What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-08 compared with 2024-11-07 · 278 added, 277 removed, 401 unchanged (58% of the section changed)

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The public can obtain any documents that the Company files with the SEC at http://www.sec.gov.

We also make available, free of charge, through our website (http://www.citizensinc.com), our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Section 16 Reports filed by officers and directors, news releases, and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after we electronically file such reports with, or furnish such reports to, the SEC.

We also make available, free of charge, through our website (http://www.citizensinc.com), our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Section 16 Reports filed by officers and directors, news releases, and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after we electronically file such reports with, or furnish such reports to, the SEC.

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.

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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.

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, 2024 to March 31, 2025 and the material changes in our results of operations for the three months ended March 31, 2025 as compared to the same period in 2024.

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 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.

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

We conduct insurance related operations through our insurance subsidiaries, which provide benefits to policyholders and their beneficiaries globally.

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

As an insurance provider, we collect premiums on an ongoing basis from our policyholders and invest the majority of the premiums to pay future benefits, including claims, surrenders and policyholder dividends.

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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.

September 30, 2024 | 10-Q 37

March 31, 2025 | 10-Q 34

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

EVENTS THAT IMPACTED OUR BUSINESS

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

In addition to (1) the factors described in Part 1.

Risk Factors in our Annual Report on Form 10-K for the period ended December 31, 2024 ("2024 Form 10-K"), as updated by Part II.

and (2) the events described in Part 1.

"Management's Discussion and Analysis of Financial Condition and Results of Operations - Events that Impacted Our Business" in the 2024 Form 10-K ;

the following events impacted our results of operations or financial condition.

Investment Related Losses due to BlackRock write-down

Investment related gains and losses derive principally from our investments in equity securities and include unrealized gains and losses from market price changes in these equities during the period.

As evidenced, investment related gains and losses can cause significant fluctuations from period to period and while they are included in our operating revenue, we do not believe they are indicative of our operating results.

As discussed in our 2024 Form 10-K , in December 2024, BlackRock, Inc.

("BlackRock") announced a substantial write-down of its Global Renewable Power Fund III, a $4.8 billion flagship renewable fund, due to the collapse of two key investments:

Northvolt and SolarZero.

In 2025, BlackRock continued to review the valuation of this fund and reduced the net asset value further.

We had invested in this fund as part of our environmental, social and governance ("ESG") initiatives and although we did not sell this investment, we reported an investment related loss on this investment of $3.3 million in the fourth quarter of 2024 and an additional $3.1 m illion in the quarter ended March 31, 2025.

This sector has experienced market headwinds primarily driven by rising interest rates, supply chain disruption and less certain policy environment.

FINANCIAL HIGHLIGHTS

Net income (loss) before federal income tax decreased to a loss of $1.8 million in 2025 from income of $4.9 million in 2024.

The factors that impacted this change were:

• $3.9 million decrease in investment related gains and losses primarily related to the BlackRock write-down;

• $1.4 million increase in other general expenses;

• total premium revenues increased by $1.1 million in the three months ended March 31, 2025, but were offset by a $2.5 million increase in total insurance benefits paid or provided.

Financial Condition at March 31, 2025

• Total assets of $1.7 billion

• Total direct insurance in force of $5.28 billion

• Total investments of $1.4 billion;

fixed maturity securities comprised 88% of total investments

• Diluted loss per share of Class A common stock of $0.03

• Book value per share of Class A common stock of $4.37

• Adjusted book value per share of Class A common stock of $6.12 1

1 Adjusted book value per of Class A common share is a non-GAAP measure that is calculated by dividing actual Class A common stockholders’ equity, excluding AOCI, by the number of Class A common shares outstanding at the end of the period.

March 31, 2025 | 10-Q 35

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

The Factors that Drive our Operating Results

We see the following as the primary factors that drive our operating results.

• Sales ( i.e.

, premium revenues)

• Sales of our products

• Investments

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• Actuarial assumptions

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

Sales of Our Products.

We believe sales statistics are meaningful to gain an understanding of, among other things, the attractiveness of our 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 we are taking to increase sales and improve retention, sales performance in each period and as compared to prior year period, and how we view trends with respect to sales and retention.

One sales factor that is key to our profitability is product mix.

We offer a competitive product mix designed to meet the needs of our specific customer segments and actively manage new product margins and in-force profitability.

Product mix can have an impact on profitability - selling a higher volume of lower-margin products, we may receive more premiums but may not be as profitable as in periods when we sell a greater percentage of higher-margin products.

Our product mix has been trending towards sales of our newer whole life products, both internationally and domestically, which have a smaller margin than sales of endowment products.

We expect this trend to continue due to the anticipated volumes of endowment maturities being replaced by higher volumes of whole life products.

Premium Revenues.

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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 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.

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.

Throughout the MD&A, we refer to "direct" premiums as all premiums received and "net" or "total" premiums as all premiums received less premiums ceded to RGA Reinsurance Company ("RGA") and our other reinsurers.

Direct premium revenue increased 8% in the three months ended March 31, 2025, to $42.4 million from $39.1 million in the three months ended March 31, 2024.

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

Direct first year premiums increased 49%, to $8.8 million in the three months ended March 31, 2025, compared to $5.9 million in the three months ended March 31, 2024, including 66% growth in our Life Insurance segment, driven by sales of our newer products and an increased number of producing agents.

First year premium growth was primarily in our new domestic final expense business, but first year premiums in our international business also increased in the three months ended March 31, 2025, as compared to the same period in 2024 as we continue to work with our distribution partners to expand sales.

March 31, 2025 | 10-Q 36

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.

Renewal Premiums.

Our direct renewal premium revenues in the three months ended March 31, 2025 slightly increased primarily due to strong sales in 2024 leading to higher number of policies paying renewal premiums in the current period.

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.

Our net investment income decreased slightly for the three months ended March 31, 2025 compared to the same prior year period, due primarily to lower investment income from our limited partnership investments.

Claims and Surrenders.

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

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

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

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

In the three months ended March 31, 2025 compared to the prior year period,

• death claim benefits decreased in our Life Insurance segment due to a combination of lower volume of claims and our coinsurance agreement with RGA alleviating some of our liability to pay these claims than in the prior year quarter,

• surrenders increased slightly, 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

March 31, 2025 | 10-Q 37

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 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 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.

Operating expenses are meaningful to gain an understanding of how we manage our business, including among other things, salaries, benefits and spending on growth initiatives.

The primary reasons for the increase in the three months ended March 31, 2025 as compared to the prior year quarter were our continued investment in the growth of our business and higher costs associated with our equity compensation program as a result of increased stock price and additional participants.

Actuarial Assumptions.

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

The actuarial assumptions that underlie our reserves are based upon our best estimates of certain factors such as mortality, lapses, morbidity 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 $3.0 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

• Total investments of $1.4 billion;

fixed maturity securities comprised 88% of total investments

• $5.2 billion of direct insurance in force

• 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

EVENTS THAT IMPACTED OUR BUSINESS

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 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.

September 30, 2024 | 10-Q 41

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

We expect to see a rebalancing in our mix of business arising due to the anticipated volume of maturities in our international endowment business, as well as continued domestic growth in the Life Insurance segment, which has been discussed previously.

Our current profitability is affected by how closely actual experience matches our actuarial assumptions for these shifts, and by the amount of reserves we must hold.

Actuarial assumptions are continually monitored and updated at least annually to reflect overall experience as well as emerging trends.

OUR OPERATING SEGMENTS

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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

The amount of direct

March 31, 2025 | 10-Q 38

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

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

Three Months Ended March 31, 2025 2024

Issued Number of

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Issued Average Policy

Ordinary Life Policies:

Life Insurance:

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Total $ 255,161,184 15,761 $ 274,460,331 15,524

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 74% increase in total insurance issued in the nine months ended September 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 September 30, 2024.

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

In the first three months of 2025, we issued $255 million in new insurance as we continued to grow our business with our newer products tailored to our specific markets and expansion of our distribution channels both domestically and internationally.

In our Life Insurance segment, we continued to experience strong sales and increased number of policies issued of our new domestic final expense products;

however, implementation of new initiatives, including use of information to enhance underwriting decisions with additional medical and lab data from third parties, resulted in higher sales of products with lower policy f ace amounts i n the first quarter of 2025 as compared to the prior year period.

Internationally, the Life Insurance segment benefited from increased sales of our whole life product, which accounted for 63% of total insurance issued internationally in this segment for the three months ended March 31, 2025.

This product tends to have higher policy face amounts than our older endowment products.

Insurance issued in our Home Service Insurance segment decreased for the three months ended March 31, 2025 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.

These improvements did result in higher insurance issued from the fourth quarter of 2024.

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

The amount of direct insurance inforce for the periods indicated is shown below.

Overall insurance inforce growth has been and will be impacted by persistency rates, policy maturities and surrenders.

March 31, 2025 | 10-Q 39

CITIZENS, INC.

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CONSOLIDATED RESULTS OF OPERATIONS

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

Three Months Ended Nine Months Ended

September 30, September 30,

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

Three Months Ended

(In thousands) 2025 2024

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Total revenues $ 55,652 57,712

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 Nine Months Ended

September 30, September 30,

Total revenues decreased in the three months ended March 31, 2025 as compared to the prior year period.

Despite the increase in both first year and renewal premiums, revenues decreased due to the Blackrock material adjustment in valuation, which led to a $3.9 million decrease in investment related gains (losses) which was mostly non-cash.

Three Months Ended

(In thousands)

2024 2023 2024 2023

Life and A&H premiums:

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$ 39,797 38,675

Premium Income.

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

Our first year direct premiums increased 49% in the three months ended March 31, 2025, compared to the same period in 2024, due to sales of our newer products in our Life Insurance segment and expanded domestic distribution.

Renewal premiums increased from strong first year sales in 2024 in our Life Insurance segment leading to higher number of policies paying renewal premiums in the first quarter of 2025, which more than offset the impacts from a higher level of surrenders during the last few years and increasing matured endowment benefits paid in the international portion of our Life Insurance segment.

Reinsurance premiums ceded increased in the three months ended March 31, 2025 compared to the same period in 2024 due to a coinsurance agreement we entered into with RGA in the second quarter of 2024.

March 31, 2025 | 10-Q 40

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 Nine Months Ended

September 30, September 30,

Three Months Ended

(In thousands, except for %) 2025 2024

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Annualized yield on average invested assets 4.52 % 4.59 %

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 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.

Fixed maturity securities constitute the vast majority, or 88% of our investment portfolio based on fair value and thus provide the majority of our net investment income.

Our net fixed maturity investment portfolio, primarily invested in callable securities, has faced challenges as many securities were called between 2019 and 2021, necessitating reinvestment in low interest rate fixed maturity assets, which impact net investment income and yields.

Investment Related Gains (Losses), Net.

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;

We recorded investment related losses of $2.9 million during the three months ended March 31, 2025, compared to investment related gains of $1.0 million during the same prior year period.

The gains and losses are primarily related to the non-cash write-down of our Blackrock ESG investment.

We did not sell this investment;

however, the changes in fair values of our equity securities are reflected as investment related gains or losses in our income statement, in addition to executed transactions that result in a gain or loss.

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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

March 31, 2025 | 10-Q 41

CITIZENS, INC.

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BENEFITS AND EXPENSES

Three Months Ended Nine Months Ended

September 30, September 30,

Three Months Ended

(In thousands) 2025 2024

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Total benefits and expenses $ 57,439 52,787

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

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.

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

Claims and Surrenders.

Three Months Ended Nine Months Ended

September 30, September 30,

Three Months Ended

(In thousands) 2025 2024

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Matured endowment benefits 17,351 10,761

Property claims — 129 (6) 837

A&H and other policy benefits 2,100 1,609

Total claims and surrenders $ 40,098 33,113

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.

September 30, 2024 | 10-Q 45

Death claim benefits decreased 12% in 2025 compared to 2024 due to a combination of lower volume and our coinsurance agreement with RGA alleviating some of our liability to pay these claims.

We did not have this agreement during the first quarter of 2024.

Many of our endowment policies are reaching their contractual maturity dates and thus matured endowment benefits increased in the three months ended March 31, 2025 compared to the prior year quarter.

We anticipated this $6.6 million increase in the first quarter of 2025 based upon the contractual maturity dates and expect continued year-over-year increases in matured endowment benefits throughout 2025, then to remain at elevated, but slightly lower levels over the next few years, as more of these contracts expire.

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

March 31, 2025 | 10-Q 42

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

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.

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 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.

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, 2025, the change in future policy benefit reserves decreased as compared to the prior year period due to the amount of reserves released in connection with the high level of 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.

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.

The increase in first year sales in the three months ended March 31, 2025 led to an increase in commission related expenses as compared to the prior year period.

Other General Expenses.

Total general expenses increased $1.4 million, or 12%, in 2025 compared to 2024.

The increase was primarily driven by costs related to our strategic growth initiatives and costs incurred associated with our equity compensation program due to higher stock price and additional participants.

We continue to work on managing controllable operating expenses while investing in growth initiatives.

Capitalization of Deferred Policy Acquisition Costs ("DAC").

We capitalize costs related to successful sales of our insurance products, which include certain commissions, policy issuance costs, and underwriting and agency expenses.

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

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

Capitalized DAC increased in the three months ended March 31, 2025, 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 nine months ended September 30, 2024, compared to the same periods in 2023.

Amortization of DAC increased in the three months ended March 31, 2025, compared to the same period in 2024.

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

1 unchanged sentence

We operate in two business segments:

• Life Insurance

• Home Service Insurance

Life Insurance and Home Service Insurance.

These segments are reported in accordance with U.S.

The Company evaluates profit and loss performance based on net income before federal income taxes for these segments.

The Company evaluates profit and loss performance based on U.S.

GAAP net income (loss) before federal income taxes for these segments.

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.

September 30, 2024 | 10-Q 46

March 31, 2025 | 10-Q 43

CITIZENS, INC.

1 unchanged sentence

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

Three Months Ended Nine Months Ended

September 30, September 30,

Three Months Ended

(In thousands) 2025 2024

4 unchanged sentences

Other Non-Insurance Enterprises (2,150) (1,498)

Total income before federal income tax

Total income (loss) before federal income tax

$ (1,787) 4,925

1 unchanged sentence

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

Three Months Ended Nine Months Ended

September 30, September 30,

Three Months Ended

(In thousands) 2025 2024

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

Life insurance $ 28,967 27,698

Accident and health insurance 187 163

Net investment income 13,512 13,686

16 unchanged sentences

Income before federal income tax

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

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

In our Life Insurance segment, income before federal income tax was $0.2 million during the three months ended March 31, 2025, respectively, compared to $5.8 million during the same prior year period primarily from a $3.8

March 31, 2025 | 10-Q 44

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

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.

million decrease in investment related gains and losses related to our BlackRock investment.

In addition, our higher premiums were offset by an increase in total insurance benefits paid or provided.

Other general expenses were also higher to support our CICA Domestic growth.

Life Insurance segment premium breakout is detailed below.

Three Months Ended Nine Months Ended

September 30, September 30,

Three Months Ended

(In thousands) 2025 2024

5 unchanged sentences

Total premiums $ 29,154 27,861

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 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.

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 nine months ended September 30, 2024 and 2023.

Three Months Ended Nine Months Ended

September 30, September 30,

Direct premiums increased by $3.5 million in the three months ended March 31, 2025, as compared to the same period in 2024 driven by sales of our newer products and an increased number of producing agents.

Due to the coinsurance agreement with RGA entered into in the second quarter of 2024, ceded reinsurance premiums increased.

The following table sets forth our premiums by location for the three months ended March 31, 2025 and 2024.

Three Months Ended

(In thousands) 2025 2024

6 unchanged sentences

Other non-U.S.

9,935 9,866 28,282 28,241

Total international premiums

5 unchanged sentences

$ 29,154 27,861

September 30, 2024 | 10-Q 48

Investment Related Gains (Losses), Net.

We recorded investment related losses of $2.7 million during the three months ended March 31, 2025, compared to investment related gains of $1.1 million during the same prior year period, resulting primarily from the change in estimated fair market value of the ESG Blackrock investment.

March 31, 2025 | 10-Q 45

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

Investment Related Gains (Losses), Net.

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 nine months ended September 30, 2024 compared to the same periods in 2023.

Three Months Ended Nine Months Ended

September 30, September 30,

The following table sets forth our primary claims and surrender benefits paid within our Life Insurance segment for the three months ended March 31, 2025 compared to the same period in 2024.

Three Months Ended

(In thousands) 2025 2024

6 unchanged sentences

Total claims and surrenders $ 34,142 27,364

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 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.

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 in 2025 as compared to 2024.

We expect elevated trends to continue over the next few years but at a reduced level when compared to 2025.

Death claim benefits decreased for the three months ended March 31, 2025, compared to the prior year period due to a combination of lower volume and our coinsurance agreement with RGA alleviating some of our liability to pay these claims.

Mortality experience is closely monitored by the Company as a key performance indicator and these amounts were within expected levels.

Increase (Decrease) in Future Policy Benefit Reserves.

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.

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

The change in future policy benefit reserves for the three months ended March 31, 2025 and 2024 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 new insurance issued and the reserves that increase on our in force block of business nearing maturity.

Other General Expenses.

General expenses increased due primarily to expenses related to costs associated with continued investment in the growth of CICA domestic.

March 31, 2025 | 10-Q 46

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 Nine Months Ended

September 30, September 30,

Three Months Ended

(In thousands) 2025 2024

Premiums $ 10,696 10,878 32,462 33,873

Life insurance $ 10,382 10,563

Accident and health insurance 261 251

Property insurance — (2)

Net investment income 3,678 3,537

Investment related gains (losses), net (148) (91)

Other income — — 20 1

Total revenues 14,173 14,258

12 unchanged sentences

Total benefits and expenses 14,053 13,635

Income (loss) before federal income tax

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

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.

Income before federal income tax

In our Home Service Insurance segment, income before federal income tax was $0.1 million in the three months ended March 31, 2025, as compared to $0.6 million in the prior year period.

The decline is attributed to higher investment related losses and other general expenses.

March 31, 2025 | 10-Q 47

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

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

Three Months Ended Nine Months Ended

September 30, September 30,

Three Months Ended

(In thousands) 2025 2024

3 unchanged sentences

Total direct life and A&H premiums 10,655 10,826

Total life and A&H premiums

$ 10,643 10,814

September 30, 2024 | 10-Q 50

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

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.

Our life and A&H premiums declined slightly in the three months ended March 31, 2025 compared to the same prior year period.

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.

2 unchanged sentences

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

Three Months Ended Nine Months Ended

September 30, September 30,

Three Months Ended

(In thousands) 2025 2024

4 unchanged sentences

Matured endowment benefits 148 146

Property claims — 129 (6) 837

A&H and other policy benefits 100 48

1 unchanged sentence

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

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.

Death claim benefits decreased slightly in the three months ended March 31, 2025 compared to the same prior year period due to lower 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 nine months ended September 30, 2024 compared to the same periods in 2023, primarily due to ceasing our property insurance business as discussed above.

Surrender benefits increased in the first three months of 2025 compared to the same period in 2024.

We believe the impact of inflation is negatively impacting persistency.

March 31, 2025 | 10-Q 48

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

OTHER NON-INSURANCE ENTERPRISES

Three Months Ended Nine Months Ended

September 30, September 30,

Three Months Ended

(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 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 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.

The primary reason for the increased loss before federal income tax in the three months ended March 31, 2025 compared to the same period in 2024 is higher other general expenses, including costs incurred related to our equity incentive compensation program due to additional participants as well as an increased stock price, which increases our expense taken upon vesting of prior year grants.

Our investments are an integral part of our business success, as we invest the majority of premiums collected to pay for future benefits and rely on net investment income of our ongoing operations.

Our cash and invested assets at March 31, 2025 were $1.4 billion, of which 87% 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.

September 30, 2024 | 10-Q 51

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

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 September 30, 2024 December 31, 2023

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, cash equivalents and invested assets.

Carrying Value March 31, 2025 December 31, 2024

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

16 unchanged sentences

Total cash, cash equivalents and invested assets $ 1,435,555 100.0 % $ 1,420,499 100.0 %

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

(1) Includes $113.8 million and $113.4 million of securities guaranteed by third parties at March 31, 2025 and December 31, 2024, respectively.

(2) Includes $95.6 million and $92.8 million of U.S.

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 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

Government-sponsored enterprises at March 31, 2025 and December 31, 2024, respectively.

March 31, 2025 | 10-Q 49

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

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 September 30, 2024.

The carrying value of the Company’s fixed maturity securities investment portfolio at March 31, 2025 was $1.25 billion compared to $1.22 billion at December 31, 2024.

This increase primarily reflects the impact of interest rate sensitivity on the fair value of our fixed maturity securities.

The distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of March 31, 2025 did not materially change from December 31, 2024 – the weighted average was “A” at both dates.

Cash and cash equivalents decreased as of March 31, 2025 from December 31, 2024 and fluctuates from period-to-period primarily due to the timing of operating and investing activities.

Other long-term investments decreased by $0.3 million as of March 31, 2025 from December 31, 2024 due to additional funding and changes 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, 2025 and December 31, 2024 included $270.4 million and $268.3 million, respectively, of securities that are obligations of states and political subdivisions, including municipalities (collectively referred to as the municipal fixed maturity security portfolio).

The Company's municipal fixed maturity security 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, 2025.

General Obligation Special Revenue Other Total % Based on Amortized

17 unchanged sentences

Total $ 63,917 64,561 198,038 225,119 8,481 8,671 270,436 298,351 100.0 %

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 September 30, 2024.

March 31, 2025 | 10-Q 50

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

The table below shows the categories in which the Company held investments in special revenue fixed maturity securities that were greater than 10% of fair value based upon the Company's total municipal fixed maturity security portfolio at March 31, 2025.

(In thousands, except for %) Fair

4 unchanged sentences

Transportation 33,214 40,237 12.3

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 September 30, 2024.

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 September 30, 2024.

The Company's municipal fixed maturity security portfolio is spread across many states, however, municipal fixed maturity securities from Texas and California comprise the most significant concentration of the total municipal fixed maturity security portfolio as of March 31, 2025.

The Company holds 22% and 16% of its municipal fixed maturity security portfolio in Texas and California issuers, respectively, as of March 31, 2025.

There were no other states or individual issuer holdings that represented or exceeded 10% of the total municipal fixed maturity security portfolio as of March 31, 2025.

The table below represents the Company's detailed exposure to municipal fixed maturity securities by credit rating in Texas at March 31, 2025.

General Obligation Special Revenue Other Total

8 unchanged sentences

A — — 11,113 14,886 — — 11,113 14,886

BBB — — 3,235 3,170 — — 3,235 3,170

Total $ 26,674 26,531 31,761 38,247 — — 58,435 64,778

5 unchanged sentences

Total $ 26,674 26,531 31,761 38,247 — — 58,435 64,778

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

March 31, 2025 | 10-Q 51

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

The table below represents the Company's detailed exposure to municipal fixed maturity securities by credit rating in California at March 31, 2025.

General Obligation Special Revenue Other Total

14 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 and nine months ended September 30, 2024 or 2023.

The Company assesses available-for-sale ("AFS") fixed maturity securities in an unrealized loss position for expected credit losses.

The Company did not record any credit valuation allowances on fixed maturity securities in either of the three months ended March 31, 2025 or 2024.

Gross unrealized losses on AFS fixed maturity securities amounted to $169.3 million as of March 31, 2025 and $185.7 million as of December 31, 2024.

This decrease in gross unrealized losses during 2025 was a result of the increase in average market interest rates at the end of 2025 as compared to 2024.

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.

September 30, 2024 | 10-Q 54

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

LIQUIDITY AND CAPITAL RESOURCES

1 unchanged sentence

(In thousands)

September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024

Fixed maturity securities $ 1,247,428 1,220,961

Cash and cash equivalents 18,355 29,271

Liquidity refers to a company's ability to generate or obtain sufficient cash to meet the needs of its operations.

Our liquidity is primarily derived from our cash flow from operations, our cash and cash equivalents, and our portfolio of marketable securities.

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 September 30, 2024.

Liquidity refers to a company's ability to generate sufficient cash flows to meet the needs of its operations.

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

We currently anticipate meeting our short-term and long-term cash needs with cash generated by our insurance operations and from our invested assets.

From time to time, we may raise capital by selling shares in our SIP (as defined below) and we may also access our Credit Facility if needed (also as described below).

Citizens had no debt as of March 31, 2025.

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

Cash from Investing Activities.

Cash provided by or used in 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

March 31, 2025 | 10-Q 52

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

expenses, invest in our business or make strategic acquisitions.

Cash provided by operating activities was $0.7 million in the three months ended March 31, 2025.

Cash used in Investing Activities.

We have traditionally also had significant cash flows from both scheduled and unscheduled investment security maturities, redemptions, and prepayments.

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

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.

86% of our total cash, cash equivalents and investments consist of marketable fixed maturity securities classified as available-for-sale that could be readily converted to cash for liquidity needs.

Net cash outflows from investing activities totaled $11.4 million in the three months ended March 31, 2025.

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

We purchased $17.5 million of fixed maturity securities and used $2.8 million to purchase other long-term investments during the three months ended March 31, 2025.

87% of our investments consist of marketable fixed maturity securities classified as available-for-sale that could be readily converted to cash for liquidity needs.

PARENT COMPANY LIQUIDITY AND CAPITAL RESOURCES

Citizens is a holding company and has minimal operations of its own.

Citizens' assets consist of the capital stock of its subsidiaries, cash and investments.

Citizens' liquidity requirements are met primarily from two sources:

cash generated from its operating subsidiaries and its invested assets.

Citizens' ability to obtain cash from its insurance subsidiaries depends primarily upon the availability of statutorily permissible payments, including payments Citizens receives from service agreements with its insurance subsidiaries and dividends from the subsidiaries.

Our assets consist of the capital stock of our subsidiaries, cash and investments.

Our liquidity requirements are met primarily from two sources:

cash generated from our operating subsidiaries and our invested assets.

Our ability to obtain cash from our insurance subsidiaries depends primarily upon the availability of statutorily permissible payments, including payments we receive from service agreements with our insurance subsidiaries and dividends from the subsidiaries.

The ability to make payments to the holding company is limited by applicable laws of the U.S.

2 unchanged sentences

The regulations also require approval of our service agreements with the applicable regulatory authority in order to prevent insurance subsidiaries from moving large amounts of cash to the less regulated holding company.

In addition to the above-mentioned sources of cash, we offer a Stock Investment Plan ("SIP"), whereby investors, policyholders, independent contractors and agents, employees and directors can directly purchase our stock.

In addition to the above-mentioned sources of cash, we offer a Stock Investment Plan ("SIP"), which allows investors, policyholders, independent contractors and agents, employees and directors to directly purchase our stock.

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.

3 unchanged sentences

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

We have not borrowed any money under the Credit Facility.

INSURANCE COMPANY SUBSIDIARY LIQUIDITY AND CAPITAL RESOURCES

The liquidity requirements of our insurance operations are primarily met by premium revenues, investment income and proceeds from investment maturities, calls or sales.

Primary cash needs are for payments of policyholder benefits, investment purchases, policy acquisition costs and other operating expenses.

Primary cash needs are for payments of policyholder benefits, investment purchases, and operating expenses.

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 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.

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 direct premiums (i.e.

, new sales) of 71% from the year ended December 31, 2023 to the year ended December 31, 2024, and another 49% from the three months ended March 31, 2024 to the three months ended March 31, 2025.

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, 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.

While historically, cash flows from our operations have been sufficient to meet our cash needs, in the second quarter of 2024 we entered into a coinsurance reinsurance agreement with RGA to help with some of the costs, and the insurance subsidiaries also have the available-for-sale fixed maturity investment portfolio available to create additional cash flows if needed.

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

FHLB membership provides the insurance subsidiaries with access to various low-cost collateralized borrowings and funding agreements.

FHLB membership provides the insurance subsidiaries with access to various

March 31, 2025 | 10-Q 53

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

low-cost collateralized borrowings and funding agreements.

While not the only source of additional liquidity, the FHLB could provide the insurance subsidiaries with an additional source of liquidity, if needed.

3 unchanged sentences

Trends, Demands and Restrictions on our Uses of Cash

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 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.

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.

We continue to monitor surrenders and early withdrawals and focus on our retention initiatives.

Payment of benefits for claims and surrenders are our largest use of cash.

There are three primary components of these payments:

death claims, surrenders and matured endowments.

Matured Endowments.

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 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.

Approximately 18% of the endowments in force will mature in the next five years, totaling approximately 6% of our in force business as of March 31, 2025.

The highest level of maturities will occur this year.

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.

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Alternatively, if the policyholders were to leave the money on deposit with the Company at interest, our profitability could be impacted if the product guaranteed rate is higher than the market rate we are earning on our investments.

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.

September 30, 2024 | 10-Q 56

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, and in 2024, introduced a new product designed to allow policyholders with maturing endowments to purchase a new life insurance policy.

Surrender benefits, which have been higher than usual the last several years, slightly increased in the first three months of 2025.

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 withdrawals, 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.

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 return in different investment products, post-pandemic beliefs that life insurance may not be as important as it was during the pandemic, and inflationary and tariff 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 use of cash could be higher than expected.

We continue to monitor surrenders and early withdrawals and focus on our retention initiatives and efforts to retain cash when policyholders surrender their policies.

Our cash flow from operations is also negatively impacted with high matured endowments and surrenders, as they lead to lower renewal premiums.

Death Claims.

Our product pricing assumes a certain mortality rate and thus a primary liquidity concern is the risk of higher than expected mortality experience.

Our death benefit payments decreased in the three ended March 31, 2025.

Another significant use of cash is payment of commissions.

In our CICA Domestic business, we pay advance commissions on some of our insurance products, meaning we pay an agent a portion of their first year commission immediately upon sale of a policy, rather than "as earned", or when premiums are received by us.

Because of this, another liquidity concern is that rapid growth in first year sales of these products creates a significant increase in commission payments.

CICA Domestic sales have increased significantly since the third quarter of 2023.

To offset some of this strain on our capital, we entered into the coinsurance agreement with RGA in the second quarter of

March 31, 2025 | 10-Q 54

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

In our CICA Domestic business, we pay advance commissions on some of our insurance products, meaning we pay an agent their commission immediately upon sale of a policy, rather than "as earned", or when premiums are received by us.

Because of this, another liquidity concern is the risk that rapid growth in first year sales of these products could create a significant increase in commission payments, which increases expenses and thus reduces our statutory capital until the commissions are recouped from premiums paid.

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 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.

2024 and elected to cede 50% of our final expense business to RGA, which alleviates some of the expense strain.

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.

Commitments and Contingencies , as well as Legal Proceedings - Trade Secret Lawsuit in our 2024 Form 10-K 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

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Should the ratio of adjusted statutory capital to control level RBC fall below 200% for our domestic companies, a series of remedial actions by the affected company would be required.

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 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.

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

At March 31, 2025, 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 means we need capital to "replace" these assets in order to maintain required regulatory capital levels.

As discussed above, management is investigating various options in order to reduce both regulatory capital and liquidity risk should the capital required to support this pace of growth exceed current resources.

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

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

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

At March 31, 2025, CICA International exceeded the required minimum capital and related ratio.

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

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

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.

As of March 31, 2025, 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 2024 Form 10-K .

We do not utilize special purpose entities as investment vehicles, nor are there any such entities in which we have an investment that engage in speculative activities of any nature, and we do not use such investments to hedge our investment positions.

March 31, 2025 | 10-Q 55

CITIZENS, INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

CRITICAL ACCOUNTING POLICIES

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we have elected to comply with certain scaled disclosure reporting obligations and therefore are not required to provide the information required by this Item.

As a smaller reporting company, we are not required to provide the information required by this Item.

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