##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2006
 Commission file number 1-13004
 CITIZENS, INC.
  Colorado
    
    84-0755371(State of incorporation)
    
    (IRS Employer Identification No.)400 East Anderson Lane, Austin, Texas
    
    78752(Address of principal executive offices)
    
    (Zip Code)
  
 þ o
  o þ o
 o þ




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 INDEX
 PageNumberPart I.
    
    Financial InformationItem 1.
    
    Financial StatementsConsolidated Statements of Financial Position, March 31, 2006 (Unaudited) and December 31, 2005
    
    
    2Consolidated Statements of Operations, Three Months Ended March 31, 2006 and 2005 (Unaudited)
    
    
    4Consolidated Statements of Cash Flows, Three Months Ended March 31, 2006 and 2005 (Unaudited)
    
    
    5Notes to Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Conditions and Results of Operations
    
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    27Item 4.
    
    Controls and Procedures
    
    
    29Part II.
    
    Other Information
    
    
    30Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  1




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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
 (Unaudited)March 31,
    
    
    December 31,2006
    
    
    2005AssetsInvestments:Fixed maturities held-to-maturity, at
amortized cost (fair value $8,698,264
in 2006 and $9,143,212 in 2005)
    
    $
    7,673,094
    
    
    
    7,639,505Fixed maturities available-for-sale,
at fair value (cost $475,484,270 in
2006 and $457,386,343 in 2005)
    
    
    457,952,826
    
    
    
    449,931,167Equity securities available-for-sale,
at fair value (cost $344,521 in 2006
and $429,176 in 2005)
    
    
    442,749
    
    
    
    609,760Mortgage loans on real estate, net of
allowance for possible losses ($50,000
in 2006 and 2005)
    
    
    768,836
    
    
    
    833,464Policy loans
    
    
    23,793,925
    
    
    
    23,918,241Other long-term investments
    
    
    1,396,811
    
    
    
    1,878,886Total investments
    
    
    492,028,241
    
    
    
    484,811,023Cash and cash equivalents
    
    
    13,512,676
    
    
    
    18,311,105Accrued investment income
    
    
    5,924,249
    
    
    
    6,477,499Reinsurance recoverable
    
    
    17,117,339
    
    
    
    19,118,009Deferred Federal income tax asset
    
    
    2,051,972
    
    
    
    Deferred policy acquisition costs
    
    
    74,114,139
    
    
    
    70,410,334Other intangible assets
    
    
    1,695,125
    
    
    
    2,095,125Cost of customer relationships acquired
    
    
    38,901,581
    
    
    
    39,259,276Excess of cost over net assets acquired
    
    
    12,401,990
    
    
    
    12,401,990Property and equipment
    
    
    7,486,426
    
    
    
    7,736,623Other assets
    
    
    5,675,397
    
    
    
    1,267,827Total assets
    
    $
    670,909,135
    
    
    
    661,888,811
 See accompanying notes to consolidated financial statements.
    
    (Continued)
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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION, CONTINUED
 (Unaudited)March 31,
    
    
    December 312006
    
    
    2005Liabilities and Stockholders EquityLiabilities:Future policy benefit reserves:Life insurance
    
    $
    447,578,039
    
    
    
    436,716,912Annuities
    
    
    19,908,809
    
    
    
    19,440,486Accident and health
    
    
    11,440,912
    
    
    
    11,579,870Dividend accumulations
    
    
    5,048,245
    
    
    
    5,066,828Premium deposits
    
    
    10,773,632
    
    
    
    9,942,096Policy claims payable
    
    
    9,420,042
    
    
    
    11,226,907Other policyholders funds
    
    
    5,851,257
    
    
    
    5,473,358Total policy liabilities
    
    
    510,020,936
    
    
    
    499,446,457Commissions payable
    
    
    2,108,387
    
    
    
    2,666,764Federal income tax payable
    
    
    439,975
    
    
    
    447,829Deferred Federal income tax
    
    
    
    
    
    
    1,620,839Payable for securities in the process of settlement
    
    
    5,700,000
    
    
    
    Liabilities for options and warrants
    
    
    1,396,929
    
    
    
    1,587,151Other liabilities
    
    
    7,390,185
    
    
    
    7,611,138Total liabilities
    
    
    527,056,412
    
    
    
    513,380,178Commitments and contingencies (Note 8)Cumulative convertible preferred stock  Series A-1
(Series A-1 - $500 stated value per share, 25,000
shares authorized, issued and
outstanding in 2005 and 2004; Series A-2 - $935
stated value per share, 5,000 shares authorized,
4,014 issued and outstanding in 2005)
    
    
    11,879,789
    
    
    
    11,545,543Stockholders equity: Common stock:Class A, no par value, 100,000,000 shares
authorized, 43,335,526 shares issued
in 2006 and 43,300,934 shares issued
in 2005, including shares in treasury of
3,135,738 in 2006 and 2,930,596 in 2005
    
    
    214,479,307
    
    
    
    214,307,665Class B, no par value, 2,000,000 shares
authorized, 1,001,714 shares issued and
outstanding in 2006 and 936,181 shares
issued and outstanding in 2005
    
    
    3,184,350
    
    
    
    3,184,350Retained deficit
    
    
    (63,174,194
    )
    
    
    (64,717,088
    )Accumulated other comprehensive loss:Unrealized losses on securities, net of tax
    
    
    (11,505,923
    )
    
    
    (4,801,231
    )142,983,540
    
    
    
    147,973,696Treasury stock, at cost
    
    
    (11,010,606
    )
    
    
    (11,010,606
    )Total stockholders equity
    
    
    131,972,934
    
    
    
    136,963,090Total liabilities and stockholders equity
    
    $
    670,909,135
    
    
    
    661,888,811
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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended March 31
 (Unaudited)
 2006
    
    
    2005Revenues:Premiums
    
    $
    30,243,110
    
    
    
    27,496,908Net investment income
    
    
    6,269,713
    
    
    
    6,106,012Realized gains
    
    
    1,053,055
    
    
    
    69,127Decrease in fair value of options and warrants
    
    
    190,222
    
    
    
    434,406Other income
    
    
    351,949
    
    
    
    207,761Total revenues
    
    
    38,108,049
    
    
    
    34,314,214Benefits and expenses:Insurance benefits paid or provided:Increase in future policy benefit reserves
    
    
    7,106,110
    
    
    
    4,856,277Policyholders dividends
    
    
    1,022,280
    
    
    
    870,168Claims and surrenders
    
    
    13,997,727
    
    
    
    12,369,442Total insurance benefits paid or provided
    
    
    22,126,117
    
    
    
    18,095,887Commissions
    
    
    8,796,529
    
    
    
    7,046,446Other underwriting, acquisition and insurance expenses
    
    
    7,073,562
    
    
    
    7,719,718Capitalization of deferred policy acquisition costs
    
    
    (6,325,783
    )
    
    
    (5,021,085
    )Amortization of deferred policy acquisition costs
    
    
    2,621,978
    
    
    
    1,971,100Amortization of cost of customer relationships acquired
and other intangibles
    
    
    757,695
    
    
    
    1,149,926Total benefits and expenses
    
    
    35,050,098
    
    
    
    30,961,992Income before Federal income tax
    
    
    3,057,951
    
    
    
    3,352,222Federal income tax expense
    
    
    1,009,169
    
    
    
    992,736Net income
    
    $
    2,048,782
    
    
    
    2,359,486Net income applicable to common stock
    
    $
    1,542,894
    
    
    
    1,864,726Per Share Amounts:Basic and diluted income per share of
common stock
    
    $
    0.04
    
    
    
    0.05Weighted average shares outstanding
    
    $
    41,168,238
    
    
    
    41,055,811
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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three Months Ended March 31
 (Unaudited)
 2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    2,048,782
    
    
    
    2,359,486Adjustments to reconcile net income to net cash
provided by operating activities:Realized gains on sale of investments
and other assets
    
    
    (1,053,055
    )
    
    
    (69,127
    )Net deferred policy acquisition costs
    
    
    (3,703,805
    )
    
    
    (3,049,985
    )Decrease in fair value of options and
warrants
    
    
    (190,222
    )
    
    
    (434,406
    )Amortization of cost of customer
relationships acquired and other
intangibles
    
    
    757,695
    
    
    
    1,149,926Depreciation
    
    
    280,186
    
    
    
    363,032Amortization of premiums and (discounts)
on fixed maturities
    
    
    406,629
    
    
    
    443,808Deferred Federal income tax expense
(benefit)
    
    
    (218,878
    )
    
    
    583,276Change in:Accrued investment income
    
    
    553,250
    
    
    
    1,668,862Reinsurance recoverable
    
    
    2,000,670
    
    
    
    (1,050,832
    )Future policy benefit reserves
    
    
    10,967,587
    
    
    
    5,936,149Other policy liabilities
    
    
    (616,013
    )
    
    
    1,672,515Federal income tax
    
    
    (7,854
    )
    
    
    (849,536
    )Commissions payable and other liabilities
    
    
    (779,330
    )
    
    
    (2,871,869
    )Other, net
    
    
    (4,407,568
    )
    
    
    (391,419
    )Net cash provided by operating
activities
    
    
    6,038,074
    
    
    
    5,459,880Cash flows from investing activities:Sale of fixed maturities, available-for-sale
    
    
    12,629,030
    
    
    
    9,723,906Sale of equity securities, available-for-sale
    
    
    176,771
    
    
    
    Maturity of fixed maturities, available-for-sale
    
    
    4,638,837
    
    
    
    56,413,997Purchase of fixed maturities, available-for-sale
    
    
    (29,145,076
    )
    
    
    (39,806,815
    )Principal payments on mortgage loans
    
    
    64,628
    
    
    
    6,359Mortgage loans funded
    
    
    
    
    
    
    (214,841
    )Decrease (increase) in policy loans, net
    
    
    124,316
    
    
    
    (198,738
    )Principal payments on note receivable
    
    
    474,054
    
    
    
    Purchase of property and equipment
    
    
    (21,968
    )
    
    
    (17,420
    )Net cash provided by (used in)
investing activities
    
    
    (11,059,408
    )
    
    
    25,906,448
 See accompanying notes to consolidated financial statements.
    
    (Continued)
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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Three Months Ended March 31
 (Unaudited)
 2006
    
    
    2005Cash flows from financing activities:Annuity and universal life deposits
    
    
    709,846
    
    
    
    795,373Annuity and universal life withdrawals
    
    
    (486,941
    )
    
    
    (340,243
    )Net cash provided by financing activities
    
    
    222,905
    
    
    
    455,130Net increase (decrease) in cash and cash equivalents
    
    
    (4,798,429
    )
    
    
    31,821,458Cash and cash equivalents at beginning of period
    
    
    18,311,105
    
    
    
    31,720,787Cash and cash equivalents at end of period
    
    $
    13,512,676
    
    
    
    63,542,245Supplemental:Cash paid during the period for income taxes
    
    $
    1,235,901
    
    
    
    1,258,996
 Supplemental Disclosure of Non-Cash Financing Activities:
    6




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2006
 (Unaudited)
 (1) Financial Statements
      7




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(2) Sale of CNLIC
  (3) Revolving Line of Credit
  (4) Segment Information
      Geographic
Areas
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Three months ended March 31,2006
    
    
    2005Revenues:U.S.
    
    $
    16,310,384
    
    
    
    17,274,855Non-U.S.
    
    
    21,797,665
    
    
    
    17,039,359Total Revenues
    
    $
    38,108,049
    
    
    
    34,314,214
  Three months ended March 31,2006
    
    
    2005Revenue:International Life
    
    $
    21,797,665
    
    
    
    17,039,359Home Service Business
    
    
    13,319,796
    
    
    
    12,806,610Domestic Life
    
    
    2,757,371
    
    
    
    4,287,550Domestic Health
    
    
    233,217
    
    
    
    180,695Total consolidated revenue
    
    $
    38,108,049
    
    
    
    34,314,214Premiums:International Life
    
    $
    18,447,839
    
    
    
    14,388,069Home Service Business
    
    
    9,469,273
    
    
    
    9,843,702Domestic Life
    
    
    2,092,781
    
    
    
    3,084,442Domestic Health
    
    
    233,217
    
    
    
    180,695Total premiums
    
    $
    30,243,110
    
    
    
    27,496,908Net investment income:International Life
    
    $
    3,044,625
    
    
    
    2,386,407Home Service Business
    
    
    2,841,206
    
    
    
    2,990,637Domestic Life
    
    
    383,882
    
    
    
    728,968Domestic Health
    
    
    
    
    
    
    Total consolidated net investment income
    
    $
    6,269,713
    
    
    
    6,106,012Amortization expense:International Life
    
    $
    2,543,667
    
    
    
    1,464,091Home Service Business
    
    
    121,199
    
    
    
    812,826Domestic Life
    
    
    714,807
    
    
    
    844,109Domestic Health
    
    
    
    
    
    
    Total consolidated amortization expense
    
    $
    3,379,673
    
    
    
    3,121,026Realized gain on sale of investments and
other assets:International Life
    
    $
    39,371
    
    
    
    11,000Home Service Business
    
    
    1,008,720
    
    
    
    54,767Domestic Life
    
    
    4,964
    
    
    
    3,360Domestic Health
    
    
    
    
    
    
    Total consolidated realized gain on sale of
investments and other assets
    
    $
    1,053,055
    
    
    
    69,127
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Three months ended March 31,2006
    
    
    2005Income (loss) before Federal income tax:International Life
    
    $
    2,765,595
    
    
    
    2,676,959Home Service Business
    
    
    722,496
    
    
    
    911,948Domestic Life
    
    
    (583,741
    )
    
    
    (268,826
    )Domestic Health
    
    
    153,601
    
    
    
    32,141Total consolidated income before
Federal income tax
    
    $
    3,057,951
    
    
    
    3,352,222
 March 31,
    
    
    December 31,2006
    
    
    2005Assets:International Life
    
    $
    246,589,572
    
    
    
    233,529,849Home Service Business
    
    
    298,294,270
    
    
    
    300,946,232Domestic Life
    
    
    115,692,410
    
    
    
    115,320,962Domestic Health
    
    
    10,332,883
    
    
    
    12,091,768Total
    
    $
    670,909,135
    
    
    
    661,888,811
  Three months ended
    
    
    Three months endedMarch 31, 2006
    
    
    March 31, 2005Ordinary life
    
    $
    28,853,451
    
    
    
    25,933,173Group life
    
    
    141,866
    
    
    
    159,090Accident and health
    
    
    425,287
    
    
    
    347,654Casualty
    
    
    822,506
    
    
    
    1,056,991Total premiums
    
    $
    30,243,110
    
    
    
    27,496,908
 (5) Accumulated Other Comprehensive Loss
  (6) Earnings Per Share
  10




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Three months endedMarch 31,2006
    
    2005Basic and diluted income per share:Numerator:Net income
    
    $
    2,048,782
    
    
    
    2,359,486Less: Preferred stock dividend
    
    
    (171,642
    )
    
    
    (130,860
    )Accretion of deferred
issuance costs and discounts
on preferred stock
    
    
    (334,246
    )
    
    
    (363,900
    )Net income to common stockholders
    
    $
    1,542,894
    
    
    
    1,864,726Denominator:Weighted average shares outstanding
    
    
    41,168,238
    
    
    
    41,055,811Basic and diluted income per share
    
    $
    0.04
    
    
    
    0.05
  (7) Accounting Pronouncements
 Accounting by Insurance Enterprises for Deferred
Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts Accounting and Reporting by Insurance Enterprises for Certain
Long-Duration Contracts and For Realized Gains and Losses from the Sale of Investments
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The Meaning of Other-Than-Temporary Impairment and Its Application
to Certain Investments Accounting for
Certain Investments in Debt and Equity Securities The
Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments
 Accounting Changes and Error Corrections
 (8) Legal Proceedings
 Cause Number 03-0505; Citizens Insurance Company of America, Citizens, Inc., Harold E.
Riley and Mark A. Oliver, Petitioners v. Fernando Hakim Daccach, Respondent, in the
Supreme Court of Texas.
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ITEM 2 . MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
  
    
    the issuance of ordinary life insurance in U.S. Dollar-denominated amounts to
foreign nationals with significant net worth; and
    
    offering final expense ordinary life insurance through the home service distribution
channel in the State of Louisiana.
  International Life.
   14




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Home Service Life.
    Domestic Life.
  15




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Marketplace Conditions and Trends
  
    
    As an increasing percentage of the world population reaches retirement age, we believe
we will benefit from increased demand for living products rather than death products, as
aging baby boomers will require cash accumulation to provide expenses to meet their
lifetime needs. Our ordinary life products are designed for our policyowners to accumulate
cash values to provide for living expenses in the insureds later years while continuously
providing a death benefit.
    
    The volatility in the equity markets over the past few years has posed a number of
problems for some companies in the life insurance industry. Even though the capital
markets have recovered, not all companies have participated evenly in the recovery. We
historically have had minimal equity exposure, including less than 1% of total invested
assets as of March 31, 2006 and December 31, 2005, and we plan to continue to have minimal
assets in equity investments in the future.
    
    Corporate bond defaults and credit downgrades, which have resulted in other-than-
temporary impairment in the value of many securities, have had a material impact on life
insurers in the past few years. We have not incurred significant losses from bond defaults
for many years. The majority of our investment portfolio is held in debt instruments
carrying the full faith and credit of the U.S. Government, or U.S. Government-sponsored
enterprises. As interest rates rise, we may elect to diversify beyond such instruments;
however, we do not expect to make radical changes to the risk profile of the portfolio.
    
    Some life insurance companies have recently suffered significant reductions in capital
due to losses, and will have to improve their capital adequacy ratios to support their
business or divest a portion of their business. We have not experienced any capital
reductions and do not anticipate this trend will affect us. We did reduce capital on a
regulatory basis by approximately $20 million when we acquired Security Plan; however, we
maintain more than adequate levels of capital, and with the earnings of Security Plan on a
regulatory basis, expect to earn back this amount within two to three years.
    
    Because of the trends described above coupled with increasing costs of regulatory
compliance such as the Sarbanes-Oxley Act of 2002, we believe there is a trend towards
consolidation of domestic life insurance companies. We believe this should be a benefit to
our acquisition strategy because there should be more complementary acquisition candidates
available for us to consider acquiring.
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
    
    Many of the events and trends affecting the life insurance industry have had an impact
on the life reinsurance industry. These events led to a decline in the availability of
reinsurance. While we currently cede a limited amount of our primary insurance business to
reinsurers, we may find it difficult to obtain reinsurance in the future, forcing us to
seek reinsurers who are more expensive to us. If we cannot obtain affordable reinsurance
coverage, either our net exposures will increase or we would have to reduce our
underwriting commitments.
 Significant Recent Transactions
 Cession of Accident and Health Business
   Consolidated Results
  Three Months
    
    
    
    
    
    Net Income PerEnded
    
    
    
    
    
    Class A & B
    
    Change fromMarch 31
    
    Net Income
    
    Share
    
    Previous Year2006
    
    $
    2,049,000
    
    
    $
    0.04
    
    
    
    (13.2
    %)2005
    
    
    2,359,000
    
    
    
    0.05
    
    
    
    534.7
    %
   Premium Income
 Net Investment Income
 17




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Reserves
 Policyholder Dividends
 Claims and Surrenders
 Quarter Ended March 31,2006
    
    
    2005Death claims
    
    $
    5,827,000
    
    
    
    6,305,000Surrender expenses
    
    
    3,831,000
    
    
    
    3,373,000Endowments
    
    
    2,424,000
    
    
    
    1,909,000Casualty claims
    
    
    1,496,000
    
    
    
    453,000Other policy benefits
    
    
    225,000
    
    
    
    208,000Accident and health benefits
    
    
    195,000
    
    
    
    121,000Total claims and surrenders
    
    $
    13,998,000
    
    
    
    12,369,000
    18




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Commissions
 Underwriting, Acquisition and Insurance Expense
 Deferred Policy Acquisition Costs
 Cost of Customer Relationships Acquired
 Liquidity and Capital Resources
   19




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Contractual
    
    
    
    
    
    Less than
    
    
    1 to 3
    
    
    3 to 5
    
    
    More thanObligation
    
    Total
    
    
    1 year
    
    
    years
    
    
    years
    
    
    5 years(In Thousands)Operating leases
    
    $
    931
    
    
    
    323
    
    
    
    406
    
    
    
    202
    
    
    
    Other
    
    
    201
    
    
    
    115
    
    
    
    86
    
    
    
    
    
    
    
    Total operating
leases and other
    
    $
    1,132
    
    
    
    438
    
    
    
    492
    
    
    
    202
    
    
    
    Future policy benefit reserves:Life insurance
    
    $
    447,578
    
    
    
    3,918
    
    
    
    926
    
    
    
    8,691
    
    
    
    434,043Annuities
    
    
    19,909
    
    
    
    4,922
    
    
    
    3,002
    
    
    
    5,473
    
    
    
    6,512Accident and health
    
    
    11,441
    
    
    
    11,441
    
    
    
    
    
    
    
    
    
    
    
    Total future policy
benefit reserves
    
    $
    478,928
    
    
    
    20,281
    
    
    
    3,928
    
    
    
    14,164
    
    
    
    440,555Policy claims payable:Life insurance
    
    $
    5,982
    
    
    
    5,982
    
    
    
    
    
    
    
    
    
    
    
    Accident and health
    
    
    1,791
    
    
    
    1,791
    
    
    
    
    
    
    
    
    
    
    
    Casualty
    
    
    1,647
    
    
    
    1,647
    
    
    
    
    
    
    
    
    
    
    
    Total policy
claims payable
    
    $
    9,420
    
    
    
    9,420
    
    
    
    
    
    
    
    
    
    
    
    Convertible preferred stock
    
    $
    16,251
    
    
    
    
    
    
    
    
    
    
    
    16,251
    
    
    
    Total contractual obligations
    
    $
    505,731
    
    
    
    30,139
    
    
    
    4,420
    
    
    
    30,617
    
    
    
    440,555
  Parent Company Liquidity and Capital Resources
  22




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##### Table of Contents



Critical Accounting Policies
  Policy Liabilities
   Deferred Policy Acquisition Costs
    23




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##### Table of Contents



Valuation of Investments in Fixed Maturity and Equity Securities
    24




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##### Table of Contents



Premium Revenue and Related Expenses
   Accounting Pronouncements
 Accounting by Insurance Enterprises for Deferred Acquisition Costs in
Connection with Modifications or Exchanges of Insurance Contracts Accounting and Reporting by Insurance
Enterprises for Certain Long-Duration Contracts and For Realized Gains and Losses from the Sale of
Investments
 The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments Accounting for Certain
Investments in Debt and Equity Securities
 25




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##### Table of Contents



The Meaning of
Other-Than-Temporary Impairment and its Application to Certain Investments
 Accounting Changes and Error Corrections
 26




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 General
  Market Risk Related to Interest Rates
   March 31, 2006Decreases in Interest Rates
    
    
    Increases in Interest Rates300 Basis
    
    200 Basis
    
    
    100 Basis
    
    
    100 Basis
    
    
    200 Basis
    
    
    300 BasisPoints
    
    Points
    
    
    Points
    
    
    Points
    
    
    Points
    
    
    Points$    49,125,000
    
    $
    31,283,000
    
    
    $
    16,202,000
    
    
    $
    (47,195,000
    )
    
    $
    (78,422,000
    )
    
    $
    (106,014,000
    )
 December 31, 2005Decreases in Interest Rates
    
    
    Increases in Interest Rates300 Basis
    
    200 Basis
    
    
    100 Basis
    
    
    100 Basis
    
    
    200 Basis
    
    
    300 BasisPoints
    
    Points
    
    
    Points
    
    
    Points
    
    
    Points
    
    
    Points$    65,930,000
    
    $
    42,730,000
    
    
    $
    23,279,000
    
    
    $
    (42,198,000
    )
    
    $
    (73,921,000
    )
    
    $
    (102,269,000
    )
  27




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##### Table of Contents



Market Risk Related to Equity Prices
  28




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 (a) Disclosure Controls and Procedures
   (b) Management Report on Internal Control over Financial Reporting
 Internal Control  Integrated Framework
 (c) Change in Internal Control over Financial Reporting
  29




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##### Table of Contents



PART II. OTHER INFORMATION
 Item 1. Legal Proceedings
 Cause Number 03-0505; Citizens Insurance Company of America, Citizens, Inc., Harold E.
Riley and Mark A. Oliver, Petitioners v. Fernando Hakim Daccach, Respondent, in the
Supreme Court of Texas.
      30




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##### Table of Contents



Item 1.A Risk Factors
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Item 3. Defaults upon Senior Securities
  Item 4. Submission of Matters to a Vote of Security Holders
  Item 5. Other Information
  Item 6. Exhibits
 31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act*31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act*32.1
    
    Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act*32.2
    
    Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act*
 
 *
    
    Filed herewith. 31




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##### Table of Contents



SIGNATURES
  CITIZENS, INC.By:
    /s/ Mark A. OliverMark A. OliverPresident and Chief Executive OfficerBy:
    /s/ Larry E. CarsonLarry E. CarsonVice President, Chief Financial Officer
and Treasurer  32




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##### Table of Contents



Exhibit Index
 31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act*31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act*32.1
    
    Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act*32.2
    
    Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act*
 
 *
    
    Filed herewith.