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, 2025, 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 at www.sec.gov that contains reports, proxy statements, and other information regarding issuers, including the Company, that file electronically with the SEC. Our own website, www.citizensinc.com, provides free access to the Company's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Section 16 filings made by our executive officers and directors, and any amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. These materials are made available on our website as soon as reasonably practicable after we file them with, or furnish them to, the SEC. Information contained on, or accessible through, our website is not incorporating by reference into, and should not be considered part of, 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, 2025 to March 31, 2026 and the material changes in our results of operations for the three months ended March 31, 2026 as compared to the same period in 2025. 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 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 – International Insurance and Domestic Insurance; and (2) net investment income. In addition to reserving for and paying insurance benefits 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. We operate in two segments - International Insurance and Domestic Insurance. Our International Insurance segment operates through CICA Life, A.I., a Puerto Rican insurer, referred to as "CICA International". Our Domestic March 31, 2026 | 10-Q 34 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS Insurance segment operates through our subsidiaries CICA Life Insurance Company of America ("CLOA"), Security Plan Life Insurance Company ("SPLIC") and Magnolia Guaranty Life Insurance Company ("MGLIC"). 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, 2025 ("2025 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 2025 Form 10-K . FINANCIAL HIGHLIGHTS Summary Income before federal income tax increased by $4.2 million in the three months ended March 31, 2026 compared to the same period in 2025, to $2.4 million from a loss of $1.8 million, respectively. The primary factor that drove this was a $3.9 million increase in investment related gains and losses, reflecting the absence of the BlackRock write-down recorded in the prior year period. Financial Condition at March 31, 2026 • Total assets of $1.7 billion • Total direct insurance in force of $5.5 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 $4.74 • Adjusted book value per share of Class A common stock of $6.48 1 • Diluted earnings per share of Class A common stock for the three months ended of $0.04 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 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 demographics and actively manage new product margins and in-force profitability. Product mix can have an impact on profitability; when we sell 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, which have a smaller margin than sales of our international endowment products. We expect this trend in our International 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, 2026 | 10-Q 35 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS Insurance segment 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 any premiums received thereafter 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 our reinsurers. Direct premium revenue increased 4% in the three months ended March 31, 2026 to $43.9 million from $42.4 million in the three months ended March 31, 2025. This increase was driven by sales and renewal premiums in our Domestic Insurance segment. First Year Premiums. Direct first year premiums increased 2% in the three months ended March 31, 2026 to $9.0 million from $8.8 million in the three months ended March 31, 2025, driven by sales in our Domestic Insurance segment and an increased number of producing agents. First year premium growth primarily resulted from our CLOA final expense business. Renewal Premiums. Our direct renewal premiums in the three months ended March 31, 2026 increased primarily due to strong sales in 2025 in our Domestic Insurance segment, leading to higher number of policies paying renewal premiums in the current period. Premium growth was constrained by the high level of surrenders and matured endowments in our International Insurance segment during the last few years, which has lowered the number of policies remaining in force and paying renewal premiums in this segment. Investment Income. Our net investment income decreased for the three months ended March 31, 2026 compared to the same prior year period. Total investment income increased for the three months ended March 31, 2026 compared to the same prior year period as we began investing in investment grade private placement credit, where we expect higher returns. This increase was outweighed by non-recurring fund fees due to the underperformance of the BlackRock middle market limited partnership. Excluding one time and unanticipated events, we expect our March 31, 2026 | 10-Q 36 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS net investment income to increase, as we have begun investing in investment grade private placement credit, where we expect higher returns. 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 graph below. Operating Expenses. Operating expenses are our second largest expense and thus also drive our operating results. These 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 by $0.7 million in the three months ended March 31, 2026, as compared to the prior year period due to continued investment in supporting the growth of our business. 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. This is reflected in our Consolidated Statements of Operations and Comprehensive Income as increase (decrease) in future policy benefit reserves and policyholder liability remeasurement (gain) loss. March 31, 2026 | 10-Q 37 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS Recently, we have experienced a rebalancing in our business mix due to the volume of maturities in our international endowment business and continued growth in the Domestic Insurance segment. 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. Updated assumptions to policyholder liability remeasurement (gain) loss negatively affected our operating results by $1.0 million compared to the same prior year quarter due to unfavorable experience in our International Insurance segment. Actuarial assumptions are continually monitored and updated at least annually to reflect overall experience as well as emerging trends. INSURANCE ISSUED AND INFORCE The amount of direct insurance, number of policies, and average face amounts for life policies issued during the periods indicated are shown below. Three Months Ended March 31, 2026 2025 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 International $ 88,357,208 870 $ 101,560 $ 106,875,869 942 $ 113,456 Domestic 147,347,717 17,017 8,659 148,285,315 14,819 10,006 Total $ 235,704,925 17,887 $ 255,161,184 15,761 In the first three months of 2026, we issued $235.7 million in new direct insurance. The number of insurance policies issued, average policy face amount and total insurance issued in our International Insurance segment decreased in the three months ended March 31, 2026 as compared to the prior year period due to lower volume and product mix. During the first three months of 2026, a larger proportion of our sales was comprised of our single premium product aimed at replacing maturing endowments, which has a $100,000 maximum face value, as well as other endowment products. Our endowment products generally have lower policy face amounts than our whole life product. In our Domestic Insurance segment, we continue to experience strong sales and increased number of policies issued of our final expense products. The use of information to enhance underwriting decisions with additional medical and lab data from third parties is resulting in issuance of policies with lower face amounts, as expected. We also believe 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. The amount of direct insurance inforce for the periods indicated is shown below. Overall insurance inforce has grown due to the issuance of new business, but growth has been and will be impacted by persistency rates, policy maturities and surrenders. March 31, 2026 | 10-Q 38 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS CONSOLIDATED RESULTS OF OPERATIONS REVENUES Our revenues are generated primarily by life insurance premiums and investment income from invested assets. Three Months Ended March 31, (In thousands) 2026 2025 Revenues: Premiums $ 39,938 39,797 Net investment income 17,304 17,377 Investment related gains (losses), net 984 (2,894) Other income 1,494 1,372 Total revenues $ 59,720 55,652 Three Months Ended March 31, (In thousands) 2026 2025 Direct premiums: First year $ 8,970 8,817 Renewal 34,962 33,533 Total direct premiums 43,932 42,350 Reinsurance (3,994) (2,553) Total premiums $ 39,938 39,797 Our first year direct premiums increased 2% in the three months ended March 31, 2026 compared to the same period in 2025, due to sales and expanded distribution in our Domestic Insurance segment. Renewal premiums also increased from strong first year sales in 2025 in our Domestic Insurance segment, leading to higher number of policies paying renewal premiums in the current period, which more than offset the impact from the high level of surrenders during the last few years and increasing matured endowment benefits paid in our International Insurance segment which has lowered the number of policies paying renewal premiums in this segment. Reinsurance premiums ceded increased in the three months ended March 31, 2026 compared to the same period in 2025. We have a coinsurance agreement with RGA Reinsurance Company ("RGA") in order to provide more capacity for growth in our Domestic Insurance segment. Since we cede 50% of the direct premiums we receive for our CLOA final expense products to RGA, as sales of these products increase, reinsurance ceded to RGA also increases. March 31, 2026 | 10-Q 39 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS Net Investment Income. A summary of our net investment income performance is as follows: Three Months Ended March 31, (In thousands, except for %) 2026 2025 Gross investment income: Fixed maturity securities $ 16,358 15,428 Equity securities 11 75 Policy loans 1,267 1,369 Other long-term investments 821 1,164 Total investment income 18,457 18,036 Investment expenses (1,153) (659) Net investment income $ 17,304 17,377 Net investment income, annualized $ 70,445 69,508 Average invested assets, at amortized cost $ 1,552,656 1,537,288 Annualized yield on average invested assets 4.54 % 4.52 % 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 fixed maturity investment portfolio, primarily invested in callable securities, has faced challenges due to the sustained low interest rate environment for the 10 years prior to 2021. Many securities were called between 2019 and 2021, which required us to reinvest in lower interest rate fixed maturity assets, which impacts 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 other asset classes, while maintaining a prudent risk profile. As discussed above, net investment income is down slightly for the three months ended March 31, 2026 as a result of higher investment expenses when compared to prior year quarter. Investment Related Gains (Losses), Net. We recorded investment related gains of $1.0 million during the three months ended March 31, 2026 compared to investment related losses of $2.9 million during the same prior year period. The losses in the prior year period are primarily related to the non-cash write-down of our BlackRock 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 Consolidated Statements of Operations and Comprehensive Income, in addition to executed transactions that result in a gain or loss. Other Income. Other income consists primarily of supplemental contracts issued to policyholders in our International Insurance segment upon the surrender or maturity of their original policies. Supplemental contracts offer our policyholders the opportunity to leave their cash with us and be paid interest at a guaranteed rate or receive an annuity, at their option. March 31, 2026 | 10-Q 40 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS BENEFITS AND EXPENSES Three Months Ended March 31, (In thousands) 2026 2025 Benefits and expenses: Insurance benefits paid or provided: Claims and surrenders $ 39,653 40,098 Increase (decrease) in future policy benefit reserves (4,703) (3,646) Policyholder liability remeasurement (gain) loss 875 (172) Policyholders' dividends 1,102 1,295 Total insurance benefits paid or provided 36,927 37,575 Commissions 10,824 11,275 Other general expenses 13,372 12,693 Capitalization of deferred policy acquisition costs (8,944) (8,849) Amortization of deferred policy acquisition costs 4,979 4,647 Amortization of cost of insurance acquired 188 98 Total benefits and expenses $ 57,346 57,439 Payments of claims and surrenders benefits constitute the vast majority of our expenses. Claims and Surrenders. Three Months Ended March 31, (In thousands) 2026 2025 Claims and surrenders: Death claim benefits $ 6,669 6,067 Surrender benefits 11,859 12,901 Endowment benefits 1,448 1,679 Matured endowment benefits 17,448 17,351 A&H and other policy benefits 2,229 2,100 Total claims and surrenders $ 39,653 40,098 Death claim benefits increased in the three months ended March 31, 2026 compared to the same period in 2025 due to a higher volume of claims. While we maintain diligent oversight of claims activities, we expect a rise in line with the expansion of our business. Many of these death claims are expected to be partially offset by our reinsurance coverage. The vast majority of our surrender benefits payments are made on policies surrendered in our International Insurance segment. These policies are generally policies that have been in place for many years, built up cash values, and have little or no surrender charges remaining. Surrender benefits decreased 8% in the three months ended March 31, 2026 compared to the prior year period and can vary from one period to another. We continue to focus efforts on retention initiatives. March 31, 2026 | 10-Q 41 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS Many of our endowment policies are reaching their contractual maturity dates and thus matured endowment benefits increased slightly in the three months ended March 31, 2026 compared to the prior year period. Compared to peak endowment activity in 2025, we expect maturity benefits to decrease throughout 2026. Increase (Decrease) in Future Policy Benefit Reserves. Future policy benefit reserves reflect the liability established to provide for the future payment of policy benefits and thus they generally increase when we have a larger in force block of business due to higher sales and 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, 2026, the change in future policy benefit reserves decreased compared to the prior year period despite the increase in our inforce business, driven by reserves released in connection with policyholder benefits payouts. 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. In the three months ended March 31, 2026, the remeasurement (gain) loss was negatively affected by unfavorable experience in our International Insurance segment. Commissions. Commission expenses are a cost of acquiring business, as commissions are the primary compensation paid to our 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 months ended March 31, 2026 as compared to the same period in 2025, commissions decreased in the three months ended March 31, 2026 due to more sales of our single premium product offered to policyholders with maturing endowments in the International Insurance segment, which has a lower commission rate than other products. Other General Expenses. Total general expenses increased $0.7 million in the three months ended March 31, 2026 compared to the same period in 2025 due to continued investment in supporting the growth of our business. 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. Our deferred policy acquisition costs (DAC) are 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 in the current period as compared to prior year, reflecting higher taxable income. 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: International Insurance and Domestic Insurance. These segments are reported in accordance with U.S. GAAP. The Company evaluates profit and loss performance based on U.S. GAAP income (loss) before federal income tax for these segments. The Company's Other Non-Insurance Enterprises include non-insurance operations such as IT and corporate-support functions, which are March 31, 2026 | 10-Q 42 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS 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 March 31, (In thousands) 2026 2025 Income (loss) before federal income tax: Segments: International Insurance $ 3,605 (195) Domestic Insurance 1,251 558 Total segments 4,856 363 Other Non-Insurance Enterprises (2,482) (2,150) Total income (loss) before federal income tax $ 2,374 (1,787) INTERNATIONAL INSURANCE Detailed results of operations in the International Insurance segment for the periods indicated are as follows: Three Months Ended March 31, (In thousands) 2026 2025 Revenues: Premiums $ 25,198 25,608 Net investment income 12,004 12,131 Investment related gains (losses), net 1,334 ( 2,766 ) Other income 1,487 1,365 Total revenues 40,023 36,338 Benefits and expenses: Insurance benefits paid or provided: Claims and surrenders 32,111 33,034 Increase (decrease) in future policy benefit reserves ( 7,264 ) ( 6,856 ) Policyholder liability remeasurement (gain) loss 1,125 93 Policyholders' dividends 1,036 1,185 Total insurance benefits paid or provided 27,008 27,456 Commissions 4,489 5,103 Other general expenses 5,602 5,295 Capitalization of deferred policy acquisition costs ( 4,233 ) ( 4,787 ) Amortization of deferred policy acquisition costs 3,552 3,466 Total benefits and expenses 36,418 36,533 Income (loss) before federal income tax $ 3,605 (195) In our International Insurance segment, income before federal income tax was $3.6 million in the three months ended March 31, 2026 compared to a loss before federal income tax of $0.2 million in the prior year period. This March 31, 2026 | 10-Q 43 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS was driven by a $4.1 million increase in investment related gains and losses primarily related to the BlackRock write-down in the prior year period. Premium breakout is detailed below. Three Months Ended March 31, (In thousands) 2026 2025 Direct premiums: First year $ 3,290 3,392 Renewal 22,292 22,687 Total direct premiums 25,582 26,079 Reinsurance ( 384 ) ( 471 ) Total premiums $ 25,198 25,608 Premiums. Direct premiums decreased by $0.5 million in the three months ended March 31, 2026 compared to the same period in 2025 mainly due to the impact the matured endowments have had on renewal premiums. Our International Insurance segment derives its premiums from policyholders residing in over 80 different countries across the globe. The following table sets forth our premiums by location for the three months ended March 31, 2026 and 2025. Three Months Ended March 31, (In thousands) 2026 2025 Premiums: Colombia $ 6,825 6,554 Taiwan 3,406 3,886 Venezuela 3,178 3,350 Ecuador 2,996 3,200 Argentina 2,602 2,096 Other 9,278 9,911 Reinsurance and change in premium accruals (3,087) (3,389) Total premiums $ 25,198 25,608 Sales in Taiwan have been declining recently due to leadership succession related difficulties within our primary distribution agency in Taiwan and regulatory challenges. We are facing some headwinds in Venezuela that may affect premium revenues due to the strength of the U.S. dollar compared to the local currency and their difficulties to obtain dollars. The recent political instability may cause further decline in this business. We continue to closely monitor emerging trends in our Venezuela business. Investment Related Gains (Losses), Net. Investment related gains and losses improved in the three months ended March 31, 2026 compared to the prior year period largely due to the BlackRock write-down in 2025. These gains and losses are generally a result of the change in estimated fair market value for our limited partnerships, as previously discussed. Other Income. Other income consists primarily of supplemental contracts issued to policyholders upon the surrender or maturity of their original policies. Supplemental contracts offer our policyholders the opportunity to March 31, 2026 | 10-Q 44 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS leave their cash with us and be paid interest at a guaranteed rate or receive an annuity, at their option. As our matured endowments have increased, a growing number of policyholders have chosen to enter into a supplemental contract and thus other income has steadily increased over the last few years. Benefits and Expenses. Claims and surrender benefits breakout is detailed below. Three Months Ended March 31, (In thousands) 2026 2025 Claims and surrenders: Death claim benefits $ 959 466 Surrender benefits 10,399 11,850 Endowment benefits 1,446 1,678 Matured endowment benefits 17,239 17,194 A&H and other policy benefits 2,068 1,846 Total claims and surrenders $ 32,111 33,034 As discussed, the majority of our claims and surrender benefits in this segment were related to payment of matured endowment benefits. Surrender benefits are also a large component of this expense; often as surrender charges expire on endowments after certain periods, policyholders surrender their policies to access the cash value. Surrenders decreased in the three months ended March 31, 2026 compared to the prior year period and can vary from one period to another. We continue to focus efforts on retention initiatives. Commissions. Commissions decreased due to strong sales of our single premium product offered to policyholders with maturing endowments, which product has a lower commission rate than other products. March 31, 2026 | 10-Q 45 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS DOMESTIC INSURANCE Detailed results of operations for the Domestic Insurance segment for the periods indicated are as follows: Three Months Ended March 31, (In thousands) 2026 2025 Revenues: Premiums $ 14,740 14,189 Net investment income 5,113 5,059 Investment related gains (losses), net ( 345 ) ( 129 ) Other income 7 7 Total revenues 19,515 19,126 Benefits and expenses: Insurance benefits paid or provided: Claims and surrenders 7,542 7,064 Increase (decrease) in future policy benefit reserves 2,561 3,210 Policyholder liability remeasurement (gain) loss ( 250 ) ( 265 ) Policyholders' dividends 66 110 Total insurance benefits paid or provided 9,919 10,119 Commissions 6,335 6,172 Other general expenses 5,106 5,060 Capitalization of deferred policy acquisition costs ( 4,711 ) ( 4,062 ) Amortization of deferred policy acquisition costs 1,427 1,181 Amortization of cost of insurance acquired 188 98 Total benefits and expenses 18,264 18,568 Income before federal income tax $ 1,251 558 Income before federal income tax in the three months ended March 31, 2026 increased to $1.3 million from $0.6 million in the prior year period. The increase was driven by increased premiums and slightly lower insurance benefits paid or provided. Premium breakout is detailed below. Three Months Ended March 31, (In thousands) 2026 2025 Direct premiums: First year $ 5,680 5,425 Renewal 12,670 10,846 Total direct premiums 18,350 16,271 Reinsurance ( 3,610 ) ( 2,082 ) Total premiums $ 14,740 14,189 March 31, 2026 | 10-Q 46 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS Total direct premiums increased by $2.1 million in the three months ended March 31, 2026 compared to the same prior year period due to sustained first year sales and increase in renewal year premiums due to strong prior year sales. As a result of these increases, reinsurance premiums ceded also increased. Benefits and Expenses. Claims and surrender benefits breakout is detailed below. Three Months Ended March 31, (In thousands) 2026 2025 Claims and surrenders: Death claim benefits $ 5,710 5,601 Surrender benefits 1,460 1,051 Endowment benefits 2 1 Matured endowment benefits 209 157 A&H and other policy benefits 161 254 Total claims and surrenders $ 7,542 7,064 In our Domestic Insurance segment, the majority of claims and surrender benefits are death claim benefits. Death claim benefits increased slightly in the three months ended March 31, 2026 compared to the same prior year period due primarily to a higher volume of reported claims. The Company carefully tracks mortality experience as an important measure of performance, which can fluctuate from quarter-to-quarter based on reported claims. While we monitor claims activities, we expect a rise in claims corresponding with business expansion. A portion of these death claims should be offset by our reinsurance coverage. NON-INSURANCE ENTERPRISES Three Months Ended March 31, (In thousands) 2026 2025 Loss before federal income tax $ ( 2,482 ) ( 2,150 ) 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 ended March 31, 2026, the elevated loss before federal income tax compared to the same period in 2025 is mainly due to higher general expenses. 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 for our ongoing operations. Our cash and invested assets at March 31, 2026 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. March 31, 2026 | 10-Q 47 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS The following table shows the carrying value of our investments by investment category and the percentage of each to total cash, cash equivalents and invested assets. Carrying Value March 31, 2026 December 31, 2025 (In thousands, except for %) Amount % Amount % Cash, cash equivalents and invested assets: Fixed maturity securities: U.S. Treasury and U.S. Government-sponsored enterprises $ 6,942 0.5 % $ 7,008 0.5 % Corporate 862,848 59.7 866,870 59.2 States and political subdivisions (1) 262,058 18.1 268,792 18.3 Mortgage-backed (2) 106,681 7.4 111,982 7.6 Asset-backed 32,582 2.3 33,209 2.3 Total fixed maturity securities 1,271,111 88.0 1,287,861 87.9 Cash and cash equivalents 18,520 1.3 22,976 1.6 Other investments: Policy loans 67,217 4.7 67,455 4.6 Equity securities 1,451 0.1 1,356 0.1 Other long-term investments 86,590 5.9 85,439 5.8 Total cash, cash equivalents and invested assets $ 1,444,889 100.0 % $ 1,465,087 100.0 % (1) Includes $100.1 million and $106.9 million of securities guaranteed by third parties at March 31, 2026 and December 31, 2025, respectively. (2) Includes $95.8 million and $101.1 million of U.S. Government-sponsored enterprises at March 31, 2026 and December 31, 2025, respectively. The carrying value of the Company’s fixed maturity securities investment portfolio at March 31, 2026 was $1.27 billion compared to $1.29 billion at December 31, 2025. This decrease 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, 2026 did not materially change from December 31, 2025 – the weighted average was “A” at both dates. Cash and cash equivalents decreased as of March 31, 2026 from December 31, 2025 and fluctuate from period to period primarily due to the timing of operating and investing activities. As of March 31, 2026, other long-term investments increased by $1.2 million compared to December 31, 2025, primarily due to funding commitments of other investments and the impact of changes in the fair market value of our limited partnership holdings. Obligations of States and Political Subdivisions 21% of the Company’s fixed maturity securities investment portfolio at March 31, 2026 consists of municipal bonds, which are securities that are obligations of states and political subdivisions. A portion of these municipal bonds March 31, 2026 | 10-Q 48 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS includes third-party guarantees, which enhance a bond's credit rating. A presentation of our municipal bonds by credit rating and third-party guarantee is below. 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 $ 12,010 11,826 12,653 12,942 3,319 3,235 27,982 28,003 9.7 % AA 38,053 38,322 112,023 127,998 4,912 5,106 154,988 171,426 59.4 A 2,886 3,149 64,534 73,453 2,133 2,119 69,553 78,721 27.3 BBB 91 93 7,016 7,690 — — 7,107 7,783 2.7 BB and other 2,428 2,539 — — — — 2,428 2,539 0.9 Total $ 55,468 55,929 196,226 222,083 10,364 10,460 262,058 288,472 100.0 % State and political subdivision fixed maturity securities excluding third-party guarantees: AA $ 30,098 30,077 37,193 42,910 1,035 1,068 68,326 74,055 25.7 A 10,438 10,699 74,265 83,152 2,955 3,094 87,658 96,945 33.6 BBB 2,540 2,706 20,524 21,995 45 55 23,109 24,756 8.6 BB and other 12,392 12,447 64,244 74,026 6,329 6,243 82,965 92,716 32.1 Total $ 55,468 55,929 196,226 222,083 10,364 10,460 262,058 288,472 100.0 % The table below shows the categories in which we held investments in special revenue municipal bonds that were greater than 10% of the fair value of our total municipal bond portfolio at March 31, 2026. (In thousands, except for %) Fair Value Amortized Cost % of Total Fair Value Education $ 38,033 44,154 14.5 % Utilities 41,429 45,152 15.8 Transportation 32,638 39,739 12.5 The Company's municipal bond portfolio consists of bonds from states and political subdivisions in many states; however, as of March 31, 2026, municipal bonds from issuers in Texas and California comprised 22% and 18%, respectively, of the portfolio. There were no other states or individual issuer holdings equal to or greater than 10% of the total municipal bond portfolio as of March 31, 2026. March 31, 2026 | 10-Q 49 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS The table below represents the Company's detailed exposure to municipal fixed maturity securities by credit rating in Texas at March 31, 2026. 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 $ 11,507 11,325 2,474 2,496 — — 13,981 13,821 AA 13,024 13,030 16,341 18,913 45 55 29,410 31,998 A — — 10,723 14,730 — — 10,723 14,730 BBB — — 2,950 2,920 — — 2,950 2,920 Total $ 24,531 24,355 32,488 39,059 45 55 57,064 63,469 Texas state and political subdivision fixed maturity securities excluding third-party guarantees: AA $ 20,212 20,040 4,242 4,764 — — 24,454 24,804 A 3,093 3,090 12,934 14,888 — — 16,027 17,978 BBB — — 6,198 6,282 45 55 6,243 6,337 BB and other 1,226 1,225 9,114 13,125 — — 10,340 14,350 Total $ 24,531 24,355 32,488 39,059 45 55 57,064 63,469 The table below represents the Company's detailed exposure to municipal fixed maturity securities by credit rating in California at March 31, 2026. 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 $ 2,127 2,115 32,846 39,130 4,555 4,744 39,528 45,989 A 1,330 1,650 6,009 6,805 — — 7,339 8,455 Total $ 3,457 3,765 38,855 45,935 4,555 4,744 46,867 54,444 California state and political subdivision fixed maturity securities excluding third-party guarantees: AA $ 457 446 5,414 7,085 724 760 6,595 8,291 A 3,000 3,319 18,724 21,811 1,823 1,976 23,547 27,106 BB and other — — 14,717 17,039 2,008 2,008 16,725 19,047 Total $ 3,457 3,765 38,855 45,935 4,555 4,744 46,867 54,444 IMPAIRMENT CONSIDERATIONS RELATED TO INVESTMENTS IN FIXED MATURITY SECURITIES We analyze our available-for-sale ("AFS") fixed maturity securities that are experiencing unrealized losses to ascertain if there is an expectation of credit related impairments. We did not record any credit valuation allowances on fixed maturity securities in either of the three months ended March 31, 2026 or 2025. Gross unrealized losses on AFS fixed maturity securities amounted to $167.6 million as of March 31, 2026 and $154.3 million as of December 31, 2025. This increase in gross unrealized losses during 2026 was a result of the decrease in average market interest rates in 2026 as compared to 2025. March 31, 2026 | 10-Q 50 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS 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) March 31, 2026 December 31, 2025 Fixed maturity securities $ 1,271,111 1,287,861 Cash and cash equivalents 18,520 22,976 Liquidity refers to a company's ability to generate sufficient cash flows to meet the needs of its operations. 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 operating expenses, invest in our business or make strategic acquisitions. We manage our insurance operations in order to ensure that we have stable and reliable sources of cash flows to meet our obligations. In the three months ended March 31, 2026, our operations used $0.3 million of net cash due to matured endowment benefit payments, commissions and general expenses supporting our business growth. We expect our business will generate cash the remainder of the year as our level of maturities declines. Despite using cash in the first quarter of 2026, we anticipate meeting our short-term and long-term cash needs with cash generated by our insurance operations and from our invested assets. 89% of our investments consist of marketable fixed maturity securities classified as available-for-sale that could be readily converted to cash for liquidity needs. Additionally, we may raise capital by selling shares in our SIP (as defined below) and we may also access our Credit Facility if needed (also described below). Citizens had no debt as of March 31, 2026. 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. The investing activities fluctuate from period to period due to timing of securities activities such as calls, maturities and reinvestment of those funds. We purchased $31.0 million of fixed maturity securities and we also used $1.0 million to purchase other long-term investments in the first three months of 2026. 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 all 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. 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. March 31, 2026 | 10-Q 51 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS 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 CLOA business by developing new products and expanding our distribution channels, which has led to increases in first year direct premiums (i.e. , new sales) in our Domestic Insurance segment in the last couple years. 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 entered into a coinsurance reinsurance agreement with RGA to help with some of the costs, and the insurance subsidiaries also have the AFS fixed maturity investment portfolio available to create additional cash flows if required. Two of our insurance subsidiaries are members of the Federal Home Loan Bank ("FHLB") of Dallas. 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 2025 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 and commissions are our largest use of cash. There are three primary components of payments of benefits: matured endowments, surrenders and death claims. 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 18% of the endowments in force will mature in the next five years, totaling approximately 5% of our in force business as of March 31, 2026. 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, and 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. Surrenders. Surrender benefits, which have been high the last several years, slightly decreased during 2025 and continued to decrease the first three months of 2026. 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 reach 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 March 31, 2026 | 10-Q 52 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS 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 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 liquidity 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 increased in the three months ended March 31, 2026 due to a higher volume of reported claims. Commissions. Another significant use of cash is payment of commissions. In our Domestic Insurance segment, 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. CLOA sales have increased significantly since the third quarter of 2023. In order 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. 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 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 2025 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 insurance 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 "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 CLOA, Citizens' wholly-owned subsidiary domiciled in Colorado, that would require Citizens to contribute capital to CLOA in order to maintain an RBC level above 350%. At March 31, 2026, our domestic insurance subsidiaries were above the required minimum RBC levels and CLOA was above 350%. 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 March 31, 2026, 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. March 31, 2026 | 10-Q 53 Table of Contents CITIZENS, INC. MANAGEMENT'S DISCUSSION & ANALYSIS CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS As of March 31, 2026, 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 2025 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 2025 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.