basic net income per share of Class A common stock was $0.06 and $0.23 for the three and nine months ended September 30, 2024, respectively, compared to $0.06 and $0.28 in the same prior year periods.

Financial Condition at September 30, 2024

• Total assets of $1.7 billion

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• $5.2 billion of direct insurance in force

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

• Diluted net income per share of Class A common stock of $0.22

• Book value per share of Class A common stock of $4.16

4 unchanged sentences

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

September 30, 2024 | 10-Q 41

CITIZENS, INC.

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Our insurance operations are the primary focus of the Company, as these operations generate most of our income.

See the discussion under Segment Operations below for detailed analysis.

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

See the discussion under Segment Operations below for a detailed analysis.

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

Nine Months Ended September 30, 2024 2023

Issued Number of

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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 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

These new products and distribution channels helped drive the 74% increase in total insurance issued in the nine months ended September 30, 2024 as compared to the prior year period.

The Life Insurance segment also benefited from sales of our international whole life product, which accounted for 68% of total insurance issued internationally in this segment for the nine months ended September 30, 2024.

Insurance issued in our Home Service Insurance segment decreased for the nine months ended September 30, 2024 compared to the prior year period largely due to strategic actions intended to improve sales quality and persistency, which led to a decrease in our agent sales force as we focus on these improvements.

We also believe the impact of inflation on the cost of living has affected new sales since the customer demographic is primarily middle- and lower-income individuals.

September 30, 2024 | 10-Q 42

CITIZENS, INC.

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

(In thousands) 2024 2023 2024 2023

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Total revenues $ 61,731 59,390 181,527 173,831

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.

Total revenues increased in the three and nine months ended September 30, 2024 as compared to the prior year periods, due to significantly higher first year life insurance premiums, investment related gains and higher other income in the nine month period due to 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,

Three Months Ended Nine Months Ended

September 30, September 30,

(In thousands)

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Premium Income.

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

Direct premiums increased 5% and 6% in the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023 due to strong first year premium growth in our Life Insurance segment.

Renewal premiums decreased in both periods due to the high level of surrenders and matured endowments in the prior year, which negatively affect renewal premiums in the current periods.

Reinsurance ceded premiums increased in the three and nine months ended September 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.

September 30, 2024 | 10-Q 43

CITIZENS, INC.

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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,

Three Months Ended Nine Months Ended

September 30, September 30,

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

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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 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.

Our total investment income increased for the three and nine months ended September 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.

Investment Related Gains (Losses), Net.

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 recorded investment related gains of $0.8 million and $1.5 million during the three and nine months ended September 30, 2024, respectively, compared to investment related losses of $0.9 million and $0.5 million during the same prior year periods.

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;

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Other Income.

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

June 30, 2024 | 10-Q 43

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

Supplemental contracts offer our policyholders the opportunity to leave their cash with us and be paid interest at a guaranteed rate or receive an annuity, at their option.

September 30, 2024 | 10-Q 44

CITIZENS, INC.

1 unchanged sentence

BENEFITS AND EXPENSES

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

(In thousands) 2024 2023 2024 2023

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

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.

Total benefits and expenses increased in the three and nine months ended September 30, 2024 as compared to same periods in 2023 driven primarily by the costs related to our new CICA domestic business, as described above as well as a higher volume of reported claims in our Home Services Insurance segment.

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

Claims and Surrenders.

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

(In thousands) 2024 2023 2024 2023

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Total claims and surrenders $ 36,478 37,723 104,121 100,798

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.

Death claim benefits are being impacted by the increase in policies issued over the past few years and an increase in volume of claims reported in our Home Service Insurance segment.

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

Surrenders are primarily related to international 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.

June 30, 2024 | 10-Q 44

September 30, 2024 | 10-Q 45

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

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

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

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

Explanation of Other Benefits and Expenses

Increase (Decrease) in Future Policy Benefit Reserves.

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 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.

In the three and nine months ended September 30, 2024, the change in future policy benefit reserves increased due to the amount of reserves on new insurance issued and the in force book of business somewhat offset by released reserves in connection with higher matured endowments.

Policyholder Liability Remeasurement (Gain) Loss.

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On a quarterly basis, we review actual versus expected experience in such quarter, which is reported as a policyholder liability remeasurement gain (if better performance than assumptions) or loss (if lower performance than assumptions).

Additionally, in the third quarter of each year, we update our cash flow assumptions to recalculate the NPR, with the impact on the liability for future policy benefits recognized as a policyholder liability remeasurement on a retrospective catch-up basis.

In 2024, remeasurement (gain) loss was negatively affected by updates to mortality and lapse assumptions that better reflect emerging experience for the new CICA Domestic block of business.

Commission expenses are a cost of acquiring business, as commissions are the primary compensation paid to our independent consultants and independent agents for selling our products.

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

The increases in first year sales in the three and nine months ended September 30, 2024 led to an increase in commission related expenses in both periods as compared to the prior year periods.

Capitalization of Deferred Policy Acquisition Costs.

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

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

Capitalized DAC increased in the three and nine months ended September 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 and six months ended June 30, 2024, compared to the same periods in 2023.

Amortization of DAC increased in the three and nine months ended September 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.

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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.

June 30, 2024 | 10-Q 45

September 30, 2024 | 10-Q 46

CITIZENS, INC.

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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,

Three Months Ended Nine Months Ended

September 30, September 30,

(In thousands) 2024 2023 2024 2023

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

(In thousands) 2024 2023 2024 2023

19 unchanged sentences

$ 4,416 6,550 17,688 20,395

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

In our Life Insurance segment, income before federal income tax was $4.4 million and $17.7 million during the three and nine months ended September 30, 2024, respectively, compared to $6.6 million and $20.4 million during the

September 30, 2024 | 10-Q 47

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

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 .

same prior year periods.

Our higher revenues were offset by increases in reserves, higher policyholder liability remeasurement loss and higher general expenses supporting our CICA Domestic growth.

Life Insurance segment premium breakout is detailed below.

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

(In thousands) 2024 2023 2024 2023

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Total premiums $ 32,201 31,148 91,667 86,128

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.

Our total premiums increased by 3% and 6% in the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023 due to the 62% and 78% increase, net of reinsurance, 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 six months ended June 30, 2024 as compared to the same prior year period.

Renewal premiums decreased in the three and nine months ended September 30, 2024 as compared to the same prior year periods.

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

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 increase in reinsurance ceded premiums in the three and nine months ended September 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.

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 80 different countries across the globe.

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,

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

Three Months Ended Nine Months Ended

September 30, September 30,

(In thousands) 2024 2023 2024 2023

14 unchanged sentences

$ 32,201 31,148 91,667 86,128

June 30, 2024 | 10-Q 47

September 30, 2024 | 10-Q 48

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

Net Investment Income .

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;

however, long-term investment income continues to increase as our limited partnership asset base grows.

Investment Related Gains (Losses), Net.

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.

We recorded investment related gains of $0.9 million and $1.7 million during the three and nine months ended September 30, 2024, respectively, compared to investment related losses of $0.4 million and $0.1 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 and six months ended June 30, 2024 compared to the same periods in 2023.

Three Months Ended Six Months Ended

June 30, June 30,

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

Three Months Ended Nine Months Ended

September 30, September 30,

(In thousands) 2024 2023 2024 2023

6 unchanged sentences

Total claims and surrenders $ 30,083 32,419 86,616 83,826

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.

During the three and nine months ended September 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 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.

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

Death claim benefits increased for the three and nine months ended September 30, 2024, compared to the prior year period as we saw a higher number of reported claims due to the increase in policies issued, primarily in our new domestic business.

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 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.

The change in future policy benefit reserves for the three and nine months ended September 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

Policyholder Liability Remeasurement (Gain) Loss.

The third quarter update to mortality and lapse assumptions for CICA Domestic negatively affected our policyholder liability remeasurement loss.

This was partially offset by better than expected surrender experience in our international business.

September 30, 2024 | 10-Q 49

CITIZENS, INC.

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

(In thousands) 2024 2023 2024 2023

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Total benefits and expenses 14,217 14,410 40,967 42,456

Income before federal income tax

Income (loss) before federal income tax

$ (80) (443) 1,954 1,514

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.

In our Home Service Insurance segment, we reported a loss before federal income tax of $0.1 million and income of $2.0 million in the three and nine months ended September 30, 2024, respectively, as compared to loss of $0.4 million and income of $1.5 million in the prior year periods.

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

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

(In thousands) 2024 2023 2024 2023

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$ 10,717 10,948 32,504 33,116

June 30, 2024 | 10-Q 49

September 30, 2024 | 10-Q 50

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.

Our life and A&H premiums declined in the three and nine months ended September 30, 2024, respectively, compared to the same prior year periods.

The decrease is largely due to strategic actions intended to improve sales quality and persistency, which actions led to a decrease in our agent sales force as we focus on these improvements.

Additionally, we believe external economic pressures, such as inflation, have impacted revenue in this segment disproportionately.

Claims and Surrenders.

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

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

Death claim benefits increased in the three and nine months ended September 30, 2024 compared to the same prior year periods due to higher volume of reported claims.

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 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.

General expenses decreased in the three and nine months ended September 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 Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

(In thousands)

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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.

The primary reason for the increased loss before federal income tax in the nine months ended September 30, 2024 compared to the same period in 2023 is the legal accrual described above.

Our investments are an integral part of our business success.

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.

Our cash and invested assets at September 30, 2024 were $1.5 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.

June 30, 2024 | 10-Q 50

September 30, 2024 | 10-Q 51

CITIZENS, INC.

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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 June 30, 2024 December 31, 2023

Carrying Value September 30, 2024 December 31, 2023

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

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Total cash, cash equivalents and invested assets $ 1,477,491 100.0 % $ 1,429,344 100.0 %

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

(1) Includes $119.6 million and $124.2 million of securities guaranteed by third parties at September 30, 2024 and December 31, 2023, respectively.

(2) Includes $98.3 million and $96.1 million of U.S.

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.

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

The carrying value of the Company’s fixed maturity securities investment portfolio at September 30, 2024 was $1.27 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 September 30, 2024 did not materially change from December 31, 2023 – the weighted average was “A” at both dates.

Cash and cash equivalents increased as of September 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 $10.7 million as of September 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 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

The Company’s fixed maturity securities investment portfolio at September 30, 2024 and December 31, 2023 included $278.2 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).

September 30, 2024 | 10-Q 52

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 June 30, 2024.

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

General Obligation Special Revenue Other Total % Based on Amortized

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Total $ 64,011 64,174 201,846 223,057 12,356 12,391 278,213 299,622 100.0 %

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 June 30, 2024.

(In thousands, except for %) Fair

4 unchanged sentences

Transportation 34,807 40,551 12.5

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 June 30, 2024.

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

The Company holds 22% and 16% of its municipal bond portfolio in Texas and California issuers, respectively, as of September 30, 2024.

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

September 30, 2024 | 10-Q 53

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

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

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

General Obligation Special Revenue Other Total

15 unchanged sentences

Total $ 28,126 28,031 32,705 38,251 — — 60,831 66,282

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

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

General Obligation Special Revenue Other Total

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A 3,041 3,279 18,430 21,531 2,599 2,733 24,070 27,543

BBB — — 570 570 — — 570 570

BB and other — — 14,784 17,041 — — 14,784 17,041

1 unchanged sentence

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 and six months ended June 30, 2024 or 2023.

The Company did not record any credit valuation allowances on fixed maturity securities in either of the three and nine months ended September 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.

June 30, 2024 | 10-Q 53

September 30, 2024 | 10-Q 54

CITIZENS, INC.

3 unchanged sentences

(In thousands)

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Fixed maturity securities $ 1,273,497 1,238,981

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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 June 30, 2024.

Citizens has no debt as of September 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 six months ended June 30, 2024, our operations provided $11.4 million in net cash.

In the nine months ended September 30, 2024, our operations provided $21.1 million in net cash.

Cash from Investing Activities.

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

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.

In the nine months ended September 30, 2024, we had net cash outflows from investing activities of $13.3 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.

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

We renewed our Credit Facility with Regions Bank on May 3, 2024 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 the Credit Facility.

The Credit Facility provides additional liquidity to the

June 30, 2024 | 10-Q 54

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

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

September 30, 2024 | 10-Q 55

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

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

2 unchanged sentences

We manage our insurance operations in order to ensure that we have stable and reliable sources of cash flow to meet our obligations.

As we have discussed, we recently re-launched our domestic business by developing new products and expanding our distribution channels, which has led to an increase in first year premiums (i.e.

As we have discussed, we have been growing our domestic business by developing new products and expanding our distribution channels, which has led to an increase in first year premiums (i.e.

, new sales) of 50% from 2023 to 2024.

When selling new policies, we incur upfront policy acquisition costs, such as agent commission payments.

While historically, cash flows from our operations have been sufficient to meet our cash needs, the insurance companies also have the available-for-sale fixed maturity investment portfolio available to create additional cash flows if required.

While historically, cash flows from our operations have been sufficient to meet our cash needs, we have entered into a reinsurance agreement with RGA to help with some of the costs, and the insurance companies also have the available-for-sale fixed maturity investment portfolio available to create additional cash flows if required.

Two of our insurance subsidiaries are members of the Federal Home Loan Bank ("FHLB") of Dallas.

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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 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.

Our death benefit payments increased in the nine months ended September 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 nine 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.

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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 June 30, 2024, will mature in the next five years.

Approximately 17% of the endowments in force, totaling approximately 6% of our in force business as of September 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.

June 30, 2024 | 10-Q 55

September 30, 2024 | 10-Q 56

CITIZENS, INC.

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

At September 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.

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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, 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.

June 30, 2024 | 10-Q 56

At September 30, 2024, CICA International exceeded the required minimum capital and related ratio.

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

September 30, 2024 | 10-Q 57

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 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.

As of September 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