##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2010
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission File Number: 000-16509
 CITIZENS, INC.
 (Exact name of registrant as specified in its charter)
 Colorado
    
    84-0755371(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)400 East Anderson Lane, Austin, Texas
    
    78752(Address of principal executive offices)
    
    (Zip Code)
 (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year, if changed since last report.)
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o
  o þ




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TABLE OF CONTENTS
 PageNumberPart I. Financial InformationItem 1. Financial StatementsConsolidated Statements of Financial Position, September 30,
2010 (Unaudited) and December 31, 2009
    
    
    2Consolidated Statements of Operations, Three Months
Ended September 30, 2010 and 2009 (Unaudited)
    
    
    4Consolidated Statements of Operations, Nine Months
Ended September 30, 2010 and 2009 (Unaudited)
    
    
    5Consolidated Statements of Cash Flows, Nine Months
Ended September 30, 2010 and 2009 (Unaudited)
    
    
    6Notes to Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    26Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    42Item 4. Controls and Procedures
    
    
    43Part II. Other InformationItem 1. Legal Proceedings
    
    
    43Item 1A. Risk Factors
    
    
    44Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    44Item 3. Defaults Upon Senior Securities
    
    
    44Item 4. (Reserved)
    
    
    44Item 5. Other Information
    
    
    44Item 6. Exhibits
    
    
    45Exhibit 21Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2Exhibit 99.1
   1




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1 . FINANCIAL STATEMENTS
 CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 Consolidated Statements of Financial Position
 (In thousands)
 September 30,
    
    
    December 31,Assets
    
    2010
    
    
    2009(Unaudited)Investments:Fixed maturities available-for-sale, at fair value

(cost: $501,649 and $389,195 in 2010 and 2009,
respectively)
    
    $
    519,132
    
    
    
    385,579Fixed maturities held-to-maturity, at amortized cost

(fair value: $128,865 and $199,676 in 2010 and 2009,
respectively)
    
    
    127,674
    
    
    
    206,909Equity securities available-for-sale, at fair value

(cost: $25,619 and $25,899 in 2010 and 2009, respectively)
    
    
    33,986
    
    
    
    33,477Mortgage loans on real estate
    
    
    1,501
    
    
    
    1,533Policy loans
    
    
    34,970
    
    
    
    32,096Real estate held for sale
    
    
    2,805
    
    
    
    2,825Real estate held for investment (less $445 and $374 accumulated
depreciation in 2010 and 2009, respectively)
    
    
    6,522
    
    
    
    6,305Other long-term investments
    
    
    49
    
    
    
    86Short-term investments
    
    
    
    
    
    
    2,510Total investments
    
    
    726,639
    
    
    
    671,320Cash and cash equivalents
    
    
    65,366
    
    
    
    48,625Accrued investment income
    
    
    8,406
    
    
    
    7,455Reinsurance recoverable
    
    
    10,411
    
    
    
    11,587Deferred policy acquisition costs
    
    
    121,540
    
    
    
    115,570Cost of customer relationships acquired
    
    
    32,097
    
    
    
    34,728Goodwill
    
    
    17,160
    
    
    
    17,160Other intangible assets
    
    
    1,026
    
    
    
    1,046Federal income tax receivable
    
    
    1,903
    
    
    
    4,023Property and equipment, net
    
    
    6,772
    
    
    
    6,018Due premiums, net (less $1,341 and $1,644 allowance for doubtful accounts
in 2010 and 2009, respectively)
    
    
    7,224
    
    
    
    8,960Prepaid expenses
    
    
    1,378
    
    
    
    288Other assets
    
    
    477
    
    
    
    546Total assets
    
    $
    1,000,399
    
    
    
    927,326
 See accompanying notes to consolidated financial statements.
    
    (Continued)
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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Consolidated Statements of Financial Position, Continued
 (In thousands, except share amounts)
 September 30,
    
    
    December 31,Liabilities and Stockholders Equity
    
    2010
    
    
    2009(Unaudited)Liabilities:Policy liabilities:Future policy benefit reserves:Life insurance
    
    $
    621,841
    
    
    
    592,358Annuities
    
    
    40,692
    
    
    
    37,882Accident and health
    
    
    5,966
    
    
    
    6,399Dividend accumulations
    
    
    9,188
    
    
    
    5,621Premiums paid in advance
    
    
    22,140
    
    
    
    20,373Policy claims payable
    
    
    10,810
    
    
    
    10,222Other policyholders funds
    
    
    8,080
    
    
    
    8,105Total policy liabilities
    
    
    718,717
    
    
    
    680,960Commissions payable
    
    
    2,078
    
    
    
    2,434Deferred federal income tax
    
    
    15,127
    
    
    
    8,052Payable for securities in process of settlement
    
    
    18,500
    
    
    
    6,000Warrants outstanding
    
    
    1,439
    
    
    
    1,819Other liabilities
    
    
    7,588
    
    
    
    11,986Total liabilities
    
    
    763,449
    
    
    
    711,251Commitments and contingencies (Note 8)Stockholders equity:Common stock:Class A, no par value, 100,000,000 shares authorized,
51,822,497 shares issued in 2010 and 2009,
including shares in treasury of 3,135,738 in
2010 and 2009
    
    
    256,703
    
    
    
    256,703Class B, no par value, 2,000,000 shares authorized, 1,001,714
shares issued and outstanding in 2010 and 2009
    
    
    3,184
    
    
    
    3,184Retained deficit
    
    
    (31,636
    )
    
    
    (38,092
    )Accumulated other comprehensive income:Unrealized gains on securities, net of tax
    
    
    19,710
    
    
    
    5,291247,961
    
    
    
    227,086Treasury stock, at cost
    
    
    (11,011
    )
    
    
    (11,011
    )Total stockholders equity
    
    
    236,950
    
    
    
    216,075Total liabilities and stockholders equity
    
    $
    1,000,399
    
    
    
    927,326
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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 Consolidated Statements of Operations
 Three Months Ended September 30,
 (In thousands, except per share amounts)
 (Unaudited)
 2010
    
    
    2009Revenues:Premiums:Life insurance
    
    $
    36,433
    
    
    
    34,589Accident and health insurance
    
    
    392
    
    
    
    371Property insurance
    
    
    1,230
    
    
    
    1,192Net investment income
    
    
    7,272
    
    
    
    7,413Realized gains (losses), net
    
    
    (103
    )
    
    
    1,006Decrease in fair value of warrants
    
    
    128
    
    
    
    Other income
    
    
    103
    
    
    
    273Total revenues
    
    
    45,455
    
    
    
    44,844Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    15,739
    
    
    
    14,494Increase in future policy benefit reserves
    
    
    11,398
    
    
    
    10,305Policyholders dividends
    
    
    1,977
    
    
    
    1,827Total insurance benefits paid or provided
    
    
    29,114
    
    
    
    26,626Commissions
    
    
    9,229
    
    
    
    8,435Other underwriting, acquisition and insurance expenses
    
    
    6,580
    
    
    
    6,772Capitalization of deferred policy acquisition costs
    
    
    (6,148
    )
    
    
    (5,306
    )Amortization of deferred policy acquisition costs
    
    
    2,975
    
    
    
    4,303Amortization of cost of customer relationships acquired
and other intangibles
    
    
    726
    
    
    
    946Total benefits and expenses
    
    
    42,476
    
    
    
    41,776Income before federal income tax
    
    
    2,979
    
    
    
    3,068Federal income tax expense
    
    
    1,313
    
    
    
    1,033Net income
    
    $
    1,666
    
    
    
    2,035Net income applicable to common stockholders
    
    $
    1,666
    
    
    
    1,878Per Share Amounts:Basic and diluted earnings per share of Class A common stock
    
    $
    0.03
    
    
    
    0.04Basic and diluted earnings per share of Class B common stock
    
    $
    0.02
    
    
    
    0.02
   4




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 Consolidated Statements of Operations
 Nine Months Ended September 30,
 (In thousands, except per share amounts)
 (Unaudited)
 2010
    
    
    2009Revenues:Premiums:Life insurance
    
    $
    105,114
    
    
    
    101,858Accident and health insurance
    
    
    1,215
    
    
    
    1,135Property insurance
    
    
    3,592
    
    
    
    3,501Net investment income
    
    
    23,896
    
    
    
    21,733Realized gains, net
    
    
    648
    
    
    
    2,827Decrease in fair value of warrants
    
    
    380
    
    
    
    3,081Other income
    
    
    602
    
    
    
    796Total revenues
    
    
    135,447
    
    
    
    134,931Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    46,410
    
    
    
    44,254Increase in future policy benefit reserves
    
    
    30,726
    
    
    
    28,021Policyholders dividends
    
    
    5,324
    
    
    
    4,742Total insurance benefits paid or provided
    
    
    82,460
    
    
    
    77,017Commissions
    
    
    26,385
    
    
    
    25,462Other underwriting, acquisition and insurance expenses
    
    
    20,541
    
    
    
    21,889Capitalization of deferred policy acquisition costs
    
    
    (17,406
    )
    
    
    (16,257
    )Amortization of deferred policy acquisition costs
    
    
    11,422
    
    
    
    11,715Amortization of cost of customer relationships acquired
and other intangibles
    
    
    2,332
    
    
    
    2,630Total benefits and expenses
    
    
    125,734
    
    
    
    122,456Income before federal income tax
    
    
    9,713
    
    
    
    12,475Federal income tax expense
    
    
    3,257
    
    
    
    2,762Net income
    
    $
    6,456
    
    
    
    9,713Net income applicable to common stockholders
    
    $
    6,456
    
    
    
    7,208Per Share Amounts:Basic earnings per share of Class A common stock
    
    $
    0.13
    
    
    
    0.15Basic earnings per share of Class B common stock
    
    $
    0.07
    
    
    
    0.08Diluted earnings per share of Class A common stock
    
    $
    0.13
    
    
    
    0.10Diluted earnings per share of Class B common stock
    
    $
    0.07
    
    
    
    0.05
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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
 Nine Months Ended September 30,
 (In thousands)
 (Unaudited)
 2010
    
    
    2009Cash flows from operating activities:Net income
    
    $
    6,456
    
    
    
    9,713Adjustments to reconcile net income to net cash
provided by operating activities:Net realized gains on sale of investments
and other assets
    
    
    (648
    )
    
    
    (2,827
    )Net deferred policy acquisition costs
    
    
    (5,984
    )
    
    
    (4,542
    )Amortization of cost of customer relationships
acquired and other intangibles
    
    
    2,332
    
    
    
    2,630Decrease in fair value of warrants
    
    
    (380
    )
    
    
    (3,081
    )Depreciation
    
    
    787
    
    
    
    908Amortization of premiums and discounts on
fixed maturities and short-term investments
    
    
    2,548
    
    
    
    1,466Deferred federal income tax benefit
    
    
    (61
    )
    
    
    (1,191
    )Change in:Accrued investment income
    
    
    (951
    )
    
    
    434Reinsurance recoverable
    
    
    1,176
    
    
    
    1,258Due premiums and other receivables
    
    
    1,736
    
    
    
    856Future policy benefit reserves
    
    
    30,223
    
    
    
    27,171Other policyholders liabilities
    
    
    5,897
    
    
    
    1,187Federal income tax receivable
    
    
    2,120
    
    
    
    2,827Commissions payable and other liabilities
    
    
    (4,754
    )
    
    
    58Other, net
    
    
    (1,021
    )
    
    
    (583
    )Net cash provided by operating activities
    
    
    39,476
    
    
    
    36,284Cash flows from investing activities:Purchase of fixed maturities, held-to-maturity
    
    
    (71,452
    )
    
    
    (202,286
    )Calls of fixed maturities, held-to-maturity
    
    
    150,350
    
    
    
    Sale of fixed maturities, available-for-sale
    
    
    7,074
    
    
    
    72,148Maturity and calls of fixed maturities, available-for-sale
    
    
    137,506
    
    
    
    276,058Purchase of fixed maturities, available-for-sale
    
    
    (246,238
    )
    
    
    (174,931
    )Sale of equity securities, available-for-sale
    
    
    591
    
    
    
    1,184Calls of equity securities, available-for-sale
    
    
    100
    
    
    
    Purchase of equity securities, available-for-sale
    
    
    (205
    )
    
    
    (476
    )Principal payments on mortgage loans
    
    
    33
    
    
    
    24Mortgage loans funded
    
    
    
    
    
    
    (170
    )Increase in policy loans
    
    
    (2,874
    )
    
    
    (2,905
    )Sale of other long-term investments and property
and equipment
    
    
    42
    
    
    
    406Purchase of other long-term investments and property and
equipment
    
    
    (1,799
    )
    
    
    (2,172
    )Maturity of short-term investments
    
    
    2,500
    
    
    
    2,250Purchase of short-term investments
    
    
    
    
    
    
    (2,604
    )Cash acquired in acquisition
    
    
    
    
    
    
    9,770Net cash used in investing activities
    
    
    (24,372
    )
    
    
    (23,704
    )
 See accompanying notes to consolidated financial statements.
    
    (Continued)
  6




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Consolidated Statements of Cash Flows, Continued
 Nine Months Ended September 30,
 (In thousands)
 (Unaudited)
 2010
    
    
    2009Cash flows from financing activities:Warrants exercised
    
    $
    
    
    
    
    69Annuity deposits
    
    
    4,041
    
    
    
    3,990Annuity withdrawals
    
    
    (2,404
    )
    
    
    (2,515
    )Net cash provided by financing activities
    
    
    1,637
    
    
    
    1,544Net increase in cash and cash equivalents
    
    
    16,741
    
    
    
    14,124Cash and cash equivalents at beginning of year
    
    
    48,625
    
    
    
    63,792Cash and cash equivalents at end of period
    
    $
    65,366
    
    
    
    77,916Supplemental disclosures of operating activities:Cash paid during the period for income taxes
    
    $
    1,200
    
    
    
    1,125
 Supplemental Disclosures of Non-Cash Investing Activities:
  
   Supplemental Disclosures of Non-Cash Financing Activities:
    7




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 Notes to Consolidated Financial Statements
 September 30, 2010
 (Unaudited)
 (1)
    
    Financial Statements
 Basis of Presentation and Consolidation
 The accompanying consolidated financial statements of the Company and its wholly owned
subsidiaries have been prepared in conformity with U.S. Generally Accepted Accounting Principles
(U.S. GAAP).
 The consolidated financial statements include the accounts and operations of Citizens, Inc.
(Citizens), a Colorado corporation, and its wholly-owned subsidiaries, CICA Life Insurance
Company of America (CICA), Computing Technology, Inc. (CTI), Funeral Homes of America, Inc.
(FHA), Insurance Investors, Inc. (III), Citizens National Life Insurance Company (CNLIC),
Integrity Capital Corporation (ICC), Integrity Capital Insurance Company (ICIC), Security
Plan Life Insurance Company (SPLIC) and Security Plan Fire Insurance Company (SPFIC). All
significant inter-company accounts and transactions have been eliminated. Citizens and its
wholly owned consolidated subsidiaries are collectively referred to as the Company, we, or
our.
 The consolidated statements of financial position for September 30, 2010, the consolidated
statements of operations for the three and nine-month periods ended September 30, 2010 and 2009,
and the consolidated statements of cash flows for the nine-month period then ended have been
prepared by the Company without audit. In the opinion of management, all adjustments to present
fairly the financial position, results of operations, and changes in cash flows at September 30,
2010 and for comparative periods have been made.
 The Company completed its acquisition of ICC in exchange for 1,294,000 shares of its Class A
common stock in the first quarter of 2009. ICC is the parent of ICIC, an Indiana life insurance
company. The transaction was valued at $9.0 million on the closing date of February 27, 2009.
On October 30, 2009, FHA completed the sale of its business assets valued at approximately
$600,000, consisting primarily of funeral home assets.
 We provide life and health insurance policies through four of our subsidiaries  CICA, SPLIC,
CNLIC and ICIC. CICA, CNLIC and ICIC issue ordinary whole-life policies, burial insurance,
pre-need policies, and accident and health related policies, throughout the midwest and southern
United States. CICA also issues ordinary whole-life policies to non-U.S. residents. SPLIC
offers final expense and home service life insurance in Louisiana, Arkansas and Mississippi and
SPFIC, a wholly owned subsidiary of SPLIC, writes a limited amount of property insurance in
Louisiana.
 CTI provides data processing systems and services as well as furniture and equipment to the
Company. III provides aviation transportation to the Company. FHA was a funeral home operator
before the sale of its assets in 2009.
 The Company corrected two valuation database discrepancies in the current quarter that resulted
in a decrease to reserves of $559,000. There was a value per unit error related to fully paid
up policies under one plan in duration twenty-one resulting in a reserve overstatement amounting
to $508,000, with approximately $475,000 related to prior years, and another plan where
surrender charges were not properly recorded, which also overstated reserves by $51,000.
 Reserving assumptions are reviewed to ensure that our original assumptions at the time of policy
issuance related to interest, mortality, withdrawals, and settlement expenses are based upon
managements best judgment. The Company modified these assumptions during the current year with
respect to new policies issued, which resulted in an increase to reserves of $456,000.
  8




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2010
(Unaudited)
 Use of Estimates
 The preparation of financial statements, in conformity with U.S. GAAP, requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
 The most significant estimates include those used in the evaluation of other-than-temporary
impairments on debt securities and valuation allowances on investments, goodwill impairment,
valuation allowance on deferred tax assets, and contingencies relating to litigation and
regulatory matters. Certain of these estimates are particularly sensitive to market conditions,
and deterioration and/or volatility in the worldwide debt or equity markets could have a
material impact on the Consolidated Financial Statements.
 Significant Accounting Policies
 For a description of significant accounting policies, see Note 1 of the Notes to Consolidated
Financial Statements included in our 2009 Form 10-K Annual Report, which should be read in
conjunction with these accompanying Consolidated Financial Statements.
 (2)
    
    Accounting Pronouncements
 Accounting Standards Recently Adopted
 In January 2010, the Financial Accounting Standards Board (FASB) updated Accounting Standards
Codification (ASC) Topic 820, requiring additional disclosures about fair value measurements
regarding transfers between fair value categories as well as purchases, sales, issuances and
settlements related to fair value measurements of financial instruments with non-observable
inputs. This update was effective for interim and annual periods beginning after December 15,
2009 except for disclosures about purchases, sales, issuances and settlements of financial
instruments with non-observable inputs, which are effective for years beginning after
December 15, 2010. The additional disclosures required by this update are included in the note
on fair value measurements upon adoption. The additional disclosures did not have a material
impact on our financial condition or results of operations.
 On September 29, 2010, the FASB ratified the Emerging Issues Task Forces (EITF) final
consensus on EITF Issue No. 09-G, Accounting for Costs Associated with Acquiring or Renewing
Insurance Contracts (Issue 09-G). Issue 09-G clarifies what costs should be deferred by
insurance companies when issuing or renewing insurance contracts. The EITF concluded that only
costs incurred in the acquisition of new and renewal contracts that are 1) incremental direct
costs of a successful contract acquisition, 2) portions of employees salaries and benefits
directly related to time spent performing specified acquisition activities for a contract that
has actually been acquired, 3) other costs directly related to the specified acquisition
activities that would not have occurred otherwise, and 4) advertising costs that meet the
capitalization criteria in other issued accounting guidance would be capitalizable as deferred
acquisition costs. This Issue 09-G will be effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 15, 2011. The Company is currently
reviewing this guidance and our current deferral policies to determine what impact this
consensus may have on our consolidated financial statements and what information gathering
changes may need to be implemented.
  9




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2010
(Unaudited)
 (3)
    
    Segment Information
 The Company has three reportable segments: Life Insurance, Home Service Insurance, and Other
Non-Insurance Enterprises. The accounting policies of the segments are in accordance with U.S.
GAAP and are the same as those used in the preparation of the consolidated financial statements.
The Company evaluates profit and loss performance based on U.S. GAAP income before federal
income taxes for its three reportable segments.
 The Company has no reportable differences between segments and consolidated operations.
 Three Months Ended September 30, 2010Home
    
    
    OtherLife
    
    
    Service
    
    
    Non-InsuranceInsurance
    
    
    Insurance
    
    
    Enterprises
    
    
    Consolidated(In thousands)Revenues:Premiums
    
    $
    27,514
    
    
    
    10,541
    
    
    
    
    
    
    
    38,055Net investment income
    
    
    3,893
    
    
    
    3,244
    
    
    
    135
    
    
    
    7,272Realized gains (losses), net
    
    
    1
    
    
    
    (96
    )
    
    
    (8
    )
    
    
    (103
    )Decrease in fair value of warrants
    
    
    
    
    
    
    
    
    
    
    128
    
    
    
    128Other income
    
    
    78
    
    
    
    10
    
    
    
    15
    
    
    
    103Total revenue
    
    
    31,486
    
    
    
    13,699
    
    
    
    270
    
    
    
    45,455Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    10,498
    
    
    
    5,241
    
    
    
    
    
    
    
    15,739Increase in future policy
benefit reserves
    
    
    10,688
    
    
    
    710
    
    
    
    
    
    
    
    11,398Policyholders dividends
    
    
    1,965
    
    
    
    12
    
    
    
    
    
    
    
    1,977Total insurance benefits paid or provided
    
    
    23,151
    
    
    
    5,963
    
    
    
    
    
    
    
    29,114Commissions
    
    
    5,572
    
    
    
    3,657
    
    
    
    
    
    
    
    9,229Other underwriting, acquisition and insurance
expenses
    
    
    2,596
    
    
    
    3,529
    
    
    
    455
    
    
    
    6,580Capitalization of deferred policy acquisition costs
    
    
    (4,579
    )
    
    
    (1,569
    )
    
    
    
    
    
    
    (6,148
    )Amortization of deferred policy acquisition costs
    
    
    2,613
    
    
    
    362
    
    
    
    
    
    
    
    2,975Amortization of cost of customer relationships
acquired and other intangibles
    
    
    239
    
    
    
    487
    
    
    
    
    
    
    
    726Total benefits and expenses
    
    
    29,592
    
    
    
    12,429
    
    
    
    455
    
    
    
    42,476Income (loss) before income tax expense
    
    $
    1,894
    
    
    
    1,270
    
    
    
    (185
    )
    
    
    2,979
  10




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2010
(Unaudited)
 Nine Months Ended September 30, 2010Home
    
    
    OtherLife
    
    
    Service
    
    
    Non-InsuranceInsurance
    
    
    Insurance
    
    
    Enterprises
    
    
    Consolidated(In thousands)Revenues:Premiums
    
    $
    78,364
    
    
    
    31,557
    
    
    
    
    
    
    
    109,921Net investment income
    
    
    13,239
    
    
    
    10,251
    
    
    
    406
    
    
    
    23,896Realized gains (losses), net
    
    
    116
    
    
    
    585
    
    
    
    (53
    )
    
    
    648Decrease in fair value of warrants
    
    
    
    
    
    
    
    
    
    
    380
    
    
    
    380Other income
    
    
    487
    
    
    
    63
    
    
    
    52
    
    
    
    602Total revenue
    
    
    92,206
    
    
    
    42,456
    
    
    
    785
    
    
    
    135,447Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    30,644
    
    
    
    15,766
    
    
    
    
    
    
    
    46,410Increase in future policy benefit reserves
    
    
    28,123
    
    
    
    2,603
    
    
    
    
    
    
    
    30,726Policyholders dividends
    
    
    5,267
    
    
    
    57
    
    
    
    
    
    
    
    5,324Total insurance benefits paid or provided
    
    
    64,034
    
    
    
    18,426
    
    
    
    
    
    
    
    82,460Commissions
    
    
    15,316
    
    
    
    11,069
    
    
    
    
    
    
    
    26,385Other underwriting, acquisition and insurance
expenses
    
    
    8,213
    
    
    
    10,964
    
    
    
    1,364
    
    
    
    20,541Capitalization of deferred policy acquisition costs
    
    
    (12,741
    )
    
    
    (4,665
    )
    
    
    
    
    
    
    (17,406
    )Amortization of deferred policy acquisition costs
    
    
    10,752
    
    
    
    670
    
    
    
    
    
    
    
    11,422Amortization of cost of customer relationships
acquired and other intangibles
    
    
    858
    
    
    
    1,474
    
    
    
    
    
    
    
    2,332Total benefits and expenses
    
    
    86,432
    
    
    
    37,938
    
    
    
    1,364
    
    
    
    125,734Income (loss) before income tax expense
    
    $
    5,774
    
    
    
    4,518
    
    
    
    (579
    )
    
    
    9,713
  11




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2010
(Unaudited)
 Three Months Ended September 30, 2009Home
    
    
    OtherLife
    
    
    Service
    
    
    Non-InsuranceInsurance
    
    
    Insurance
    
    
    Enterprises
    
    
    Consolidated(In thousands)Revenues:Premiums
    
    $
    25,795
    
    
    
    10,357
    
    
    
    
    
    
    
    36,152Net investment income
    
    
    4,232
    
    
    
    3,126
    
    
    
    55
    
    
    
    7,413Realized gains, net
    
    
    650
    
    
    
    356
    
    
    
    
    
    
    
    1,006Other income
    
    
    108
    
    
    
    20
    
    
    
    145
    
    
    
    273Total revenue
    
    
    30,785
    
    
    
    13,859
    
    
    
    200
    
    
    
    44,844Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    10,035
    
    
    
    4,459
    
    
    
    
    
    
    
    14,494Increase in future policy
benefit reserves
    
    
    8,850
    
    
    
    1,455
    
    
    
    
    
    
    
    10,305Policyholders dividends
    
    
    1,809
    
    
    
    18
    
    
    
    
    
    
    
    1,827Total insurance benefits paid or provided
    
    
    20,694
    
    
    
    5,932
    
    
    
    
    
    
    
    26,626Commissions
    
    
    4,827
    
    
    
    3,608
    
    
    
    
    
    
    
    8,435Other underwriting, acquisition and insurance
expenses
    
    
    2,563
    
    
    
    3,588
    
    
    
    621
    
    
    
    6,772Capitalization of deferred policy acquisition costs
    
    
    (3,975
    )
    
    
    (1,331
    )
    
    
    
    
    
    
    (5,306
    )Amortization of deferred policy acquisition costs
    
    
    3,757
    
    
    
    546
    
    
    
    
    
    
    
    4,303Amortization of cost of customer relationships
acquired and other intangibles
    
    
    397
    
    
    
    549
    
    
    
    
    
    
    
    946Total benefits and expenses
    
    
    28,263
    
    
    
    12,892
    
    
    
    621
    
    
    
    41,776Income
(loss) before income tax expense
    
    $
    2,522
    
    
    
    967
    
    
    
    (421
    )
    
    
    3,068
  12




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2010
(Unaudited)
 Nine Months Ended September 30, 2009Home
    
    
    OtherLife
    
    
    Service
    
    
    Non-InsuranceInsurance
    
    
    Insurance
    
    
    Enterprises
    
    
    Consolidated(In thousands)Revenues:Premiums
    
    $
    75,570
    
    
    
    30,924
    
    
    
    
    
    
    
    106,494Net investment income
    
    
    12,196
    
    
    
    9,396
    
    
    
    141
    
    
    
    21,733Realized gains, net
    
    
    1,068
    
    
    
    1,682
    
    
    
    77
    
    
    
    2,827Decrease in fair value of warrants
    
    
    
    
    
    
    
    
    
    
    3,081
    
    
    
    3,081Other income
    
    
    267
    
    
    
    84
    
    
    
    445
    
    
    
    796Total revenue
    
    
    89,101
    
    
    
    42,086
    
    
    
    3,744
    
    
    
    134,931Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    30,259
    
    
    
    13,995
    
    
    
    
    
    
    
    44,254Increase in future policy
benefit reserves
    
    
    24,258
    
    
    
    3,763
    
    
    
    
    
    
    
    28,021Policyholders dividends
    
    
    4,687
    
    
    
    55
    
    
    
    
    
    
    
    4,742Total insurance benefits paid or provided
    
    
    59,204
    
    
    
    17,813
    
    
    
    
    
    
    
    77,017Commissions
    
    
    14,531
    
    
    
    10,931
    
    
    
    
    
    
    
    25,462Other underwriting, acquisition and insurance
expenses
    
    
    7,873
    
    
    
    11,577
    
    
    
    2,439
    
    
    
    21,889Capitalization of deferred policy acquisition costs
    
    
    (12,227
    )
    
    
    (4,030
    )
    
    
    
    
    
    
    (16,257
    )Amortization of deferred policy acquisition costs
    
    
    10,677
    
    
    
    1,038
    
    
    
    
    
    
    
    11,715Amortization of cost of customer relationships
acquired and other intangibles
    
    
    1,105
    
    
    
    1,525
    
    
    
    
    
    
    
    2,630Total benefits and expenses
    
    
    81,163
    
    
    
    38,854
    
    
    
    2,439
    
    
    
    122,456Income
before income tax expense
    
    $
    7,938
    
    
    
    3,232
    
    
    
    1,305
    
    
    
    12,475
 (4)
    
    Total Comprehensive Income
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands)Net income
    
    $
    1,666
    
    
    
    2,035
    
    
    
    6,456
    
    
    
    9,713Other comprehensive income net of effects
of deferred acquisition costs and taxes:Unrealized gains on available-for-sale
securities
    
    
    11,288
    
    
    
    16,963
    
    
    
    21,554
    
    
    
    22,614Tax expense
    
    
    (2,700
    )
    
    
    (3,678
    )
    
    
    (7,135
    )
    
    
    (4,233
    )Other comprehensive income
    
    
    8,588
    
    
    
    13,285
    
    
    
    14,419
    
    
    
    18,381Total comprehensive income
    
    $
    10,254
    
    
    
    15,320
    
    
    
    20,875
    
    
    
    28,094
  13




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2010
(Unaudited)
 (5)
    
    Earnings per Share
 The following table sets forth the computation of basic and diluted earnings per share for
the period indicated.
 Three Months Ended September 30,2010
    
    
    2009(In thousands, except per share amounts)Basic and diluted earnings per share:Numerator:Net income
    
    $
    1,666
    
    
    
    2,035Less: Preferred stock dividend
    
    
    
    
    
    
    (13
    )Accretion of deferred issuance costs and
discounts on preferred stock
    
    
    
    
    
    
    (144
    )Net income available to common
stockholders
    
    $
    1,666
    
    
    
    1,878Net income allocated to Class A common
stock
    
    $
    1,649
    
    
    
    1,859Net income allocated to Class B common
stock
    
    
    17
    
    
    
    19Net income available to common
stockholders
    
    $
    1,666
    
    
    
    1,878Denominator:Weighted average shares of Class A
outstanding 
basic and diluted
    
    
    48,687
    
    
    
    48,441Weighted average shares of Class B
outstanding 
basic and diluted
    
    
    1,002
    
    
    
    1,002Total weighted average shares
outstanding 
basic and diluted
    
    
    49,689
    
    
    
    49,443Basic and diluted earnings per share of Class A common stock
    
    $
    0.03
    
    
    
    0.04Basic and diluted earnings per share of Class B common stock
    
    $
    0.02
    
    
    
    0.02
  14




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2010
(Unaudited)
 The following table sets forth the computation of basic and diluted earnings per share for the
period indicated.
 Nine Months Ended September 30,2010
    
    
    2009(In thousands, except per share amounts)Basic and diluted earnings per share:Numerator:Net income
    
    $
    6,456
    
    
    
    9,713Less: Preferred stock
dividend
    
    
    
    
    
    
    (216
    )Accretion of deferred
issuance costs and
discounts on preferred
stock
    
    
    
    
    
    
    (2,289
    )Net income available to
common stockholders
    
    $
    6,456
    
    
    
    7,208Net income allocated to
Class A common stock
    
    $
    6,390
    
    
    
    7,132Net income allocated to
Class B common stock
    
    
    66
    
    
    
    76Net income available to
common stockholders
    
    $
    6,456
    
    
    
    7,208Denominator:Weighted average shares
of Class A outstanding 
basic
    
    
    48,687
    
    
    
    47,177Weighted average shares
of Class B outstanding 
basic
    
    
    1,002
    
    
    
    1,002Total weighted average
shares outstanding 
basic
    
    
    49,689
    
    
    
    48,179Basic earnings per share of Class A common stock
    
    $
    0.13
    
    
    
    0.15Basic earnings per share of Class B common stock
    
    $
    0.07
    
    
    
    0.08Diluted earnings per share of Class A common stock
    
    $
    0.13
    
    
    
    0.10Diluted earnings per share of Class B common stock
    
    $
    0.07
    
    
    
    0.05
 For the three and nine months ended September 30, 2010, the warrants associated with the
Convertible Preferred Stock portfolio were anti-dilutive. As such, the diluted weighted
average shares of Class A common stock outstanding for the period was 48,687,000.
 For the nine months ended September 30, 2009, certain warrants relative to the Convertible
Preferred Stock became dilutive. As such, the diluted weighted average shares of Class A
common stock for the period was 47,204,000. Total diluted weighted average shares was
48,206,000.
  15




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2010
(Unaudited)
 (6)
    
    Investments
 Financial stability and the prevention of capital erosion are important investment
considerations for the Company. A primary investment goal is the conservation of assets due
to the long-term nature of a significant portion of our insurance liabilities. The Company
invests primarily in fixed maturity securities, which totaled 81.7% of total investments and
cash and cash equivalents at September 30, 2010.
 September 30, 2010
    
    
    December 31, 2009Carrying
    
    
    % of Total
    
    
    Carrying
    
    
    % of TotalValue
    
    
    Carrying Value
    
    
    Value
    
    
    Carrying Value(In thousands)
    
    

    
    
    
    
    (In thousands)Fixed maturity securities
    
    $
    646,806
    
    
    
    81.7
    %
    
    $
    592,488
    
    
    
    82.3
    %Equity securities
    
    
    33,986
    
    
    
    4.3
    
    
    
    33,477
    
    
    
    4.6Mortgage loans
    
    
    1,501
    
    
    
    0.2
    
    
    
    1,533
    
    
    
    0.2Policy loans
    
    
    34,970
    
    
    
    4.4
    
    
    
    32,096
    
    
    
    4.5Real estate and other long-term
investments
    
    
    9,376
    
    
    
    1.2
    
    
    
    9,216
    
    
    
    1.3Short-term investments
    
    
    
    
    
    
    
    
    
    
    2,510
    
    
    
    0.3Cash and cash equivalents
    
    
    65,366
    
    
    
    8.2
    
    
    
    48,625
    
    
    
    6.8Total cash, cash equivalents and
investments
    
    $
    792,005
    
    
    
    100.0
    %
    
    $
    719,945
    
    
    
    100.0
    %
 Cash balances increased in 2010 compared to December 31, 2009 due to call activity related to
fixed maturity securities. The balances held in cash are expected to be reinvested into
fixed maturity securities in the next few months. Significant call activity may continue if
our investment income returns remain low.
  16




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2010
(Unaudited)
 The following tables represent gross unrealized gains and losses for fixed maturities and
equity securities as of the periods indicated.
 September 30, 2010Cost or
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(In thousands)Fixed maturities available-for-sale:U.S. Treasury securities
    
    $
    10,921
    
    
    
    2,936
    
    
    
    
    
    
    
    13,857U.S. Government-sponsored enterprises
    
    
    253,536
    
    
    
    2,539
    
    
    
    442
    
    
    
    255,633States of the United States and political
subdivisions of the states
    
    
    62,229
    
    
    
    1,865
    
    
    
    1,969
    
    
    
    62,125Foreign governments
    
    
    105
    
    
    
    35
    
    
    
    
    
    
    
    140Corporate
    
    
    159,610
    
    
    
    11,899
    
    
    
    429
    
    
    
    171,080Securities not due at a single maturity date
    
    
    15,248
    
    
    
    1,079
    
    
    
    30
    
    
    
    16,297Total fixed maturities available-for-sale
    
    
    501,649
    
    
    
    20,353
    
    
    
    2,870
    
    
    
    519,132Fixed maturities held-to-maturity:U.S. Government-sponsored enterprises
    
    
    127,674
    
    
    
    1,231
    
    
    
    40
    
    
    
    128,865Total fixed maturities
    
    $
    629,323
    
    
    
    21,584
    
    
    
    2,910
    
    
    
    647,997Total equity securities
    
    $
    25,619
    
    
    
    8,376
    
    
    
    9
    
    
    
    33,986
 December 31, 2009Cost or
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(In thousands)Fixed maturities available-for-sale:U.S. Treasury securities
    
    $
    11,110
    
    
    
    1,324
    
    
    
    
    
    
    
    12,434U.S. Government-sponsored enterprises
    
    
    184,797
    
    
    
    96
    
    
    
    4,610
    
    
    
    180,283States of the United States and political
subdivisions of the states
    
    
    60,070
    
    
    
    321
    
    
    
    3,199
    
    
    
    57,192Foreign governments
    
    
    105
    
    
    
    15
    
    
    
    
    
    
    
    120Corporate
    
    
    114,175
    
    
    
    3,726
    
    
    
    1,803
    
    
    
    116,098Securities not due at a single maturity date
    
    
    18,938
    
    
    
    556
    
    
    
    42
    
    
    
    19,452Total fixed maturities available-for-sale
    
    
    389,195
    
    
    
    6,038
    
    
    
    9,654
    
    
    
    385,579Fixed maturities held-to-maturity:U.S. Government-sponsored enterprises
    
    
    206,909
    
    
    
    18
    
    
    
    7,251
    
    
    
    199,676Total fixed maturities
    
    $
    596,104
    
    
    
    6,056
    
    
    
    16,905
    
    
    
    585,255Total equity securities
    
    $
    25,899
    
    
    
    7,578
    
    
    
    
    
    
    
    33,477
 Almost 90% of the Companys mortgage-backed securities are residential. Mortgage-backed
securities are also referred to as securities not due at a single maturity date throughout
this report. The majority of the Companys equity securities are held within diversified
mutual funds.
  17




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2010
(Unaudited)
 Valuation of Investments in Fixed Maturity and Equity Securities
 The Company monitors all debt and equity securities on an on-going basis relative to changes
in credit ratings, market prices, earnings trends and financial performance, in addition to
specific region or industry reviews. The assessment of whether impairments have occurred is
based on a case-by-case evaluation of underlying reasons for the decline in fair value. The
Company determines other-than-temporary impairment by reviewing all relevant evidence related
to the specific security issuer as well as the Companys intent to sell the security, or if
it is more likely than not that the Company would be required to sell a security before
recovery of its amortized cost.
 When an other-than-temporary impairment has occurred, the amount of the other-than-temporary
impairment recognized in earnings depends on whether the Company intends to sell the security
or more likely than not will be required to sell the security before recovery of its
amortized cost basis. If the Company intends to sell the security or more likely than not
will be required to sell the security before recovery of its amortized cost basis, the
other-than-temporary impairment is recognized in earnings equal to the entire difference
between the investments cost and its fair value at the balance sheet date. If the Company
does not intend to sell the security and it is not more likely than not that the Company will
be required to sell the security before recovery of its amortized cost basis, the
other-than-temporary impairment is separated into the following: a) the amount representing
the credit loss, and b) the amount related to all other factors. The amount of the total
other-than-temporary impairment related to the credit loss is recognized in earnings. The
amount of the total other-than-temporary impairment related to other factors is recognized in
other comprehensive income, net of applicable taxes. The previous amortized cost basis less
the other-than-temporary impairment recognized in earnings becomes the new amortized cost
basis of the investment. The new amortized cost basis is not adjusted for subsequent
recoveries in fair value.
 The Company evaluates whether a credit impairment exists for debt securities by considering
primarily the following factors: (a) changes in the financial condition of the securitys
underlying collateral, (b) whether the issuer is current on contractually obligated interest
and principal payments, (c) changes in the financial condition, credit rating and near-term
prospects of the issuer, (d) the extent to which the fair value has been less than the
amortized cost of the security and (e) the payment structure of the security. The Companys
best estimate of expected future cash flows used to determine the credit loss amount is a
quantitative and qualitative process. Quantitative review includes information received from
third party sources such as financial statements, pricing and rating changes, liquidity and
other statistical information. Qualitative factors include judgments related to business
strategies, economic impacts on the issuers and overall judgment related to estimates and
industry factors. The Companys best estimate of future cash flows involves assumptions
including, but not limited to, various performance indicators, such as historical and
projected default and recovery rates, credit ratings, and current delinquency rates. These
assumptions require the use of significant management judgment and include the probability of
issuer default and estimates regarding timing and amount of expected recoveries, which may
include estimating the underlying collateral value. In addition, projections of expected
future debt security cash flows may change based upon new information regarding the
performance of the issuer.
 The primary factors considered in evaluating whether an impairment exists for an equity
security include, but are not limited to: (a) the length of time and the extent to which the
fair value has been less than the cost of the security, (b) changes in the financial
condition, credit rating and near-term prospects of the issuer, (c) whether the issuer is
current on contractually obligated payments, and (d) the intent and ability of the Company to
retain the investment for a period of time sufficient to allow for recovery.
 The Company recognized $27,000 of other-than-temporary impairments (OTTI) in the three
months ended September 30, 2010. OTTI items were recognized in the first quarter of 2009
relating to credit losses totaling $111,000.
  18




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2010
(Unaudited)
 The tables below present the fair values and gross unrealized losses of fixed maturities and
equity securities that have remained in a continuous unrealized loss position for the periods
indicated.
 September 30, 2010Less than 12 months
    
    
    Greater than 12 months
    
    
    TotalFair
    
    
    Unrealized
    
    
    # of
    
    
    Fair
    
    
    Unrealized
    
    
    # of
    
    
    Fair
    
    
    Unrealized
    
    
    # ofValue
    
    
    Losses
    
    
    Securities
    
    
    Value
    
    
    Losses
    
    
    Securities
    
    
    Value
    
    
    Losses
    
    
    Securities(In thousands, except for # of securities)Available-for-sale securities:U.S. Government-sponsored
enterprises
    
    $
    61,870
    
    
    
    442
    
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,870
    
    
    
    442
    
    
    
    42Securities issued by states and
political subdivisions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,782
    
    
    
    1,969
    
    
    
    9
    
    
    
    10,782
    
    
    
    1,969
    
    
    
    9Corporate
    
    
    8,655
    
    
    
    290
    
    
    
    7
    
    
    
    4,599
    
    
    
    139
    
    
    
    9
    
    
    
    13,254
    
    
    
    429
    
    
    
    16Securities not due at a single
maturity date
    
    
    1,403
    
    
    
    11
    
    
    
    3
    
    
    
    206
    
    
    
    19
    
    
    
    5
    
    
    
    1,609
    
    
    
    30
    
    
    
    8Total available-for-sale
    
    
    71,928
    
    
    
    743
    
    
    
    52
    
    
    
    15,587
    
    
    
    2,127
    
    
    
    23
    
    
    
    87,515
    
    
    
    2,870
    
    
    
    75Held-to-maturity securities:U.S. Government-sponsored
enterprises
    
    
    5,357
    
    
    
    40
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,357
    
    
    
    40
    
    
    
    3Total fixed maturities
    
    $
    77,285
    
    
    
    783
    
    
    
    55
    
    
    
    15,587
    
    
    
    2,127
    
    
    
    23
    
    
    
    92,872
    
    
    
    2,910
    
    
    
    78Total equity securities
    
    $
    30
    
    
    
    9
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    9
    
    
    
    2
 December 31, 2009Less than 12 months
    
    
    Greater than 12 months
    
    
    TotalFair
    
    
    Unrealized
    
    
    # of
    
    
    Fair
    
    
    Unrealized
    
    
    # of
    
    
    Fair
    
    
    Unrealized
    
    
    # ofValue
    
    
    Losses
    
    
    Securities
    
    
    Value
    
    
    Losses
    
    
    Securities
    
    
    Value
    
    
    Losses
    
    
    Securities(In thousands, except for # of securities)Available-for-sale securities:U.S. Government-sponsored
enterprises
    
    $
    169,514
    
    
    
    4,610
    
    
    
    213
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    169,514
    
    
    
    4,610
    
    
    
    213Securities issued by states and
political subdivisions
    
    
    19,055
    
    
    
    343
    
    
    
    19
    
    
    
    14,995
    
    
    
    2,856
    
    
    
    15
    
    
    
    34,050
    
    
    
    3,199
    
    
    
    34Corporate
    
    
    36,342
    
    
    
    541
    
    
    
    21
    
    
    
    12,857
    
    
    
    1,261
    
    
    
    12
    
    
    
    49,199
    
    
    
    1,802
    
    
    
    33Securities not due at a single
maturity date
    
    
    179
    
    
    
    1
    
    
    
    1
    
    
    
    637
    
    
    
    42
    
    
    
    8
    
    
    
    816
    
    
    
    43
    
    
    
    9Total available-for-sale
    
    
    225,090
    
    
    
    5,495
    
    
    
    254
    
    
    
    28,489
    
    
    
    4,159
    
    
    
    35
    
    
    
    253,579
    
    
    
    9,654
    
    
    
    289Held-to-maturity securities:U.S. Government-sponsored
enterprises
    
    
    185,659
    
    
    
    7,251
    
    
    
    81
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185,659
    
    
    
    7,251
    
    
    
    81Total fixed maturities
    
    $
    410,749
    
    
    
    12,746
    
    
    
    335
    
    
    
    28,489
    
    
    
    4,159
    
    
    
    35
    
    
    
    439,238
    
    
    
    16,905
    
    
    
    370
 As of September 30, 2010, the Company had 23 available-for-sale securities in an
unrealized loss position for greater than 12 months, which were municipal, corporate and
mortgage-backed securities. The Company has reviewed these securities and determined that no
other-than-temporary impairment exists based on our evaluations of the credit worthiness of
the issuers and due to the fact that we do not intend to sell the investments, nor is it
likely that we would be required to sell these investments before recovery of their amortized
cost bases, which may be maturity.
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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2010
(Unaudited)
 The amortized cost and fair value of fixed maturity securities at September 30, 2010 by
contractual maturity are shown below. Actual maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties. The Company has experienced significant issuer calls over the
past two years as a result of the declining interest rate environment.
 September 30, 2010Amortized
    
    
    FairCost
    
    
    Value(In thousands)Available-for-sale securities:Due in one year or less
    
    $
    13,463
    
    
    
    13,575Due after one year through five years
    
    
    32,387
    
    
    
    34,264Due after five years through ten years
    
    
    185,486
    
    
    
    192,650Due after ten years
    
    
    255,065
    
    
    
    262,346Total available-for-sale securities
    
    
    486,401
    
    
    
    502,835Held-to-maturity securities:Due after ten years
    
    
    127,674
    
    
    
    128,865Securities not due at a single maturity date
    
    
    15,248
    
    
    
    16,297Total fixed maturities
    
    $
    629,323
    
    
    
    647,997
 The securities not due at a single maturity date are primarily mortgage-backed obligations of
U.S. Government-sponsored enterprises and corporate securities.
 The Company uses the specific identification method to determine the cost basis used in the
calculation of realized gains and losses related to security sales. Proceeds and gross
realized gains from sales of securities for the three and nine months ended September 30,
2010 and 2009 are summarized as follows:
 Fixed Maturities Available-for-Sale
    
    
    Equity SecuritiesThree Months
    
    
    Nine Months
    
    
    Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,
    
    
    Ended September 30,
    
    
    Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands)
    
    
    (In thousands)Proceeds
    
    $
    208
    
    
    
    33,478
    
    
    
    7,074
    
    
    
    72,148
    
    
    $
    
    
    
    
    9
    
    
    
    591
    
    
    
    1,184Gross realized gains
    
    $
    69
    
    
    
    1,167
    
    
    
    811
    
    
    
    2,720
    
    
    $
    
    
    
    
    
    
    
    
    166
    
    
    
    219
 No securities were sold for realized losses for the periods reported and there were no
securities sold from the held-to-maturity portfolio during the three and nine months ended
September 30, 2010.
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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2010
(Unaudited)
 (7)
    
    Fair Value Measurements
 Fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. We
hold available-for-sale fixed maturity securities and equity securities, which are carried at
fair value.
 Fair value measurements are generally based upon observable and unobservable inputs.
Observable inputs reflect market data obtained from independent sources, while unobservable
inputs reflect our view of market assumptions in the absence of observable market
information. We utilize valuation techniques that maximize the use of observable inputs and
minimize the use of unobservable inputs. All assets and liabilities carried at fair value
are required to be classified and disclosed in one of the following three categories:
 
    
    Level 1  Quoted prices for identical instruments in active markets.
 
    
    Level 2  Quoted prices for similar instruments in active markets; quoted prices
for identical or similar instruments in markets that are not active; and
model-derived valuations whose inputs or whose significant value drivers are
observable.
 
    
    Level 3  Instruments whose significant value drivers are unobservable.
 Level 1 primarily consists of financial instruments whose value is based on quoted
market prices such as U.S. Treasury securities and actively traded stock and mutual fund
investments.
 Level 2 includes those financial instruments that are valued by independent pricing services
or broker quotes. These models are primarily industry-standard models that consider various
inputs, such as interest rates, credit spreads and foreign exchange rates for the underlying
financial instruments. All significant inputs are observable, or derived from observable
information in the marketplace or are supported by observable levels at which transactions
are executed in the marketplace. Financial instruments in this category primarily include
corporate fixed maturity securities, U.S. Government-sponsored enterprise securities,
municipal securities and certain mortgage and asset-backed securities.
 Level 3 is comprised of financial instruments whose fair value is estimated based on
non-binding broker prices utilizing significant inputs not based on or corroborated by
readily available market information. This category consists of two private placement
mortgage-backed securities where we cannot corroborate the significant valuation inputs with
market observable data.
 The following table sets
forth our assets and liabilities that are measured at fair value on a recurring
basis as of the date indicated.
 Fair Value MeasurementsSeptember 30, 2010TotalLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    Fair Value(In thousands)Financial assets:Fixed maturities available-for-sale:U.S. Treasury and U.S. Government-
sponsored enterprises
    
    $
    13,749
    
    
    
    255,741
    
    
    
    
    
    
    
    269,490Corporate
    
    
    
    
    
    
    171,080
    
    
    
    
    
    
    
    171,080Municipal bonds
    
    
    
    
    
    
    62,125
    
    
    
    
    
    
    
    62,125Mortgage-backed
    
    
    
    
    
    
    15,759
    
    
    
    538
    
    
    
    16,297Foreign governments
    
    
    
    
    
    
    140
    
    
    
    
    
    
    
    140Total fixed maturities, available-for-sale
    
    
    13,749
    
    
    
    504,845
    
    
    
    538
    
    
    
    519,132Total equity securities, available-for-sale
    
    
    33,986
    
    
    
    
    
    
    
    
    
    
    
    33,986Total financial assets
    
    $
    47,735
    
    
    
    504,845
    
    
    
    538
    
    
    
    553,118Financial liabilities:Warrants outstanding
    
    $
    
    
    
    
    1,439
    
    
    
    
    
    
    
    1,439
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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2010
(Unaudited)
 The following table sets
forth our assets and liabilities that are measured at fair value on a recurring
basis as of the date indicated.
 Fair Value MeasurementsDecember 31, 2009TotalLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    Fair Value(In thousands)Financial assets:Fixed maturities available-for-sale:U.S. Treasury and U.S. Government-
sponsored enterprises
    
    $
    12,434
    
    
    
    180,283
    
    
    
    
    
    
    
    192,717Corporate
    
    
    
    
    
    
    116,098
    
    
    
    
    
    
    
    116,098Municipal bonds
    
    
    
    
    
    
    57,192
    
    
    
    
    
    
    
    57,192Mortgage-backed
    
    
    
    
    
    
    18,875
    
    
    
    577
    
    
    
    19,452Foreign governments
    
    
    
    
    
    
    120
    
    
    
    
    
    
    
    120Short term investments
    
    
    
    
    
    
    2,510
    
    
    
    
    
    
    
    2,510Total fixed maturities, available-for-sale
    
    
    12,434
    
    
    
    375,078
    
    
    
    577
    
    
    
    388,089Total equity securities, available-for-sale
    
    
    33,477
    
    
    
    
    
    
    
    
    
    
    
    33,477Total financial assets
    
    $
    45,911
    
    
    
    375,078
    
    
    
    577
    
    
    
    421,566Financial liabilities:Warrants outstanding
    
    $
    
    
    
    
    1,819
    
    
    
    
    
    
    
    1,819
 Financial Instruments Valuation
 Fixed maturity securities, available-for-sale. At September 30, 2010, the fixed maturities,
valued using a third-party pricing source, totaled $504.8 million for Level 2 assets and
comprised 97.2% of total reported fair value. Fair values for Level 3 assets are based upon
unadjusted broker quotes that are non-binding. The valuations are reviewed and validated
quarterly through random testing by comparisons to separate pricing models, other third party
pricing services, and back tested to recent trades. For the nine months ended September 30,
2010, there were no material changes to the valuation methods or assumptions used to
determine fair values, and no broker or third party prices were changed from the values
received.
 Equity securities, available-for-sale. Fair values of these securities are based upon quoted
market price and are classified as Level 1 assets.
 Short-term investments. The fair values for short-term investments are determined using a
third-party pricing source. These assets are classified as Level 2.
 Warrants outstanding.Fair value of our warrants are based upon industry standard models
that consider various observable inputs and are classified as Level 2.
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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2010
(Unaudited)
 The following table presents additional information about fixed maturity securities measured
at fair value on a recurring basis and for which we have utilized significant unobservable
(Level 3) inputs to determine fair value:
 September 30, 2010(In thousands)Beginning balance at December 31, 2009
    
    $
    577Total realized and unrealized losses:Included in net income
    
    
    Included in other comprehensive income
    
    
    3Principal paydowns
    
    
    (42
    )Transfer in and (out) of Level 3
    
    
    Ending balance at September 30, 2010
    
    $
    538
 We review the fair value hierarchy classifications each reporting period. Changes in the
observability of the valuation attributes may result in a reclassification of certain
financial assets. Such reclassifications are reported as transfers in and out of Level 3 at
the beginning fair value for the reporting period in which the changes occur.
 Financial Instruments not Carried at Fair Value
 Estimates of fair values are made at a specific point in time, based on relevant market
prices and information about the financial instruments. The estimated fair values of
financial instruments presented below are not necessarily indicative of the amounts the
Company might realize in actual market transactions.
 The carrying amount and fair value for the financial assets and liabilities on the
consolidated balance sheets for the periods indicated are as follows:
 September 30, 2010
    
    
    December 31, 2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    Value(In thousands)Financial assets:Fixed maturities, held-to-maturity
    
    $
    127,674
    
    
    
    128,865
    
    
    
    206,909
    
    
    
    199,676Mortgage loans
    
    
    1,501
    
    
    
    1,447
    
    
    
    1,533
    
    
    
    1,484Policy loans
    
    
    34,970
    
    
    
    34,970
    
    
    
    32,096
    
    
    
    32,096Short-term investments
    
    
    
    
    
    
    
    
    
    
    2,510
    
    
    
    2,512Cash and cash equivalents
    
    
    65,366
    
    
    
    65,366
    
    
    
    48,625
    
    
    
    48,625Financial liabilities:Annuities
    
    
    40,692
    
    
    
    40,742
    
    
    
    37,882
    
    
    
    33,980
 Fair values for fixed income securities are based on an independent pricing source.
 Mortgage loans are secured principally by residential properties and commercial
properties. Weighted average interest rates for these loans were approximately 6.7% per year
as of September 30, 2010 and December 31, 2009, with maturities ranging from one to thirty
years. Management estimated the fair value using an annual interest rate of 6.25% at
September 30, 2010 and December 31, 2009.
 Policy loans have a weighted average annual interest rate of 7.7% and 7.6% as of September 30,
2010 and December 31, 2009, respectively, and have no specified maturity dates. The
aggregate fair value of policy loans approximates the carrying value reflected on the
consolidated balance sheet. These loans typically carry an interest rate that is tied to
the crediting rate applied to the related policy and contract reserves. Policy loans are
an integral part of the life insurance policies that we have in force and cannot be
valued separately and are not marketable; therefore, the fair value of policy loans
approximates the carrying value.
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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2010
(Unaudited)
 For cash and cash equivalents, accrued investment income, reinsurance recoverable, other
assets, federal income tax payable and receivable, dividend accumulations, commissions
payable, amounts held on deposit, and other liabilities, the carrying amounts approximate
fair value because of the short maturity of such financial instruments.
 The fair value of the Companys liabilities under annuity contract policies was estimated at
September 30, 2010 using December 31, 2009 discounted cash flows using a risk free rate plus
a component for non-performance risk and interest rate risk. The fair value of liabilities
under all insurance contracts are taken into consideration in the overall management of
interest rate risk, which seeks to minimize exposure to changing interest rates through the
matching of investment maturities with amounts due under insurance contracts.
 (8)
    
    Legal Proceedings
 We are a defendant in a lawsuit filed on August 6, 1999 in the Texas District Court, Austin,
Texas, now styled Citizens Insurance Company of America, Citizens, Inc., Harold E. Riley and
Mark A. Oliver, Petitioners v. Fernando Hakim Daccach, Respondent, in which a class was
originally certified by the trial court and reversed by the Texas Supreme Court in 2007 with
an order to the trial court to conduct further proceedings consistent with its ruling. The
underlying lawsuit alleged that certain life insurance policies CICA made available to
non-U.S. residents, when combined with a policy feature that allowed certain cash benefits to
be assigned to two non-U.S. trusts for the purpose of accumulating ownership of our Class A
common stock, along with allowing the policyholders to make additional contributions to the
trusts, were actually offers and sales of securities that occurred in Texas by unregistered
dealers in violation of the Texas securities laws. The remedy sought was rescission and
return of the insurance premium payments. On December 9, 2009, the trial court denied the
recertification of the class after conducting additional proceedings in accordance with the
Texas Supreme Courts ruling. The remaining plaintiffs must now proceed individually, and
not as a class, if they intend to pursue their cases against us. We intend to maintain a
vigorous defense in any remaining proceedings.
 In addition to the legal proceeding described above, we may from time to time be subject to a
variety of legal and regulatory actions relating to our future, current and past business
operations, including, but not limited to:
 
    
    disputes over insurance coverage or claims adjudication;
 
    
    regulatory compliance with insurance and securities laws in the United States and
in foreign countries;
 
    
    disputes with our marketing firms, consultants and employee agents over
compensation and termination of contracts and related claims;
 
    
    disputes regarding our tax liabilities;
 
    
    disputes relative to reinsurance and coinsurance agreements; and
 
    
    disputes relating to businesses acquired and operated by us.
 In the absence of countervailing considerations, we would expect to defend any such claims
vigorously. However, in doing so, we could incur significant defense costs, including not
only attorneys fees and other direct litigation costs, but also the expenditure of
substantial amounts of management time that otherwise would be devoted to our business. If
we suffer an adverse judgment as a result of any claim, it could have a material adverse
effect on our business, results of operations and financial condition.
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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
September 30, 2010
(Unaudited)
 (9)
    
    Convertible Preferred Stock
 In July 2004, the Company completed a private placement of Series A-1 Convertible Preferred
Stock (Series A-1 Preferred) to four unaffiliated institutional investors. We also issued
to the investors warrants to purchase shares of our Class A common stock at various exercise
prices that range from $6.72 to $7.93, with most of them striking at $6.95. The conversion,
exercise and redemption prices, along with the number of shares and warrants, were adjusted
for stock dividends paid on December 31, 2004 and 2005.
 On July 13, 2009, the Company converted all of its outstanding Series A-1 and Series A-2
Convertible Preferred Stock into Class A common shares in accordance with the mandatory
redemption provision of the preferred shareholder agreement dated July 12, 2004. The total
amount of Class A common shares issued as part of the conversion was 1,706,682, inclusive of
pro rata dividends due through the conversion date. Warrants to purchase shares of Class A
common stock are still outstanding until July 2011 and 2012.
 (10)
    
    Income Taxes
 The effective tax rate was 44% and 34% for the third quarter of 2010 and 2009, respectively,
and 34% and 22% for the nine months ended September 30, 2010 and 2009, respectively. The
2010 and 2009 rates were lower than the statutory rate of 35%, except for the third quarter
of 2010, primarily due to gains from the change in fair value of outstanding warrants for
purchase of Class A common stock of $128,000 and a minimal amount that was not taxable for
the three months ended September 30, 2010 and 2009, respectively. The revenue increased from
the decrease in fair value of outstanding warrants were $380,000 and $3.1 million for the
nine months ended September 30, 2010 and 2009, respectively. Also causing a reduction in the
effective tax rate are tax benefits from the release of tax valuation allowances. The
increase above the statutory tax rate in the current quarter of 2010 relates to Citizens
redemption of its stock that was held by subsidiaries, generating taxable transactions
resulting in $0.9 million and $1.4 million of tax expense during the three and nine months
ended September 30, 2010. This tax increased the effective tax rate as the gain was
eliminated in consolidation.
 The table below details the changes in the Companys tax valuation allowance.
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands)Tax benefit (expense) in tax provision
    
    $
    554
    
    
    
    (213
    )
    
    
    1,225
    
    
    
    236Tax benefit in other comprehensive
income
    
    
    1,250
    
    
    
    2,258
    
    
    
    408
    
    
    
    3,681Adjustment to goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (254
    )Decrease in valuation allowance
    
    $
    1,804
    
    
    
    2,045
    
    
    
    1,633
    
    
    
    3,663
 (11)
    
    Related Party Transactions
 Citizens Inc. purchased Class A common shares during 2010 that were held by subsidiaries at
market value as of the transaction dates, which approximated $4.3 million. These
transactions were eliminated for financial reporting purposes in accordance with
consolidation accounting, but generated a tax expense in the three months ended September 30,
2010 totaling approximately $1.4 million.
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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2010
 
 Item 2 .
MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 FORWARD-LOOKING STATEMENTS
 Certain statements contained in
 this Quarterly Report on Form 10-Q are not statements of historical
fact and constitute forward-looking statements within the meaning of the Private Securities
Litigation Reform Act (the  Act  ), including,
 without limitation, statements specifically
identified as forward-looking statements within this document. Many of these statements contain
risk factors as well. In addition, certain statements in future filings by the Company with the
Securities and Exchange Commission, in press releases, and in oral and written statements made by
us or with the approval of the Company, which are not statements of historical fact constitute
forward-looking statements within the meaning of the Act. Examples of forward-looking statements,
include, but are not limited to: (i) projections of revenues, income or loss, earnings or loss per
share, the payment or non-payment of dividends, capital structure, and other financial items, (ii)
statements of our plans and objectives by our management or Board of Directors including those
relating to products or services, (iii) statements of future economic performance and (iv)
statements of assumptions underlying such statements. Words such as  believes,   anticipates,  assumes, estimates, plans,
projects, could,  expects,   intends, 
  targeted,   may, 
 will  and similar expressions are intended to identify forward-looking statements but are not the
exclusive means of identifying such statements.
 Forward-looking statements are subject to known and unknown risks, uncertainties and other factors
that may cause actual results to differ materially from those contemplated by the forward-looking
statements. Factors that could cause the Companys future results to differ materially from
expected results include, but are not limited to:
 
    
    Changes in foreign and U.S. general economic, market, and political conditions, including the
performance of financial markets and interest rates, particularly in light of the severe
economic conditions and the severe stress experienced by the global financial markets in
recent years;
 
    
    Changes in consumer behavior, which may affect the Companys ability to sell its products and
retain business;
 
    
    The timely development of and acceptance of new products of the Company and perceived overall
value of these products and services by existing potential customers;
 
    
    Fluctuations in experience regarding current mortality, morbidity, persistency and interest
rates relative to expected amounts used in pricing the Companys products;
 
    
    The performance of our investment portfolio, which may be adversely affected by changes in
interest rates, adverse developments and ratings of issuers whose debt securities we may hold,
and other adverse macroeconomic events;
 
    
    Results of litigation we may be involved in;
 
    
    Changes in assumptions related to deferred acquisition costs and the value of any businesses
we may acquire;
 
    
    Regulatory, accounting or tax changes that may affect the cost of, or the demand for, the

Companys products or services;
 
    
    Our concentration of business from persons residing in Latin America and the Pacific Rim;
 
    
    Our success at managing risks involved in the foregoing;
 
    
    Changes in tax laws;
 
    
    Effects of acquisitions and restructuring, including possible difficulties in integrating
and realizing the projected results of acquisitions; and
 
    
    Changes in statutory or U.S. GAAP accounting principles, policies or practices.
 Such forward-looking statements speak only as of the date on which such statements are made, and
the Company undertakes no obligation to update any forward-looking statement to reflect events or
circumstances after the date on which such statement is made to reflect the occurrence of
unanticipated events.
 We make available, free of charge, through our Internet website (http://www.citizensinc.com), our
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Section 16
reports filed by officers and directors, news releases, and, if applicable, amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as soon as reasonably practicable after we electronically file such reports with, or furnish
such reports to, the Securities and Exchange Commission. We are not including any of the
information contained on our website as part of, or incorporating it by reference into, this
Quarterly Report on Form 10-Q.
  26




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2010
 Overview
  
    
    U.S. Dollar-denominated ordinary whole life insurance and endowment policies
predominantly to high net worth, high income foreign residents, located principally in
Latin America and the Pacific Rim, through independent marketing consultants;
 
    
    ordinary whole life insurance policies to middle income households in the midwest and
the southern United States through independent marketing consultants; and
 
    
    final expense and limited liability property policies to middle and lower income
households in Louisiana, Mississippi and Arkansas through employee and independent agents
in our home service distribution channel.
 Life Insurance
  Home Service Insurance
   Acquisition
   27




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2010
 Consolidated Results of Operations
 Note: All discussion below compares or states 2010 results for the three and nine months ended
September 30, 2010 compared to 2009 results.
 Revenues
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands)Revenues:Premiums:Life insurance
    
    $
    36,433
    
    
    
    34,589
    
    
    
    105,114
    
    
    
    101,858Accident and health insurance
    
    
    392
    
    
    
    371
    
    
    
    1,215
    
    
    
    1,135Property insurance
    
    
    1,230
    
    
    
    1,192
    
    
    
    3,592
    
    
    
    3,501Net investment income
    
    
    7,272
    
    
    
    7,413
    
    
    
    23,896
    
    
    
    21,733Realized gains (losses), net
    
    
    (103
    )
    
    
    1,006
    
    
    
    648
    
    
    
    2,827Decrease in fair value of warrants
    
    
    128
    
    
    
    
    
    
    
    380
    
    
    
    3,081Other income
    
    
    103
    
    
    
    273
    
    
    
    602
    
    
    
    796Total revenues
    
    
    45,455
    
    
    
    44,844
    
    
    
    135,447
    
    
    
    134,931Exclude decrease in fair value of warrants
    
    
    (128
    )
    
    
    
    
    
    
    (380
    )
    
    
    (3,081
    )Total revenues, excluding fair value adjustments
    
    $
    45,327
    
    
    
    44,844
    
    
    
    135,067
    
    
    
    131,850
 Premium Income
 Net Investment Income
  Nine Months Ended
    
    
    Year Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    December 31,
    
    
    September 30,2010
    
    
    2009
    
    
    2009(In thousands, except for %)Net investment income
    
    $
    23,896
    
    
    
    29,602
    
    
    
    21,733Average invested assets, at amortized cost
    
    $
    684,074
    
    
    
    622,699
    
    
    
    601,802Annualized yield on average invested assets
    
    
    4.66
    %
    
    
    4.75
    %
    
    
    4.82
    %
   28




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2010
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands)Gross investment income:Fixed maturity securities
    
    $
    6,325
    
    
    
    6,461
    
    
    
    20,974
    
    
    
    18,591Equity securities
    
    
    162
    
    
    
    254
    
    
    
    494
    
    
    
    803Mortgage loans
    
    
    17
    
    
    
    5
    
    
    
    53
    
    
    
    18Policy loans
    
    
    683
    
    
    
    628
    
    
    
    1,996
    
    
    
    1,813Real estate investments
    
    
    252
    
    
    
    357
    
    
    
    832
    
    
    
    1,071Other investment income
    
    
    173
    
    
    
    120
    
    
    
    550
    
    
    
    641Total investment income
    
    
    7,612
    
    
    
    7,825
    
    
    
    24,899
    
    
    
    22,937Investment expenses
    
    
    (340
    )
    
    
    (412
    )
    
    
    (1,003
    )
    
    
    (1,204
    )Net investment income
    
    $
    7,272
    
    
    
    7,413
    
    
    
    23,896
    
    
    
    21,733
  Realized Gains (Losses), Net
 Change in Fair Value of Warrants
  29




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2010
 Benefits and Expenses
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands)Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    $
    15,739
    
    
    
    14,494
    
    
    
    46,410
    
    
    
    44,254Increase in future policy benefit reserves
    
    
    11,398
    
    
    
    10,305
    
    
    
    30,726
    
    
    
    28,021Policyholders dividends
    
    
    1,977
    
    
    
    1,827
    
    
    
    5,324
    
    
    
    4,742Total insurance benefits paid or provided
    
    
    29,114
    
    
    
    26,626
    
    
    
    82,460
    
    
    
    77,017Commissions
    
    
    9,229
    
    
    
    8,435
    
    
    
    26,385
    
    
    
    25,462Other underwriting, acquisition and
insurance expense
    
    
    6,580
    
    
    
    6,772
    
    
    
    20,541
    
    
    
    21,889Capitalization of deferred policy acquisition costs
    
    
    (6,148
    )
    
    
    (5,306
    )
    
    
    (17,406
    )
    
    
    (16,257
    )Amortization of deferred policy acquisition costs
    
    
    2,975
    
    
    
    4,303
    
    
    
    11,422
    
    
    
    11,715Amortization of cost of customer relationships
acquired and other intangibles
    
    
    726
    
    
    
    946
    
    
    
    2,332
    
    
    
    2,630Total benefits and expenses
    
    $
    42,476
    
    
    
    41,776
    
    
    
    125,734
    
    
    
    122,456
 Claims and Surrenders
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands)Death claims
    
    $
    5,977
    
    
    
    5,454
    
    
    
    17,912
    
    
    
    17,236Surrender benefits
    
    
    5,126
    
    
    
    4,530
    
    
    
    14,863
    
    
    
    14,158Endowment benefits
    
    
    3,616
    
    
    
    3,455
    
    
    
    10,446
    
    
    
    10,049Property claims
    
    
    469
    
    
    
    514
    
    
    
    1,340
    
    
    
    1,264Accident and health benefits
    
    
    98
    
    
    
    113
    
    
    
    485
    
    
    
    323Other policy benefits
    
    
    453
    
    
    
    428
    
    
    
    1,364
    
    
    
    1,224Total claims and surrenders
    
    $
    15,739
    
    
    
    14,494
    
    
    
    46,410
    
    
    
    44,254
 
    
    Death claims remained consistent for the three and nine months ended September 30,
2010 compared to the same periods in 2009. These amounts will vary from period to period
but were within Company expectation for all periods presented in this report.
 
    
    Surrender benefits represent payments to contract holders upon termination of a
contract. The Company monitors surrenders on an ongoing basis. Surrenders as a percent of
ordinary whole life insurance in force were unchanged at 0.4% in the first nine months of
2010 and 2009.
 
    
    Endowment benefit expense has increased as this product has become more popular with
policyholders, and will likely continue to increase.
  30




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2010
 Increase in Future Policy Benefit Reserves
 Policyholder Dividends
 Commissions
 Other Underwriting, Acquisition and Insurance Expenses
 Amortization of Deferred Policy Acquisition Costs
 Federal Income Tax
 Segment Operations
  Home
    
    
    OtherLife
    
    
    Service
    
    
    Non-InsuranceInsurance
    
    
    Insurance
    
    
    Enterprises
    
    
    Total(In thousands)Income (loss) before income tax expense:Three months ended:September 30, 2010
    
    $
    1,894
    
    
    
    1,270
    
    
    
    (185
    )
    
    
    2,979September 30, 2009
    
    
    2,522
    
    
    
    967
    
    
    
    (421
    )
    
    
    3,068Nine months ended:September 30, 2010
    
    
    5,774
    
    
    
    4,518
    
    
    
    (579
    )
    
    
    9,713September 30, 2009
    
    
    7,938
    
    
    
    3,232
    
    
    
    1,305
    
    
    
    12,475
  31




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2010
 Life Insurance
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands)Revenue:Premiums
    
    $
    27,514
    
    
    
    25,795
    
    
    
    78,364
    
    
    
    75,570Net investment income
    
    
    3,893
    
    
    
    4,232
    
    
    
    13,239
    
    
    
    12,196Realized gains, net
    
    
    1
    
    
    
    650
    
    
    
    116
    
    
    
    1,068Other income
    
    
    78
    
    
    
    108
    
    
    
    487
    
    
    
    267Total revenue
    
    
    31,486
    
    
    
    30,785
    
    
    
    92,206
    
    
    
    89,101Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    10,498
    
    
    
    10,035
    
    
    
    30,644
    
    
    
    30,259Increase in future policy benefit reserves
    
    
    10,688
    
    
    
    8,850
    
    
    
    28,123
    
    
    
    24,258Policyholders dividends
    
    
    1,965
    
    
    
    1,809
    
    
    
    5,267
    
    
    
    4,687Total insurance benefits paid or provided
    
    
    23,151
    
    
    
    20,694
    
    
    
    64,034
    
    
    
    59,204Commissions
    
    
    5,572
    
    
    
    4,827
    
    
    
    15,316
    
    
    
    14,531Other underwriting, acquisition and insurance
expenses
    
    
    2,596
    
    
    
    2,563
    
    
    
    8,213
    
    
    
    7,873Capitalization of deferred policy acquisition costs
    
    
    (4,579
    )
    
    
    (3,975
    )
    
    
    (12,741
    )
    
    
    (12,227
    )Amortization of deferred policy acquisition costs
    
    
    2,613
    
    
    
    3,757
    
    
    
    10,752
    
    
    
    10,677Amortization of cost of customer relationships
acquired and other intangibles
    
    
    239
    
    
    
    397
    
    
    
    858
    
    
    
    1,105Total benefits and expenses
    
    
    29,592
    
    
    
    28,263
    
    
    
    86,432
    
    
    
    81,163Income before income tax expense
    
    $
    1,894
    
    
    
    2,522
    
    
    
    5,774
    
    
    
    7,938
 Premiums
  Three Months Ended
 September 30,
    
    
    Nine Months Ended 
September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands, except for %)Premiums:First year
    
    $
    4,172
    
    
    
    15.2
    %
    
    
    3,667
    
    
    
    14.2
    %
    
    
    11,396
    
    
    
    14.5
    %
    
    
    10,821
    
    
    
    14.3
    %Renewal
    
    
    23,342
    
    
    
    84.8
    %
    
    
    22,128
    
    
    
    85.8
    %
    
    
    66,968
    
    
    
    85.5
    %
    
    
    64,749
    
    
    
    85.7
    %Total premiums
    
    $
    27,514
    
    
    
    100.0
    %
    
    
    25,795
    
    
    
    100.0
    %
    
    
    78,364
    
    
    
    100.0
    %
    
    
    75,570
    
    
    
    100.0
    %
 Net Investment Income
  32




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2010
 Claims and Surrenders
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands)Death claims
    
    $
    1,987
    
    
    
    2,115
    
    
    
    5,771
    
    
    
    6,269Surrender benefits
    
    
    4,477
    
    
    
    4,062
    
    
    
    13,083
    
    
    
    12,811Endowment benefits
    
    
    3,611
    
    
    
    3,446
    
    
    
    10,427
    
    
    
    10,030Accident and health benefits
    
    
    65
    
    
    
    77
    
    
    
    348
    
    
    
    193Other policy benefits
    
    
    358
    
    
    
    335
    
    
    
    1,015
    
    
    
    956Total claims and surrenders
    
    $
    10,498
    
    
    
    10,035
    
    
    
    30,644
    
    
    
    30,259
 
    
    Death claims were favorable in the three and nine months for September 30, 2010 compared
to the same periods in 2009, with a decrease of approximately 6.0% and 8.0%, respectively.
 
    
    Surrender benefits increased for the three and nine months ended September 30, 2010
compared to the same periods in 2009. The majority of policy surrender benefits paid is
attributable to our international business and related to policies that have been in force
over fifteen years, and no longer have surrender charges associated with them.
 
    
    Endowment benefit expense has increased as this product has become more popular with
policyholders, and will likely continue to increase.
 Increase in Future Policy Benefit Reserves
  Commissions
 Amortization of Deferred Policy Acquisition Costs (DAC)
  33




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2010
 Home Service Insurance
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands)Revenue:Premiums
    
    $
    10,541
    
    
    
    10,357
    
    
    
    31,557
    
    
    
    30,924Net investment income
    
    
    3,244
    
    
    
    3,126
    
    
    
    10,251
    
    
    
    9,396Realized gains (losses), net
    
    
    (96
    )
    
    
    356
    
    
    
    585
    
    
    
    1,682Other income
    
    
    10
    
    
    
    20
    
    
    
    63
    
    
    
    84Total revenue
    
    
    13,699
    
    
    
    13,859
    
    
    
    42,456
    
    
    
    42,086Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    5,241
    
    
    
    4,459
    
    
    
    15,766
    
    
    
    13,995Increase in future policy benefit reserves
    
    
    710
    
    
    
    1,455
    
    
    
    2,603
    
    
    
    3,763Policyholders dividends
    
    
    12
    
    
    
    18
    
    
    
    57
    
    
    
    55Total insurance benefits paid or provided
    
    
    5,963
    
    
    
    5,932
    
    
    
    18,426
    
    
    
    17,813Commissions
    
    
    3,657
    
    
    
    3,608
    
    
    
    11,069
    
    
    
    10,931Other underwriting, acquisition and insurance
expenses
    
    
    3,529
    
    
    
    3,588
    
    
    
    10,964
    
    
    
    11,577Capitalization of deferred policy acquisition costs
    
    
    (1,569
    )
    
    
    (1,331
    )
    
    
    (4,665
    )
    
    
    (4,030
    )Amortization of deferred policy acquisition costs
    
    
    362
    
    
    
    546
    
    
    
    670
    
    
    
    1,038Amortization of cost of customer relationships
acquired and other intangibles
    
    
    487
    
    
    
    549
    
    
    
    1,474
    
    
    
    1,525Total benefits and expenses
    
    
    12,429
    
    
    
    12,892
    
    
    
    37,938
    
    
    
    38,854Income before income tax expense
    
    $
    1,270
    
    
    
    967
    
    
    
    4,518
    
    
    
    3,232
 Premiums
 Net Investment Income
 Realized Gains, Net
  34




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2010
 Claims
and Surrenders
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands)Death claims
    
    $
    3,990
    
    
    
    3,339
    
    
    $
    12,141
    
    
    
    10,967Surrender benefits
    
    
    649
    
    
    
    468
    
    
    
    1,780
    
    
    
    1,347Endowment benefits
    
    
    5
    
    
    
    9
    
    
    
    19
    
    
    
    19Property claims
    
    
    469
    
    
    
    514
    
    
    
    1,340
    
    
    
    1,264Accident and health benefits
    
    
    33
    
    
    
    36
    
    
    
    137
    
    
    
    130Other policy benefits
    
    
    95
    
    
    
    93
    
    
    
    349
    
    
    
    268Total claims and surrenders
    
    $
    5,241
    
    
    
    4,459
    
    
    $
    15,766
    
    
    
    13,995
 
    
    Death claims increased 19.5% and 10.7% for the three and nine months ended September 30,
2010 compared to the same periods in 2009. Mortality experience is closely monitored by
the Company as a key performance indicator and these amounts were within expected levels.
 
    
    Surrender benefits have increased in the three and nine months ended for the current
year compared to the same periods in 2009, which is believed to be the result of negative
economic issues impacting policyholders.
 Other Underwriting, Acquisition and Insurance Expenses
 Other Non-Insurance Enterprises
  Investments
   35




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2010
  September 30, 2010
    
    
    December 31, 2009Carrying
    
    
    % of Total
    
    
    Carrying
    
    
    % of TotalValue
    
    
    Carrying Value
    
    
    Value
    
    
    Carrying Value(In thousands)
    
    
    
    
    
    (In thousands)Fixed maturity securities:U.S. Treasury and U.S. Government-sponsored enterprises
    
    $
    397,164
    
    
    
    50.2
    %
    
    $
    399,626
    
    
    
    55.6
    %Corporate
    
    
    171,080
    
    
    
    21.6
    
    
    
    116,098
    
    
    
    16.1Municipal bonds
    
    
    62,125
    
    
    
    7.8
    
    
    
    57,192
    
    
    
    7.9Mortgage-backed (1)
    
    
    16,297
    
    
    
    2.1
    
    
    
    19,452
    
    
    
    2.7Foreign governments
    
    
    140
    
    
    
    
    
    
    
    120
    
    
    
    Total fixed maturity securities
    
    
    646,806
    
    
    
    81.7
    
    
    
    592,488
    
    
    
    82.3Cash and cash equivalents
    
    
    65,366
    
    
    
    8.2
    
    
    
    48,625
    
    
    
    6.8Short-term investments
    
    
    
    
    
    
    
    
    
    
    2,510
    
    
    
    0.3Policy loans
    
    
    34,970
    
    
    
    4.4
    
    
    
    32,096
    
    
    
    4.5Equity securities
    
    
    33,986
    
    
    
    4.3
    
    
    
    33,477
    
    
    
    4.6Mortgage loans
    
    
    1,501
    
    
    
    0.2
    
    
    
    1,533
    
    
    
    0.2Real estate and other long-term investments
    
    
    9,376
    
    
    
    1.2
    
    
    
    9,216
    
    
    
    1.3Total cash, cash equivalents and investments
    
    $
    792,005
    
    
    
    100.0
    %
    
    $
    719,945
    
    
    
    100.0
    %
 (1)
    
    Includes $14.5 million and $16.2 million of U.S. Government-sponsored
enterprises at September 30, 2010 and December 31, 2009, respectively.    36




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2010
  September 30, 2010
    
    
    December 31, 2009Carrying Value
    
    
    %
    
    
    Carrying Value
    
    
    %(In thousands)
    
    
    
    
    
    
    (In thousands)AAA and U.S. Government
    
    $
    481,307
    
    
    
    74.4
    %
    
    $
    442,160
    
    
    
    74.6
    %AA
    
    
    24,627
    
    
    
    3.8
    
    
    
    26,613
    
    
    
    4.5A
    
    
    70,671
    
    
    
    10.9
    
    
    
    69,934
    
    
    
    11.8BBB
    
    
    55,324
    
    
    
    8.6
    
    
    
    48,311
    
    
    
    8.2BB and other
    
    
    14,877
    
    
    
    2.3
    
    
    
    5,470
    
    
    
    0.9Totals
    
    $
    646,806
    
    
    
    100.0
    %
    
    $
    592,488
    
    
    
    100.0
    %
  Valuation of Investments
     37




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2010
 Liquidity and Capital Resources
         38




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2010
 Contractual Obligations and Off-balance Sheet Arrangements
  Parent Company Liquidity and Capital Resources
  Critical Accounting Policies
  Policy Liabilities
    Deferred Policy Acquisition Costs
   39




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2010
    Cost of Customer Relationships Acquired
   Goodwill
     40




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2010
 Valuation of Investments in Fixed Maturity and Equity Securities
      Premium Revenue and Related Expenses
    41




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2010
 Tax Accounting
  
 Item 3 . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 General
   September 30, 2010
    
    
    December 31, 2009Net
    
    
    
    
    
    
    
    
    
    
    NetUnrealized
    
    
    
    
    
    
    
    
    
    
    UnrealizedAmortized
    
    
    Fair
    
    
    Gains
    
    
    Amortized
    
    
    Fair
    
    
    GainsCost
    
    
    Value
    
    
    (Losses)
    
    
    Cost
    
    
    Value
    
    
    (Losses)(In thousands)Fixed maturities,
available-for-sale
    
    $
    501,649
    
    
    
    519,132
    
    
    
    17,483
    
    
    
    389,195
    
    
    
    385,579
    
    
    
    (3,616
    )Fixed maturities,
held-to-maturity
    
    
    127,674
    
    
    
    128,865
    
    
    
    1,191
    
    
    
    206,909
    
    
    
    199,676
    
    
    
    (7,233
    )Total fixed maturities
    
    $
    629,323
    
    
    
    647,997
    
    
    
    18,674
    
    
    
    596,104
    
    
    
    585,255
    
    
    
    (10,849
    )Total equity securities
    
    $
    25,619
    
    
    
    33,986
    
    
    
    8,367
    
    
    
    25,899
    
    
    
    33,477
    
    
    
    7,578
 Market Risk Related to Interest Rates
     42




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2010
   Market Risk Related to Equity Prices
  
 Item 4 . CONTROLS AND PROCEDURES
    
 PART II. OTHER INFORMATION
 
 Item 1 . LEGAL PROCEEDINGS
 Citizens Insurance Company of America, Citizens, Inc., Harold E. Riley and Mark A.
Oliver, Petitioners v. Fernando Hakim Daccach Respondent
  
    
    disputes over insurance coverage or claims adjudication;
 
    
    regulatory compliance with insurance and securities laws in the United States and in
foreign countries;
 
    
    disputes with our marketing firms, consultants and employee agents over compensation
and termination of
contracts and related claims;
 
    
    disputes regarding our tax liabilities;
 
    
    disputes relative to reinsurance and coinsurance agreements; and
 
    
    disputes relating to businesses acquired and operated by us.
  43




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2010
  
 Item 1A . RISK FACTORS
  Control of our Company, through the ownership of our Class B Common Stock, may one day be held by a
501(c)(3) charitable foundation and we cannot determine whether any change in our management or
operations will occur as a result of the ownership change.
  
 Item 2 . UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 None.
 
 Item 3 . DEFAULTS UPON SENIOR SECURITIES
  
 Item 4 . (RESERVED)
 
 Item 5 . OTHER INFORMATION
   44




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2010
 
 Item 6 . EXHIBITS
 Exhibit Number
    
    The following exhibits are filed herewith:3.1
    
    
    Restated and Amended Articles of Incorporation (a)3.2
    
    
    Bylaws (b)4.1
    
    
    Amendment to State Series A-1 and A-2 Senior Convertible Preferred Stock (c)10.1
    
    
    Self-Administered Automatic Reinsurance Agreement  Citizens Insurance Company of America and
Riunione Adriatica di Sicurta, S.p.A. (d)10.2
    
    
    Bulk Accidental Death Benefit Reinsurance Agreement between Connecticut General Life
Insurance Company and Citizens Insurance Company of America, as amended (e)10.3
    
    
    Coinsurance Reinsurance Agreement, Assumption Reinsurance Agreement, Administrative Services
Agreement dated March 9, 2004, between Citizens Insurance Company of America and Texas
International Life Insurance Company, Reinsurance Trust Agreement dated March 9, 2004, by and
among Citizens Insurance Company of America, Texas International Life Insurance Company and
Wells Fargo Bank, N.A. (f)10.4
    
    
    Coinsurance Reinsurance Agreement, Assumption Reinsurance Agreement, Administrative Services
Agreement dated March 9, 2004, between Combined Underwriters Life Insurance Company and Texas
International Life Insurance Company, Reinsurance Trust Agreement dated March 9, 2004, by and
among Combined Underwriters Life Insurance Company, Texas International Life Insurance Company
and Wells Fargo Bank, N.A. (g)10.5
    (a)
    
    Securities Purchase Agreement dated July 12, 2004 among Citizens, Inc., Mainfield
Enterprises, Inc., Steelhead Investments Ltd., Portside Growth and Opportunity Fund, and
Smithfield Fiduciary LLC (h)10.5
    (b)
    
    Registration Rights Agreement dated July 12, 2004 among Citizens, Inc., Mainfield
Enterprises, Inc., Steelhead Investments Ltd., Portside Growth and Opportunity Fund, and
Smithfield Fiduciary LLC (h)10.5
    (c)
    
    Unit Warrant dated July 12, 2004, to Mainfield Enterprises, Inc. (h)10.5
    (d)
    
    Unit Warrant dated July 12, 2004, to Steelhead Investments Ltd. (h)10.5
    (e)
    
    Unit Warrant dated July 12, 2004, to Portside Growth and Opportunity Fund (h)10.5
    (f)
    
    Unit Warrant dated July 12, 2004, to Smithfield Fiduciary LLC (h)10.5
    (g)
    
    Warrant to Purchase Class A Common Stock to Mainfield Enterprises, Inc. (h)10.5
    (h)
    
    Warrant to Purchase Class A Common Stock to Steelhead Investments Ltd. (h)10.5
    (i)
    
    Warrant to Purchase Class A Common Stock to Portside Growth and Opportunity Fund (h)10.5
    (j)
    
    Warrant to Purchase Class A Common Stock to Smithfield Fiduciary LLC (h)10.5
    (k)
    
    Subordination Agreement among Regions Bank, the Purchasers and Citizens, Inc. dated July 12, 2004 (h)10.5
    (l)
    
    Non-Exclusive Finders Agreement dated September 29, 2003, between Citizens, Inc. and the
Shemano Group, Inc. (h)10.6
    
    
    Self-Administered Automatic Reinsurance Agreement between Citizens Insurance Company of
America and Converium Reinsurance (Germany) Ltd. (i)10.7
    
    
    Self-Administered Automatic Reinsurance Agreement between Citizens Insurance Company of
America and Scottish Re Worldwide (England) (j)10.8
    
    
    Self-Administered Automatic Reinsurance Agreement  CICA Life Insurance Company of America
and Scor Global Life U.S. Re Insurance Company (k)
  45




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
September 30, 2010
 Exhibit Number
    
    The following exhibits are filed herewith:10.9
    
    
    Self-Administered Automatic Reinsurance Agreement  CICA Life Insurance Company of America
and Mapfre Re Compania de Reaseguros, S.A. (l)11
    
    
    Statement re: Computation of per share earnings (see financial statements)21
    
    
    Subsidiaries of the Registrant*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*99.1
    
    

News
Release reporting third quarter results issued on November 5,
2010 (furnished herewith).
 
 *
    
    Filed herewith.(a)
    
    Filed on March 15, 2004 with the Registrants Annual Report on Form 10-K for the
Year Ended December 31, 2003 as Exhibit 3.1, and incorporated herein by reference.(b)
    
    Filed on March 31, 1999 with the Registrants Annual Report on Form 10-K for the Year Ended
December 31, 1998, as Exhibit 3.2, and incorporated herein by reference.(c)
    
    Filed on July 15, 2004, with the Registrants Current Report on Form 8-K as Exhibit 4.1, and
incorporated herein by reference.(d)
    
    Filed as Exhibit 10.8 with the Registration Statement on Form S-4, SEC File No. 333-16163, on
November 14, 1996 and incorporated herein by reference.(e)
    
    Filed on April 9, 1997 as Exhibit 10.9 with the Registrants Annual Report on Form 10-K for
the Year Ended December 31, 1996, Amendment No. 1, and incorporated herein by reference.(f)
    
    Filed on March 22, 2004 as Exhibit 10.8 of the Registrants Current Report on Form 8-K, and
incorporated herein by reference.(g)
    
    Filed on March 22, 2004 as Exhibit 10.9 of the Registrants Current Report on Form 8-K, and
incorporated herein by reference.(h)
    
    Filed on July 15, 2004 as part of Exhibit 10.12 with the Registrants Current Report on Form
8-K, and incorporated herein by reference.(i)
    
    Filed on March 31, 2005, with the Registrants Annual Report on Form 10-K for the Year Ended
December 31, 2004, as Exhibit 10.10(m), and incorporated herein by reference.(j)
    
    Filed on March 31, 2005, with the Registrants Annual Report on Form 10-K for the Year Ended
December 31, 2004, as Exhibit 10.10(n), and incorporated herein by reference.(k)
    
    Filed on November 6, 2009, with the Registrants Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 2009, as Exhibit 10.8(k), and incorporated herein by reference.(l)
    
    Filed on November 6, 2009, with the Registrants Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 2009, as Exhibit 10.9(l), and incorporated herein by reference.  46




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SIGNATURES
 Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
 CITIZENS, INC.By:
    /s/ Harold E. RileyHarold E. RileyChairman and Chief Executive OfficerBy:
    /s/ Kay E. OsbournKay E. OsbournExecutive Vice President, Chief Financial Officer
and Treasurer   47