CITIZENS, INC. 10-Q

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This section and other parts of this Quarterly Report on Form 10-Q ("Form 10-Q") contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements. 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, 2024, 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, 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. The U.S. Securities and Exchange Commission ("SEC") maintains a website that contains reports, proxy and information statements, and other information regarding issuers, including the Company, that file electronically with the SEC. 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 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. 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, 2024 to September 30, 2025 and the material changes in our results of operations for the three and nine months ended September 30, 2025 as compared to the same periods in 2024. We also discuss in the MD&A any trends that we believe may materially affect our future operations or financial condition. OVERVIEW 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. Accordingly, the Company derives its revenues principally from: (1) life insurance premiums earned for insurance coverages provided to insureds in our two operating segments – Life Insurance and Home Service Insurance; and (2) net investment income. 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, 2025 | 10-Q 39 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS We operate in two segments - Life Insurance and Home Services Insurance. Our Life Insurance segment operates through our subsidiaries CICA Life Insurance Company of America, referred to as "CICA Domestic" and CICA Life, A.I., a Puerto Rican insurer, referred to as "CICA International". Our Home Services Insurance operates primarily through Security Plan Life Insurance Company in Louisiana. 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 (1) the factors described in Part 1. Item 1A. Risk Factors in our Annual Report on Form 10-K for the period ended December 31, 2024 ("2024 Form 10-K"); and (2) the events described in Part 1. Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Events that Impacted Our Business" in the 2024 Form 10-K ; and (3) the discussion of the BlackRock write-down in Part 1. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Events that Impacted Our Business" in our Form 10-Q for the quarter ended March 31, 2025. FINANCIAL HIGHLIGHTS Summary Q3: Net income before federal income tax in the three months ended September 30, 2025 increased to $4.5 million from $3.0 million in the three months ended September 30, 2024 due to a $1.1 million increase in total revenues and a $0.4 million decrease in total benefits and expenses. The primary factors that drove these changes were: • $1.7 million increase in net investment income; and • $1.0 million increase in other income related to issuance of supplemental contracts; partially offset by: • $2.1 million decline in investment related gains and losses primarily related to the BlackRock write-down. YTD: Net income before federal income tax in the nine months ended September 30, 2025 decreased to $9.6 million from $11.3 million in the same period in 2024. The factors that drove this decrease were: • $3.3 million decrease in investment related gains and losses primarily related to the BlackRock write-down; and • $3.8 million increase in insurance benefits paid or provided due to increased matured endowments in our international business; partially offset by: • $2.4 million increase in total premium revenue; and • $1.7 million increase in other income. At September 30, 2025 • Total assets of $1.7 billion • Total direct insurance in force of $5.4 billion • Total investments of $1.4 billion; fixed maturity securities comprised 89% of total investments • No debt • Book value per share of Class A common stock of $4.49 • Adjusted book value per share of Class A common stock of $6.26 1 • Diluted earnings per share of Class A common stock for the nine months ended of $0.14 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. September 30, 2025 | 10-Q 40 Table of Contents 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 of our products and the premiums we receive from these sales • Investments and the income that they generate • Claims and surrenders • Operating expenses • Actuarial assumptions 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 periods, 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. Premium revenues consist of all money deposited by customers into new and existing insurance policies. 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. 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 4% in the three months ended September 30, 2025, to $46.6 million from $44.7 million in the three months ended September 30, 2024 and increased 6% in the nine months ended September 30, 2025, to $135.3 million from $127.7 million in the nine months ended September 30, 2024. This increase was driven by sales of CICA Domestic products. First Year Premiums. Direct first year premiums increased 8% in the three months ended September 30, 2025, to $9.5 million from $8.8 million in the three months ended September 30, 2024 and increased 23%, to $27.8 million in the nine months ended September 30, 2025, compared to $22.6 million in the nine months ended September 30, 2024, including 29% 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 CICA Domestic final expense business. September 30, 2025 | 10-Q 41 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS Renewal Premiums. Our direct renewal premium revenues in the three and nine months ended September 30, 2025 increased primarily due to strong sales in 2024 leading to higher number of policies paying renewal premiums in the current periods. Investment Income. Our net investment income increased for the three and nine months ended September 30, 2025 compared to the same prior year periods. In the three-month period, we received a one-time dividend of $1.7 million from one of our limited partnership investments due to the sale of one of its assets. Additionally, we have begun investing in investment grade private placement fixed income securities and structured notes where we expect higher returns; this investment strategy led to slightly higher net investment income in the three and nine month periods. Claims and Surrenders. 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, 2025 compared to the prior year periods, • 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 periods, • surrenders were relatively flat, and • matured endowments increased as expected as many of our endowment policies reach their contractual maturity dates. September 30, 2025 | 10-Q 42 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS Operating Expenses. Operating expenses are our second largest expense and thus also drive our operating results. 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. Our operating expenses increased in the three months ended September 30, 2025, but decreased in the nine month period as compared to the prior year periods. Despite 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, this expense was lower in the nine month period due to the accrual of $3.5 million in legal fees in the prior year. These were fees awarded to certain defendants in the trade secret lawsuit. We have not paid any of these fees and have appealed the judgment against us. Additionally, we receive expense allowances in CICA Domestic from RGA under our coinsurance agreement that was not in effect during the first part of 2024. Actuarial Assumptions. 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. September 30, 2025 | 10-Q 43 Table of Contents 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. Additionally, the best estimate assumptions are updated every year in our third quarter and are reflected on our income statement as a policyholder liability remeasurement gain or loss. In the third quarter of 2025, this review results in favorable changes to mortality, lapse, and accrual assumptions in our Home Service segment and in CICA Domestic, consistent with emerging trends in Company experience. Conversely, this review resulted in additional reserves in our international business from better than expected retention of our endowment products. Excluding the impact of assumption changes, the Company's results for actual variances from expected experience for the nine months ended September 30, 2025 was $1.5 million net remeasurement loss and for the nine months ended September 30, 2024 was a $2.6 million net measurement loss. OUR OPERATING SEGMENTS 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 a detailed analysis. The amount of direct insurance, number of policies, and average face amounts for life policies issued during the periods indicated are shown below. Nine Months Ended September 30, 2025 2024 Amount of Insurance Issued Number of Policies Issued Average Policy Face Amount Issued Amount of Insurance Issued Number of Policies Issued Average Policy Face Amount Issued Life Insurance: International $ 344,990,215 3,084 $ 111,865 $ 336,467,011 3,172 $ 106,074 Domestic 253,395,682 33,613 7,539 364,803,806 32,303 11,293 Total Life Insurance 598,385,897 36,697 16,306 701,270,817 35,475 19,768 Home Service Insurance 179,216,117 13,591 13,186 175,988,517 13,800 12,753 Total $ 777,602,014 50,288 $ 877,259,334 49,275 In the first nine months of 2025, we issued $777.6 million in new insurance as we continued to grow our inforce business with our newer products tailored to our specific markets. In our Life Insurance segment, implementation of new initiatives in CICA Domestic, including use of information to enhance underwriting decisions with additional medical and lab data from third parties, resulted in sales of products with lower policy f ace amounts , which led to a lower amount of insurance issued despite a higher number of policies issued. CICA International benefited from increased sales of our whole life product, which accounted for 66% of total insurance issued in CICA International for the nine months ended September 30, 2025. This product tends to have higher policy face amounts than our older endowment products, leading to an increase in insurance issued internationally. Insurance issued in our Home Service Insurance segment increased 2% for the nine months ended September 30, 2025 compared to the prior year period. We continue our strategic actions intended to improve sales quality and persistency, which resulted in higher insurance issued. We believe growth in this segment is being impacted by inflation on the cost of living, which has affected new sales since the customer demographic is primarily lower-income individuals. September 30, 2025 | 10-Q 44 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS 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. CONSOLIDATED RESULTS OF OPERATIONS REVENUES Our revenues are generated primarily by life insurance premiums and investment income from invested assets. Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2025 2024 2025 2024 Revenues: Premiums: Life insurance $ 42,872 42,461 125,158 122,823 Accident and health insurance 431 452 1,330 1,324 Property insurance — (16) — (18) Net investment income 19,117 17,377 53,663 52,404 Investment related gains (losses), net (1,255) 827 (1,741) 1,537 Other income 1,643 630 5,136 3,457 Total revenues $ 62,808 61,731 183,546 181,527 Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2025 2024 2025 2024 Life and A&H premiums: Direct premiums: First year $ 9,520 8,790 27,772 22,614 Renewal 37,072 35,958 107,571 105,119 Total direct life and A&H premiums 46,592 44,748 135,343 127,733 Reinsurance (3,289) (1,835) (8,855) (3,586) Total life and A&H premiums $ 43,303 42,913 126,488 124,147 September 30, 2025 | 10-Q 45 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS Our first year direct premiums increased 8% and 23% in the three and nine months ended September 30, 2025, respectively, compared to the same periods 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 2025, which more than offset the impact from the high 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 and nine months ended September 30, 2025 compared to the same periods in 2024 due to the coinsurance agreement we entered into with RGA in the second quarter of 2024. Net Investment Income. 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, (In thousands, except for %) 2025 2024 2025 2024 Gross investment income: Fixed maturity securities $ 15,795 15,263 46,761 45,743 Equity securities 54 76 201 224 Policy loans 1,295 1,369 3,961 4,207 Long-term investments 2,620 1,151 4,517 3,643 Other investment income 138 230 446 651 Total investment income 19,902 18,089 55,886 54,468 Investment expenses (785) (712) (2,223) (2,064) Net investment income $ 19,117 17,377 53,663 52,404 Net investment income, annualized $ 70,992 69,872 Average invested assets, at amortized cost $ 1,535,070 1,522,602 Annualized yield on average invested assets 4.62 % 4.59 % Fixed maturity securities constitute the vast majority, or 89% 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. In order to enhance yields, we are investing in new opportunities, including investment grade private placement fixed income securities and structured notes, while maintaining a prudent risk profile. Gross investment income from long-term investments increased as we received a $1.7 million dividend from one limited partnership investment due to a sale of one of its assets. Investment Related Gains (Losses), Net. We recorded investment related losses of $1.3 million and $1.7 million during the three and nine months ended September 30, 2025, respectively, compared to investment related gains of $0.8 million and $1.5 million during the same prior year periods. The losses are primarily related to the non-cash write-down of our BlackRock ESG investment during 2025. 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. Other Income. 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 September 30, 2025 | 10-Q 46 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS policyholders the opportunity to leave their cash with us and be paid interest at a guaranteed rate or receive an annuity, at their option. BENEFITS AND EXPENSES Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2025 2024 2025 2024 Benefits and expenses: Insurance benefits paid or provided: Claims and surrenders $ 44,276 36,478 124,594 104,121 Increase (decrease) in future policy benefit reserves (6,760) 471 (14,960) (130) Policyholder liability remeasurement (gain) loss (459) 1,157 720 2,836 Policyholders' dividends 1,377 1,320 3,987 3,748 Total insurance benefits paid or provided 38,434 39,426 114,341 110,575 Commissions 11,655 12,957 34,339 35,639 Other general expenses 13,291 12,095 39,443 40,072 Capitalization of deferred policy acquisition costs (9,974) (10,430) (28,543) (29,304) Amortization of deferred policy acquisition costs 4,795 4,493 14,055 12,804 Amortization of cost of insurance acquired 128 153 305 477 Total benefits and expenses $ 58,329 58,694 173,940 170,263 Payments of claims and surrenders benefits constitute the vast majority of our expenses. Claims and Surrenders. Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2025 2024 2025 2024 Claims and surrenders: Death claim benefits $ 5,373 6,768 16,301 18,924 Surrender benefits 13,697 13,621 39,674 40,082 Endowment benefits 1,495 1,865 4,716 5,564 Matured endowment benefits 21,672 12,644 57,551 34,452 A&H and other policy benefits 2,039 1,580 6,352 5,099 Total claims and surrenders $ 44,276 36,478 124,594 104,121 Death claim benefits decreased in the three and nine months ended September 30, 2025 compared to the same periods in 2024 due to both lower volume and our coinsurance agreement with RGA, which alleviates some of our liability to pay death 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 and nine months ended September 30, 2025 compared to the prior year periods. We anticipated these increases in 2025 based upon the scheduled maturity of the contracts. We expect continued year-over-year increases in matured endowment benefits throughout the remainder of 2025, then expect the September 30, 2025 | 10-Q 47 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS matured endowment benefits 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 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, 2025, the change in future policy benefit reserves decreased significantly as compared to the prior year periods despite the increase in our inforce business, due to the amount of reserves released in connection with matured endowments. Policyholder Liability Remeasurement (Gain) Loss. Most of our products are long-duration contracts that provide a specified, fixed amount of insurance benefit in exchange for a fixed premium. When a policy is initially issued, we establish a "net premium ratio" ("NPR") using assumptions regarding expected premiums and policyholder benefit liabilities. 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, the best estimate assumptions are updated every year in our third quarter and are reflected on our income statement as a policyholder liability remeasurement gain or loss. Commissions. 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. Although first year sales increased in the three and nine months ended September 30, 2025 as compared to the same periods in 2024, commissions decreased in the three and nine months ended September 30, 2025 due to our coinsurance agreement with RGA where they share in commission expenses. Other General Expenses. Total general expenses increased $1.2 million in the three months ended September 30, 2025 and decreased $0.6 million in the nine months ended September 30, 2025 compared to the same periods in 2024. Although we continue to incur 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 incurred a $3.5 million legal fee in the second quarter of 2024 due to the trade secret lawsuit. 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 and ceded related to new and renewal business. Amortization of Deferred Policy Acquisition Costs. Amortization of DAC increased in the three and nine months ended September 30, 2025, compared to the same periods in 2024. DAC is amortized on a constant level basis over the expected term of the related contracts to approximate straight-line amortization. Federal Income Tax. Tax expense increased for the three and nine months ended September 30, 2025 resulting in effective tax rates of 46.0% and 24.5% for the three and nine months ended September 30, 2025, compared to 8.1% and (0.2)% for the same periods in 2024. The increase in the current quarter primarily reflects higher taxable U.S. income and discrete tax adjustments recorded during the period. Excluding the discrete tax adjustments for the period, the effective tax rate for the period would be 24.6%. In the three months ended September 30, 2025, the Company recognized a $0.8 million return-to-provision true-up related to 2024 Subpart F income adjustments from partnership investments, which increased tax expense for the quarter. The Company's tax rate was impacted by differences between our effective tax rate and the statutory tax rate resulting from income and expense items that are treated differently for financial reporting and tax purposes. In addition, CICA International is considered a controlled foreign corporation for federal tax purposes and CICA International's activity gives rise to taxable income in the U.S. as Subpart F Income, which is treated as a September 30, 2025 | 10-Q 48 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS permanent tax difference and therefore included in the Company's effective tax rate calculation. See Part I, Item 1, Note 11 . Income Taxes in the notes to our consolidated financial statements herein. SEGMENT OPERATIONS We operate in two business segments: Life Insurance and Home Service Insurance. These segments are reported in accordance with U.S. GAAP. 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. 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, (In thousands) 2025 2024 2025 2024 Income (loss) before federal income tax: Segments: Life Insurance $ 3,535 4,416 11,926 17,688 Home Service Insurance 2,978 (80) 4,705 1,954 Total segments 6,513 4,336 16,631 19,642 Other Non-Insurance Enterprises (2,034) (1,299) (7,025) (8,378) Total income (loss) before federal income tax $ 4,479 3,037 9,606 11,264 September 30, 2025 | 10-Q 49 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS LIFE INSURANCE 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, (In thousands) 2025 2024 2025 2024 Revenues: Premiums: Life insurance $ 32,612 32,005 94,030 91,105 Accident and health insurance 173 196 552 562 Net investment income 15,342 13,578 42,254 41,076 Investment related gains (losses), net (2,063) 936 (2,185) 1,743 Other income 1,518 630 5,011 3,354 Total revenues 47,582 47,345 139,662 137,840 Benefits and expenses: Insurance benefits paid or provided: Claims and surrenders 38,603 30,083 107,968 86,616 Increase (decrease) in future policy benefit reserves (8,360) (1,497) (19,257) (4,959) Policyholder liability remeasurement (gain) loss 1,405 1,681 2,499 3,360 Policyholders' dividends 1,372 1,314 3,969 3,731 Total insurance benefits paid or provided 33,020 31,581 95,179 88,748 Commissions 8,566 9,549 24,913 25,052 Other general expenses 7,050 6,791 20,266 19,752 Capitalization of deferred policy acquisition costs (8,670) (8,855) (24,544) (24,262) Amortization of deferred policy acquisition costs 4,063 3,837 11,862 10,781 Amortization of cost of insurance acquired 18 26 60 81 Total benefits and expenses 44,047 42,929 127,736 120,152 Income before federal income tax $ 3,535 4,416 11,926 17,688 In the three months ended September 30, 2025, income before federal income tax in the Life Insurance segment decreased by $0.9 million despite higher first year and renewal direct premiums, higher other income due to supplemental contracts and higher net investment income. This decrease was driven by a $3.0 million decrease in investment related gains and losses and a $1.4 million increase in insurance benefits paid or provided due to increased matured endowments in CICA International. Commissions were lower despite higher first year sales due to our CICA Domestic coinsurance agreement with RGA. In the nine months ended September 30, 2025, income before federal income tax decreased despite a $2.9 million increase in premiums, higher other income and higher net investment income. The decrease was driven by a $3.9 million decrease in investment related gains and losses primarily related to the BlackRock write-down; and a $6.4 million increase in insurance benefits paid or provided due to increased matured endowments in CICA International. September 30, 2025 | 10-Q 50 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS Life Insurance segment premium breakout is detailed below. Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2025 2024 2025 2024 Premiums: Direct premiums: First year $ 8,294 7,541 24,005 18,621 Renewal 27,773 26,490 79,344 76,608 Total direct premiums 36,067 34,031 103,349 95,229 Reinsurance (3,282) (1,830) (8,767) (3,562) Total premiums $ 32,785 32,201 94,582 91,667 Premiums. Direct premiums increased by $2.0 million and $8.1 million in the three and nine months ended September 30, 2025, respectively, as compared to the same periods in 2024. The increase was driven by sales of our newer products, including our newly launched single premium product designed specifically for the international market, which aims to attract business that is reaching maturity, and an increased number of producing agents selling our final expense products in CICA Domestic. Ceded reinsurance premiums increased due to the CICA Domestic coinsurance agreement with RGA entered into in the second quarter of 2024. While CICA Domestic drove the significant increase in first year premiums, life insurance premiums are generated largely from our international policyholders living in almost 80 different countries across the globe. The following table sets forth our premiums by location for the three and nine months ended September 30, 2025 and 2024. Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2025 2024 2025 2024 Premiums: International premiums: Colombia $ 7,088 6,512 20,103 18,538 Ecuador 3,527 3,421 10,093 9,610 Taiwan 3,031 3,520 10,084 11,679 Venezuela 3,258 3,828 9,930 10,806 Argentina 3,180 2,790 8,199 7,561 Other non-United States 9,717 9,935 28,414 28,282 Total international premiums 29,801 30,006 86,823 86,476 United States premiums 6,952 4,507 19,084 10,211 Reinsurance and change in premium accruals (3,968) (2,312) (11,325) (5,020) Total premiums $ 32,785 32,201 94,582 91,667 Sales in Taiwan have been declining recently due to succession related difficulties within our primary distribution agency in Taiwan, regulatory challenges and geopolitical shift. We are facing some headwinds in Venezuela that may affect premiums revenues, due to the strength of the US dollar compared to the local currency and their difficulties to obtain dollars. Net Investment Income. Our net investment income increased for the three and nine months ended September 30, 2025 compared to the same prior year periods. In the three-month period, we received a one-time dividend of $1.7 September 30, 2025 | 10-Q 51 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS million from one of our limited partnership investments due to the sale of one of its assets. Additionally, we have begun investing in investment grade private placement fixed income securities and structured notes; this investment strategy led to slightly higher net investment income in the three and nine month periods. Investment Related Gains (Losses), Net. We recorded investment related losses of $2.1 million and $2.2 million during the three and nine months ended September 30, 2025, respectively, compared to investment related gains of $0.9 million and $1.7 million during the same prior year periods. These fluctuations in investment-related gains and losses were primarily influenced by changes in the estimated fair market value of our limited partnership investments. Notably, the loss for the both three and nine months ending September 30, 2025, was largely attributed to a write-down in the estimated fair market value of our ESG BlackRock investment. This decline was significant enough to outweigh the gains from other investments. Other Income. Other income consists primarily of supplemental contracts issued to international policyholders 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. 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, 2025 compared to the same periods in 2024. Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2025 2024 2025 2024 Claims and surrenders: Death claim benefits $ 1,100 1,614 3,277 4,798 Surrender benefits 12,479 12,502 36,752 37,312 Endowment benefits 1,493 1,862 4,712 5,558 Matured endowment benefits 21,504 12,481 57,035 33,957 A&H and other policy benefits 2,027 1,624 6,192 4,991 Total claims and surrenders $ 38,603 30,083 107,968 86,616 The majority of our claims and surrender benefits in our Life Insurance segment were related to payment of surrender benefits and matured endowment benefits in CICA International. Many of our endowment policies are reaching their contractual maturity dates and thus matured endowment benefits are expected to be higher in each quarter of 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 and nine months ended September 30, 2025, compared to the prior year periods due to a combination of lower volume and our coinsurance agreement with RGA alleviating some of our liability to pay these claims. Increase (Decrease) in Future Policy Benefit Reserves. The change in future policy benefit reserves for the three and nine months ended September 30, 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. September 30, 2025 | 10-Q 52 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS HOME SERVICE INSURANCE 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, (In thousands) 2025 2024 2025 2024 Revenues: Premiums: Life insurance $ 10,260 10,456 31,128 31,718 Accident and health insurance 258 256 778 762 Property insurance — (16) — (18) Net investment income 3,581 3,552 10,854 10,618 Investment related gains (losses), net 799 (111) 433 (179) Other income — — — 20 Total revenues 14,898 14,137 43,193 42,921 Benefits and expenses: Insurance benefits paid or provided: Claims and surrenders 5,673 6,395 16,626 17,505 Increase (decrease) in future policy benefit reserves 1,600 1,968 4,297 4,829 Policyholder liability remeasurement (gain) loss (1,864) (524) (1,779) (524) Policyholders' dividends 5 6 18 17 Total insurance benefits paid or provided 5,414 7,845 19,162 21,827 Commissions 3,089 3,408 9,426 10,587 Other general expenses 3,879 3,756 11,461 11,176 Capitalization of deferred policy acquisition costs (1,304) (1,575) (3,999) (5,042) Amortization of deferred policy acquisition costs 732 656 2,193 2,023 Amortization of cost of insurance acquired 110 127 245 396 Total benefits and expenses 11,920 14,217 38,488 40,967 Income before federal income tax $ 2,978 (80) 4,705 1,954 Income before federal income tax in the three and nine months ended September 30, 2025 increased to $3.0 million and $4.7 million from a loss before federal income tax of $0.1 million and income of $2.0 million in the same prior year periods. The factors that drove these increases were mainly investment related gains as well as lower claims and surrenders. These drivers coupled with a favorable policyholder liability remeasurement stemming primarily from revised mortality and accrual assumptions. September 30, 2025 | 10-Q 53 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS Premiums. Home Service Insurance segment life and A&H premium breakout is detailed below. Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2025 2024 2025 2024 Premiums: Direct life and A&H premiums: First year $ 1,226 1,249 3,767 3,993 Renewal 9,299 9,468 28,227 28,511 Total direct life and A&H premiums 10,525 10,717 31,994 32,504 Reinsurance (7) (5) (88) (24) Total life and A&H premiums $ 10,518 10,712 31,906 32,480 Our life and A&H premiums in the Home Service segment slightly declined in the three and nine months ended September 30, 2025 compared to the same prior year periods. 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 Nine Months Ended September 30, September 30, (In thousands) 2025 2024 2025 2024 Claims and surrenders: Death claim benefits $ 4,273 5,154 13,024 14,126 Surrender benefits 1,218 1,119 2,922 2,770 Endowment benefits 2 3 4 6 Matured endowment benefits 168 163 516 495 A&H and other policy benefits 12 (44) 160 108 Total claims and surrenders $ 5,673 6,395 16,626 17,505 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 and nine months ended September 30, 2025 compared to the same prior year periods due primarily to lower volume of reported claims. OTHER NON-INSURANCE ENTERPRISES Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2025 2024 2025 2024 Loss before federal income tax $ (2,034) (1,299) (7,025) (8,378) This operating unit represents the administrative support functions for the insurance operations. Its revenues are primarily intercompany and have been eliminated in consolidation under U.S. GAAP, which typically results in a loss. 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. For the three months ending September 30, 2025, the elevated loss before federal income tax compared to the equivalent period in 2024 September 30, 2025 | 10-Q 54 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS is mainly due to higher general expenses. These expenses rose as a result of additional participants in our equity incentive compensation program and a higher share price, which led to greater costs recognized as these awards vest. Conversely, the reduction in loss before federal income tax for the nine months ended September 30, 2025, versus the same period in 2024, is primarily the result of lower general expenses. The decrease is mostly due to a significant $3.5 million legal fee incurred during the second quarter of 2024, which did not recur in 2025, though this was somewhat counterbalanced by increased expenses related to the equity incentive compensation program, as previously described. INVESTMENTS 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 September 30, 2025 were $1.4 billion, of which 88% 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. 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 September 30, 2025 December 31, 2024 (In thousands, except for %) Amount % Amount % Cash, cash equivalents and invested assets: Fixed maturity securities: U.S. Treasury and U.S. Government-sponsored enterprises $ 7,054 0.5 % $ 9,213 0.6 % Corporate 847,647 58.6 794,989 56.0 States and political subdivisions (1) 267,784 18.5 268,302 18.9 Mortgage-backed (2) 97,717 6.7 93,953 6.6 Asset-backed 49,843 3.4 54,504 3.9 Total fixed maturity securities 1,270,045 87.7 1,220,961 86.0 Cash and cash equivalents 23,123 1.6 29,271 2.0 Other investments: Policy loans 68,717 4.7 71,216 5.0 Equity securities 1,371 0.1 5,447 0.4 Other long-term investments 85,738 5.9 93,604 6.6 Total cash, cash equivalents and invested assets $ 1,448,994 100.0 % $ 1,420,499 100.0 % (1) Includes $109.0 million and $113.4 million of securities guaranteed by third parties at September 30, 2025 and December 31, 2024, respectively. (2) Includes $94.6 million and $92.8 million of U.S. Government-sponsored enterprises at September 30, 2025 and December 31, 2024, respectively. The carrying value of the Company’s fixed maturity securities investment portfolio at September 30, 2025 was $1.27 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 September 30, 2025 did not materially change from December 31, 2024 – the weighted average was “A” at both dates. Cash and cash equivalents decreased as of September 30, 2025 from December 31, 2024 and fluctuates from period-to-period primarily due to the timing of operating and investing activities. September 30, 2025 | 10-Q 55 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS As of September 30, 2025, other long-term investments declined by $7.9 million compared to December 31, 2024, primarily because one investment was exited. This reduction was partially counterbalanced by further capital contributions to other investments and the impact of changes in the fair market value of our limited partnership holdings. Obligations of States and Political Subdivisions The Company’s fixed maturity securities investment portfolio at September 30, 2025 and December 31, 2024 included $267.8 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 September 30, 2025. General Obligation Special Revenue Other Total % Based on Amortized Cost (In thousands, except for %) Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost State and political subdivision fixed maturity securities including third-party guarantees: AAA $ 12,027 11,900 12,933 12,997 3,349 3,235 28,309 28,132 9.6 % AA 42,660 42,696 110,160 126,044 6,386 6,545 159,206 175,285 59.6 A 2,876 3,148 65,054 73,958 2,149 2,121 70,079 79,227 27.0 BBB 122 125 7,039 7,686 — — 7,161 7,811 2.7 BB and other 2,979 3,129 50 50 — — 3,029 3,179 1.1 Total $ 60,664 60,998 195,236 220,735 11,884 11,901 267,784 293,634 100.0 % State and political subdivision fixed maturity securities excluding third-party guarantees: AAA $ 5,350 5,302 2,890 3,020 3,349 3,235 11,589 11,557 3.9 % AA 15,584 15,525 25,072 29,177 — — 40,656 44,702 15.2 A 11,039 11,278 70,502 82,028 1,147 1,120 82,688 94,426 32.2 BBB 2,449 2,448 13,976 16,450 1,002 1,000 17,427 19,898 6.8 BB and other 26,242 26,445 82,796 90,060 6,386 6,546 115,424 123,051 41.9 Total $ 60,664 60,998 195,236 220,735 11,884 11,901 267,784 293,634 100.0 % 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 September 30, 2025. (In thousands, except for %) Fair Value Amortized Cost % of Total Fair Value Education $ 40,240 46,085 15.0 % Utilities 41,635 45,152 15.6 Transportation 32,469 39,570 12.1 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 September 30, 2025 | 10-Q 56 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS maturity security portfolio as of September 30, 2025. The Company holds 21% and 17% of its municipal fixed maturity security portfolio in Texas and California issuers, respectively, as of September 30, 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 September 30, 2025. The table below represents the Company's detailed exposure to municipal fixed maturity securities by credit rating in Texas at September 30, 2025. General Obligation Special Revenue Other Total (In thousands) Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Texas state and political subdivision fixed maturity securities including third-party guarantees: AAA $ 11,520 11,397 2,483 2,496 — — 14,003 13,893 AA 14,390 14,375 15,072 17,563 — — 29,462 31,938 A — — 10,804 14,730 — — 10,804 14,730 BBB — — 2,949 2,920 — — 2,949 2,920 Total $ 25,910 25,772 31,308 37,709 — — 57,218 63,481 Texas state and political subdivision fixed maturity securities excluding third-party guarantees: AAA $ 5,350 5,302 — — — — 5,350 5,302 AA 7,062 6,985 3,296 3,317 — — 10,358 10,302 A 4,418 4,415 11,605 16,292 — — 16,023 20,707 BBB — — 3,731 4,065 — — 3,731 4,065 BB and other 9,080 9,070 12,676 14,035 — — 21,756 23,105 Total $ 25,910 25,772 31,308 37,709 — — 57,218 63,481 The table below represents the Company's detailed exposure to municipal fixed maturity securities by credit rating in California at September 30, 2025. General Obligation Special Revenue Other Total (In thousands) Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost California state and political subdivision fixed maturity securities including third-party guarantees: AA $ 2,146 2,101 32,625 39,154 2,552 2,735 37,323 43,990 A 1,323 1,650 5,764 6,583 — — 7,087 8,233 Total $ 3,469 3,751 38,389 45,737 2,552 2,735 44,410 52,223 California state and political subdivision fixed maturity securities excluding third-party guarantees: AA $ 454 446 6,371 8,204 — — 6,825 8,650 A 1,324 1,650 10,414 12,079 — — 11,738 13,729 BBB — — 1,199 1,535 — — 1,199 1,535 BB and other 1,691 1,655 20,405 23,919 2,552 2,735 24,648 28,309 Total $ 3,469 3,751 38,389 45,737 2,552 2,735 44,410 52,223 September 30, 2025 | 10-Q 57 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS IMPAIRMENT CONSIDERATIONS RELATED TO INVESTMENTS IN FIXED MATURITY AND EQUITY SECURITIES 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 and nine months ended September 30, 2025 or 2024. Gross unrealized losses on AFS fixed maturity securities amounted to $150.6 million as of September 30, 2025 and $185.7 million as of December 31, 2024. This decrease in gross unrealized losses during 2025 was a result of the decrease in average market interest rates in 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. LIQUIDITY AND CAPITAL RESOURCES Below are our primary capital resources (based on carrying value of each) as of the periods indicated. (In thousands) September 30, 2025 December 31, 2024 Fixed maturity securities $ 1,270,045 1,220,961 Cash and cash equivalents 23,123 29,271 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 September 30, 2025. Cash from Operating 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 expenses, invest in our business or make strategic acquisitions. Cash provided by operating activities was $8.9 million in the nine months ended September 30, 2025. Cash used in Investing Activities. These cash flows, for the most part, are reinvested in new investments. The investing activities fluctuate from period to period due to timing of securities activities such as calls, maturities and reinvestment of those funds. Net cash outflows from investing activities totaled $11.2 million in the nine months ended September 30, 2025. 89% of total 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. 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. states of domicile and by the Puerto Rico Office of Commissioner of Insurance, which subject insurance operations to significant regulatory restrictions. These laws and regulations require, among other things, that our insurance subsidiaries maintain minimum solvency or premium to surplus ratio requirements, which limit the amount of dividends that can be paid to the holding company. September 30, 2025 | 10-Q 58 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS 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"), 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. 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 Company for short-term or longer-term needs. 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, 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 direct premiums (i.e. , new sales) of 71% from the year ended December 31, 2023 to the year ended December 31, 2024, and 23% from the nine months ended September 30, 2024 to the nine months ended September 30, 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, 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. While not the only source of additional liquidity, the FHLB could provide the insurance subsidiaries with an additional source of liquidity, if needed. We believe that we have adequate capital resources and ability to obtain additional capital, if needed, to support the short-term and longer-term liquidity requirements of our insurance operations. See Contractual Obligations and Off-balance Sheet Arrangements in our 2024 Form 10-K and below for a discussion of known and estimated cash needs. Cash flow projections and cash flow tests under various market interest rate scenarios are performed annually to assist in evaluating liquidity needs and adequacy. Trends, Demands and Restrictions on our Uses of Cash Payments 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, leave the money on deposit at interest with the Company or purchase another insurance policy. Approximately 15% of the endowments in force will mature in the next five years, totaling approximately 5% of our in force business as of September 30, 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. Meeting these distributions could require the Company to sell its investments at inopportune times to pay policyholder withdrawals. 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, and in September 30, 2025 | 10-Q 59 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS 2024, introduced a new product designed to allow policyholders with maturing endowments to purchase a new life insurance policy. Surrenders. 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 older policies have reached the age where surrender charges have expired or significantly decreased, we have experienced high levels of surrenders in the past several years. 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 nine months ended September 30, 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 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. See Part I, Item 1, Note 8. 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 As discussed above, we are subject to regulatory capital requirements that could affect the Company’s ability to access capital from our insurance operations or cause the Company to have to put additional cash in our wholly-owned subsidiaries. Our domestic companies are subject to minimum capital requirements set by the NAIC in the form of risk-based capital ("RBC"). RBC considers the type of business written by an insurance company, the quality of its assets, and various other aspects of an insurance company's business to develop a minimum level of capital called the "Authorized Control Level Risk-Based Capital". This level of capital is then compared to an adjusted statutory capital that includes capital and surplus as reported under statutory accounting principles, plus certain investment reserves. 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, which would require Citizens to contribute capital to CICA Domestic in order to maintain a RBC level above 350%. At September 30, 2025, our domestic insurance subsidiaries were above the required minimum RBC levels and CICA Domestic was above 350%. September 30, 2025 | 10-Q 60 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS 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. Citizens may have to contribute capital to CICA Domestic to maintain the required RBC ratio. CICA International is a Puerto Rico domiciled company. The Insurance Code of Puerto Rico does not specifically set forth minimum capital and surplus standards, but rather requires that an insurer submit a business plan for approval to the OIC that includes proposed minimum capital and surplus. CICA International is required to maintain a minimum of $750,000 in capital and maintain a premium to surplus ratio of 7 to 1. At September 30, 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, 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. CRITICAL ACCOUNTING POLICIES We believe that the accounting policies set forth in Part I, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations - "Critical Accounting Policies" and Part IV, Item 15, Note 1. Summary of Significant Accounting Policies of our consolidated financial statements in our 2024 Form 10-K continue to describe the significant judgments and estimates used in the preparation of our consolidated financial statements. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, we are not required to provide the information required by this Item.