##### 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 June 30, 2009
 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 Yes o No
 o Yes o No
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o
 o Yes þ No




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TABLE OF CONTENTS
 PageNumberPart I. Financial InformationItem 1. Financial StatementsConsolidated Statements of Financial Position, June 30, 2009, (Unaudited) and December 31, 2008
    
    
    2Consolidated Statements of Operations, Three Months Ended June 30, 2009 and 2008 (Unaudited)
    
    
    4Consolidated Statements of Operations, Six Months Ended June 30, 2009 and 2008 (Unaudited)
    
    
    5Consolidated Statements of Cash Flows, Six Months Ended June 30, 2009 and 2008 (Unaudited)
    
    
    6Notes to Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    39Item 4. Controls and Procedures
    
    
    40Part II. Other InformationItem 1. Legal Proceedings
    
    
    40Item 1A. Risk Factors
    
    
    41Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    42Item 3. Defaults Upon Senior Securities
    
    
    42Item 4. Submission of Matters to a Vote of Security Holders
    
    
    42Item 5. Other Information
    
    
    42Item 6. Exhibits
    
    
    42Exhibit 21Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   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)
 June 30,
    
    
    December 31,2009
    
    
    2008(Unaudited)Investments:Fixed maturities available-for-sale, at fair value
(cost: $346,577 and $494,034 in 2009 and 2008,
respectively)
    
    $
    340,120
    
    
    
    485,155Fixed maturities held-to-maturity, at amortized cost
(fair value: $158,871 in 2009)
    
    
    161,241
    
    
    
    Equity securities available-for-sale, at fair value
(cost: $42,270 and $42,908 in 2009 and 2008, respectively)
    
    
    45,880
    
    
    
    43,000Mortgage loans on real estate
    
    
    704
    
    
    
    339Policy loans
    
    
    31,188
    
    
    
    28,955Real estate held for sale
    
    
    3,855
    
    
    
    4,156Real estate held for investment (less $329 and $283 accumulated
depreciation in 2009 and 2008, respectively)
    
    
    5,926
    
    
    
    4,717Other long-term investments
    
    
    120
    
    
    
    680Short-term investments
    
    
    2,583
    
    
    
    2,250Total investments
    
    
    591,617
    
    
    
    569,252Cash and cash equivalents
    
    
    95,090
    
    
    
    63,792Accrued investment income
    
    
    6,204
    
    
    
    7,423Reinsurance recoverable
    
    
    12,580
    
    
    
    13,241Deferred policy acquisition costs
    
    
    112,639
    
    
    
    109,114Cost of customer relationships acquired
    
    
    36,174
    
    
    
    33,805Goodwill
    
    
    16,809
    
    
    
    15,687Other intangible assets
    
    
    1,095
    
    
    
    1,073Federal income tax receivable
    
    
    500
    
    
    
    2,090Property and equipment, net
    
    
    6,191
    
    
    
    6,466Due premiums, net (less $1,554 and $2,217 allowance for doubtful
accounts in 2009 and 2008, respectively)
    
    
    8,517
    
    
    
    8,958Prepaid expenses
    
    
    1,811
    
    
    
    454Other assets
    
    
    1,253
    
    
    
    921Total assets
    
    $
    890,480
    
    
    
    832,276
    2




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Consolidated Statements of Financial Position, Continued
(In thousands, except share amounts)
 June 30,
    
    
    December 31,2009
    
    
    2008(Unaudited)Liabilities and Stockholders EquityLiabilities:Policy liabilities:Future policy benefit reserves:Life insurance
    
    $
    570,192
    
    
    
    547,621Annuities
    
    
    35,680
    
    
    
    34,025Accident and health
    
    
    6,966
    
    
    
    7,442Dividend accumulations
    
    
    5,492
    
    
    
    4,795Premiums paid in advance
    
    
    19,686
    
    
    
    18,566Policy claims payable
    
    
    9,929
    
    
    
    9,318Other policyholders funds
    
    
    8,113
    
    
    
    7,929Total policy liabilities
    
    
    656,058
    
    
    
    629,696Commissions payable
    
    
    1,832
    
    
    
    2,350Deferred Federal and state income tax
    
    
    3,452
    
    
    
    3,951Payable for securities in process of settlement
    
    
    15,000
    
    
    
    Warrants outstanding
    
    
    1,892
    
    
    
    4,973Other liabilities
    
    
    12,324
    
    
    
    12,052Total liabilities
    
    
    690,558
    
    
    
    653,022Commitments and contingencies (Note 8)Cumulative convertible preferred stock  Series A
(Series A-1  $1,000 stated value per share, 6,250 shares authorized, issued and outstanding in 2009
and 2008; Series A-2  $935 stated value per share, 5,000 shares authorized, 4,014 issued and
outstanding in 2009 and 2008)
    
    
    9,858
    
    
    
    7,713Stockholders Equity:Common stock:Class A, no par value, 100,000,000 shares authorized,
50,116,149 shares issued in 2009 and
48,781,753 shares issued in 2008, including
shares in treasury of 3,135,738 in 2009 and 2008
    
    
    246,845
    
    
    
    240,511Class B, no par value, 2,000,000 shares authorized, 1,001,714
shares issued and outstanding in 2009 and 2008
    
    
    3,184
    
    
    
    3,184Retained deficit
    
    
    (48,339
    )
    
    
    (55,432
    )Accumulated other comprehensive loss:Unrealized losses on securities, net of tax
    
    
    (615
    )
    
    
    (5,711
    )201,075
    
    
    
    182,552Treasury stock, at cost
    
    
    (11,011
    )
    
    
    (11,011
    )Total stockholders equity
    
    
    190,064
    
    
    
    171,541Total liabilities and stockholders equity
    
    $
    890,480
    
    
    
    832,276
   3




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 Consolidated Statements of Operations
Three Months Ended June 30,
(In thousands, except per share amounts)
(Unaudited)
 2009
    
    
    2008Revenues:Premiums:Life insurance
    
    $
    34,586
    
    
    
    33,491Accident and health insurance
    
    
    368
    
    
    
    410Property insurance
    
    
    1,161
    
    
    
    1,303Net investment income
    
    
    6,578
    
    
    
    7,480Realized gains, net
    
    
    1,520
    
    
    
    Decrease in fair value of warrants
    
    
    976
    
    
    
    312Other income
    
    
    240
    
    
    
    285Total revenues
    
    
    45,429
    
    
    
    43,281Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    14,953
    
    
    
    14,730Increase in future policy benefit reserves
    
    
    9,958
    
    
    
    7,733Policyholders dividends
    
    
    1,453
    
    
    
    1,577Total insurance benefits paid or provided
    
    
    26,364
    
    
    
    24,040Commissions
    
    
    8,992
    
    
    
    9,376Other underwriting, acquisition and insurance expenses
    
    
    7,808
    
    
    
    7,020Capitalization of deferred policy acquisition costs
    
    
    (5,894
    )
    
    
    (6,309
    )Amortization of deferred policy acquisition costs
    
    
    3,720
    
    
    
    4,106Amortization of cost of customer relationships
acquired and other intangibles
    
    
    818
    
    
    
    715Total benefits and expenses
    
    
    41,808
    
    
    
    38,948Income before Federal income tax
    
    
    3,621
    
    
    
    4,333Federal income tax expense
    
    
    905
    
    
    
    1,341Net income
    
    $
    2,716
    
    
    
    2,992Net income applicable to common stockholders
    
    $
    1,546
    
    
    
    2,493Per Share Amounts:Basic and diluted earnings per share of Class A common stock
    
    $
    0.03
    
    
    
    0.06Basic and diluted earnings per share of Class B common stock
    
    $
    0.02
    
    
    
    0.03
   4




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 Consolidated Statements of Operations
Six Months Ended June 30,
(In thousands, except per share amounts)
(Unaudited)
 2009
    
    
    2008Revenues:Premiums:Life insurance
    
    $
    67,269
    
    
    
    64,341Accident and health insurance
    
    
    764
    
    
    
    794Property insurance
    
    
    2,309
    
    
    
    2,739Net investment income
    
    
    14,320
    
    
    
    14,944Realized gains, net
    
    
    1,821
    
    
    
    16Decrease (increase) in fair value of warrants
    
    
    3,081
    
    
    
    (191
    )Other income
    
    
    523
    
    
    
    564Total revenues
    
    
    90,087
    
    
    
    83,207Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    29,760
    
    
    
    27,808Increase in future policy benefit reserves
    
    
    17,716
    
    
    
    14,730Policyholders dividends
    
    
    2,915
    
    
    
    2,954Total insurance benefits paid or provided
    
    
    50,391
    
    
    
    45,492Commissions
    
    
    17,027
    
    
    
    17,087Other underwriting, acquisition and insurance expenses
    
    
    15,117
    
    
    
    13,931Capitalization of deferred policy acquisition costs
    
    
    (10,951
    )
    
    
    (11,164
    )Amortization of deferred policy acquisition costs
    
    
    7,412
    
    
    
    7,668Amortization of cost of customer relationships
acquired and other intangibles
    
    
    1,684
    
    
    
    1,479Total benefits and expenses
    
    
    80,680
    
    
    
    74,493Income before Federal income tax
    
    
    9,407
    
    
    
    8,714Federal income tax expense
    
    
    2,314
    
    
    
    2,987Net income
    
    $
    7,093
    
    
    
    5,727Net income applicable to common stockholders
    
    $
    4,745
    
    
    
    4,716Per Share Amounts:Basic earnings per share of Class A common stock
    
    $
    0.10
    
    
    
    0.11Basic earnings per share of Class B common stock
    
    $
    0.05
    
    
    
    0.05Diluted earnings per share of Class A common stock
    
    $
    0.04
    
    
    
    0.11Diluted earnings per share of Class B common stock
    
    $
    0.02
    
    
    
    0.05
   5




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 Consolidated Statements of Cash Flows

Six Months Ended June 30,
(In thousands)
(Unaudited)
 2009
    
    
    2008Cash flows from operating activities:Net income
    
    $
    7,093
    
    
    
    5,727Adjustments to reconcile net income to net cash
provided by operating activities:Realized gains on sale of investments
and other assets
    
    
    (1,821
    )
    
    
    (16
    )Net deferred policy acquisition costs
    
    
    (3,539
    )
    
    
    (3,496
    )Amortization of cost of customer relationships
acquired and other intangibles
    
    
    1,684
    
    
    
    1,479Increase (decrease) in fair value of warrants
    
    
    (3,081
    )
    
    
    191Depreciation
    
    
    622
    
    
    
    534Amortization of premiums and discounts on
fixed maturities and short-term investments
    
    
    1,079
    
    
    
    48Deferred Federal income tax expense (benefit)
    
    
    (418
    )
    
    
    2,047Change in:Accrued investment income
    
    
    1,267
    
    
    
    51Reinsurance recoverable
    
    
    736
    
    
    
    1,131Due premiums and other receivables
    
    
    235
    
    
    
    10Future policy benefit reserves
    
    
    17,123
    
    
    
    13,923Other policyholders liabilities
    
    
    1,048
    
    
    
    4,558Federal income tax receivable (payable)
    
    
    1,600
    
    
    
    (11
    )Commissions payable and other liabilities
    
    
    (317
    )
    
    
    (346
    )Other, net
    
    
    (1,340
    )
    
    
    (1,419
    )Net cash provided by operating activities
    
    
    21,971
    
    
    
    24,411Cash flows from investing activities:Purchase of fixed maturities, held-to-maturity
    
    
    (161,279
    )
    
    
    Sale of fixed maturities, available-for-sale
    
    
    38,670
    
    
    
    Maturity and calls of fixed maturities, available-for-sale
    
    
    257,872
    
    
    
    108,685Purchase of fixed maturities, available-for-sale
    
    
    (133,554
    )
    
    
    (109,097
    )Sale of equity securities, available-for-sale
    
    
    1,175
    
    
    
    Purchase of equity securities, available-for-sale
    
    
    (326
    )
    
    
    (22,798
    )Principal payments on mortgage loans
    
    
    14
    
    
    
    18Mortgage loans funded
    
    
    (379
    )
    
    
    (115
    )Increase in policy loans
    
    
    (2,234
    )
    
    
    (1,049
    )Sale of other long-term investments and property
and equipment
    
    
    580
    
    
    
    179Purchase of other long-term investments and property and
equipment
    
    
    (1,725
    )
    
    
    (418
    )Maturity of short-term investments
    
    
    2,250
    
    
    
    18,000Purchase of short-term investments
    
    
    (2,605
    )
    
    
    Cash acquired in acquisition
    
    
    9,770
    
    
    
    Net cash provided by (used in) investing activities
    
    $
    8,229
    
    
    
    (6,595
    )
    6




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Consolidated Statements of Cash Flows, Continued
Six Months Ended June 30,
(In thousands)
(Unaudited)
 2009
    
    
    2008Cash flows from financing activities:Warrants exercised
    
    $
    69
    
    
    
    Annuity deposits
    
    
    2,735
    
    
    
    1,350Annuity withdrawals
    
    
    (1,706
    )
    
    
    (761
    )Net cash provided by financing activities
    
    
    1,098
    
    
    
    589Net increase in cash and cash equivalents
    
    
    31,298
    
    
    
    18,405Cash and cash equivalents at beginning of period
    
    
    63,792
    
    
    
    21,123Cash and cash equivalents at end of period
    
    $
    95,090
    
    
    
    39,528Supplemental disclosures of operating activities:Cash paid during the period for income taxes
    
    $
    1,125
    
    
    
    951
 Supplemental Disclosure 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
 June 30, 2009
 (Unaudited)
 (1)
    
    Financial Statements
       (2)
    
    Accounting Pronouncements
 Business Combinations Accounting and Reporting of Noncontrolling Interests in
Consolidated Financial Statements,
  8




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
June 30, 2009
(Unaudited)
  
    
    FSP Statement of Financial Accounting Standards, (SFAS) 157-4, Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly, provides
additional guidance on estimating fair value when the volume and level of activity for
an asset or liability have significantly decreased in relation to normal market
activity for the asset or liability. The FSP also provides additional guidance on
circumstances that may indicate that a transaction is not orderly. The Company
adopted this FSP as of June 30, 2009 with no significant change to the Companys
financial condition or results of operations.
    
    FSP SFAS 115-2 and SFAS 124-2, Recognition and Presentation of Other-Than-Temporary
Impairments, provides new guidance on the recognition and presentation of an OTTI and
requires additional disclosures. The Company adopted this FSP as of June 30, 2009 with
no significant change to the Companys financial condition or results of operations.
    
    FSP SFAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial
Instruments, an amendment of FASB 107, extends the disclosure requirements of FASB
107, Disclosures about Fair Value of Financial Instruments, to interim financial
statements of publicly traded companies. The Company adopted this FSP during the
second quarter of 2009 resulting in additional financial disclosures in Note 7.
 Fair Value Measurements ,
 Determination of the Useful Life of Intangible
Assets Goodwill and Other Intangible Assets
 Subsequent Events
   9




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
June 30, 2009
(Unaudited)
 (3)
    
    Segment Information
   Three Months Ended June 30, 2009Home
    
    
    OtherLife
    
    
    Service
    
    
    Non-InsuranceInsurance
    
    
    Insurance
    
    
    Enterprises
    
    
    Consolidated(In thousands)Revenues:Premiums
    
    $
    25,720
    
    
    
    10,395
    
    
    
    
    
    
    
    36,115Net investment income
    
    
    3,707
    
    
    
    2,868
    
    
    
    3
    
    
    
    6,578Realized gains, net
    
    
    358
    
    
    
    1,085
    
    
    
    77
    
    
    
    1,520Decrease in fair value of warrants
    
    
    
    
    
    
    
    
    
    
    976
    
    
    
    976Other income
    
    
    71
    
    
    
    46
    
    
    
    123
    
    
    
    240Total revenue
    
    
    29,856
    
    
    
    14,394
    
    
    
    1,179
    
    
    
    45,429Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    10,514
    
    
    
    4,439
    
    
    
    
    
    
    
    14,953Increase in future policy benefit reserves
    
    
    8,118
    
    
    
    1,840
    
    
    
    
    
    
    
    9,958Policyholders dividends
    
    
    1,435
    
    
    
    18
    
    
    
    
    
    
    
    1,453Total insurance benefits paid or provided
    
    
    20,067
    
    
    
    6,297
    
    
    
    
    
    
    
    26,364Commissions
    
    
    5,247
    
    
    
    3,745
    
    
    
    
    
    
    
    8,992Other underwriting, acquisition and insurance
expenses
    
    
    2,707
    
    
    
    4,035
    
    
    
    1,066
    
    
    
    7,808Capitalization of deferred policy acquisition costs
    
    
    (4,495
    )
    
    
    (1,399
    )
    
    
    
    
    
    
    (5,894
    )Amortization of deferred policy acquisition costs
    
    
    3,568
    
    
    
    152
    
    
    
    
    
    
    
    3,720Amortization of cost of customer relationships
acquired and other intangibles
    
    
    440
    
    
    
    378
    
    
    
    
    
    
    
    818Total benefits and expenses
    
    
    27,534
    
    
    
    13,208
    
    
    
    1,066
    
    
    
    41,808Income before Federal income tax
    
    $
    2,322
    
    
    
    1,186
    
    
    
    113
    
    
    
    3,621
  10




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
June 30, 2009
(Unaudited)
 Six Months Ended June 30, 2009Home
    
    
    OtherLife
    
    
    Service
    
    
    Non-InsuranceInsurance
    
    
    Insurance
    
    
    Enterprises
    
    
    Consolidated(In thousands)Revenues:Premiums
    
    $
    49,775
    
    
    
    20,567
    
    
    
    
    
    
    
    70,342Net investment income
    
    
    7,964
    
    
    
    6,270
    
    
    
    86
    
    
    
    14,320Realized gains, net
    
    
    418
    
    
    
    1,326
    
    
    
    77
    
    
    
    1,821Decrease in fair value of warrants
    
    
    
    
    
    
    
    
    
    
    3,081
    
    
    
    3,081Other income
    
    
    159
    
    
    
    64
    
    
    
    300
    
    
    
    523Total revenue
    
    
    58,316
    
    
    
    28,227
    
    
    
    3,544
    
    
    
    90,087Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    20,224
    
    
    
    9,536
    
    
    
    
    
    
    
    29,760Increase in future policy benefit reserves
    
    
    15,408
    
    
    
    2,308
    
    
    
    
    
    
    
    17,716Policyholders dividends
    
    
    2,878
    
    
    
    37
    
    
    
    
    
    
    
    2,915Total insurance benefits paid or provided
    
    
    38,510
    
    
    
    11,881
    
    
    
    
    
    
    
    50,391Commissions
    
    
    9,704
    
    
    
    7,323
    
    
    
    
    
    
    
    17,027Other underwriting, acquisition and insurance
expenses
    
    
    5,310
    
    
    
    7,989
    
    
    
    1,818
    
    
    
    15,117Capitalization of deferred policy acquisition costs
    
    
    (8,252
    )
    
    
    (2,699
    )
    
    
    
    
    
    
    (10,951
    )Amortization of deferred policy acquisition costs
    
    
    6,920
    
    
    
    492
    
    
    
    
    
    
    
    7,412Amortization of cost of customer relationships
acquired and other intangibles
    
    
    708
    
    
    
    976
    
    
    
    
    
    
    
    1,684Total benefits and expenses
    
    
    52,900
    
    
    
    25,962
    
    
    
    1,818
    
    
    
    80,680Income before Federal income tax
    
    $
    5,416
    
    
    
    2,265
    
    
    
    1,726
    
    
    
    9,407
  11




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
June 30, 2009
(Unaudited)
 Three Months Ended June 30, 2008Home
    
    
    OtherLife
    
    
    Service
    
    
    Non-InsuranceInsurance
    
    
    Insurance
    
    
    Enterprises
    
    
    Consolidated(In thousands)Revenues:Premiums
    
    $
    25,399
    
    
    
    9,805
    
    
    
    
    
    
    
    35,204Net investment income
    
    
    4,148
    
    
    
    3,099
    
    
    
    233
    
    
    
    7,480Realized gains (losses), net
    
    
    3
    
    
    
    (3
    )
    
    
    
    
    
    
    Decrease in fair value of warrants
    
    
    
    
    
    
    
    
    
    
    312
    
    
    
    312Other income
    
    
    82
    
    
    
    8
    
    
    
    195
    
    
    
    285Total revenue
    
    
    29,632
    
    
    
    12,909
    
    
    
    740
    
    
    
    43,281Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    9,187
    
    
    
    5,543
    
    
    
    
    
    
    
    14,730Increase in future policy benefit reserves
    
    
    8,615
    
    
    
    (882
    )
    
    
    
    
    
    
    7,733Policyholders dividends
    
    
    1,557
    
    
    
    20
    
    
    
    
    
    
    
    1,577Total insurance benefits paid or provided
    
    
    19,359
    
    
    
    4,681
    
    
    
    
    
    
    
    24,040Commissions
    
    
    5,679
    
    
    
    3,697
    
    
    
    
    
    
    
    9,376Other underwriting, acquisition and insurance
expenses
    
    
    2,731
    
    
    
    3,320
    
    
    
    969
    
    
    
    7,020Capitalization of deferred policy acquisition costs
    
    
    (4,934
    )
    
    
    (1,375
    )
    
    
    
    
    
    
    (6,309
    )Amortization of deferred policy acquisition costs
    
    
    3,134
    
    
    
    972
    
    
    
    
    
    
    
    4,106Amortization of cost of customer relationships
acquired and other intangibles
    
    
    239
    
    
    
    476
    
    
    
    
    
    
    
    715Total benefits and expenses
    
    
    26,208
    
    
    
    11,771
    
    
    
    969
    
    
    
    38,948Income (loss) before Federal income tax
    
    $
    3,424
    
    
    
    1,138
    
    
    
    (229
    )
    
    
    4,333
  12




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
June 30, 2009
(Unaudited)
 Six Months Ended June 30, 2008Home
    
    
    OtherLife
    
    
    Service
    
    
    Non-InsuranceInsurance
    
    
    Insurance
    
    
    Enterprises
    
    
    Consolidated(In thousands)Revenues:Premiums
    
    $
    47,950
    
    
    
    19,924
    
    
    
    
    
    
    
    67,874Net investment income
    
    
    8,210
    
    
    
    6,183
    
    
    
    551
    
    
    
    14,944Realized gains (losses), net
    
    
    3
    
    
    
    (5
    )
    
    
    18
    
    
    
    16Increase in fair value of warrants
    
    
    
    
    
    
    
    
    
    
    (191
    )
    
    
    (191
    )Other income
    
    
    156
    
    
    
    11
    
    
    
    397
    
    
    
    564Total revenue
    
    
    56,319
    
    
    
    26,113
    
    
    
    775
    
    
    
    83,207Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    17,818
    
    
    
    9,990
    
    
    
    
    
    
    
    27,808Increase in future policy benefit reserves
    
    
    15,095
    
    
    
    (365
    )
    
    
    
    
    
    
    14,730Policyholders dividends
    
    
    2,915
    
    
    
    39
    
    
    
    
    
    
    
    2,954Total insurance benefits paid or provided
    
    
    35,828
    
    
    
    9,664
    
    
    
    
    
    
    
    45,492Commissions
    
    
    9,930
    
    
    
    7,157
    
    
    
    
    
    
    
    17,087Other underwriting, acquisition and insurance
expenses
    
    
    5,207
    
    
    
    6,844
    
    
    
    1,880
    
    
    
    13,931Capitalization of deferred policy acquisition costs
    
    
    (8,491
    )
    
    
    (2,673
    )
    
    
    
    
    
    
    (11,164
    )Amortization of deferred policy acquisition costs
    
    
    6,538
    
    
    
    1,130
    
    
    
    
    
    
    
    7,668Amortization of cost of customer relationships
acquired and other intangibles
    
    
    521
    
    
    
    958
    
    
    
    
    
    
    
    1,479Total benefits and expenses
    
    
    49,533
    
    
    
    23,080
    
    
    
    1,880
    
    
    
    74,493Income (loss) before Federal income tax
    
    $
    6,786
    
    
    
    3,033
    
    
    
    (1,105
    )
    
    
    8,714
 (4)
    
    Total Comprehensive Income (Loss)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)
    
    
    (In thousands)Net income
    
    $
    2,716
    
    
    
    2,992
    
    
    
    7,093
    
    
    
    5,727Other comprehensive income (loss) net of
effects of deferred acquisition costs and taxes:Unrealized gains (losses) on available-for-sale
securities
    
    
    11,410
    
    
    
    (6,153
    )
    
    
    5,651
    
    
    
    (9,644
    )Tax benefit (expense)
    
    
    (1,160
    )
    
    
    2,154
    
    
    
    (555
    )
    
    
    3,376Other comprehensive income (loss)
    
    
    10,250
    
    
    
    (3,999
    )
    
    
    5,096
    
    
    
    (6,268
    )Total comprehensive income (loss)
    
    $
    12,966
    
    
    
    (1,007
    )
    
    
    12,189
    
    
    
    (541
    )
  13




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
June 30, 2009
(Unaudited)
 (5)
    
    Earnings per Share
  Three Months Ended June 30,2009
    
    
    2008(In thousands, except per share amounts)Basic and diluted earnings per share:Numerator:Net income
    
    $
    2,716
    
    
    
    2,992Less:Preferred stock dividend
    
    
    (98
    )
    
    
    (165
    )Accretion of deferred issuance costs and
discounts on preferred stock
    
    
    (1,072
    )
    
    
    (334
    )Net income available to common stockholders
    
    $
    1,546
    
    
    
    2,493Net income allocated to Class A common stock
    
    $
    1,530
    
    
    
    2,465Net income allocated to Class B common stock
    
    
    16
    
    
    
    28Net income available to common stockholders
    
    $
    1,546
    
    
    
    2,493Denominator:Weighted average shares of Class A outstanding 
basic and diluted
    
    
    46,964
    
    
    
    43,096Weighted average shares of Class B outstanding 
basic and diluted
    
    
    1,002
    
    
    
    1,002Total weighted average shares outstanding 
basic and diluted
    
    
    47,966
    
    
    
    44,098Basic and diluted earnings per share of Class A common stock
    
    $
    0.03
    
    
    
    0.06Basic and diluted earnings per share of Class B common stock
    
    $
    0.02
    
    
    
    0.03
  14




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
June 30, 2009
(Unaudited)
 Six Months Ended June 30,2009
    
    
    2008(In thousands, except per share amounts)Basic and diluted earnings per share:Numerator:Net income
    
    $
    7,093
    
    
    
    5,727Less:Preferred stock dividend
    
    
    (203
    )
    
    
    (343
    )Accretion of deferred issuance costs and
discounts on preferred stock
    
    
    (2,145
    )
    
    
    (668
    )Net income available to common stockholders
    
    $
    4,745
    
    
    
    4,716Net income allocated to Class A common stock
    
    $
    4,694
    
    
    
    4,662Net income allocated to Class B common stock
    
    
    51
    
    
    
    54Net income available to common stockholders
    
    $
    4,745
    
    
    
    4,716Denominator:Weighted average shares of Class A outstanding 
basic and diluted
    
    
    46,538
    
    
    
    43,083Weighted average shares of Class B outstanding 
basic and diluted
    
    
    1,002
    
    
    
    1,002Total weighted average shares outstanding 
basic and diluted
    
    
    47,540
    
    
    
    44,085Basic earnings per share of Class A common stock
    
    $
    0.10
    
    
    
    0.11Basic earnings per share of Class B common stock
    
    $
    0.05
    
    
    
    0.05Diluted earnings per share of Class A common stock
    
    $
    0.04
    
    
    
    0.11Diluted earnings per share of Class B common stock
    
    $
    0.02
    
    
    
    0.05
  (6)
    
    Investments
   15




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
June 30, 2009
(Unaudited)
  June 30, 2009Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(In thousands)Available-for-sale securities:U.S. Treasury securities
    
    $
    14,158
    
    
    
    1,587
    
    
    
    (7
    )
    
    
    15,738U.S. Government-sponsored
    
    
    125,671
    
    
    
    298
    
    
    
    (1,150
    )
    
    
    124,819Securities issued by states
    
    
    55,860
    
    
    
    91
    
    
    
    (4,451
    )
    
    
    51,500Securities issued by foreign governments
    
    
    105
    
    
    
    12
    
    
    
    
    
    
    
    117Public utilities
    
    
    19,590
    
    
    
    377
    
    
    
    (28
    )
    
    
    19,939Corporate
    
    
    107,394
    
    
    
    1,723
    
    
    
    (5,460
    )
    
    
    103,657Securities not due at a single maturity date
    
    
    23,799
    
    
    
    628
    
    
    
    (77
    )
    
    
    24,350Total available-for-sale securities
    
    
    346,577
    
    
    
    4,716
    
    
    
    (11,173
    )
    
    
    340,120Held-to-maturity securities:U.S. Government-sponsored
    
    
    161,241
    
    
    
    72
    
    
    
    (2,442
    )
    
    
    158,871Total fixed maturities
    
    $
    507,818
    
    
    
    4,788
    
    
    
    (13,615
    )
    
    
    498,991
 December 31, 2008Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(In thousands)Available-for-sale securities:U.S. Treasury securities
    
    $
    11,306
    
    
    
    3,113
    
    
    
    
    
    
    
    14,419U.S. Government-sponsored
    
    
    280,434
    
    
    
    1,128
    
    
    
    (500
    )
    
    
    281,062Securities issued by states
    
    
    64,152
    
    
    
    156
    
    
    
    (6,203
    )
    
    
    58,105Securities issued by foreign governments
    
    
    105
    
    
    
    29
    
    
    
    
    
    
    
    134Public utilities
    
    
    4,231
    
    
    
    22
    
    
    
    (100
    )
    
    
    4,153Corporate
    
    
    83,089
    
    
    
    1,112
    
    
    
    (8,826
    )
    
    
    75,375Securities not due at a single maturity date
    
    
    50,717
    
    
    
    1,564
    
    
    
    (374
    )
    
    
    51,907Total fixed maturities
    
    $
    494,034
    
    
    
    7,124
    
    
    
    (16,003
    )
    
    
    485,155
  16




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
June 30, 2009
(Unaudited)
  June 30, 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. Treasury securities
    
    $
    993
    
    
    
    (7
    )
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    993
    
    
    
    (7
    )
    
    
    1U.S. Government-sponsored
    
    
    77,601
    
    
    
    (1,095
    )
    
    
    121
    
    
    
    4,165
    
    
    
    (55
    )
    
    
    3
    
    
    
    81,766
    
    
    
    (1,150
    )
    
    
    124Security issued by states
    
    
    11,178
    
    
    
    (128
    )
    
    
    14
    
    
    
    32,438
    
    
    
    (4,323
    )
    
    
    37
    
    
    
    43,616
    
    
    
    (4,451
    )
    
    
    51Public utilities
    
    
    4,260
    
    
    
    (28
    )
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,260
    
    
    
    (28
    )
    
    
    3Corporate
    
    
    13,755
    
    
    
    (461
    )
    
    
    23
    
    
    
    39,408
    
    
    
    (4,999
    )
    
    
    23
    
    
    
    53,163
    
    
    
    (5,460
    )
    
    
    46Securities not due at a single
maturity date
    
    
    2,457
    
    
    
    (6
    )
    
    
    3
    
    
    
    2,777
    
    
    
    (71
    )
    
    
    13
    
    
    
    5,234
    
    
    
    (77
    )
    
    
    16Total available-for-sale
    
    
    110,244
    
    
    
    (1,725
    )
    
    
    165
    
    
    
    78,788
    
    
    
    (9,448
    )
    
    
    76
    
    
    
    189,032
    
    
    
    (11,173
    )
    
    
    241Held-to-maturity securities:U.S. Government-sponsored
    
    
    142,799
    
    
    
    (2,442
    )
    
    
    54
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    142,799
    
    
    
    (2,442
    )
    
    
    54Total fixed maturities
    
    $
    253,043
    
    
    
    (4,167
    )
    
    
    219
    
    
    
    78,788
    
    
    
    (9,448
    )
    
    
    76
    
    
    
    331,831
    
    
    
    (13,615
    )
    
    
    295
 December 31, 2008Less 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
    
    $
    18,680
    
    
    
    (265
    )
    
    
    14
    
    
    
    11,256
    
    
    
    (235
    )
    
    
    11
    
    
    
    29,936
    
    
    
    (500
    )
    
    
    25Security issued by states
    
    
    32,389
    
    
    
    (2,827
    )
    
    
    39
    
    
    
    21,492
    
    
    
    (3,376
    )
    
    
    23
    
    
    
    53,881
    
    
    
    (6,203
    )
    
    
    62Public utilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,915
    
    
    
    (100
    )
    
    
    1
    
    
    
    1,915
    
    
    
    (100
    )
    
    
    1Corporate
    
    
    20,509
    
    
    
    (2,170
    )
    
    
    51
    
    
    
    32,965
    
    
    
    (6,656
    )
    
    
    19
    
    
    
    53,474
    
    
    
    (8,826
    )
    
    
    70Securities not due at a
single
maturity date
    
    
    118
    
    
    
    (8
    )
    
    
    3
    
    
    
    11,629
    
    
    
    (366
    )
    
    
    24
    
    
    
    11,747
    
    
    
    (374
    )
    
    
    27Total fixed maturities
    
    $
    71,696
    
    
    
    (5,270
    )
    
    
    107
    
    
    
    79,257
    
    
    
    (10,733
    )
    
    
    78
    
    
    
    150,953
    
    
    
    (16,003
    )
    
    
    185
   17




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
June 30, 2009
(Unaudited)
  June 30, 2009Amortized
    
    
    FairCost
    
    
    Value(In thousands)Available-for-sale securities:Due in one year or less
    
    $
    11,223
    
    
    
    11,276Due after one year through five years
    
    
    63,456
    
    
    
    63,137Due after five years through ten years
    
    
    23,335
    
    
    
    23,037Due after ten years
    
    
    224,764
    
    
    
    218,321Total available-for-sale securities
    
    
    322,778
    
    
    
    315,771Held-to-maturity securities:Due after ten years
    
    
    161,241
    
    
    
    158,871Securities not due at a single maturity date
    
    
    23,799
    
    
    
    24,349Total fixed maturities
    
    $
    507,818
    
    
    
    498,991
   Six Months Ended June 30,2009
    
    
    2008(In thousands)Proceeds
    
    $
    38,670
    
    
    
    Gross realized gains
    
    $
    1,553
    
    
    
    Gross realized losses
    
    $
    
    
    
    
    
    Six Months Ended June 30,2009
    
    
    2008(In thousands)Proceeds
    
    $
    1,175
    
    
    
    Gross realized gains
    
    $
    219
    
    
    
    Gross realized losses
    
    $
    
    
    
    
    
  18




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
June 30, 2009
(Unaudited)
 (7)
    
    Fair Value Measurements
   
    
    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.
     June 30, 2009Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3(In thousands)Financial Assets:Fixed Maturities Available-for-Sale
    
    $
    340,120
    
    
    
    15,738
    
    
    
    323,778
    
    
    
    604Equity Securities Available-for-Sale
    
    
    45,880
    
    
    
    45,880
    
    
    
    
    
    
    
    Total Financial Assets
    
    $
    386,000
    
    
    
    61,618
    
    
    
    323,778
    
    
    
    604
  19




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
June 30, 2009
(Unaudited)
  June 30, 2009(In thousands)Beginning balance at December 31, 2008
    
    $
    654Total realized and unrealized losses:Included in net income
    
    
    Included in other comprehensive income
    
    
    (24
    )Principal paydowns
    
    
    (26
    )Transfer in and (out) of Level 3
    
    
    Ending balance at June 30, 2009
    
    $
    604
   Financial Instruments not Carried at Fair Value
  June 30, 2009
    
    
    December 31, 2008Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    Value(In thousands)
    
    
    (In thousands)Financial assets:Fixed maturities, held-to-maturity
    
    $
    161,241
    
    
    
    158,871
    
    
    
    
    
    
    
    Mortgage loans
    
    
    704
    
    
    
    642
    
    
    
    339
    
    
    
    370Policy loans
    
    
    31,188
    
    
    
    31,188
    
    
    
    28,955
    
    
    
    28,955Cash and cash equivalents
    
    
    95,090
    
    
    
    95,090
    
    
    
    63,792
    
    
    
    63,792Short-term investments
    
    
    2,583
    
    
    
    2,583
    
    
    
    2,250
    
    
    
    2,250Financial liabilities:Annuities
    
    
    35,680
    
    
    
    30,485
    
    
    
    34,025
    
    
    
    29,107
    20




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
June 30, 2009
(Unaudited)
    (8)
    
    Legal Proceedings
 Citizens Insurance Company of America, Citizens, Inc., Harold
E. Riley and Mark A. Oliver, Petitioners v. Fernando Hakim Daccach Respondent
 The State of
Louisiana v. AAA Insurance Road Home Litigation Road Home Litigation
  21




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
June 30, 2009
(Unaudited)
 Lilac Todd vs. Security
Plan Life Insurance Company
  
    
    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.
  (9)
    
    Convertible Preferred Stock
    22




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
June 30, 2009
(Unaudited)
   (10)
    
    Income Taxes
  (11)
    
    Subsequent Events
   23




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
June 30, 2009
 
 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,
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 conditions, including the performance of
financial markets and interest rates;
    
    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;
    
    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; and
    
    Our success at managing risks involved in the foregoing.
 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.
  24




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
June 30, 2009
 Overview
  
    
    U.S. Dollar-denominated ordinary whole life insurance policies predominantly to high net
worth, high income foreign residents, 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 to lower income
households in Louisiana and Arkansas through employee and independent agents in our home
service distribution channel.
 Life Insurance.
   Home Service Insurance.
   25




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
June 30, 2009
 Other Non-Insurance
 Marketplace Conditions and Trends
  
    
    The global recession may have an adverse impact on our insurance policy sales. We
anticipate new insurance policy sales will be at lower levels than we experienced during
2008 or until such time as the global economy recovers.
    
    As an increasing percentage of the world population reaches retirement age, we believe
we will benefit from increased demand for living products rather than death products, as
aging baby boomers will require cash accumulation to provide expenses to meet their
lifetime needs. Our ordinary life products are designed to accumulate cash values to
provide for living expenses in a policy owners later years, while continuously providing
a death benefit.
    
    We are exposed to a variety of risks, including the current market conditions as well
as the credit crisis, current recession and corresponding potential changes in the fair
value of our investments. In the normal course of business, we employ established
policies and procedures to manage our exposure to fluctuations in the current market and
changes in the fair value of our investments.
    
    Because of the trends described above, coupled with increasing costs of regulatory
compliance such as the Sarbanes-Oxley Act of 2002, we believe there is a trend toward
consolidation of domestic life insurance companies. We believe these trends should be a
benefit to our acquisition strategy as more complementary acquisition candidates may
become available for us to consider.
    
    Many of the events and trends affecting the life insurance industry have had an impact
on the life reinsurance industry. These events led to a decline in the availability of
reinsurance. While we currently cede a limited amount of our primary insurance business
to reinsurers, we may find it difficult to obtain reinsurance in the future, forcing us to
seek reinsurers who are more expensive to us. If we cannot obtain affordable reinsurance
coverage, either our net exposures will increase or we will have to reduce our
underwriting commitments. The Company is currently negotiating adding an additional
reinsurer during 2009 to diversify exposure in this area.
 Recent Acquisition
   26




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
June 30, 2009
 Consolidated Results of Operations
  Net IncomeNet Income
    
    
    Basic Earnings
    
    
    DecreaseThree Months Ended June 30,
    
    (in thousands)
    
    
    per Class A Share
    
    
    from Previous Year2009
    
    $
    2,716
    
    
    $
    0.03
    
    
    
    (9.2
    )%2008
    
    
    2,992
    
    
    
    0.06
    
    
    
    (15.2
    )
 Net IncomeNet Income
    
    
    Basic Earnings
    
    
    Increase (Decrease)Six Months Ended June 30,
    
    (in thousands)
    
    
    per Class A Share
    
    
    from Previous Year2009
    
    $
    7,093
    
    
    $
    0.10
    
    
    
    23.9
    %2008
    
    
    5,727
    
    
    
    0.11
    
    
    
    (0.4
    )
 Revenues
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Revenues:Premiums:Life insurance
    
    $
    34,586
    
    
    
    33,491
    
    
    
    67,269
    
    
    
    64,341Accident and health insurance
    
    
    368
    
    
    
    410
    
    
    
    764
    
    
    
    794Property insurance
    
    
    1,161
    
    
    
    1,303
    
    
    
    2,309
    
    
    
    2,739Net investment income
    
    
    6,578
    
    
    
    7,480
    
    
    
    14,320
    
    
    
    14,944Realized gains, net
    
    
    1,520
    
    
    
    
    
    
    
    1,821
    
    
    
    16Decrease (increase) in fair value of warrants
    
    
    976
    
    
    
    312
    
    
    
    3,081
    
    
    
    (191
    )Other income
    
    
    240
    
    
    
    285
    
    
    
    523
    
    
    
    564Total revenues
    
    
    45,429
    
    
    
    43,281
    
    
    
    90,087
    
    
    
    83,207Exclude increase (decrease) in fair value
of warrants
    
    
    (976
    )
    
    
    (312
    )
    
    
    (3,081
    )
    
    
    191Total revenues excluding fair value adjustments
    
    $
    44,453
    
    
    
    42,969
    
    
    
    87,006
    
    
    
    83,398
 Premium Income
 Net Investment Income
  27




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
June 30, 2009
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Gross investment income:Fixed maturity securities
    
    $
    5,613
    
    
    
    6,522
    
    
    
    12,130
    
    
    
    13,027Equity securities
    
    
    280
    
    
    
    210
    
    
    
    549
    
    
    
    299Mortgage loans
    
    
    7
    
    
    
    6
    
    
    
    13
    
    
    
    12Policy loans
    
    
    600
    
    
    
    501
    
    
    
    1,185
    
    
    
    994Real estate investments
    
    
    359
    
    
    
    215
    
    
    
    714
    
    
    
    429Other investment income
    
    
    124
    
    
    
    318
    
    
    
    521
    
    
    
    729Total investment income
    
    
    6,983
    
    
    
    7,772
    
    
    
    15,112
    
    
    
    15,490Less investment expenses
    
    
    405
    
    
    
    292
    
    
    
    792
    
    
    
    546Net investment income
    
    $
    6,578
    
    
    
    7,480
    
    
    
    14,320
    
    
    
    14,944
  Realized Gains, Net.
 Change in Fair Value of Warrants
 Benefits and Expenses:
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    $
    14,953
    
    
    
    14,730
    
    
    
    29,760
    
    
    
    27,808Increase in future policy benefit reserves
    
    
    9,958
    
    
    
    7,733
    
    
    
    17,716
    
    
    
    14,730Policyholders dividends
    
    
    1,453
    
    
    
    1,577
    
    
    
    2,915
    
    
    
    2,954Total insurance benefits paid or provided
    
    
    26,364
    
    
    
    24,040
    
    
    
    50,391
    
    
    
    45,492Commissions
    
    
    8,992
    
    
    
    9,376
    
    
    
    17,027
    
    
    
    17,087Other underwriting, acquisition and
insurance expense
    
    
    7,808
    
    
    
    7,020
    
    
    
    15,117
    
    
    
    13,931Capitalization of deferred policy acquisition costs
    
    
    (5,894
    )
    
    
    (6,309
    )
    
    
    (10,951
    )
    
    
    (11,164
    )Amortization of deferred policy acquisition costs
    
    
    3,720
    
    
    
    4,106
    
    
    
    7,412
    
    
    
    7,668Amortization of cost of customer relationships
acquired and other intangibles
    
    
    818
    
    
    
    715
    
    
    
    1,684
    
    
    
    1,479Total benefits and expenses
    
    $
    41,808
    
    
    
    38,948
    
    
    
    80,680
    
    
    
    74,493
  28




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
June 30, 2009
 Claims and Surrenders
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Death claims
    
    $
    5,647
    
    
    
    6,118
    
    
    
    11,782
    
    
    
    11,902Surrender benefits
    
    
    5,155
    
    
    
    3,735
    
    
    
    9,628
    
    
    
    7,177Endowments
    
    
    3,570
    
    
    
    3,664
    
    
    
    6,594
    
    
    
    6,794Property claims
    
    
    253
    
    
    
    677
    
    
    
    750
    
    
    
    1,048Accident and health benefits
    
    
    70
    
    
    
    90
    
    
    
    210
    
    
    
    160Other policy benefits
    
    
    258
    
    
    
    446
    
    
    
    796
    
    
    
    727Total claims and surrenders
    
    $
    14,953
    
    
    
    14,730
    
    
    
    29,760
    
    
    
    27,808
   Increase in Reserves
 Policyholders Dividends
 Commissions
 Other Underwriting, Acquisition and Insurance Expense
 Federal Income Tax
  29




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
June 30, 2009
 Segment Operations
  Home
    
    
    OtherLife
    
    
    Service
    
    
    Non-InsuranceInsurance
    
    
    Insurance
    
    
    Enterprises
    
    
    Total(In thousands)Income (loss) before Federal income tax:Three months ended:June 30, 2009
    
    $
    2,322
    
    
    
    1,186
    
    
    
    113
    
    
    
    3,621June 30, 2008
    
    
    3,424
    
    
    
    1,138
    
    
    
    (229
    )
    
    
    4,333Six months ended:June 30, 2009
    
    
    5,416
    
    
    
    2,265
    
    
    
    1,726
    
    
    
    9,407June 30, 2008
    
    
    6,786
    
    
    
    3,033
    
    
    
    (1,105
    )
    
    
    8,714
 Life Insurance
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)
    
    
    (In thousands)Revenue:Premiums
    
    $
    25,720
    
    
    
    25,399
    
    
    
    49,775
    
    
    
    47,950Net investment income
    
    
    3,707
    
    
    
    4,148
    
    
    
    7,964
    
    
    
    8,210Realized gains, net
    
    
    358
    
    
    
    3
    
    
    
    418
    
    
    
    3Other income
    
    
    71
    
    
    
    82
    
    
    
    159
    
    
    
    156Total revenue
    
    
    29,856
    
    
    
    29,632
    
    
    
    58,316
    
    
    
    56,319Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    10,514
    
    
    
    9,187
    
    
    
    20,224
    
    
    
    17,818Increase in future policy benefit reserves
    
    
    8,118
    
    
    
    8,615
    
    
    
    15,408
    
    
    
    15,095Policyholders dividends
    
    
    1,435
    
    
    
    1,557
    
    
    
    2,878
    
    
    
    2,915Total insurance benefits paid or provided
    
    
    20,067
    
    
    
    19,359
    
    
    
    38,510
    
    
    
    35,828Commissions
    
    
    5,247
    
    
    
    5,679
    
    
    
    9,704
    
    
    
    9,930Other underwriting, acquisition and insurance
expenses
    
    
    2,707
    
    
    
    2,731
    
    
    
    5,310
    
    
    
    5,207Capitalization of deferred policy acquisition costs
    
    
    (4,495
    )
    
    
    (4,934
    )
    
    
    (8,252
    )
    
    
    (8,491
    )Amortization of deferred policy acquisition costs
    
    
    3,568
    
    
    
    3,134
    
    
    
    6,920
    
    
    
    6,538Amortization of cost of customer relationships
acquired and other intangibles
    
    
    440
    
    
    
    239
    
    
    
    708
    
    
    
    521Total benefits and expenses
    
    
    27,534
    
    
    
    26,208
    
    
    
    52,900
    
    
    
    49,533Income before Federal income tax
    
    $
    2,322
    
    
    
    3,424
    
    
    
    5,416
    
    
    
    6,786
  30




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
June 30, 2009
 Premiums
 Net Investment Income
 Claims and Surrenders
 Commissions
 Home Service Insurance
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Revenue:Premiums
    
    $
    10,395
    
    
    
    9,805
    
    
    
    20,567
    
    
    
    19,924Net investment income
    
    
    2,868
    
    
    
    3,099
    
    
    
    6,270
    
    
    
    6,183Realized gains (losses), net
    
    
    1,085
    
    
    
    (3
    )
    
    
    1,326
    
    
    
    (5
    )Other income
    
    
    46
    
    
    
    8
    
    
    
    64
    
    
    
    11Total revenue
    
    
    14,394
    
    
    
    12,909
    
    
    
    28,227
    
    
    
    26,113Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    4,439
    
    
    
    5,544
    
    
    
    9,536
    
    
    
    9,990Increase (decrease) in future policy benefit reserves
    
    
    1,840
    
    
    
    (883
    )
    
    
    2,308
    
    
    
    (365
    )Policyholders dividends
    
    
    18
    
    
    
    20
    
    
    
    37
    
    
    
    39Total insurance benefits paid or provided
    
    
    6,297
    
    
    
    4,681
    
    
    
    11,881
    
    
    
    9,664Commissions
    
    
    3,745
    
    
    
    3,697
    
    
    
    7,323
    
    
    
    7,157Other underwriting, acquisition and insurance
expenses
    
    
    4,035
    
    
    
    3,320
    
    
    
    7,989
    
    
    
    6,844Capitalization of deferred policy acquisition costs
    
    
    (1,399
    )
    
    
    (1,375
    )
    
    
    (2,699
    )
    
    
    (2,673
    )Amortization of deferred policy acquisition costs
    
    
    152
    
    
    
    972
    
    
    
    492
    
    
    
    1,130Amortization of cost of customer relationships
acquired and other intangibles
    
    
    378
    
    
    
    476
    
    
    
    976
    
    
    
    958Total benefits and expenses
    
    
    13,208
    
    
    
    11,771
    
    
    
    25,962
    
    
    
    23,080Income before Federal income tax
    
    $
    1,186
    
    
    
    1,138
    
    
    
    2,265
    
    
    
    3,033
  31




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
June 30, 2009
 Premiums
 Net Investment Income
 Realized Gains (Losses), Net
 Claims and Surrenders
 Increase (Decrease) in Future Policy Benefit Reserves
 Other Underwriting, Acquisition and Insurance Expenses
 Other Non-Insurance Enterprises
  Investments
   32




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
June 30, 2009
  June 30, 2009
    
    
    December 31, 2008Carrying
    
    
    Percent
    
    
    Carrying
    
    
    PercentValue
    
    
    of Total
    
    
    Value
    
    
    of Total(In thousands)
    
    
    
    
    
    
    (In thousands)Fixed maturity securities:U.S. Government-sponsored corporations
and U.S. Government agencies (1)
    
    $
    301,798
    
    
    
    43.9
    %
    
    $
    295,481
    
    
    
    46.6
    %Corporate
    
    
    103,657
    
    
    
    15.1
    
    
    
    75,375
    
    
    
    11.8Municipal bonds
    
    
    51,500
    
    
    
    7.5
    
    
    
    58,105
    
    
    
    9.2Mortgage-backed (2)
    
    
    24,350
    
    
    
    3.6
    
    
    
    51,907
    
    
    
    8.2Public utilities
    
    
    19,939
    
    
    
    2.9
    
    
    
    4,153
    
    
    
    0.7Foreign governments
    
    
    117
    
    
    
    
    
    
    
    134
    
    
    
    Total fixed maturity securities
    
    
    501,361
    
    
    
    73.0
    
    
    
    485,155
    
    
    
    76.5Cash and cash equivalents
    
    
    95,090
    
    
    
    13.9
    
    
    
    63,792
    
    
    
    10.1Short-term investments
    
    
    2,583
    
    
    
    0.4
    
    
    
    2,250
    
    
    
    0.4Other investments:Policy loans
    
    
    31,188
    
    
    
    4.5
    
    
    
    28,955
    
    
    
    4.6Equity securities
    
    
    45,880
    
    
    
    6.7
    
    
    
    43,000
    
    
    
    6.8Mortgage loans
    
    
    704
    
    
    
    0.1
    
    
    
    339
    
    
    
    0.1Real estate and other long-term investments
    
    
    9,901
    
    
    
    1.4
    
    
    
    9,553
    
    
    
    1.5Total cash, cash equivalents and investments
    
    $
    686,707
    
    
    
    100.0
    %
    
    $
    633,044
    
    
    
    100.0
    %
 (1)
    
    Includes U.S. Treasury securities of $15,738,000 and $14,419,000 and U.S. Government agencies
and U.S. Government-sponsored corporations of $286,061,000 and $281,062,000 at June 30, 2009
and December 31, 2008, respectively.(2)
    
    Includes $20,351,000 and $46,371,000 of U.S. Government agencies and U.S.
Government-sponsored corporations at June 30, 2009 and December 31, 2008, respectively.    33




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
June 30, 2009
  June 30, 2009
    
    
    December 31, 2008Carrying
    
    
    
    
    
    
    CarryingValue
    
    
    %
    
    
    Value
    
    
    %(In thousands)
    
    
    
    
    
    
    (In thousands)AAA and U.S. Government
    
    $
    351,219
    
    
    
    70.1
    %
    
    $
    379,547
    
    
    
    78.2
    %AA
    
    
    24,995
    
    
    
    5.0
    
    
    
    37,263
    
    
    
    7.7A
    
    
    76,364
    
    
    
    15.2
    
    
    
    56,043
    
    
    
    11.6BBB
    
    
    44,051
    
    
    
    8.8
    
    
    
    7,217
    
    
    
    1.5BB and other
    
    
    4,732
    
    
    
    0.9
    
    
    
    5,085
    
    
    
    1.0Totals
    
    $
    501,361
    
    
    
    100.0
    %
    
    $
    485,155
    
    
    
    100.0
    %
  Other-Than-Temporary Impairment (OTTI) Review
  
    
    how much fair value has declined below amortized cost;
    
    how long the decline in fair value has existed;
    
    the financial condition of the issuer;
    
    contractual or estimated cash flows of the security;
    
    underlying supporting collateral;
    
    past events, current conditions and forecasts;
    
    significant rating agency changes on the issuer; and
    
    the Companys intent and ability to hold the fixed maturity security until maturity or
for a period of time sufficient to allow for full recovery in fair value.
   34




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
June 30, 2009
 Liquidity and Capital Resources
          35




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
June 30, 2009
  Contractual obligations and off-balance sheet arrangements
  Parent Company Liquidity and Capital Resources
  Critical Accounting Policies
  Policy Liabilities
    36




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
June 30, 2009
 Deferred Policy Acquisition Costs
     Cost of Customer Relationships Acquired
   Goodwill
 Goodwill and Other Intangible Assets
  37




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
June 30, 2009
     Valuation of Investments in Fixed Maturity and Equity Securities
      38




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
June 30, 2009
  Premium Revenue and Related Expenses
   Tax Accounting
  
 Item 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 General
  Market Risk Related to Interest Rates
   39




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
June 30, 2009
     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
  40




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
June 30, 2009
 The State of
Louisiana v. AAA Insurance Road Home Litigation Road Home Litigation
 Lilac Todd vs. Security Plan
Life Insurance Company
  
    
    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.
  
 Item 1A.
    
    Risk Factors
  Unexpected losses in future reporting periods may require us to adjust the valuation allowance
against our deferred tax assets.
   41




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
June 30, 2009
  
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3.
    
    Defaults Upon Senior Securities
  
 Item 4.
    
    Submission of Matters to a Vote of Security Holders
  
 Item 5.
    
    Other Information
  
 Item 6.
    
    Exhibits
 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)
  42




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
June 30, 2009
 Exhibit Number
    
    The following exhibits are filed herewith: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)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*
  43




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
June 30, 2009
 
 *
    
    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.  44




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##### Table of Contents



SIGNATURES
  CITIZENS, INC.By:
    /s/ Harold E. RileyHarold E. RileyChairman and Chief Executive OfficerBy:
    /s/ Kay E. OsbournKay E. OsbournVice President, Chief Financial Officer,
Principal Accounting Officer and Treasurer   45




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNo.
    
    Description21
    
    
    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*
  46